UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 2021
OR
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ______ to ______
Commission File No. 333-252262
(Exact Name of Registrant as Specified in Its Charter)
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(State or Other Jurisdiction of Incorporation or Organization)
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(I.R.S. Employer Identification No.)
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(Address of Principal Executive Offices) (Zip Code)
(516 ) 548-8500
(Registrant’s Telephone Number, Including Area Code)
Securities registered pursuant to Section 12(b) of the Act: None
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for
such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter)
during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes
☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the
definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
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Large accelerated filer ☐
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Accelerated filer ☐
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Smaller reporting company
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| Emerging growth company |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards
provided pursuant to Section 7(a)(2)(B) of the Securities Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
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Common Stock, $0.01 par value
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(Title of Class)
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(Outstanding as of February 7, 2022)
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HANOVER BANCORP, INC.
Form 10-Q
For the Quarterly Period Ended December 31, 2021
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Page
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PART I
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Item 1.
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Financial Statements
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3
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4
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5
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6
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7
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8
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Item 2.
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25
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Item 3.
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34
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Item 4.
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34
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PART II
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Item 1.
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34
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Item 1A.
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34
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Item 2.
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34
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Item 3.
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35
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Item 4.
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35
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Item 5.
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35
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Item 6.
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35
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36
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PART I
ITEM 1. – FINANCIAL STATEMENTS
HANOVER BANCORP, INC. AND SUBSIDIARY
(Dollars in thousands, except share amounts)
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December 31, 2021
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September 30, 2021
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(unaudited)
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ASSETS
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Cash and non-interest-bearing deposits due from banks
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$
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$
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Interest-bearing deposits due from banks
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Federal funds sold
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Total cash and cash equivalents
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Securities:
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Held to maturity (fair value of $
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Available for sale, at fair value
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Total securities
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Loans held for investment
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Allowance for loan losses
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(
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)
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(
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Loans held for investment, net
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Premises and equipment, net
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Accrued interest receivable
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Prepaid pension
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Stock in Federal Home Loan Bank, at cost
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Goodwill
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Other intangible assets
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Loan servicing rights
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| Deferred income taxes |
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Other assets
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TOTAL ASSETS
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$
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$
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LIABILITIES AND STOCKHOLDERS' EQUITY
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Deposits:
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Non-interest-bearing demand
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$
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$
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Savings, NOW and money market
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Time
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Total deposits
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Borrowings
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Subordinated debentures
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Accrued interest payable
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Other liabilities
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TOTAL LIABILITIES
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| COMMITMENTS AND CONTINGENT LIABILITIES | - |
- |
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STOCKHOLDERS' EQUITY
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Preferred stock (par value $
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Common stock (par value $
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Surplus
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Retained earnings
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Accumulated other comprehensive income, net of tax
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TOTAL STOCKHOLDERS' EQUITY
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TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY
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$
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$
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See accompanying notes to unaudited consolidated financial statements.
HANOVER BANCORP, INC. AND SUBSIDIARY
(Dollars in thousands, except per share amounts)
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Three Months Ended
December 31,
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2021
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2020
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INTEREST INCOME
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Loans
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$
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$
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Taxable securities
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Federal funds sold
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Other interest income
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Total interest income
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INTEREST EXPENSE
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Savings, NOW and money market deposits
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Time deposits
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Borrowings
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Total interest expense
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Net interest income
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Provision for loan losses
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Net interest income after provision for loan losses
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NON-INTEREST INCOME
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Loan servicing and fee income
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Service charges on deposit accounts
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Gain on sale of loans held-for-sale
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Other income
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Total non-interest income
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NON-INTEREST EXPENSE
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Salaries and employee benefits
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Occupancy and equipment
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Data processing
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Advertising and promotion
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Acquisition costs
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Professional fees
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Other expenses
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Total non-interest expense
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Income before income tax expense
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Income tax expense
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NET INCOME
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$
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$
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EARNINGS PER COMMON SHARE - BASIC
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$
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$
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EARNINGS PER COMMON SHARE - DILUTED
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$
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$
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See accompanying notes to unaudited consolidated financial statements.
HANOVER BANCORP, INC. AND SUBSIDIARY
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Three Months Ended
December 31,
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2021
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2020
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Net income
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$
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$
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Other comprehensive income, net of tax:
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Change in unrealized gain on securities available for sale arising during the period, net of tax of $
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Total other comprehensive income, net of tax
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Total comprehensive income, net of tax
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$
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$
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See accompanying notes to unaudited consolidated financial statements.
HANOVER BANCORP, INC. AND SUBSIDIARY
(Dollars in thousands, except share data)
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Three Months Ended December 31, 2021
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Common
Stock
(Shares)
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Common
Stock
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Surplus
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Retained
Earnings
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Accumulated
Other
Comprehensive
Income
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Total
Stockholders’
Equity
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Beginning balance as of October 1, 2021
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$
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$
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$
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$
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$
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Net income
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-
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Other comprehensive income, net of tax
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-
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Stock-based compensation
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(
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Issuance of common stock in lieu of directors’ fees
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Ending balance as of December 31, 2021
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$
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$
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$
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$
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$
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Three Months Ended December 31, 2020
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Common
Stock
(Shares)
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Common
Stock
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Surplus
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Retained
Earnings
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Accumulated
Other
Comprehensive
Income
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Total
Stockholders’
Equity
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Beginning balance as of October 1, 2020
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$
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$
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$
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$
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$
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Net income
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-
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Other comprehensive income, net of tax
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-
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Stock-based compensation
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Issuance of common stock
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Ending balance as of December 31, 2020
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$
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$
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$
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$
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$
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See accompanying notes to unaudited consolidated financial statements.
HANOVER BANCORP, INC. AND SUBSIDIARY
(Dollars in thousands)
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Three Months Ended December 31,
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2021
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2020
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Cash flows from operating activities:
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Net income
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$
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$
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Adjustments to reconcile net income to net cash provided by (used in) operating activities:
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Provision for loan losses
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Depreciation and amortization
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Originations of loans held for sale
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( |
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Proceeds from sales of loans held for sale
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Net gain on sale of loans
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(
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(
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Stock-based compensation
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Net accretion of premiums, discounts and loan fees and costs
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(
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)
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(
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Amortization of intangible assets
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Amortization of debt issuance costs
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Loan servicing rights valuation adjustments
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Deferred tax expense
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Decrease in accrued interest receivable
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Decrease (increase) in other assets
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(
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)
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Increase (decrease) in accrued interest payable
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(
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)
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Increase in other liabilities
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Net cash provided by (used in) operating activities
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(
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)
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Cash flows from investing activities:
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Purchases of securities available for sale
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(
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)
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Purchases of restricted securities
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(
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)
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Principal repayments of securities held to maturity
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Principal repayments of securities available for sale
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Redemptions of restricted securities
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Proceeds from sales of loans
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Net increase in loans
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(
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)
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(
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)
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Purchases of premises and equipment
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(
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)
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(
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)
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Net cash used in investing activities
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(
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)
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(
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Cash flows from financing activities:
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Net increase in deposits
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Advances of term FHLB borrowings
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Repayments of Federal Home Loan Bank advances
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(
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)
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(
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Repayments of Federal Reserve Bank borrowings
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(
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)
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(
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Proceeds from issuance of subordinated debentures, net of issuance costs
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Repayment of note payable
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(
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)
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Net proceeds from issuance of common stock
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Net cash provided by (used in) financing activities
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(
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)
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Net increase (decrease) in cash and cash equivalents
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(
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)
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Cash and cash equivalents, beginning of period
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Cash and cash equivalents, end of period
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$
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$
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Supplemental cash flow information:
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Interest paid
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$
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$
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Income taxes paid
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Supplemental non-cash disclosure:
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Transfers from portfolio loans to loans held-for-sale
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$
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$
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See accompanying notes to unaudited consolidated financial statements.
1. BASIS OF PRESENTATION, RISKS AND
UNCERTAINTIES, ACCOUNTING POLICIES AND RECENT ACCOUNTING DEVELOPMENTS
Hanover Bancorp, Inc. (the “Company”), is a New York
corporation which became the holding company for Hanover Community Bank (the “Bank”) in 2016. The Bank, headquartered in Mineola, New York, is a New York State chartered bank. The Bank commenced operations on November 4, 2008
and is a full-service bank providing personal and business lending and deposit services. As a New York State chartered, non-Federal Reserve member bank, the Bank is subject to regulation by the New York State Department of
Financial Services (“DFS”) and the Federal Deposit Insurance Corporation. The Company is subject to regulation and examination by the Board of Governors of the Federal Reserve System (the “FRB”).
Basis of Presentation
In
the opinion of the Company’s management, the preceding unaudited interim consolidated financial statements contain all adjustments, consisting of normal accruals, necessary for a fair presentation of the Company’s consolidated
statement of financial condition as of December 31, 2021, its consolidated statements of income for the three months ended December 31, 2021 and 2020, its consolidated statements of comprehensive income for the three months
ended December 31, 2021 and 2020, its consolidated statements of changes in stockholders’ equity for the three months ended December 31, 2021 and 2020 and its consolidated statements of cash flows for the three months ended
December 31, 2021 and 2020. Certain prior period amounts have been reclassified to conform to the current period presentation.
In
addition, the preceding unaudited interim consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim financial
information and with the instructions to Form 10-Q and Article 10 of Regulation S-X, as well as in accordance with predominant practices within the banking industry. They do not include all the information and footnotes required
by U.S. GAAP for complete financial statements. The preparation of the financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial
statements and the accompanying notes. Actual results could differ from those estimates. The results of operations for the three months ended December 31, 2021 are not necessarily indicative of the results of operations to be
expected for the remainder of the year. The unaudited consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in the Company’s Annual Report
on Form 10-K for the year ended September 30, 2021.
All material intercompany accounts and transactions have been
eliminated in consolidation. Unless the context otherwise requires, references herein to the Company include the Company and the Bank on a consolidated basis.
Risks and Uncertainties
In March 2020, the World Health Organization declared the
outbreak of COVID-19 a global pandemic. The COVID-19 pandemic has adversely affected local, national and global economic activity. Various actions taken to help mitigate the spread of COVID-19 included restrictions on travel,
quarantines and government-mandated closures of various businesses. The outbreak caused significant disruptions to the economy and disrupted banking and other financial activity in the areas in which the Company operates.
The Coronavirus Aid, Relief, and Economic Security Act (the
“CARES Act”) was enacted in March 2020 to, among other things, provide emergency assistance to individuals, families and businesses affected by the COVID-19 pandemic. The ongoing effects of the COVID-19 pandemic may materially
and adversely affect the Company’s financial condition and results of operations in future periods, and it is unknown what the complete financial impact will be to the Company. The extent of such impact will depend on future
developments, which are highly uncertain and cannot be predicted, including new information which may emerge concerning the coronavirus, the new “waves” of COVID-19 infections, the spread of new variants of the virus, and the
distribution of vaccines and vaccination rates, among others. It is possible that estimates made in the financial statements could be materially and adversely impacted due to these conditions.
Accounting Policies
Allowance for Loan Losses – The Company considers the
determination of the allowance for loan losses its most critical accounting policy, practice, and use of estimates. The Company uses available information to recognize probable and reasonably estimable losses on loans. Future
additions to the allowance may be necessary based upon changes in economic, market or other conditions. Changes in estimates could result in a material change in the allowance. The allowance for loan losses is increased by a
provision for loan losses charged against income and is decreased by charge-offs, net of recoveries. Loan losses are recognized in the period the loans, or portion thereof, are deemed uncollectible. The adequacy of the
allowance to cover any inherent loan losses in the portfolio is evaluated on a quarterly basis.
Loans and
Loan Interest Income Recognition - Loans that the Company has the intent and ability to hold for the foreseeable future or until maturity or payoff, are reported at the principal balance outstanding, net of
purchase premiums and discounts, deferred loan fees and costs and an allowance for loan losses. The loan portfolio is segmented into residential real estate, multi-family, commercial real estate, commercial and industrial,
construction and land development, and consumer loans.
Interest income on loans is accrued and credited to income as
earned. Net loan origination fees and costs are deferred and accreted/amortized to interest income over the loan’s contractual life using the level-yield method, adjusted for actual prepayments.
Loans that are acquired are initially recorded at fair value
with no carryover of the related allowance for loan losses. After acquisition, losses are recognized through the allowance for loan losses. Determining the fair value of the loans involves estimating the amount and timing of
expected principal and interest cash flows to be collected on the loans and discounting those cash flows at a market interest rate. At December 31, 2021 and September 30, 2021, the Company had loans totaling $5.5 million and $10.2
million, respectively, which at the time of acquisition, showed evidence of credit deterioration since origination.
Loans Held for Sale - Mortgage loans originated and
intended for sale in the secondary market are carried at the lower of aggregate cost or estimated fair value as determined by outstanding commitments from investors. Periodically, the Company originates various residential
mortgage loans for sale to investors generally on a servicing released basis. The sale of such loans is generally arranged through a master commitment on a best-efforts basis. Net unrealized losses, if any, are recorded as a
valuation allowance and charged to earnings. Premiums, discounts, origination fees and costs on loans held for sale are deferred and recognized as a component of the gain or loss on sale. Gains and losses on sales of loans
held for sale are included in other income, recognized on settlement date and are determined to be the difference between the sale proceeds and the carrying value of the loans. These transactions are accounted for as sales
based on satisfaction of the criteria for such accounting which provides that, as transferor, the Company has surrendered control of the loans.
For liquidity purposes generally, there are instances when
loans originated with the intent to hold in the portfolio are subsequently transferred to loans held for sale. At transfer, they are carried at the lower of cost or fair value.
Recent Accounting Developments
In June 2016, the FASB issued ASU 2016-13, Financial Instruments – Credit Losses (Topic 326), Measurement of Credit Losses on Financial Instruments. The amendments introduce an impairment model that is based on current expected credit
losses (“CECL”), rather than incurred losses, to estimate credit losses on certain types of financial instruments (i.e. loans and held to maturity securities), including certain off-balance sheet financial instruments (i.e.
commitments to extend credit and standby letters of credit that are not unconditionally cancellable). The CECL standard should consider historical information, current information, and reasonable and supportable forecasts,
including estimates of prepayments, over the contractual term. An entity must use judgment in determining the relevant information and estimation methods that are appropriate in its circumstances. Financial instruments with
similar risk characteristics may be grouped together when estimating credit losses. The allowance for credit losses for purchased financial assets with a more-than-insignificant amount of credit deterioration since origination
that are measured at amortized cost basis is determined in a similar manner to other financial assets measured at amortized cost basis; however, the initial estimate of expected credit loss would be recognized through an
allowance for credit losses with an offset (i.e. increase) to the purchase price at acquisition. Only subsequent changes in the allowance for credit losses are recorded as provision for loan losses for these assets. The ASU also
amends the current available for sale security impairment model for debt securities whereby credit losses relating to available for sale debt securities should be recorded through an allowance for credit losses. The amendments
will be applied through a modified retrospective approach, resulting in a cumulative-effect adjustment to retained earnings as of the beginning of the first reporting period in which the guidance is effective. As the Company is
a smaller-reporting company under SEC regulations, the Company will adopt CECL on October 1, 2023 and the future adoption of this ASU may have a material effect on the Company’s consolidated financial statements.
In February 2016, the Financial Accounting Standards Board
(“FASB”) issued ASU 2016-02, Leases. The amendments in this update primarily replace the existing accounting requirements for operating leases for lessees. Lessee accounting requirements for finance leases and lessor accounting
requirements for operating leases and sales type and direct financing leases (sales-type and direct financing leases were both previously referred to as capital leases) are largely unchanged. The amendments require the lessee of
an operating lease to record a balance sheet gross-up upon lease commencement by recognizing a right-of-use asset and lease liability equal to the present value of the lease payments. The right-of-use asset and lease liability
should be derecognized in a manner that effectively yields a straight-line lease expense over the lease term. In addition to the changes to the lessee operating lease accounting requirements, the amendments also change the types
of costs that can be capitalized related to a lease agreement for both lessees and lessors. The amendments also require additional disclosures for all lease types for both lessees and lessors. The FASB has subsequently issued
additional ASUs intended to clarify guidance, provide implementation support, and provide an additional transition election. The amendments are effective on October 1, 2022, with early adoption permitted. The amendments must be
applied on a modified retrospective basis, and we anticipate selecting the transition option that will allow us to record a cumulative adjustment as of the adoption date. We are assessing our current population of lease
contracts and upon adoption, our balance sheet will include a right-of-use asset and lease liability for our operating leases where we are the lessee, which primarily include our facilities leases. We do not anticipate the
adoption of these amendments will have a material impact to our consolidated financial statements. We plan to adopt these amendments on October 1, 2022 and expect to use the modified retrospective approach as currently required.
2. BUSINESS COMBINATIONS
On May 26, 2021, the Company completed its previously announced acquisition of Savoy Bank pursuant to an Agreement and Plan of
Merger (the “Merger Agreement”), dated as of August 27, 2020, as amended, between the Company, the Bank and Savoy. Pursuant to the Merger Agreement, Savoy was merged with and into the Bank, with the Bank surviving, in a two-step transaction
(collectively, the “Merger”).
The purchase price in the transaction was based upon the tangible book values of each of the Company and Savoy as of April 30,
2021 and calculated in accordance with the terms of the Merger Agreement. At the effective time of the Merger (the “Effective Time”), each share of Savoy common stock, $1.00 par value (“Savoy Common Stock”) was converted into the right to receive (i) $3.246 in cash and (ii)
0.141 shares of the Company’s common stock. The final aggregate purchase price was $65.5 million, or $6.49 per Savoy share.
A preliminary summary of the fair value of assets received and liabilities assumed are as follows:
|
(in thousands)
|
As Recorded
by Savoy
|
Fair Value
Adjustments
|
|
As Recorded
by Hanover
|
|||||||||
|
Assets
|
|
||||||||||||
|
Cash and due from banks
|
$
|
|
$
|
|
|
$
|
|
||||||
|
Investment securities available-for-sale
|
|
|
|
|
|||||||||
|
Loans held for sale
|
|
|
|
|
|||||||||
|
Loans held for investment
|
|
|
(a)
|
|
|||||||||
|
Premises and equipment, net
|
|
(
|
)
|
(b)
|
|
||||||||
|
Core deposit intangible
|
|
|
(c)
|
|
|||||||||
|
Accrued interest receivable
|
|
(
|
)
|
(d)
|
|
||||||||
|
Other assets
|
|
(
|
)
|
(e)
|
|
||||||||
|
Total assets acquired
|
$
|
|
$
|
|
|
|
|||||||
|
|
|
||||||||||||
|
Liabilities
|
|
||||||||||||
|
Deposits
|
$
|
|
$
|
|
(f)
|
|
|||||||
|
Borrowings
|
|
|
(g)
|
|
|||||||||
|
Accrued interest payable
|
|
|
|
|
|||||||||
|
Other liabilities and accrued expenses
|
|
(
|
)
|
(h)
|
|
||||||||
|
Total liabilities assumed
|
$
|
|
$
|
|
|
|
|||||||
|
|
|
||||||||||||
|
Net assets acquired
|
|
|
|||||||||||
|
Total consideration
|
|
|
|||||||||||
|
Goodwill
|
|
$
|
|
||||||||||
| (a) |
|
| (b) |
|
| (c) |
|
| (d) |
|
| (e) |
|
| (f) |
|
| (g) |
|
| (h) |
|
A summary of total consideration paid is as follows:
|
(in thousands, except share data)
|
||||
|
Common stock issued (
|
$
|
|
||
|
Cash payments to common shareholders
|
|
|||
|
Total consideration paid
|
$
|
|
||
With the Savoy
acquisition, the Company significantly expanded its commercial banking and Small Business Administration (“SBA”) lending capabilities. None
of the goodwill associated with this acquisition is deductible for income tax purposes. All goodwill related to this acquisition was allocated to the Company’s only reporting unit, which is the Company as a whole.
The estimated fair
values are subject to refinement for up to one year after the closing date of the acquisition as additional information regarding
closing date fair value becomes available. During this one-year period, the causes of any changes in cash flow estimates are
considered to determine whether the change results from circumstances that existed at the acquisition date or if the change results from an event that occurred after the acquisition date.
The Company has
determined the above noted acquisition constitutes a business combination as defined by ASC Topic 805, which establishes principles and requirements for how the acquirer of a business recognizes and measures in its financial statements the
identifiable assets acquired and the liabilities assumed. The Company has recorded the assets purchased and liabilities assumed at their estimated fair value in accordance with ASC Topic 805.
The following is a summary of the loans accounted for in accordance with ASC 310-30 that were acquired in the Savoy acquisition
as of the merger date:
|
(in thousands)
|
|
|||
|
Contractually required principal and interest at acquisition
|
$
|
|
||
|
Contractual cash flows not expected to be collected (non-accretable discount)
|
( |
) | ||
|
Expected cash flows at acquisition
|
|
|||
|
Interest component of expected cash flows (accretable discount)
|
(
|
)
|
||
|
Fair value of acquired purchased credit impaired loans
|
$
|
|
||
3. EARNINGS PER COMMON SHARE
Basic earnings per common share is computed based on the weighted-average number of
shares outstanding. Diluted earnings per common share includes the dilutive effect of additional potential common shares issuable under stock options. For periods in which a loss is reported, the impact of stock options is not considered as the
result would be antidilutive.
The computation of earnings per common share for the three months ended December 31,
2021 and 2020 follows. There were no
|
Three Months Ended December 31,
|
||||||||
|
2021
|
2020
|
|||||||
| (in
thousands, except share and per share data) |
||||||||
|
Basic earnings per common share
|
||||||||
|
Net income
|
$
|
|
$
|
|
||||
|
Weighted average common shares outstanding
|
|
|
||||||
|
Basic earnings per common share
|
$
|
|
$
|
|
||||
|
Diluted earnings per common share
|
||||||||
|
Net income
|
$
|
|
$
|
|
||||
|
Weighted average common shares outstanding for basic
earnings per common share
|
|
|
||||||
|
Add: dilutive effects of assumed exercises of stock
options
|
|
|
||||||
|
Average shares and dilutive potential common shares
|
|
|
||||||
|
Diluted earnings per common share
|
$
|
|
$
|
|
||||
4. SECURITIES
At the time of purchase of a security, the Company designates
the security as either available for sale or held to maturity, depending upon investment objectives, liquidity needs and intent.
The following table summarizes the amortized cost and fair
value of securities available for sale and securities held to maturity at December 31, 2021 and September 30, 2021 and the corresponding amounts of gross unrealized gains and losses recognized in accumulated other comprehensive
income:
|
December 31, 2021
|
||||||||||||||||
|
(in thousands)
|
Amortized
Cost
|
Gross
Unrealized
Gains
|
Gross
Unrealized
Losses
|
Fair
Value
|
||||||||||||
|
Available for sale:
|
||||||||||||||||
|
U.S. GSE residential mortgage-backed securities
|
$
|
|
$
|
|
$
|
(
|
)
|
$
|
|
|||||||
|
Corporate bonds
|
|
|
|
|
||||||||||||
|
Total available for sale securities
|
$
|
|
$
|
|
$
|
(
|
)
|
$
|
|
|||||||
|
Held to maturity:
|
||||||||||||||||
|
U.S. GSE residential mortgage-backed securities
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||
|
U.S. GSE commercial mortgage-backed securities
|
|
|
|
|
||||||||||||
|
Total held to maturity securities
|
|
|
|
|
||||||||||||
|
Total investment securities
|
$
|
|
$
|
|
$
|
(
|
)
|
$
|
|
|||||||
|
September 30, 2021
|
||||||||||||||||
|
(in thousands)
|
Amortized
Cost
|
Gross
Unrealized
Gains
|
Gross
Unrealized
Losses
|
Fair
Value
|
||||||||||||
|
Available for sale:
|
||||||||||||||||
|
U.S. GSE residential mortgage-backed securities
|
$
|
|
$
|
|
$
|
(
|
)
|
$
|
|
|||||||
|
Corporate bonds
|
|
|
|
|
||||||||||||
|
Total available for sale securities
|
$
|
|
$
|
|
$
|
(
|
)
|
$
|
|
|||||||
|
Held to maturity:
|
||||||||||||||||
|
U.S. GSE residential mortgage-backed securities
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||
|
U.S. GSE commercial mortgage-backed securities
|
|
|
|
|
||||||||||||
|
Corporate bonds
|
|
|
(
|
)
|
|
|||||||||||
|
Total held to maturity securities
|
|
|
(
|
)
|
|
|||||||||||
|
Total investment securities
|
$
|
|
$
|
|
$
|
(
|
)
|
$
|
|
|||||||
All of the Company’s securities with gross unrealized losses
at December 31, 2021 and September 30, 2021 had been in a continuous loss position for less than twelve months and such unrealized losses totaling $2 thousand and $5 thousand, respectively are immaterial to
the Company’s consolidated financial statements. At December 31, 2021 and September 30, 2021, investment securities carried at $4.8
million and $5.1 million, respectively, were pledged to secure public deposits and for other purposes required or
permitted by law.
The amortized cost and fair value of the Company’s securities
portfolio at December 31, 2021 are presented by contractual maturity in the table below. The expected life of mortgage-backed securities will differ from contractual maturities because borrowers may have the right to call or
prepay the underlying mortgage loans with or without call or prepayment penalties.
|
December 31, 2021
|
||||||||
| (in thousands) |
Amortized
Cost
|
Fair
Value
|
||||||
|
Securities
available for sale:
|
||||||||
|
Five to ten years
|
$
|
|
$
|
|
||||
|
U.S. GSE residential
mortgage-backed securities
|
|
|
||||||
|
Total
securities available for sale
|
|
|
||||||
|
Securities held
to maturity:
|
||||||||
|
One to five years
|
|
|
||||||
|
Five to ten years
|
|
|
||||||
|
U.S. GSE residential
mortgage-backed securities
|
|
|
||||||
|
U.S. GSE commercial
mortgage-backed securities
|
|
|
||||||
|
Total
securities held to maturity
|
|
|
||||||
|
Total
investment securities
|
$
|
|
$
|
|
||||
There were no
5. LOANS
The following table sets forth the classification of the
Company’s loans by loan portfolio segment for the periods presented.
|
December 31, 2021
|
September 30, 2021
|
|||||||
|
(in
thousands)
|
||||||||
|
Residential real estate
|
$
|
|
$
|
|
||||
|
Multi-family
|
|
|
||||||
|
Commercial real estate
|
|
|
||||||
|
Commercial and industrial
|
|
|
||||||
|
Construction and land
development
|
|
|
||||||
|
Consumer
|
|
|
||||||
|
Gross loans
|
|
|
||||||
|
Net deferred costs (fees)
|
|
|
||||||
|
Total loans
|
|
|
||||||
|
Allowance for loan losses
|
(
|
)
|
(
|
)
|
||||
|
Total
loans, net
|
$
|
|
$
|
|
||||
The Company is a participant in the Paycheck Protection
Program (“PPP”), administered by the Small Business Administration under the CARES Act, to provide guaranteed loans to qualifying businesses and organizations. These loans carry a fixed rate of 1.00 % and a term of two years
(loans made before June 5, 2020, subject to extension to five years with the consent of the lender) or five years (loans made on or after June 5, 2020), if not forgiven, in whole or in part. As of December 31, 2021, borrowers had
applied for and received forgiveness on $293.2 million in PPP loans. The Company’s PPP loans outstanding, included
in commercial and industrial loans in the table above, totaled $72.9 million and $140.4 million at December 31, 2021 and September 30, 2021, respectively.
At December 31, 2021 and September 30, 2021, the Company was
servicing approximately $241.2 million and $233.2 million, respectively, of loans for others. The Company had no
Purchased Credit Impaired Loans
The Company has purchased loans, for which there was, at
acquisition, evidence of deterioration of credit quality since origination and it was probable, at acquisition, that all contractually required payments would not be collected. The carrying amount for those loans is as
follows:
|
December 31,
2021
|
||||
|
(in thousands)
|
||||
|
Commercial real estate
|
$
|
|
||
|
Commercial and industrial
|
|
|||
|
Total recorded investment
|
$
|
|
||
The Company has not recorded an allowance for loan losses
related to these loans at December 31, 2021.
The following table presents a summary of changes in
accretable difference on purchased loans accounted for under ASC 310-30:
|
(in thousands)
|
Three Months
Ended
December 31,
2021
|
|||
|
Balance at beginning of period
|
$
|
|
||
|
Accretable differences
acquired
|
|
|||
|
Accretion
|
(
|
)
|
||
|
Adjustments to accretable
difference due to changes in expected cash flows
|
|
|||
|
Other changes, net
|
|
|||
|
Ending balance
|
$
|
|
||
For the three months ended December 31, 2021
and 2020, the Company sold loans totaling approximately $35.2 million and $8.4 million, respectively, recognizing net gains of $1.5 million and $181 thousand,
respectively.
The following summarizes the activity in the allowance
for loan losses by portfolio segment for the periods indicated:
|
Three Months Ended December
31, 2021
|
||||||||||||||||||||||||||||
|
Residential
Real Estate
Loans
|
Multi-
Family
Loans
|
Commercial
Real Estate
Loans
|
Commercial
and
Industrial
Loans |
Construction
and Land
Development
Loans
|
Consumer
Loans
|
Total
|
||||||||||||||||||||||
|
(in thousands)
|
||||||||||||||||||||||||||||
|
Allowance
for loan losses:
|
||||||||||||||||||||||||||||
|
Beginning
Balance
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||||||||
|
Charge-offs
|
|
(
|
)
|
|
|
|
|
(
|
)
|
|||||||||||||||||||
|
Recoveries
|
|
|
|
|
|
|
|
|||||||||||||||||||||
|
Provision
(credit) for
|
||||||||||||||||||||||||||||
|
loan
losses
|
(
|
)
|
|
|
|
|
|
|
||||||||||||||||||||
|
Ending
Balance
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||||||||
|
Three Months Ended December 31, 2020
|
||||||||||||||||||||||||||||
|
Residential
Real Estate
Loans |
Multi-
Family
Loans
|
Commercial
Real Estate
Loans
|
Commercial
and
Industrial
Loans
|
Construction
and Land
Development
Loans
|
Consumer
Loans
|
Total
|
||||||||||||||||||||||
|
(in
thousands)
|
||||||||||||||||||||||||||||
|
Allowance
for loan losses:
|
||||||||||||||||||||||||||||
|
Beginning
Balance
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||||||||
|
Charge-offs
|
|
|
|
|
|
|
|
|||||||||||||||||||||
|
Recoveries
|
|
|
|
|
|
|
|
|||||||||||||||||||||
|
Provision
(credit) for
|
||||||||||||||||||||||||||||
|
loan
losses
|
(
|
)
|
|
|
(
|
)
|
|
|
|
|||||||||||||||||||
|
Ending
Balance
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||||||||
The following table represents the balance in the
allowance for loan losses and the recorded investment in loans by portfolio segment based on impairment evaluation method. The recorded investment in loans excludes accrued interest receivable due to immateriality.
|
December 31, 2021
|
||||||||||||||||||||||||||||
|
(in
thousands)
|
Residential
Real Estate
|
Multi-
Family
|
Commercial
Real Estate
|
Commercial
and
Industrial
|
Construction
and Land
Development
|
Consumer
|
Total
|
|||||||||||||||||||||
|
Allowance for loan losses:
|
||||||||||||||||||||||||||||
|
Individually
evaluated for impairment
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||||||||
|
Collectively
evaluated for impairment
|
|
|
|
|
|
|
|
|||||||||||||||||||||
|
Purchased-credit
impaired
|
|
|
|
|
|
|
|
|||||||||||||||||||||
|
Total
allowance for loan losses
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||||||||
|
Loans:
|
||||||||||||||||||||||||||||
|
Individually
evaluated for impairment
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||||||||
|
Collectively
evaluated for impairment
|
|
|
|
|
|
|
|
|||||||||||||||||||||
|
Purchased-credit
impaired
|
|
|
|
|
|
|
|
|||||||||||||||||||||
|
Total
loans held for investment
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||||||||
|
September 30, 2021
|
||||||||||||||||||||||||||||
|
(in
thousands)
|
Residential
Real Estate
|
Multi-
Family
|
Commercial
Real Estate
|
Commercial
and
Industrial
|
Construction
and Land
Development
|
Consumer
|
Total
|
|||||||||||||||||||||
|
Allowance for loan losses:
|
||||||||||||||||||||||||||||
|
Individually
evaluated for impairment
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||||||||
|
Collectively
evaluated for impairment
|
|
|
|
|
|
|
|
|||||||||||||||||||||
|
Purchased-credit
impaired
|
|
|
|
|
|
|
|
|||||||||||||||||||||
|
Total
allowance for loan losses
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||||||||
|
Loans:
|
||||||||||||||||||||||||||||
|
Individually
evaluated for impairment
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||||||||
|
Collectively
evaluated for impairment
|
|
|
|
|
|
|
|
|||||||||||||||||||||
|
Purchased-credit
impaired
|
|
|
|
|
|
|
|
|||||||||||||||||||||
|
Total
loans held for investment
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||||||||
No allowance was recorded on purchased credit impaired loans.
The following presents information related to the Company’s impaired loans by
portfolio segment for the periods shown.
|
December 31, 2021
|
September 30, 2021
|
|||||||||||||||||||||||
|
(in thousands)
|
Unpaid
Principal
Balance
|
Recorded
Investment
|
Allowance
Allocated
|
Unpaid
Principal
Balance
|
Recorded
Investment
|
Allowance
Allocated
|
||||||||||||||||||
|
With no
related allowance recorded:
|
||||||||||||||||||||||||
|
Residential real estate
|
$
|
|
$
|
|
$
|
-
|
$
|
|
$
|
|
$
|
-
|
||||||||||||
|
Multi-family
|
|
|
-
|
|
|
-
|
||||||||||||||||||
|
Commercial real estate
|
|
|
-
|
|
|
-
|
||||||||||||||||||
|
Commercial and industrial
|
|
|
-
|
|
|
-
|
||||||||||||||||||
|
Total
|
$
|
|
$
|
|
$
|
-
|
$
|
|
$
|
|
$
|
-
|
||||||||||||
|
Three Months Ended December 31,
|
||||||||||||||||
|
2021
|
2020
|
|||||||||||||||
|
(in thousands)
|
Average
Recorded
Investment
|
Interest
Income
Recognized (1)
|
Average
Recorded
Investment
|
Interest
Income
Recognized (1)
|
||||||||||||
|
Residential real estate
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||
|
Multi-family
|
|
|
|
|
||||||||||||
|
Commercial real estate
|
|
|
|
|
||||||||||||
|
Commercial and industrial
|
|
|
|
|
||||||||||||
|
Total
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||
(1) Accrual basis interest income recognized approximates cash basis income.
At December 31, 2021 and September 30, 2021, past due and
non-accrual loans disaggregated by portfolio segment were as follows:
|
(in thousands)
|
Past Due and Non-Accrual
|
||||||||||||||||||||||||||||||||||
|
December
31, 2021
|
30 - 59 days
past due and
accruing
|
60 - 89 days
past due and
accruing
|
Greater than
89 days past
due and
accruing
|
Non-accrual
|
Total past
due and non-
accrual
|
Purchased
credit
impaired
|
Current
|
Total
|
|||||||||||||||||||||||||||
|
Residential real estate
|
$
|
|
$
|
|
$
|
|
$
|
|
(1
|
)
|
$
|
|
$
|
|
$
|
|
$
|
|
|||||||||||||||||
|
Multi-family
|
|
|
|
|
(2
|
)
|
|
|
|
|
|||||||||||||||||||||||||
|
Commercial real estate
|
|
|
|
|
(3
|
)
|
|
|
|
|
|||||||||||||||||||||||||
|
Commercial and industrial
|
|
|
|
|
(4
|
)
|
|
|
|
|
|||||||||||||||||||||||||
|
Construction and land
development
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||||||
|
Consumer
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||||||
|
Total
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
|||||||||||||||||||
(1) Of the residential real estate non-accrual loans, $296
were 31 days past due, $996 were 61 days past due and $3,388 were greater than 89 days past due.
(2) Multi-family non-accrual loans at December 31, 2021 were greater than 89 days past due.
(3) Commercial real estate non-accrual loans at December 31, 2021 were greater than 89 days past due.
(4) Commercial and industrial non-accrual loans at December 31, 2021 were greater than 89 days past due.
|
(in thousands)
|
Past Due and Non-Accrual
|
||||||||||||||||||||||||||||||||||
|
September 30, 2021
|
30 - 59 days
past due and
accruing
|
60 - 89 days
past due and
accruing
|
Greater than
89 days past
due and
accruing
|
Non-accrual
|
Total past
due and non-
accrual
|
Purchased
credit
impaired
|
Current
|
Total
|
|||||||||||||||||||||||||||
|
Residential real estate
|
$
|
|
$
|
|
$
|
|
$
|
|
(1
|
)
|
$
|
|
$
|
|
$
|
|
$
|
|
|||||||||||||||||
|
Multi-family
|
|
|
|
|
(2
|
)
|
|
|
|
|
|||||||||||||||||||||||||
|
Commercial real estate
|
|
|
|
|
(3
|
)
|
|
|
|
|
|||||||||||||||||||||||||
|
Commercial and industrial
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||||
|
Construction and land
development
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||||||
|
Consumer
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||||||
|
Total
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
|||||||||||||||||||
(1) Of the residential real estate non-accrual loans, $1,026
were 61 days past due and $4,528 were greater than 89 days past due.
(2) Multi-family non-accrual loans at September 30, 2021 were greater than 89 days past due.
(3) Commercial real estate non-accrual loans at September 30, 2021 were greater than 89 days past due.
Troubled debt restructurings (“TDRs”) are loan modifications where the Company has
granted a concession to a borrower in financial difficulty. To assess whether a borrower is experiencing financial difficulty, an evaluation is performed to determine if that borrower is currently in payment default
under any of its obligations or whether there is a probability that the borrower will be in payment default in the foreseeable future without the modification. At both December 31, 2021 and September 30, 2021, the
Company had a recorded investment in TDRs totaling $1.7 no no
For the three months ended December 31, 2021 and 2020, there
were no 90 days contractually past due under its modified terms. For the three months
ended December 31, 2021 and 2020, the Company had no
In June 2020, New York’s then-Governor Andrew Cuomo signed
SB 8243C and SB 8428 into law, which created Section 9-x of the New York Banking Law. Section 9-x requires New York regulated banking institutions and New York regulated mortgage servicers to make available applications for
forbearance of any payment due on certain residential mortgages to qualified borrowers for their primary residence located in New York. In general, qualified borrowers will be granted forbearance of all monthly payments for a
period of up to 180 days, to be extended for up to an additional 180 days provided that the borrower demonstrates continued financial hardship.
The Company has been prudently working with borrowers
negatively impacted by the COVID-19 pandemic while managing credit risks and recognizing an appropriate allowance for loan losses. The Company modified 519 loans totaling $367.1 million under the CARES Act
which are excluded from TDR classification under Section 4013 of the CARES Act or under applicable interagency guidance of the federal banking agencies. As of December 31, 2021, 12 loans totaling $11.0 million were still
in forbearance, of which 5 loans totaling $2.9 million were loans qualified under Section 9-x.
The Company continuously monitors the credit quality of its
loan receivables. Credit quality is monitored by reviewing certain credit quality indicators. Management has determined that internally assigned credit risk ratings by loan segment are the key credit quality indicators that
best assist management in monitoring the credit quality of the Company’s loan receivables.
The Company has adopted a credit risk rating system as part
of the risk assessment of its loan portfolio. The Company’s lending officers are required to assign a credit risk rating to each loan in their portfolio at origination. When the lender learns of important financial
developments, the risk rating is reviewed and adjusted if necessary. In addition, the Company engages a third-party independent loan reviewer that performs quarterly reviews of a sample of loans, validating the credit risk
ratings assigned to such loans. The credit risk ratings play an important role in the establishment of the loan loss provision and to confirm the adequacy of the allowance for loan losses.
The Company categorizes loans into risk categories based on
relevant information about the ability of borrowers to service their debt such as: current financial information, historical payment experience, credit documentation, public information, and current economic trends, among
other factors. The Company analyzes commercial loans individually by classifying the loans as to credit risk. The Company uses the following definitions for risk ratings:
Special Mention: The loan has potential weaknesses
that deserves management’s close attention. If left uncorrected, these potential weaknesses may result in deterioration of repayment prospects for the asset or in the Company’s credit position at some future date.
Substandard: The loan is inadequately protected by
current sound worth and paying capacity of the obligor or collateral pledged, if any. Loans classified as Substandard must have a well-defined weakness or weaknesses that jeopardizes the liquidation of the debt. They are
characterized by the distinct possibility that the Company will sustain some loss if the deficiencies are not corrected.
Doubtful: The loan has all the weaknesses inherent in
one classified substandard with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing factors, conditions, and values, highly questionable and improbable.
Loans not having a credit risk rating of Special Mention,
Substandard or Doubtful are considered pass loans.
At December 31, 2021 and September 30, 2021, the Company’s
loan portfolio by credit risk rating disaggregated by portfolio segment were as follows:
|
December 31, 2021
|
||||||||||||||||||||
|
(in thousands)
|
Pass
|
Special
Mention
|
Substandard
|
Doubtful
|
Total
|
|||||||||||||||
|
Real Estate:
|
||||||||||||||||||||
|
Residential
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||||
|
Multi-family
|
|
|
|
|
|
|||||||||||||||
|
Commercial
|
|
|
|
|
|
|||||||||||||||
|
Commercial and industrial
|
|
|
|
|
|
|||||||||||||||
|
Construction and land
development
|
|
|
|
|
|
|||||||||||||||
|
Consumer
|
|
|
|
|
|
|||||||||||||||
|
Total
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||||
|
September 30, 2021
|
||||||||||||||||||||
|
(in thousands)
|
Pass
|
Special
Mention
|
Substandard
|
Doubtful
|
Total
|
|||||||||||||||
|
Real Estate:
|
||||||||||||||||||||
|
Residential
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||||
|
Multi-family
|
|
|
|
|
|
|||||||||||||||
|
Commercial
|
|
|
|
|
|
|||||||||||||||
|
Commercial and industrial
|
|
|
|
|
|
|||||||||||||||
|
Construction and land
development
|
|
|
|
|
|
|||||||||||||||
|
Consumer
|
|
|
|
|
|
|||||||||||||||
|
Total
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||||
6. EQUITY COMPENSATION PLANS
The
Company’s 2021 and 2018 Equity Compensation Plans (“the 2021 Plan” and “the 2018 Plan,” respectively), provide for the grant of stock-based compensation awards to members of management, including employees and management
officials, and members of the Board. Under the 2021 Plan, a total of 427,500 shares of the Company’s common stock or
equivalents were approved for issuance, of which 427,500 shares remain available for issuance at December 31, 2021.
Of the total 346,000 shares of common stock approved for issuance under the 2018 Plan, 198,735 shares remain available for issuance at December 31, 2021. Hanover assumed the 2013 Savoy Bank Stock Option Plan solely in
connection with options to purchase Savoy common stock held by the former Chief Executive Officer of Savoy and which, under the terms of the Agreement and Plan of Merger between the Company and Savoy, were converted into options
to purchase 71,900 shares of Hanover common stock.
Stock Options
Stock options are granted with an exercise price equal to the fair market value
of the Company’s common stock at the date of grant, and generally with vesting periods of three years and
contractual terms of ten years . All stock options fully vest upon a change in control.
The fair value of stock options is estimated on the date of
grant using a closed form option valuation (Black-Scholes) model. Expected volatilities are based on historical volatilities of the common stock of the Company's peers. The Company uses historical data to estimate option exercise and post-vesting termination behavior. Expected terms are based on historical data and represent the
periods in which the options are expected to be outstanding. The risk-free interest rate for the expected term of the option is based on the U.S. Treasury yield curve in effect at the time of grant.
A summary of stock option activity follows (aggregate
intrinsic value in thousands):
|
Number
of
Options
|
Weighted-
Average
Exercise
Price
|
Aggregate
Intrinsic
Value
|
Weighted-
Average
Remaining
Contractual
Term
|
||||||||||
|
Outstanding, October 1, 2021
|
|
$
|
|
$
|
|
|
|||||||
| Granted |
|||||||||||||
|
Exercised
|
|
|
|||||||||||
|
Forfeited
|
|
|
|||||||||||
|
Outstanding, December 31, 2021
(1)
|
|
$
|
|
$
|
|
|
|||||||
(1) All outstanding options are fully vested and exercisable.
There was no
Restricted Stock
A summary of restricted stock activity follows:
|
Number of Shares
|
Weighted-
Average
Grant Date
Fair Value
|
|||||||
|
Unvested, October 1, 2021
|
|
$
|
|
|||||
|
Granted
|
|
|
||||||
|
Vested
|
(
|
)
|
|
|||||
|
Forfeited
|
(
|
)
|
|
|||||
|
Unvested, December 31, 2021
|
|
$
|
|
|||||
Compensation expense attributable to restricted stock was $217 thousand and $229
thousand for the three months ended December 31, 2021 and 2020, respectively. As of December 31, 2021, there was $0.8
million of total unrealized compensation cost related to unvested restricted stock, expected to be recognized over a weighted-average term of 1.62 years. The total fair value of shares vested during the three months ended December 31, 2021 and 2020 was $49 thousand and $7 thousand, respectively.
7. REGULATORY MATTERS
The Bank is subject to various regulatory capital requirements
administered by federal banking agencies. Capital adequacy guidelines and, additionally, prompt corrective action regulations, involve quantitative measures of assets, liabilities, and certain off-balance sheet items calculated
under regulatory accounting practices. Capital amounts and classifications are also subject to qualitative judgments by regulators. Failure to meet minimum capital requirements can initiate regulatory action. The net unrealized
gain or loss on available for sale securities is not included in computing regulatory capital. Management believes as of December 31, 2021, the Bank meets all capital adequacy requirements to which it is subject.
Prompt corrective action regulations provide five
classifications: well capitalized, adequately capitalized, undercapitalized, significantly undercapitalized and critically undercapitalized, although these terms are not used to represent overall financial condition. If
adequately capitalized, regulatory approval is required to accept brokered deposits. If undercapitalized, capital distributions are limited, as is asset growth and expansion, and capital restoration plans are required. At
December 31 2021 and September 30, 2021, the most recent regulatory notifications categorized the Bank as well capitalized under the regulatory framework for prompt corrective action. There are no conditions or events since that
notification that management believes have changed the institution’s category.
Under a policy of the Federal Reserve applicable to bank holding companies with less than $3.0 billion in consolidated assets, the Company is not subject to consolidated regulatory capital requirements.
The following table sets forth the Bank’s capital amounts (in
thousands) and ratios under current regulations:
|
Actual Capital
|
Minimum Capital
Adequacy
Requirement
|
Minimum Capital
Adequacy
Requirement
with Capital
Conservation Buffer
|
Minimum to Be
Well Capitalized
Under
Prompt Corrective
Action Provisions
|
|||||||||||||||||||||||||||||
|
Amount
|
Ratio
|
Amount
|
Ratio
|
Amount
|
Ratio
|
Amount
|
Ratio
|
|||||||||||||||||||||||||
|
December 31, 2021
|
||||||||||||||||||||||||||||||||
|
Total capital to risk-weighted
assets
|
$
|
|
|
%
|
$
|
|
|
%
|
$
|
|
|
%
|
$
|
|
|
%
|
||||||||||||||||
|
Tier 1 capital to risk-weighted
assets
|
|
|
%
|
|
|
%
|
|
|
%
|
|
|
%
|
||||||||||||||||||||
|
Common equity tier 1 capital to
risk-weighted assets
|
|
|
%
|
|
|
%
|
|
|
%
|
|
|
%
|
||||||||||||||||||||
|
Tier 1 capital to adjusted average
assets (leverage)
|
|
|
%
|
|
|
%
|
N/A
|
N/A
|
|
|
%
|
|||||||||||||||||||||
|
September
30, 2021
|
||||||||||||||||||||||||||||||||
|
Total capital to risk-weighted
assets
|
$
|
|
|
%
|
$
|
|
|
%
|
$
|
|
|
%
|
$
|
|
|
%
|
||||||||||||||||
|
Tier 1 capital to risk-weighted
assets
|
|
|
%
|
|
|
%
|
|
|
%
|
|
|
%
|
||||||||||||||||||||
|
Common equity tier 1 capital to
risk-weighted assets
|
|
|
%
|
|
|
%
|
|
|
%
|
|
|
%
|
||||||||||||||||||||
|
Tier 1 capital to adjusted average
assets (leverage)
|
|
|
%
|
|
|
%
|
N/A
|
N/A
|
|
|
%
|
|||||||||||||||||||||
Dividend restrictions - The Company’s principal source of
funds for dividend payments is dividends received from the Bank. Banking regulations limit the amount of dividends that may be paid without prior approval of regulatory agencies. As of December 31, 2021, the Bank had $35.2 million of retained net income available for dividends to the Company.
8. FAIR VALUE
FASB ASC No. 820-10 defines fair value as the price that would be received to sell an asset or paid to transfer a
liability in an orderly transaction between market participants at the measurement date. Fair value is best determined using quoted market prices. However, in many instances, quoted market prices are not available. In such
instances, fair values are determined using appropriate valuation techniques. Various assumptions and observable inputs must be relied upon in applying these techniques. Accordingly, categorization within the valuation
hierarchy is based upon the lowest level of input that is significant to the fair value measurement. As such, the fair value estimates may not be realized in an immediate transfer of the respective asset or liability.
FASB ASC 820-10 also establishes a fair value hierarchy and describes three levels of inputs that may be used to measure
fair values: The three levels within the fair value hierarchy are as follows:
| • |
Level 1: Valuation is based upon unadjusted quoted prices in active markets for identical assets or liabilities that the reporting entity has the ability to access at the measurement
date.
|
| • |
Level 2: Fair value is calculated using significant inputs other than quoted market prices that are directly or indirectly observable for the asset or liability. The valuation may rely
on quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in inactive markets, inputs other than quoted prices that are observable for the
asset or liability (such as interest rates, rate volatility, prepayment speeds, credit ratings,) or inputs that are derived principally or corroborated by market data, by correlation, or other means.
|
| • |
Level 3: Inputs for determining the fair value of the respective assets or liabilities are not observable. Level 3 valuations are reliant upon pricing models and techniques that
require significant management judgment or estimation.
|
Fair value estimates are made at a specific point in time, based on relevant market information and information about the
financial instrument. These estimates do not reflect any premium or discount that could result from offering for sale at one time the Company’s entire holdings of a particular financial instrument. Because no market exists
for a significant portion of the Company’s financial instruments, fair value estimates are based on judgments regarding future expected loss experience, current economic conditions, risk characteristics of various financial
instruments, and other factors. These estimates are subjective in nature and involve uncertainties and matters of significant judgment and, therefore, cannot be determined with precision. Changes in assumptions could
significantly affect the estimates.
Fair value estimates are based on existing on- and off-balance-sheet financial instruments without attempting to estimate
the value of anticipated future business and the value of assets and liabilities that are not considered financial instruments. In addition, the tax ramifications related to the realization of the unrealized gains and losses
can have a significant effect on fair value estimates and have not been considered in the estimates.
Assets Measured at Fair Value on a Recurring Basis
The following presents
fair value measurements on a recurring basis at December 31, 2021 and September 30, 2021:
| December 31, 2021 | ||||||||||||||||
|
Fair Value
Measurements Using
|
||||||||||||||||
|
(In thousands)
|
Carrying
Amount
|
Quoted Prices
In Active
Markets for
Identical Assets
(Level 1)
|
Significant
Other
Observable
Inputs
(Level 2)
|
Significant
Unobservable
Inputs
(Level 3)
|
||||||||||||
| Financial assets: |
||||||||||||||||
|
Available-for-sale securities:
|
||||||||||||||||
|
U.S. GSE residential
mortgage-backed securities
|
$
|
|
$ |
$
|
|
$
|
|
|||||||||
|
Corporate bonds
|
|
|
|
|||||||||||||
|
Mortgage servicing rights
|
|
|
|
|||||||||||||
|
Total
|
$
|
|
$ |
$
|
|
$
|
|
|||||||||
|
September 30, 2021
|
||||||||||||||||
|
Fair Value
Measurements Using
|
||||||||||||||||
|
(In thousands)
|
Carrying
Amount
|
Quoted Prices
In Active
Markets for
Identical Assets
(Level 1)
|
Significant
Other
Observable
Inputs
(Level 2)
|
Significant
Unobservable
Inputs
(Level 3)
|
||||||||||||
| Financial assets: | ||||||||||||||||
|
Available-for-sale securities:
|
||||||||||||||||
|
U.S. GSE residential
mortgage-backed securities
|
$
|
|
$ |
$
|
|
$
|
|
|||||||||
|
Corporate bonds
|
|
|
|
|||||||||||||
|
Mortgage servicing rights
|
|
|
|
|||||||||||||
|
Total
|
$
|
|
$ |
$
|
|
$
|
|
|||||||||
The fair value for the securities available-for-sale were obtained from an independent broker based upon matrix pricing,
which is a mathematical technique widely used in the industry to value debt securities without relying exclusively on quoted prices for the specific securities but rather by relying on the securities’ relationship to other
benchmark quoted securities. The Company has determined these are classified as Level 2 inputs within the fair value hierarchy.
The fair value of mortgage servicing rights are based on a valuation model that calculates the present value of estimated future servicing
income. The valuation model utilizes interest rate, prepayment speed, and default rate assumptions that market participants would use in estimating future net servicing income. Fair value of loan servicing rights related to
residential mortgage loans at December 31, 2021 was determined based on discounted expected future
using discount rates ranging from 12.0 % to 14.5 %, prepayment speed of 26.25 % and a weighted average
life ranging from 1.80 to 3.02 years. Fair value at September 30, 2021 for mortgage servicing rights was determined based on discounted expected future using discount rates ranging from 12.0 %
to 14.5 %, prepayment speeds ranging from 24.18 % to 24.33 % and a weighted average life ranging
from 1.96 to 3.30
years.
The fair value of loan servicing rights for SBA loans at December 31, 2021 was determined based on discounted expected future using discount rates ranging from 4.79 % to 23.84 %, prepayment speeds ranging from 8.94 % to 23.63 %
and a weighted average life ranging from 0.28 to 5.80 years.
The Company has determined these are mostly unobservable inputs and considers then Level 3 inputs within the fair value hierarchy.
The following table presents the changes in mortgage servicing rights for the periods presented:
|
Three Months Ended December 31,
|
||||||||
| (in thousands) |
2021
|
2020 |
||||||
|
Balance,
October 1
|
$
|
|
$
|
|
||||
| Additions | ||||||||
|
Adjustment to fair value
|
(
|
)
|
(
|
)
|
||||
|
Balance,
December 31
|
$
|
|
$
|
|
||||
Assets Measured at Fair Value on a Non-recurring Basis
The Company had no no
Financial Instruments Not Measured at Fair Value
The following presents the carrying amounts and estimated fair
values of the Company’s financial instruments not carried at fair value at December 31, 2021 and September 30, 2021:
| December 31, 2021 | ||||||||||||||||||||
|
Fair Value Measurements Using:
|
||||||||||||||||||||
|
(In thousands)
|
Carrying
Amount
|
Quoted Prices
In Active
Markets for
Identical Assets
(Level 1)
|
Significant
Other
Observable
Inputs
(Level 2)
|
Significant
Unobservable
Inputs
(Level 3)
|
Total
Fair
Value
|
|||||||||||||||
|
Financial
assets:
|
||||||||||||||||||||
|
Cash and cash equivalents
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||||
|
Securities held-to-maturity
|
|
|
|
|
|
|||||||||||||||
|
Securities available-for-sale
|
||||||||||||||||||||
|
Loans, net
|
|
|
|
|
||||||||||||||||
|
Federal Home Loan Bank stock
|
N/A | N/A | N/A | N/A | ||||||||||||||||
|
Accrued interest receivable
|
|
|
|
|
|
|||||||||||||||
|
Financial
Liabilities:
|
||||||||||||||||||||
|
Time deposits
|
|
|
|
|
|
|||||||||||||||
|
Demand and other deposits
|
|
|
|
|
|
|||||||||||||||
|
Borrowings
|
|
|
|
|
|
|||||||||||||||
|
Subordinated debentures
|
|
|
|
|
|
|||||||||||||||
|
Accrued interest payable
|
|
|
|
|
|
|||||||||||||||
| September 30, 2021 | ||||||||||||||||||||
|
Fair Value Measurements Using:
|
||||||||||||||||||||
|
(In thousands)
|
Carrying
Amount
|
Quoted Prices
In Active
Markets for
Identical Assets
(Level 1)
|
Significant
Other
Observable
Inputs
(Level 2)
|
Significant
Unobservable
Inputs
(Level 3)
|
Total
Fair
Value
|
|||||||||||||||
|
Financial
assets:
|
||||||||||||||||||||
|
Cash and cash equivalents
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||||
|
Securities held-to-maturity
|
|
|
|
|
||||||||||||||||
|
Securities available-for-sale
|
||||||||||||||||||||
|
Loans, net
|
|
|
|
|
|
|||||||||||||||
|
Federal Home Loan Bank stock
|
N/A | N/A | N/A | N/A | ||||||||||||||||
|
Accrued interest receivable
|
|
|
|
|
|
|||||||||||||||
|
Financial
Liabilities:
|
||||||||||||||||||||
|
Time deposits
|
|
|
|
|
|
|||||||||||||||
|
Demand and other deposits
|
|
|
|
|
|
|||||||||||||||
|
Borrowings
|
|
|
|
|
|
|||||||||||||||
|
Subordinated debentures
|
|
|
|
|
|
|||||||||||||||
|
Accrued interest payable
|
|
|
|
|
|
|||||||||||||||
9. LOSS CONTINGENCIES
Loss contingencies, including claims and
legal actions arising in the ordinary course of business, are recorded as liabilities when the likelihood of a loss is probable and an amount or range of loss can be reasonably estimated. The Company’s management does not
believe there now are such matters that will have a material effect on the financial statements.
10. BORROWINGS
Federal Home Loan Bank (“FHLB”) Advances
At December 31, 2021 and September 30, 2021, FHLB advances outstanding were $47.9 million and $42.0
million, respectively. The advances were all at fixed rates ranging from 0.34 % to 2.96 % and from 0.37 % to 2.96 %, respectively, and with maturities ranging from January to August and from October to August , respectively, at December 31, 2021 and September 30, 2021.
Each advance is payable at its
maturity date, with a prepayment penalty for fixed rate advances. The advances were collateralized by $488.5 million and $432.7 million of residential and commercial mortgage loans under a blanket lien arrangement at December 31,
2021 and September 30, 2021, respectively. Based on this collateral and the Company’s holdings of FHLB stock, the Company was eligible to borrow up to an additional total of $26.7 million at December 31, 2021.
The following table sets forth the contractual
maturities and weighted average interest rates of the Company’s fixed rate FHLB advances (in thousands):
|
|
Balance at December 31, 2021
|
|||||||
|
Contractual Maturity
|
Amount
|
Weighted Average Rate
|
||||||
|
2022
|
$
|
|
|
%
|
||||
|
2023
|
|
|
%
|
|||||
|
2024
|
|
|
%
|
|||||
|
2025
|
|
|
%
|
|||||
|
Total
|
$
|
|
|
%
|
||||
|
|
Balance at September 30, 2021
|
|||||||
|
Contractual Maturity
|
Amount
|
Weighted Average Rate
|
||||||
|
2022
|
$
|
|
|
%
|
||||
|
2023
|
|
|
%
|
|||||
|
2024
|
|
|
%
|
|||||
|
2025
|
|
|
%
|
|||||
|
Total
|
$
|
|
|
%
|
||||
Federal Reserve Borrowings
At December 31, 2021 and September 30, 2021, the Company’s borrowings from the Federal Reserve’s Paycheck Protection Liquidity
Facility (“PPPLF”) were $65.3 million and $117.7 million, respectively. The borrowings have a rate of 0.35 five years from origination date. The Company utilized the PPPLF to fund PPP loan production. The borrowings are fully secured by pledged PPP loans as
of December 31, 2021 and September 30, 2021.
Correspondent Bank Borrowings
At December 31, 2021, approximately $55
million in unsecured lines of credit extended by correspondent banks were available to be utilized for short-term funding purposes. No
11. SUBORDINATED DEBENTURES
In October 2020, the Company completed the private placement of $25.0 million in aggregate principal amount of fixed-to-floating rate subordinated notes due (the “Notes”) to certain qualified institutional buyers and accredited investors. The Notes will initially bear interest, payable semi-annually, at the rate of 5.00 % per annum, until October 15, 2025. From and including October 15, 2025, the interest rate applicable to the outstanding principal amount due
will reset quarterly to the then current three-month secured overnight financing rate (“SOFR”) plus 487.4 basis points. The Company may, at its option, beginning with the interest payment date of October 15, 2025 but not generally prior thereto,
and on any scheduled interest payment date thereafter, redeem the Notes, in whole or in part, subject to the receipt of any required regulatory approval. The Notes are not subject to redemption at the option of the holder. These subordinated notes are included as a component of the Bank’s
Tier 1 capital for regulatory reporting.
At December 31, 2021 and September 30, 2021, the unamortized issuance costs of the Notes were $0.5 million and $0.5 million, respectively. For the three months ended December 31, 2021 and 2020, $21 thousand and $13 thousand, respectively, in issuance costs were
recorded in interest expense. The Notes are presented net of unamortized issuance costs in the Company’s Consolidated Statements of Financial Condition.
12. ACCUMULATED OTHER COMPREHENSIVE INCOME
The following table presents changes in accumulated other comprehensive
income by component, net of tax, for the three months ended December 31, 2021 and 2020:
|
(in thousands)
|
Unrealized Gains and
Losses on Available-
for-Sale Debt
Securities
|
Total
|
||||||
|
Balance at October 1, 2021
|
$
|
|
$
|
|
||||
|
Other comprehensive income
|
|
|
||||||
|
Balance at December 31, 2021
|
$
|
|
$
|
|
||||
|
Balance at October 1, 2020
|
$
|
|
$
|
|
||||
|
Other comprehensive income
|
|
|
||||||
|
Balance at December 31, 2020
|
$
|
|
$
|
|
||||
There were no
Cautionary Statement Regarding Forward-Looking Statements - This document contains a number of
forward-looking statements, including statements about the financial condition, results of operations, earnings outlook and prospects of the Company, and statements for the period following the completion of the acquisition of Savoy.
Forward-looking statements are typically identified by words such as “should,” “likely,” “plan,” “believe,” “expect,” “anticipate,” “intend,” “outlook,” “estimate,” “forecast,” “target,” “project,” “goal” and other similar words and
expressions. The forward-looking statements involve certain risks and uncertainties. The ability of the Company to predict results or the actual effects of its plans and strategies is subject to inherent uncertainty.
Factors that may cause actual results or earnings to differ materially from such forward-looking statements include those set forth in Part I, Item 1A. Risk Factors in the Company’s Annual Report on Form 10-K for
the year ended September 30, 2021, as updated by the Company’s subsequent filings with the SEC and, among others, the following:
| • |
The anticipated cost savings and other synergies of the merger may take longer to be realized or may not be achieved in their entirety, and attrition in key client, partner and other relationships relating to the merger may be greater
than expected;
|
| • |
The ability to achieve anticipated merger-related operational efficiencies;
|
| • |
The ability to enhance revenue through increased market penetration, expanded lending capacity and product offerings;
|
| • |
Changes in monetary and fiscal policies of the FRB and the U. S. Government, particularly related to changes in interest rates;
|
| • |
Changes in general economic conditions;
|
| • |
Occurrence of natural or man-made disasters or calamities, including health emergencies, the spread of infectious diseases, pandemics such as COVID-19, or outbreaks of hostilities, or the effects of climate change, and the ability of
the Company to deal effectively with disruptions caused by the foregoing;
|
| • |
The effects of COVID-19, including, but not limited to, the length of time that the pandemic continues, the effectiveness of the vaccination program and accompanying vaccination rates, the development of new variants of the virus and
their impact, the potential future imposition of further restrictions on travel, the measures adopted by federal, state and local governments, the health of employees and the potential inability of employees to work due to illness,
quarantine or government mandates, the business continuity plans of customers and vendors, the increased likelihood of cybersecurity risk, data breaches, or fraud due to employees working from home, the ability of borrowers to repay their
loans and the effect of the pandemic on the general economy and businesses of borrowers;
|
| • |
Legislative or regulatory changes;
|
| • |
Downturns in demand for loan, deposit and other financial services in the Company’s market area;
|
| • |
Increased competition from other banks and non-bank providers of financial services;
|
| • |
Technological changes and increased technology-related costs; and
|
| • |
Changes in accounting principles, or the application of generally accepted accounting principles.
|
Because these forward-looking statements are subject to assumptions and uncertainties, actual results may differ materially from those expressed or implied by these forward-looking statements. You are cautioned not
to place undue reliance on these statements, which speak only as of the date of this document or the date of any document incorporated by reference in this document. All subsequent written and oral forward-looking statements concerning the merger
or other matters addressed in this document and attributable to the Company or Savoy or any person acting on their behalf are expressly qualified in their entirety by the cautionary statements contained or referred to in this document. Except to
the extent required by applicable law or regulation, the Company undertakes no obligation to update these forward-looking statements to reflect events or circumstances after the date of this document or to reflect the occurrence of unanticipated
events.
Non-GAAP Disclosure - This discussion includes non-GAAP financial measures of the Company’s tangible
common equity (“TCE”) ratio, tangible common equity and tangible assets. A non-GAAP financial measure is a numerical measure of historical or future financial performance, financial position or cash flows that excludes or modifies amounts that
are required to be disclosed in the most directly comparable measure calculated and presented in accordance with U.S. GAAP. The Company believes that these non-GAAP financial measures provide both management and investors a more complete
understanding of the underlying operational results and trends and the Company’s marketplace performance. The presentation of this additional information is not meant to be considered in isolation or as a substitute for the numbers prepared in
accordance with U.S. GAAP and may not be comparable to similarly titled measures used by other financial institutions.
With respect to the calculations and reconciliations of tangible common equity, tangible assets and the TCE ratio, please see Liquidity and Capital Resources contained herein for a reconciliation to the most
directly comparable GAAP measure.
Executive Summary –The Company is a one-bank holding company incorporated in 2016. The Company operates
as the parent for its wholly owned subsidiary, the Bank, which commenced operations in 2008. The income of the Company is primarily derived through the operations of the Bank. Unless the context otherwise requires, references herein to the
Company include the Company and the Bank on a consolidated basis.
The Bank operates as a locally headquartered, community-oriented bank, serving customers throughout the New York metro area from offices in Nassau, Queens, Kings (Brooklyn) and New York (Manhattan) Counties, New
York. We principally focus our lending activities on loans that we originate to borrowers located in our market areas. We seek to be the premier provider of lending products and services in our market area, meeting the credit needs of
high-quality business and individual borrowers in the communities that we serve. We offer personal and commercial business loans on a secured and unsecured basis, SBA and USDA guaranteed loans, revolving lines of credit, commercial mortgage
loans, and one- to four-family non-qualified mortgages secured by primary and secondary residences that may be owner occupied or investment properties, home equity loans, bridge loans and other personal purpose loans.
The Bank works to provide more direct, personal attention than management believes is offered by competing financial institutions, the majority of which are branch offices of banks headquartered outside of the
Bank’s primary trade area. By striving to employ professional, responsive and knowledgeable staff, the Bank believes it offers a superior level of service to its customers. As of result of senior management’s availability for consultation on a
daily basis, the Bank believes it offers customers a quicker response on loan applications and other banking transactions, as well as greater certainty that these transactions will actually close, than competitors, whose decisions may be made in
distant headquarters.
The COVID-19 pandemic has caused widespread economic disruption in the Bank’s metropolitan New York trade area. The Company has actively participated in state and local programs designed to mitigate the impacts of
the COVID-19 pandemic on individuals and small businesses and it continues to prudently work with borrowers negatively impacted by the COVID-19 pandemic while managing credit risks and recognizing an appropriate allowance for loan losses on its
loan portfolio. Although the local economy has shown signs of improvement, management continues to cautiously consider opportunities to expand the loan portfolio.
The Bank has historically been able to generate additional income by strategically originating and selling its primary lending products to other financial institutions at premiums. In December 2021, the SBA
approved the Bank’s application to process loans under the SBA’s Preferred Lender Program, enabling the Bank to process SBA applications under delegated authority from the SBA and enhancing the Bank’s ability to compete more effectively for SBA
lending opportunities. 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. The loan
sale market has been negatively impacted by the COVID-19 pandemic although indications are that it has been improving.
The Bank finances most of its activities through a combination of deposits, including non-interest-bearing demand, savings, NOW and money market deposits as well as time deposits, and both short- and long-term
borrowings. The Company’s chief competition includes local banks within its market area, as well as New York City money center banks and regional banks.
On May 26, 2021, the acquisition of Savoy was completed and fourth quarter 2021 calendar results reflect the operations of the combined entity. Historical financial information prior to the June 30, 2021 quarter
includes only the operations of Hanover.
Financial Performance Summary
As of or for the three months ended December 31, 2021 and 2020
(dollars in thousands, except per share data)
|
Three months ended
December 31,
|
Over/
(under) |
||||||||||||
|
|
2021
|
2020
|
2020
|
||||||||||
|
Revenue (1)
|
$
|
17,644
|
$
|
7,613
|
131.8
|
%
|
|||||||
|
Non-interest expense
|
8,264
|
5,590
|
47.8
|
%
|
|||||||||
|
Provision for loan losses
|
900
|
100
|
800.0
|
%
|
|||||||||
|
Net income
|
6,537
|
1,519
|
330.3
|
%
|
|||||||||
|
Net income per common share - diluted
|
1.16
|
0.36
|
224.3
|
%
|
|||||||||
|
Return on average assets
|
1.80
|
%
|
0.71
|
%
|
109
|
|
bp | ||||||
|
Return on average common stockholders' equity
|
20.52
|
%
|
7.62
|
%
|
1,290
|
bp | |||||||
|
Tier 1 leverage ratio
|
9.92
|
%
|
12.04
|
%
|
(212
|
)
|
bp | ||||||
|
Common equity tier 1 risk-based capital ratio
|
14.44
|
%
|
21.49
|
%
|
(705
|
)
|
bp | ||||||
|
Tier 1 risk-based capital ratio
|
14.44
|
%
|
21.49
|
%
|
(705
|
)
|
bp | ||||||
|
Total risk-based capital ratio
|
15.52
|
%
|
22.75
|
%
|
(723
|
)
|
bp | ||||||
|
Tangible common equity ratio (non-GAAP)
|
7.63
|
%
|
8.93
|
%
|
(130
|
)
|
bp | ||||||
|
Total common stockholders' equity/total assets (2)
|
8.87
|
%
|
9.13
|
%
|
(25
|
)
|
bp | ||||||
|
bp - denotes basis points; 100 bp equals 1%.
(1) Represents net interest income plus total non-interest income.
(2) The ratio of total common stockholders' equity to total assets is the most comparable GAAP measure to the non-GAAP tangible common equity ratio
presented herein.
|
At December 31, 2021 the Company, on a consolidated basis, had total assets of $1.5 billion, total deposits of $1.2 billion and total stockholders’ equity of $129.4 million. The Company recorded net income of $6.5
million, or $1.16 per diluted common share, for the three months ended December 31, 2021 compared to net income of $1.5 million, or $0.36 per diluted common share, for the same period in 2020.
The $5.0 million increase in earnings for the three months ended December 31, 2021 versus the comparable 2020 period was primarily due to $7.9 million increase in net interest income coupled with a $2.1 million
improvement in non-interest income. Partially offsetting these positive factors was a $2.7 million increase in total operating expenses, principally resulting from growth in compensation and benefits due largely to an increase in personnel from
the acquisition of Savoy in May 2021, coupled with an $800 thousand increase in the provision for loan losses expense due to growth in the loan portfolio in the quarter ended December 31, 2021.
The Company’s return on average assets and return on average common stockholders’ equity were 1.80% and 20.52%, respectively, for the three months ended December 31, 2021 versus 0.71% and 7.62%, respectively, for
the comparable 2020 period.
Total non-accrual loans at December 31, 2021 were $6.1 million, or 0.48% of total loans, compared to $7.0 million, or 0.56% of total loans at September 30, 2021 and $4.1 million, or 0.56% of total loans, at
December 31, 2020. Management believes all of the Company’s non-accrual loans at December 31, 2021 are well collateralized and no specific reserves have been taken with regard to these loans. The allowance for loan losses as a percentage of total
non-accrual loans amounted to 153%, 122% and 197% at December 31, 2021, September 30, 2021 and December 31, 2020, respectively.
The Company’s operating efficiency ratio was 46.8% for the three months ended December 31, 2021 versus 73.4% a year ago. The significant improvement in the operating efficiency ratio was due to a $7.9 million
increase in net interest income and $2.1 million increase in non-interest income (primarily gain on sale of loans held-for-sale) partially offset by a $2.7 million increase in operating expenses (primarily compensation and benefits).
Critical Accounting Policies, Judgments and Estimates - To prepare financial statements in conformity
with U.S. GAAP, the Company’s management makes estimates and assumptions based on available information. These estimates and assumptions affect the amounts reported in the financial statements and the disclosures provided, and actual results
could differ. Critical accounting estimates are accounting estimates where (a) the nature of the estimate is material due to levels of subjectivity and judgment necessary to account for highly uncertain matters or the susceptibility of such
matters to change, and (b) the impact of the estimate on financial condition or operating performance is material.
The Company considers the determination of the allowance for loan losses its most critical accounting policy, practice and use of estimates. The Company uses available information to recognize probable and
reasonably estimable losses on loans. Future additions to the allowance may be necessary based upon changes in economic, market or other conditions. Changes in estimates could result in a material change in the allowance. The allowance for loan
losses is increased by a provision for loan losses charged against income and is decreased by charge-offs, net of recoveries. Loan losses are recognized in the period the loans, or portion thereof, are deemed uncollectible. The adequacy of the
allowance to cover any inherent loan losses in the portfolio is evaluated on a quarterly basis.
Financial Condition – Total assets of the Company were $1.5 billion at December 31, 2021 and September
30, 2021. Total loans at December 31, 2021 were $1.3 billion, compared to total loans of $1.2 billion at September 30, 2021. Total deposits were $1.2 billion at December 31, 2021 and September 30, 2021. Total borrowings at December 31, 2021
were $113.3 million, including $47.9 million of outstanding FHLB advances.
For the three months ended December 31, 2021, the Company’s loan portfolio, net of sales, grew by $30.3 million to $1.3 billion. At December 31, 2021, the residential loan portfolio amounted to $436.6 million, or
34.2% of total loans. Commercial real estate loans, including multi-family loans and construction and land development loans, totaled $731.1 million or 57.2% of total loans at December 31, 2021. Commercial loans, including PPP loans, totaled
$109.7 million or 8.6% of total loans.
At December 31, 2021, total deposits were $1.2 billion, an increase of $12.1 million when compared to September 30, 2021. This growth was primarily due to an increase in core deposit balances of $63.0 million
offset by a $50.9 million decrease in time deposits in the fourth calendar quarter of 2021. Core deposit balances, which consist of demand, NOW, savings and money market deposits, represented 72.2% and 67.6% of total deposits at December 31, 2021
and September 30, 2021, respectively. At those dates, demand deposit balances represented 16.2% and 16.4% of total deposits. Beginning in late 2020, we began a municipal deposit program. The program is based upon relationships of our management
team, rather than bid based transactions. At December 31, 2021, total municipal deposits were $407.1 million, representing 18 separate governmental clients, compared to $74.3 million at December 31, 2020, representing 6 separate governmental
clients. The average rate on the municipal deposit portfolio was 0.19% at December 31, 2021.
Borrowings at December 31, 2021 were $113.3 million, including $65.4 million in PPPLF funding, versus $159.6 million at September 30, 2021. At December 31, 2021, the Company had $47.9 million of outstanding FHLB
advances as compared to $42.0 million at September 30, 2021. At September 30, 2021, the Company’s borrowings from the PPPLF were $117.7 million.
Liquidity and Capital Resources – Liquidity management is defined as both the Company’s and the Bank’s
ability to meet their financial obligations on a continuous basis without material loss or disruption of normal operations. These obligations include the withdrawal of deposits on demand or at their contractual maturity, the repayment of
borrowings as they mature, funding new and existing loan commitments and the ability to take advantage of business opportunities as they arise. Asset liquidity is provided by short-term investments, such as fed funds sold, the marketability of
securities available for sale and interest-bearing deposits due from the Federal Reserve, FHLB and correspondent banks, which totaled $115.0 million and $166.5 million at December 31, 2021 and September 30, 2021, respectively. These liquid
assets may include assets that have been pledged primarily against municipal deposits or borrowings. Liquidity is also provided by the maintenance of a base of core deposits, cash and non-interest-bearing deposits due from banks, the ability to
sell or pledge marketable assets and access to lines of credit.
Liquidity is continuously monitored, thereby allowing management to better understand and react to emerging balance sheet trends, including temporary mismatches with regard to sources and uses of funds. After
assessing actual and projected cash flow needs, management seeks to obtain funding at the most economical cost. These funds can be obtained by converting liquid assets to cash or by attracting new deposits or other sources of funding. Many
factors affect the Company’s ability to meet liquidity needs, including variations in the markets served, loan demand, its asset/liability mix, its reputation and credit standing in its markets and general economic conditions. Borrowings and the
scheduled amortization of investment securities and loans are more predictable funding sources. Deposit flows and securities prepayments are somewhat less predictable as they are often subject to external factors. Among these are changes in the
local and national economies, competition from other financial institutions and changes in market interest rates.
The Company’s primary sources of funds are cash provided by deposits, which may include brokered and listing service deposits, and borrowings, proceeds from maturities and sales of securities and cash provided by
operating activities. At December 31, 2021, total deposits were $1.2 billion, of which $243.2 million were time deposits scheduled to mature within the next 12 months. Based on historical experience, the Company expects to be able to replace a
substantial portion of those maturing deposits with comparable deposit products. At December 31, 2021 and September 30, 2021, the Company had $113.3 million and $159.6 million, respectively, in borrowings used to fund the growth in the Company’s
loan portfolio.
The Liquidity and Wholesale Funding Policy of the Bank establishes specific policies and operating procedures governing liquidity levels to assist management in developing plans to address future and current
liquidity needs. Management monitors the rates and cash flows from the loan and investment portfolios while also examining the maturity structure and volatility characteristics of liabilities to develop an optimum asset/liability mix. Available
funding sources include retail, commercial and municipal deposits, purchased liabilities and stockholders’ equity. At December 31, 2021, access to approximately $488.0 million in FHLB lines of credit for overnight or term borrowings was
available, of which $413.8 million of municipal letters of credit and $47.9 million in term borrowings were outstanding. At December 31, 2021, approximately $55 million in unsecured lines of credit extended by correspondent banks were also
available to be utilized, if needed, for short-term funding purposes. No borrowings were outstanding under lines of credit with correspondent banks at December 31, 2021.
The Company strives to maintain an efficient level of capital, commensurate with its risk profile, on which a competitive rate of return to stockholders will be realized over both the short and long term. Capital
is managed to enhance stockholder value while providing flexibility for management to act opportunistically in a changing marketplace. Management continually evaluates the Company’s capital position in light of current and future growth
objectives and regulatory guidelines. Total stockholders’ equity increased to $129.4 million at December 31, 2021 from $122.5 million at September 30, 2021, primarily due to net income recorded during the three months ended December 31, 2021.
The Bank is subject to regulatory capital requirements. The Bank’s tier 1 leverage, common equity tier 1 risk-based, tier 1 risk-based and total risk-based capital ratios were 9.92%, 14.44%, 14.44% and 15.52%,
respectively, at December 31, 2021, exceeding all the regulatory guidelines for a well-capitalized institution, the highest regulatory capital category. Moreover, capital rules also place limits on capital distributions and certain discretionary
bonus payments if a banking organization does not maintain a buffer of common equity tier 1 capital above minimum capital requirements. At December 31, 2021, the Bank’s capital buffer was in excess of requirements.
The Company did not repurchase any shares of its common stock during the three months ended December 31, 2021.
The Company’s total stockholders’ equity to total assets ratio and the Company’s tangible common equity to tangible assets ratio (“TCE ratio”) were 8.87% and 7.63%, respectively, at December 31, 2021 versus 8.25%
and 7.02%, respectively, at September 30, 2021 and 9.13% and 8.93%, respectively, at December 31, 2020. The ratio of total stockholders’ equity to total assets is the most comparable U.S. GAAP measure to the non-GAAP TCE ratio presented herein.
The ratio of tangible common equity to tangible assets, or TCE ratio, is calculated by dividing total common stockholders’ equity by total assets, after reducing both amounts by intangible assets. The TCE ratio is not required by U.S. GAAP or by
applicable bank regulatory requirements, but is a metric used by management to evaluate the adequacy of our capital levels. Since there is no authoritative requirement to calculate the TCE ratio, our TCE ratio is not necessarily comparable to
similar capital measures disclosed or used by other companies in the financial services industry. Tangible common equity and tangible assets are non-GAAP financial measures and should be considered in addition to, not as a substitute for or
superior to, financial measures determined in accordance with U.S. GAAP. Set forth below are the reconciliations of tangible common equity to U.S. GAAP total common stockholders’ equity and tangible assets to U.S. GAAP total assets at December
31, 2021 (in thousands). (See also Non-GAAP Disclosure contained herein.)
|
Ratios
|
||||||||||||||||
|
Total common stockholders' equity
|
$
|
129,379
|
Total assets
|
$
|
1,458,180
|
8.87
|
%
|
(1)
|
||||||||
|
Less: goodwill
|
(19,168
|
)
|
Less: goodwill
|
(19,168
|
)
|
|||||||||||
|
Less: core deposit intangible
|
(459
|
)
|
Less: core deposit intangible
|
(459
|
)
|
|||||||||||
|
Tangible common equity
|
$
|
109,752
|
Tangible assets
|
$
|
1,438,553
|
7.63
|
%
|
(2)
|
||||||||
|
(1) The ratio of total common stockholders' equity to total assets is the most comparable GAAP measure to the non-GAAP tangible common equity ratio
presented herein.
(2) TCE ratio
|
All dividends must conform to applicable statutory requirements. The Company’s ability to pay dividends to stockholders depends on the Bank’s ability to pay dividends to the Company. Additionally, the ability of
the Bank to pay dividends to the Company is subject to certain regulatory restrictions. Under New York law, a bank may pay a dividend on its common stock only out of net profits, and must obtain the approval of the Superintendent of the DFS if
the total of all dividends declared by a bank or trust company in any calendar year exceeds the total of its net profits for that year combined with its retained net profits of the preceding two years, less any required transfer to surplus or a
fund for the retirement of any preferred stock.
No cash dividends were declared by the Company during the three months ended December 31, 2021 and 2020. On January 25, 2022 the Company’s Board of Directors approved the payment of a $0.10 per common share cash
dividend payable on February 15, 2022, to stockholders of record on February 8, 2022. This is the Company’s first cash dividend.
Off-Balance Sheet Arrangements - The Bank is a party to financial instruments with off-balance sheet
risk in the normal course of business to meet the financing needs of its customers. These financial instruments include commitments to extend credit and letters of credit. Those instruments involve, to varying degrees, elements of credit risk
in excess of the amount recognized in the consolidated financial statements. The Bank uses the same credit policies in making commitments and conditional obligations as it does for on-balance sheet instruments.
Commitments to extend credit are agreements to lend to a customer provided there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination
clauses and may require payment of a fee. Since many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. The Bank evaluates each customer’s
creditworthiness on a case-by-case basis. The amount of collateral obtained, if deemed necessary by the Bank upon extension of credit, is based on management’s credit evaluation of the customer. Collateral required varies, but may include
accounts receivable, inventory, equipment, real estate and income-producing commercial properties. At December 31, 2021 and September 30, 2021, commitments to originate loans and commitments under unused lines of credit for which the Bank is
obligated amounted to approximately $72 million and $106 million, respectively.
Letters of credit are conditional commitments guaranteeing payments of drafts in accordance with the terms of the letter of credit agreements. Commercial letters of credit are used primarily to facilitate trade or
commerce and are also issued to support public and private borrowing arrangements, bond financing and similar transactions. Collateral may be required to support letters of credit based upon management’s evaluation of the creditworthiness of each
customer. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loan facilities to customers. At December 31, 2021 and September 30, 2021, letters of credit outstanding were approximately $786
thousand.
Results of Operations – Comparison of the Three Months Ended December 31, 2021 and 2020 – The Company
recorded net income of $6.5 million during the three months ended December 31, 2021 versus net income of $1.5 million in the comparable three month period a year ago. The increase in earnings for the three months ended December 31, 2021 versus
the comparable 2020 period was primarily due to a $7.9 million, or 108.39%, increase in net interest income coupled with a $2.1 million improvement in non-interest income. Partially offsetting these positive factors was a $2.7 million increase
in total operating expenses, principally resulting from growth in compensation and benefits due largely to an increase in personnel from the acquisition of Savoy in May 2021, coupled with an $800 thousand increase in the provision for loan
losses expense due to growth in the loan portfolio in the fourth calendar quarter of 2021.
Net Interest Income and Margin
The $7.9 million improvement in net interest income was largely attributable to growth in average interest-earning assets of 67.6%, primarily loans, and a 86 basis point increase in the net interest margin to 4.39%
in 2021 from 3.53% in the year ago period. The wider net interest margin was largely due to a 78 basis point reduction in the average cost of interest-bearing liabilities to 0.48% in the 2021 period. Included in net interest income was accretion
and amortization of purchase accounting adjustments of $1.6 million during the three months ended December 31, 2021 arising from the acquisition of Savoy. Excluding these purchase accounting adjustments, the adjusted net interest margin was
3.90% and 3.76% in the quarter ended December 31, 2021 and 2020, respectively.
The lower cost of average interest-bearing liabilities in 2021 resulted from an improved deposit mix. Lower cost core deposits (demand, NOW, savings and money market accounts) increased by $538.4 million while
higher cost certificates of deposit declined by $50.0 million compared to the year ago period. Also contributing to the improvement in net interest income for the three months ended December 31, 2021 versus 2020 was a reduction in the average
rate paid on Fed funds purchased and FHLB and FRB advances of 61 basis points to 0.50% in the 2021 quarter.
NET INTEREST INCOME ANALYSIS
For the Three Months Ended December 31, 2021 and 2020
(dollars in thousands)
|
2021
|
2020
|
||||||||||||||||||||||||
|
Average
Balance
|
Interest
|
Average
Yield/Cost
|
Average
Balance
|
Interest
|
Average
Yield/Cost
|
||||||||||||||||||||
|
Assets:
|
|||||||||||||||||||||||||
|
Interest-earning assets:
|
|||||||||||||||||||||||||
|
Loans
|
$
|
1,253,827
|
$
|
16,381
|
5.18
|
%
|
$
|
724,751
|
$
|
9,258
|
5.07
|
%
|
|||||||||||||
|
Investment securities
|
15,634
|
155
|
3.93
|
%
|
16,520
|
173
|
4.15
|
%
|
|||||||||||||||||
|
Interest-earning cash
|
106,660
|
38
|
0.14
|
%
|
78,958
|
21
|
0.11
|
%
|
|||||||||||||||||
|
FHLB stock and other investments
|
5,252
|
42
|
3.17
|
%
|
3,922
|
45
|
4.55
|
%
|
|||||||||||||||||
|
Total interest-earning assets
|
1,381,373
|
16,616
|
4.77
|
%
|
824,151
|
9,497
|
4.57
|
%
|
|||||||||||||||||
|
Non interest-earning assets:
|
|||||||||||||||||||||||||
|
Cash and due from banks
|
8,264
|
4,709
|
|||||||||||||||||||||||
|
Other assets
|
49,011
|
24,300
|
|||||||||||||||||||||||
|
Total assets
|
$
|
1,438,648
|
$
|
853,160
|
|||||||||||||||||||||
|
Liabilities and stockholders' equity:
|
|||||||||||||||||||||||||
|
Interest-bearing liabilities:
|
|||||||||||||||||||||||||
|
Savings, NOW and money market deposits
|
$
|
609,251
|
$
|
366
|
0.24
|
%
|
$
|
186,894
|
$
|
117
|
0.25
|
%
|
|||||||||||||
|
Time deposits
|
346,448
|
491
|
0.56
|
%
|
391,442
|
1,454
|
1.47
|
%
|
|||||||||||||||||
|
Total savings and time deposits
|
955,699
|
857
|
0.36
|
%
|
578,336
|
1,571
|
1.08
|
%
|
|||||||||||||||||
|
Fed funds purchased & FHLB & FRB advances
|
126,058
|
160
|
0.50
|
%
|
78,937
|
221
|
1.11
|
%
|
|||||||||||||||||
|
Note payable
|
-
|
-
|
0.00
|
%
|
1,303
|
73
|
22.23
|
%
|
(1) | ||||||||||||||||
|
Subordinated debentures
|
24,499
|
330
|
5.34
|
%
|
22,899
|
305
|
5.28
|
%
|
|||||||||||||||||
|
Total interest-bearing liabilities
|
1,106,256
|
1,347
|
0.48
|
%
|
681,475
|
2,170
|
1.26
|
%
|
|||||||||||||||||
|
Demand deposits
|
192,161
|
83,701
|
|||||||||||||||||||||||
|
Other liabilities
|
13,834
|
8,921
|
|||||||||||||||||||||||
|
Total liabilities
|
1,312,251
|
774,097
|
|||||||||||||||||||||||
|
Stockholders' equity
|
126,397
|
79,063
|
|||||||||||||||||||||||
|
Total liabilities & stockholders' equity
|
$
|
1,438,648
|
$
|
853,160
|
|||||||||||||||||||||
|
Net interest rate spread
|
4.29
|
%
|
3.31
|
%
|
|||||||||||||||||||||
|
Net interest income/margin
|
$
|
15,269
|
4.39
|
%
|
$
|
7,327
|
3.53
|
%
|
|||||||||||||||||
(1) Reflects impact of debt extinguishment charges of approximately $54 thousand
recorded in October 2020.
Provision and Allowance for Loan Losses
The Company recorded a $900 thousand provision for loan losses expense for the three months ended December 31, 2021 versus a $100 thousand expense recorded for the comparable period in 2020. The adequacy of the
provision and the resulting allowance for loan losses, which was $9.4 million at December 31, 2021, is determined by management’s ongoing review of the loan portfolio including, among other things, impaired loans, past loan loss experience, known
and inherent risks in the portfolio, existing adverse situations that may affect the borrower’s ability to repay and estimated fair value of any underlying collateral securing loans. Moreover, management evaluates changes, if any, in underwriting
standards, collection, charge-off and recovery practices, the nature or volume of the portfolio, lending staff, concentration of loans, as well as current economic conditions and other relevant factors. Management believes the allowance for loan
losses is adequate to provide for probable and reasonably estimable losses at December 31, 2021. (See also Critical Accounting Policies, Judgments and Estimates and Asset Quality contained herein.)
Non-interest Income
Non-interest income increased by $2.1 million for the three months ended December 31, 2021 versus 2020. This increase in loan fees and deposit service charges was primarily driven by increases in loan and deposit
balances, primarily as a result of the acquisition of Savoy. The increase in income related to loan servicing rights was due to growth in the volume of loans serviced by the Company, primarily due to the acquisition of Savoy. For the three months
ended December 31, 2021 and 2020, the Company sold loans totaling approximately $35.2 million and $8.1 million, respectively, recognizing net gains of $1.5 million and $181 thousand, respectively.
Non-Interest Income
For the three months ended December 31, 2021 and 2020
(dollars in thousands)
|
Three months ended
December 31,
|
Over/
(under) |
|||||||||||
|
2021
|
2020
|
2020
|
||||||||||
|
Loan servicing and fee income
|
$
|
690
|
$
|
83
|
731.3
|
%
|
||||||
|
Service charges on deposit accounts
|
63
|
15
|
320.0
|
|||||||||
|
Net gain on sale of loans held for sale
|
1,492
|
181
|
724.3
|
|||||||||
|
Other income
|
130
|
7
|
1,757.1
|
|||||||||
|
Total non-interest income
|
$
|
2,375
|
$
|
286
|
730.4
|
%
|
||||||
Non-interest Expense
Total non-interest expense increased by $2.7 million for the three months ended December 31, 2021 versus 2020. The overall increase in non-interest expenses was primarily driven by the additional headcount,
facilities and transaction volume associated with the acquisition of Savoy. The increase in other non-interest expenses is primarily due to increased assessment charges and correspondent banking fees due to the increased size of the Company.
Non-Interest Expense
For the three months ended December 31, 2021 and 2020
(dollars in thousands)
|
Three months ended
December 31,
|
Over/
(under) |
|||||||||||
|
|
2021
|
2020
|
2020
|
|||||||||
|
Salaries and employee benefits
|
$
|
4,939
|
$
|
3,108
|
58.9
|
%
|
||||||
|
Occupancy and equipment
|
1,413
|
1,171
|
20.7
|
|||||||||
|
Data processing
|
366
|
245
|
49.4
|
|||||||||
|
Advertising and promotion
|
33
|
48
|
(31.3
|
)
|
||||||||
|
Acquisition costs
|
-
|
145
|
(100.0
|
)
|
||||||||
|
Professional fees
|
499
|
412
|
21.1
|
|||||||||
|
Other expenses
|
1,014
|
461
|
120.0
|
|||||||||
|
Total non-interest expense
|
$
|
8,264
|
$
|
5,590
|
47.8
|
%
|
||||||
The Company recorded income tax expense of $1.9 million and an effective tax rate of 22.9% for the three months ended December 31, 2021 versus income tax expense of $404 thousand and an effective tax rate of 21.0%
in the comparable 2020 period.
Asset Quality - Total non-accrual loans at December 31, 2021 were $6.1 million, or 0.48% of total
loans, compared to $7.0 million, or 0.56% of total loans at September 30, 2021 and $4.1 million, or 0.56% of total loans, at December 31, 2020. Management believes all of the Company’s non-accrual loans at December 31, 2021 are well
collateralized and no specific reserves have been taken with regard to these loans. The allowance for loan losses as a percentage of total non-accrual loans amounted to 153%, 122% and 197% at December 31, 2021, September 30, 2021 and December
31, 2020, respectively.
Total accruing loans, excluding purchased credit-impaired loans, delinquent 30 days or more amounted to $6.1 million, $8.2 million and $5.1 million at December 31, 2021, September 30, 2021 and December 31, 2020,
respectively.
Total loans having credit risk ratings of Special Mention or Substandard were $42.4 million at December 31, 2021 versus $51.9 million at September 30, 2021 and $16.7 million at December 31, 2020. The increase in
both the Special Mention and Substandard levels is due to the acquired loan portfolio of Savoy Bank. The acquired portfolio has a large component of SBA loans, which have been supported through the COVID-pandemic with assistance from the SBA. The
high level of criticized loans in the Savoy portfolio results in part from a conservative view of these borrowers’ ability to perform once government assistance ends, as well as specific instances of borrowers seeking
assistance/deferrals/modifications due to the impact to their business. The Company’s Special Mention and Substandard loans were comprised of residential real estate, multi-family, commercial real estate loans and commercial and industrial loans
(including SBA facilities) at December 31, 2021. The Company had no loans with a credit risk rating of Doubtful for the periods presented. All loans not having credit risk ratings of Special Mention, Substandard or Doubtful are considered pass
loans.
At December 31, 2021, the Company had $1.7 million in troubled debt restructurings (“TDRs”), consisting of residential real estate loans. The Company had TDRs amounting to $1.7 million and $1.7 million at September
30, 2021 and December 31, 2020, respectively.
At December 31, 2021, the Company’s allowance for loan losses amounted to $9.4 million or 0.73% of period-end total loans outstanding. The allowance as a percentage of loans outstanding was 0.69% at September 30,
2021 and 1.09% at December 31, 2020. The Company recorded net loan recoveries of $66 thousand during the three months ended December 31, 2021 versus no loan charge-offs during the three months ended September 30, 2021. The Company recorded net
loan recoveries of $10 thousand during the three months ended December 31, 2020.
The Company record a $900 thousand provision for loan losses expense for the three months ended December 31, 2021 versus a $100 thousand expense recorded for the comparable period in 2020. Adjustments to the
Company’s loss experience is based on management’s evaluation of several environmental factors, including: changes in local, regional, national, and international economic and business conditions and developments that affect the collectability of
the loan portfolio, including the condition of various market segments; changes in the nature and volume of the Company’s portfolio and in the terms of the Company’s loans; changes in the experience, ability, and depth of lending management and
other relevant staff; changes in the volume and severity of past due loans, the volume of nonaccrual loans and the volume and severity of adversely classified or graded loans; changes in the quality of the Company’s loan review system; changes in
lending policies, procedures and strategies; changes in the value of underlying collateral for collateral-dependent loans; the existence and effect of any concentrations of credit and changes in the level of such concentrations; and the effect of
other external factors such as competition and legal and regulatory requirements on the level of estimated credit losses in the Company’s existing portfolio.
Management has determined that the current level of the allowance for loan losses is adequate in relation to the probable and reasonably estimable losses present in the portfolio. While management uses available
information to recognize probable and reasonably estimable losses on loans, future additions to the allowance may be necessary and management may need to record loan charge-offs in future periods. Changes in estimates could result in a material
change in the allowance. In addition, various regulatory agencies, as an integral part of their examination process, periodically review the Company’s allowance for loan losses and may require the Company to recognize additions to the allowance
based on their judgments about information available to them at the time of their examination. (See also Critical Accounting Policies, Judgments and Estimates contained herein).
ASSET QUALITY
December 31, 2021 versus September 30, 2021 and December 31, 2020
(dollars in thousands)
|
As of or for the three months ended
|
||||||||||||
|
12/31/2021
|
9/30/2021
|
12/31/2020
|
||||||||||
|
Non-accrual loans
|
$
|
6,115
|
$
|
7,028
|
$
|
4,053
|
||||||
|
Non-accrual loans held for sale
|
-
|
-
|
-
|
|||||||||
|
Other real estate owned
|
-
|
-
|
-
|
|||||||||
|
Total non-performing assets (1)
|
$
|
6,115
|
$
|
7,028
|
$
|
4,053
|
||||||
|
Purchased credit-impaired loans 90 days or more past due and still accruing
|
$
|
2,501
|
$
|
2,519
|
$
|
318
|
||||||
|
Performing TDRs
|
455
|
455
|
454
|
|||||||||
|
Loans held for sale
|
-
|
-
|
4,150
|
|||||||||
|
Loans held for investment
|
1,277,434
|
1,247,125
|
728,752
|
|||||||||
|
Allowance for loan losses:
|
||||||||||||
|
Beginning balance
|
$
|
8,552
|
$
|
7,852
|
$
|
7,869
|
||||||
|
Provision
|
900
|
700
|
100
|
|||||||||
|
Charge-offs
|
(66
|
)
|
-
|
-
|
||||||||
|
Recoveries
|
-
|
-
|
10
|
|||||||||
|
Ending balance
|
$
|
9,386
|
$
|
8,552
|
$
|
7,979
|
||||||
|
Allowance for loan losses as a % of total loans (2)
|
0.73
|
%
|
0.69
|
%
|
1.09
|
%
|
||||||
|
Allowance for loan losses as a % of non-accrual loans (2)
|
153
|
%
|
122
|
%
|
197
|
%
|
||||||
|
Non-accrual loans as a % of total loans (2)
|
0.48
|
%
|
0.56
|
%
|
0.56
|
%
|
||||||
|
Non-performing assets as a % of total loans, loans held for sale and other real estate owned
|
0.48
|
%
|
0.56
|
%
|
0.55
|
%
|
||||||
|
Non-performing assets as a % of total assets
|
0.42
|
%
|
0.47
|
%
|
0.46
|
%
|
||||||
|
Non-performing assets, purchased credit-impaired loans 90 days or more past due and still accruing and performing TDRs, to total loans held for sale and investment
|
0.71
|
%
|
0.80
|
%
|
0.66
|
%
|
||||||
(1) Non-performing assets defined as non-accrual loans, non-accrual loans held for sale and other real estate owned.
(2) Excludes loans held for sale.
The Company originates and invests in interest-earning assets and solicits interest-bearing deposit accounts. The Company’s operations are subject to market risk resulting from fluctuations in interest rates to the
extent that there is a difference between the amounts of interest-earning assets and interest-bearing liabilities that are prepaid, withdrawn, matured or repriced in any given period of time. The Company’s earnings or the net value of its
portfolio will change under different interest rate scenarios. The principal objective of the Company’s asset/liability management program is to maximize net interest income within an acceptable range of overall risk, including both the effect of
changes in interest rates and liquidity risk.
The following presents the Company’s economic value of equity (“EVE”) and net interest income (“NII”) sensitivities at December 31, 2021 (dollars in thousands). The results are within the Company’s policy limits.
|
At December 31, 2021
|
||||||||||||||||||||||||||||
|
Interest Rates
|
Estimated
|
Estimated Change in EVE
|
Interest Rates
|
Estimated
|
Estimated Change in NII (1)
|
|||||||||||||||||||||||
|
(basis points)
|
EVE
|
Amount
|
%
|
(basis points)
|
NII (1)
|
Amount
|
%
|
|||||||||||||||||||||
|
+400
|
$
|
154,270
|
$
|
(34,721
|
)
|
(18.4
|
)
|
+400
|
$
|
53,720
|
$
|
(298
|
)
|
(0.6
|
)
|
|||||||||||||
|
+300
|
163,684
|
(25,307
|
)
|
(13.4
|
)
|
+300
|
54,192
|
174
|
0.3
|
|||||||||||||||||||
|
+200
|
171,008
|
(17,983
|
)
|
(9.5
|
)
|
+200
|
54,471
|
453
|
0.8
|
|||||||||||||||||||
|
+100
|
177,731
|
(11,260
|
)
|
(6.0
|
)
|
+100
|
54,365
|
347
|
0.6
|
|||||||||||||||||||
|
0
|
188,991
|
0
|
54,018
|
|||||||||||||||||||||||||
|
-100
|
206,319
|
17,328
|
9.2
|
-100
|
51,577
|
(2,441
|
)
|
(4.5
|
)
|
|||||||||||||||||||
(1) Assumes 12 month time horizon.
The Company carried out an evaluation, under the supervision and with the participation of its principal executive officer and principal financial officer, of the effectiveness of the design and operation of its
disclosure controls and procedures as defined in Rule l3a-15(e) and Rule 15d-15(e) under the Securities Exchange Act of 1934, as amended (the "Exchange Act"). Based on this evaluation, the Company's principal executive officer and principal
financial officer concluded that, as of the end of the period covered by this report, the Company's disclosure controls and procedures are effective in timely alerting them to material information required to be included in the Company's periodic
reports filed with the Securities and Exchange Commission. There have been no significant changes in the Company's internal controls or in other factors that could significantly affect internal controls subsequent to the date the Company carried
out its evaluation.
There were no changes to the Company's internal control over financial reporting as defined in Rule 13a-15(f) and Rule 15d-15(f) under the Exchange Act that occurred during the Company’s last fiscal quarter that
have materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting.
PART II
The Company is not subject to any legal proceedings, which could have a materially adverse impact on its results of operations and financial condition.
There have been no changes to the risks disclosed in the “Risk Factors” section of the Company’s Annual Report on Form 10-K for the year ended September 30, 2021, as filed with the Securities and Exchange
Commission.
Not applicable.
Not applicable.
Not applicable.
Not applicable.
|
31.1
|
Certification of principal executive officer pursuant to Rule 13a-14(a) or 15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
|
|
31.2
|
Certification of principal financial officer pursuant to Rule 13a-14(a) or 15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
|
|
32.1
|
Certification of principal executive officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
|
|
32.2
|
Certification of principal financial officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
|
|
101.INS
|
Inline XBRL Instance Document (the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document)
|
|
101.SCH
|
Inline XBRL Taxonomy Extension Schema Document
|
|
101.CAL
|
Inline XBRL Taxonomy Extension Calculation Linkbase Document
|
|
101.LAB
|
Inline XBRL Taxonomy Extension Label Linkbase Document
|
|
101.PRE
|
Inline XBRL Taxonomy Extension Presentation Linkbase Document
|
|
101.DEF
|
Inline XBRL Taxonomy Extension Definition Linkbase Document
|
|
104
|
Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101)
|
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
|
HANOVER BANCORP, INC.
|
||
|
Dated: February 7, 2022
|
/s/ Michael P. Puorro
|
|
|
Michael P. Puorro
|
||
|
Chairman & Chief Executive Officer
|
||
|
(principal executive officer)
|
||
|
Dated: February 7, 2022
|
/s/ Lance P. Burke
|
|
|
Lance P. Burke
|
||
|
Executive Vice President & Chief Financial Officer
|
||
|
(principal financial and accounting officer)
|
||
EXHIBIT INDEX
|
Exhibit
Number
|
Description
|
|
Certification of principal executive officer pursuant to Rule 13a-14(a) or 15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
|
|
|
Certification of principal financial officer pursuant to Rule 13a-14(a) or 15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
|
|
|
Certification of principal executive officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
|
|
|
Certification of principal financial officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
|
|
|
101.INS
|
Inline XBRL Instance Document (the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document)
|
|
101.SCH
|
Inline XBRL Taxonomy Extension Schema Document
|
|
101.CAL
|
Inline XBRL Taxonomy Extension Calculation Linkbase Document
|
|
101.LAB
|
Inline XBRL Taxonomy Extension Label Linkbase Document
|
|
101.PRE
|
Inline XBRL Taxonomy Extension Presentation Linkbase Document
|
|
101.DEF
|
Inline XBRL Taxonomy Extension Definition Linkbase Document
|
|
104
|
Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101)
|
37
EXHIBIT 31.1
CERTIFICATION PURSUANT TO RULE 13A-14(A) OR 15D-14(A) OF THE SECURITIES EXCHANGE ACT OF 1934, AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Michael P. Puorro, certify that:
| 1. |
I have reviewed this Quarterly Report on Form 10-Q of Hanover Bancorp, Inc.;
|
| 2. |
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not
misleading with respect to the period covered by this report;
|
| 3. |
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and
for, the periods presented in this report;
|
| 4. |
The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial
reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
|
| a. |
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
|
| b. |
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and
the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
|
| c. |
Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by
this report based on such evaluation; and
|
| d. |
Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report)
that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
|
| 5. |
The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of
directors (or persons performing the equivalent functions):
|
| a. |
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and
report financial information; and
|
| b. |
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
|
Dated: February 7, 2022
/s/ Michael P. Puorro
Michael P. Puorro
Chairman & Chief Executive Officer
(principal executive officer)
EXHIBIT 31.2
CERTIFICATION PURSUANT TO RULE 13A-14(A) OR 15D-14(A) OF THE SECURITIES EXCHANGE ACT OF 1934, AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Lance P. Burke, certify that:
| 1. |
I have reviewed this Quarterly Report on Form 10-Q of Hanover Bancorp, Inc.;
|
| 2. |
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not
misleading with respect to the period covered by this report;
|
| 3. |
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and
for, the periods presented in this report;
|
| 4. |
The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting
(as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
|
| a. |
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
|
| b. |
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and
the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
|
| c. |
Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this
report based on such evaluation; and
|
| d. |
Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report)
that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
|
| 5. |
The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of
directors (or persons performing the equivalent functions):
|
| a. |
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report
financial information; and
|
| b. |
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
|
Dated: February 7, 2022
/s/ Lance P. Burke
Lance P. Burke
Executive Vice President & Chief Financial Officer
(principal financial and accounting officer)
EXHIBIT 32.1
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
I, Michael P. Puorro, Chairman & Chief Executive Officer of Hanover Bancorp, Inc. (the “Company”), certify, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350, that: (1) the
Quarterly Report on Form 10-Q of the Company for the quarterly period ended December 31, 2021 (the “Report”) fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m or 78o(d)); and (2)
the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
Dated: February 7, 2022
/s/ Michael P. Puorro
Michael P. Puorro
Chairman & Chief Executive Officer
(principal executive officer)
EXHIBIT 32.2
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
I, Lance P. Burke, Executive Vice President & Chief Financial Officer of Hanover Bancorp, Inc. (the “Company”), certify, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350, that: (1)
the Quarterly Report on Form 10-Q of the Company for the quarterly period ended December 31, 2021 (the “Report”) fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m or 78o(d)); and (2)
the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
Dated: February 7, 2022
/s/ Lance P. Burke
Lance P. Burke
Executive Vice President & Chief Financial Officer
(principal financial and accounting officer)