8-K: Hanover Bancorp Reports Strong Q3 Growth, Declares Dividend

Hanover Bancorp, Inc. announced a significant increase in third-quarter net income to $3.5 million and declared a $0.10 quarterly cash dividend.

Summary

• Net income for the quarter ended September 30, 2025, totaled $3.5 million, or $0.47 per diluted share, an increase from $2.4 million, or $0.33 per diluted share, in the prior linked quarter.
• Pre-provision net revenue reached $6.0 million, resulting in a return on average assets of 1.05%, the highest level since the first quarter of 2023.
• Net interest income was $15.2 million for the quarter, an increase of 2.89% from the prior linked quarter and 16.19% from the third quarter of 2024.
• The net interest margin expanded to 2.74% for the quarter, up from 2.37% in the comparable 2024 quarter, with the margin for September 2025 at 2.83%.
• Total deposits increased by $23.5 million, or 1.21%, from June 30, 2025, and $20.5 million, or 1.05%, from December 31, 2024.
• Demand deposits grew by $21.3 million, or 10.08%, from December 31, 2024, driven by C&I and Municipal banking verticals.
• Loans totaled $1.99 billion, a net increase of $22.2 million, or 4.52% annualized, from June 30, 2025, primarily in niche-residential and conventional C&I.
• Book value per share increased to $27.03 at September 30, 2025, from $26.52 at June 30, 2025.
• The Board of Directors approved a $0.10 per share cash dividend on common and Series A preferred shares, payable on November 20, 2025, to stockholders of record on November 13, 2025.
• For the nine months ended September 30, 2025, net income was $7.5 million, or $1.00 per diluted share, compared to $8.4 million, or $1.14 per diluted share, in the comparable 2024 period.
• Adjusted (non-GAAP) net income for the nine months was $10.0 million, or $1.34 per diluted share, up from $8.6 million, or $1.16 per diluted share, in the comparable 2024 period (excluding one-time expenses).

Sentiment

Score: 7

Explanation: The filing presents a generally positive outlook with strong linked-quarter growth in key financial metrics like net income, PPNR, NII, and NIM. Strategic initiatives in deposit and loan growth are yielding results, and asset quality management shows improvement in CRE concentration. However, the flat year-over-year GAAP net income for the quarter, a decline for the nine-month period, and an increase in non-performing loans temper the overall sentiment, indicating some ongoing challenges.

Positives

• Net income for Q3 2025 increased to $3.5 million ($0.47 diluted EPS) from $2.4 million ($0.33 diluted EPS) in the prior linked quarter (Q2 2025).
• Pre-provision net revenue (PPNR) rose to $6.0 million, achieving a return on average assets of 1.05%, the highest since Q1 2023.
• Net interest income (NII) increased by $0.4 million (2.89%) from the prior linked quarter and $2.1 million (16.19%) from Q3 2024, reaching $15.2 million.
• Net interest margin (NIM) expanded to 2.74% in Q3 2025 from 2.37% in Q3 2024, with the month of September 2025 reaching 2.83%.
• Total deposits grew by $23.5 million (1.21%) from June 30, 2025, and $20.5 million (1.05%) from December 31, 2024, totaling $1.97 billion.
• Demand deposits increased by $21.3 million (10.08%) from December 31, 2024, highlighting success in C&I and Municipal banking.
• Strong liquidity position with $712.2 million in undrawn liquidity sources, representing approximately 253% of uninsured deposit balances.
• Loan portfolio increased by $22.2 million (4.52% annualized) from June 30, 2025, to $1.99 billion, driven by niche-residential and conventional C&I.
• Commercial real estate (CRE) concentration ratio improved, decreasing to 362% of capital at September 30, 2025, from 385% at December 31, 2024.
• Book value per share increased to $27.03 at September 30, 2025, from $26.52 at June 30, 2025.
• Tangible book value per share increased to $24.43 at September 30, 2025, from $23.94 at June 30, 2025.
• A quarterly cash dividend of $0.10 per share was declared.
• Non-interest expenses decreased by $0.6 million (4.78%) from the prior linked quarter due to lower incentive compensation, data processing costs, and professional fees.
• Adjusted (non-GAAP) net income for the nine months ended September 30, 2025, increased to $10.0 million ($1.34 diluted EPS) from $8.6 million ($1.16 diluted EPS) in the comparable 2024 period.

Negatives

• Net income for Q3 2025 was flat at $3.5 million ($0.47 diluted EPS) compared to $3.5 million ($0.48 diluted EPS) in Q3 2024.
• Net income for the nine months ended September 30, 2025, decreased to $7.5 million ($1.00 diluted EPS) from $8.4 million ($1.14 diluted EPS) in the comparable 2024 period.
• Non-interest income decreased to $2.8 million in Q3 2025 from $4.0 million in Q3 2024, primarily due to lower gain on sale of loans held-for-sale.
• Gain on sale of government guaranteed SBA loans decreased significantly to $0.9 million in Q3 2025 from $2.4 million in Q3 2024.
• Provision for credit losses increased to $1.3 million in Q3 2025 from $0.2 million in Q3 2024.
• Non-performing loans increased to $17.2 million at September 30, 2025, from $12.7 million at June 30, 2025, with $3.1 million of this increase related to residential mortgage loans.
• The allowance for credit losses as a percentage of non-performing loans decreased to 130.20% at September 30, 2025, from 170.51% at June 30, 2025.
• Returns on average assets, average stockholders equity, and average tangible equity (GAAP) for the nine months ended September 30, 2025, were lower than the comparable 2024 period.

Risks

• The impact of a pandemic or other health crises and the government's response on operations, customers, and the economy.
• Increased competitive pressures among depository institutions.
• Changes in the interest rate environment that may reduce interest margins.
• Variations in loan origination and sale volumes, charge-offs, and credit loss provisions.
• General economic conditions being less favorable than expected.
• Political developments, wars, or other hostilities disrupting or increasing volatility in securities markets or other economic conditions.
• Legislative or regulatory changes or actions adversely affecting the business.
• Changes and trends in the securities markets adversely impacting the company.
• A delayed or incomplete resolution of regulatory issues.
• Difficulties in integrating any acquired businesses, potentially increasing expenses and delaying expected benefits.
• The impact of reputation risk on business generation and retention, funding, and liquidity.
• The outcome of any future regulatory and legal investigations and proceedings.

Future Outlook

Management anticipates that continuing performance will be positively influenced by further Federal Open Market Committee (FOMC) rate decreases and an improved yield curve, which should positively impact the company's liability-sensitive balance sheet and potentially increase lending opportunities. The company expects C&I lending and deposit activity to grow as the year progresses, supported by its existing pipeline. A normalized effective tax rate of 25.0% is expected for the remainder of the year.

Management Comments

• "Our third quarter performance reflects positive notes, including increased Pre-Provision Net Revenue of $6.0 million driven by an increase in net interest income and lower operating expenses."
• "Continuing performance should be positively influenced by further Federal Open Market Committee (FOMC) rate decreases and an improved yield curve, positively impacting our liability sensitive balance sheet and potentially increasing lending opportunities."
• "With our continued development of hi-tech branches in key markets, such as Hauppauge, Port Jefferson and others coming soon, supported by local, relationship-based Business Development Officers, we are growing market share in an effort to drive increased shareholder value."

Industry Context

The company's performance is significantly influenced by the interest rate environment, with its liability-sensitive balance sheet benefiting from recent and anticipated Federal Funds rate reductions. The 'higher-for-longer' interest rate environment, coupled with tariffs, has negatively impacted demand and creditworthiness among small business borrowers, affecting SBA loan originations across the industry. The focus on C&I and municipal banking verticals aligns with a broader industry trend of diversifying funding sources and loan portfolios away from heavy commercial real estate concentrations.

Comparison to Industry Standards

• NA

Stakeholder Impact

• Shareholders: Benefit from increased book value per share, tangible book value per share, and a declared quarterly cash dividend.
• Employees: Potential for increased headcount due to new branch openings (e.g., Port Jefferson) and expansion of C&I lending verticals.
• Customers: Access to new 'hi-tech' branches, a full range of consumer, commercial, and municipal banking products, and relationship-based lending services.
• Small Business Borrowers: May face challenges due to the 'higher-for-longer' interest rate environment and tariffs, leading to reduced demand and tighter credit conditions for SBA loans.
• Creditors: Improved loan-to-deposit ratio and strong liquidity position enhance the company's financial stability.

Next Steps

• Continue development of hi-tech branches in key markets such as Hauppauge, Port Jefferson, and other upcoming locations.
• Grow market share through local, relationship-based Business Development Officers.
• Expand C&I lending and deposit activity based on the existing pipeline.
• Selectively explore Commercial Real Estate opportunities with an emphasis on relationship-based lending.

Key Dates

Recommendation

While Hanover Bancorp demonstrated strong linked-quarter growth in net income, net interest income, and net interest margin, and made progress in deposit and loan diversification, several factors warrant a 'hold' recommendation. The year-over-year GAAP net income for the quarter was flat, and the nine-month GAAP net income declined. Additionally, non-performing loans increased, and the allowance for credit losses relative to non-performing loans decreased. The benefits from a liability-sensitive balance sheet in a declining rate environment are positive, but the mixed performance and asset quality trends suggest a need for continued monitoring before a more aggressive stance.

Keywords

Banking, Financial Results, Net Interest Margin, Deposits, Loans, Commercial Real Estate, Community Bank, New York, NASDAQ: HNVR, Hanover Bancorp, Earnings, Dividend