Hanover Bancorp(HNVR) - 2025 Q2 - Quarterly Report

PART I - FINANCIAL INFORMATION Financial Statements Unaudited statements show Q1 2025 net income fell to $1.5 million due to a one-time expense, while total assets remained stable at $2.3 billion Consolidated Statement of Financial Condition Highlights (unaudited) | (In thousands) | March 31, 2025 | December 31, 2024 | Change | | :--- | :--- | :--- | :--- | | Total Assets | $2,291,527 | $2,312,110 | ($20,583) | | Loans, net | $1,937,749 | $1,962,745 | ($24,996) | | Total Deposits | $1,936,438 | $1,954,283 | ($17,845) | | Total Liabilities | $2,094,884 | $2,115,472 | ($20,588) | | Total Stockholders' Equity | $196,643 | $196,638 | $5 | Consolidated Statement of Income Highlights (unaudited) | (In thousands, except EPS) | Three Months Ended March 31, 2025 | Three Months Ended March 31, 2024 | Change | | :--- | :--- | :--- | :--- | | Net Interest Income | $14,629 | $12,935 | $1,694 | | Provision for credit losses | $600 | $300 | $300 | | Total Non-Interest Income | $3,732 | $3,576 | $156 | | Total Non-Interest Expense | $15,996 | $10,804 | $5,192 | | Net Income | $1,521 | $4,061 | ($2,540) | | Diluted EPS | $0.20 | $0.55 | ($0.35) | - The company incurred a significant one-time, non-recurring expense of approximately $3.2 million in Q1 2025 related to its core data processing system conversion to FIS Horizon[23] Note 3. Securities The securities portfolio grew to $96.8 million, with no credit loss allowance deemed necessary for unrealized losses Securities Portfolio Summary (in thousands) | Security Type | March 31, 2025 (Fair Value) | December 31, 2024 (Fair Value) | | :--- | :--- | :--- | | Available for sale | $93,197 | $83,755 | | Held to maturity | $3,556 | $3,609 | - No allowance for credit losses was recorded on the securities portfolio as management believes the unrealized losses are not credit-related[34][35][36] Note 4. Loans Total loans decreased slightly to $1.96 billion, while the allowance for credit losses increased and nonaccrual loans significantly declined Loan Portfolio Composition (in thousands) | Loan Category | March 31, 2025 | December 31, 2024 | | :--- | :--- | :--- | | Residential real estate | $733,563 | $729,254 | | Multi-family | $535,429 | $550,570 | | Commercial real estate | $512,823 | $522,805 | | Commercial and industrial | $170,442 | $168,909 | | Total loans | $1,960,674 | $1,985,524 | Allowance for Credit Losses Activity (in thousands) | | Three Months Ended March 31, 2025 | | :--- | :--- | | Beginning balance | $22,779 | | Charge-offs | ($471) | | Recoveries | $17 | | Provision for credit losses | $600 | | Ending balance | $22,925 | - Nonaccrual loans significantly decreased from $16.4 million at year-end 2024 to $11.7 million at March 31, 2025[40] Note 6. Regulatory Matters The Bank remains categorized as 'well capitalized' and exceeds all minimum regulatory capital requirements Bank Capital Ratios | Ratio | March 31, 2025 | Well Capitalized Minimum | | :--- | :--- | :--- | | Total capital to risk weighted assets | 14.62% | 10.00% | | Tier 1 capital to risk weighted assets | 13.37% | 8.00% | | Common equity tier 1 capital | 13.37% | 6.50% | | Tier 1 capital to average total assets | 8.95% | 5.00% | - As of March 31, 2025, the Bank was categorized as well capitalized, the highest regulatory classification[71][72] Management's Discussion and Analysis of Financial Condition and Results of Operations Management attributes a Q1 net income drop to a one-time expense, while highlighting improved net interest margin and asset quality Q1 Financial Performance Summary | (dollars in thousands, except per share data) | Q1 2025 | Q1 2024 | | :--- | :--- | :--- | | Net income | $1,521 | $4,061 | | Net income per share - diluted | $0.20 | $0.55 | | Return on average assets | 0.27% | 0.74% | | Return on average stockholders' equity | 3.11% | 8.70% | - The $2.5 million decrease in net income compared to Q1 2024 was primarily driven by a $5.2 million increase in non-interest expenses, which included $3.2 million in one-time core system conversion costs[129] - The company completed its core processing system conversion to FIS Horizon in February 2025, aiming to become a more technologically advanced and digitally-focused bank[118] Financial Condition Total assets were stable at $2.3 billion, supported by a strong core and municipal deposit base, with improved CRE concentration - The loan portfolio is primarily composed of real estate loans, with commercial real estate at 53.9% and residential loans at 37.4% of the total $2.0 billion portfolio[135] - Municipal deposits grew to $517.1 million, representing 26.7% of total deposits and providing a stable, lower-cost funding source[136] - The Bank's exposure to the Office property market is minor, accounting for only 2.23% of the total loan portfolio with a total balance of $43.8 million[144] Liquidity and Capital Resources The company maintains a strong liquidity position with $679.0 million in undrawn sources and robust capital ratios exceeding regulatory minimums - At March 31, 2025, undrawn liquidity sources totaled $679.0 million, including cash, unencumbered securities, and secured/unsecured funding capacity[145] - The Board of Directors approved a $0.10 per share cash dividend payable on May 14, 2025[159] Capital Ratios (Bank Level) | Ratio | March 31, 2025 | | :--- | :--- | | Tier 1 leverage ratio | 8.95% | | Common equity tier 1 risk-based | 13.37% | | Total risk-based capital ratio | 14.62% | Results of Operations Net interest income grew due to an improved margin, but a surge in non-interest expense from a one-time cost impacted overall results - Net interest margin improved to 2.68% in Q1 2025 from 2.41% in Q1 2024, as the cost of interest-bearing liabilities fell 32 basis points[164] Non-Interest Expense Breakdown (in thousands) | Expense Category | Q1 2025 | Q1 2024 | | :--- | :--- | :--- | | Salaries and employee benefits | $7,232 | $5,562 | | Conversion expenses | $3,180 | $0 | | Other expenses | $4,784 | $4,242 | | Total non-interest expense | $15,996 | $10,804 | Asset Quality Asset quality improved significantly with a marked decrease in non-accrual loans and stronger coverage by the credit loss allowance - The allowance for credit losses as a percentage of non-accrual loans increased to 196% at March 31, 2025, up from 139% at December 31, 2024, indicating stronger coverage of problem loans[178] Non-Performing Assets (in thousands) | Metric | March 31, 2025 | Dec 31, 2024 | | :--- | :--- | :--- | | Non-accrual loans | $11,697 | $16,368 | | Non-accrual loans as a % of total loans | 0.60% | 0.82% | Quantitative and Qualitative Disclosures About Market Risk The company manages interest rate risk and is positioned to benefit from falling rates, with NII projected to increase by 5.4% in a -100 bps scenario Interest Rate Sensitivity Analysis (at March 31, 2025) | Rate Shock (bps) | Estimated Change in EVE (%) | Estimated Change in NII (%) | | :--- | :--- | :--- | | +200 | (15.9)% | (10.3)% | | +100 | (8.0)% | (5.0)% | | -100 | +7.3% | +5.4% | | -200 | +21.0% | +10.4% | Controls and Procedures Management concluded that disclosure controls and procedures were effective with no material changes to internal controls during the quarter - The Company's principal executive officer and principal financial officer concluded that disclosure controls and procedures are effective[191] - There were no changes in internal controls over financial reporting during the last fiscal quarter that have materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting[192] PART II - OTHER INFORMATION Legal Proceedings The company is not subject to any material legal proceedings that would adversely impact its financial condition - The Company is not subject to any material legal proceedings[194] Risk Factors No material changes have been made to the risk factors disclosed in the company's most recent Annual Report - No material changes to the risk factors from the most recent Form 10-K are reported[195] Unregistered Sales of Equity Securities, Use of Proceeds and Issuer Purchases of Equity Securities The company's stock repurchase program remains authorized, but no shares have been repurchased as of the reporting date - The Company has a stock repurchase program authorizing the buyback of up to 366,050 shares; no shares were repurchased under this program as of March 31, 2025[196] Exhibits This section lists all exhibits filed with the Form 10-Q, including required officer certifications and XBRL data