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(“Hanover”) is a New York corporation which is the holding company for Hanover Community Bank (the “Bank”), a New York chartered community commercial bank focusing on highly personalized and efficient services and products responsive to local needs.
−Removed: 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, and Freehold, Monmouth County, New Jersey.
−Removed: We have also received regulatory approval to open a branch in Hauppauge, Suffolk County, New York, which we expect to open in early 2023.
+Added: The Bank operates as a locally headquartered, community-oriented bank serving customers throughout the New York metro area from offices in Nassau, Suffolk, Queens, Kings (Brooklyn) and New York (Manhattan) Counties, New York, and Freehold, Monmouth County, New Jersey.
+Added: We opened the Bank’s Hauppauge Business Banking Center in Hauppauge, Suffolk County, New York in May 2023.
As of September 30, 2023, we had total assets of $2.15 billion, total loans of $1.87 billion, total deposits of $1.74 billion and total stockholders’ equity of $185.9 million.
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As a result, the Bank has grown its balance sheet significantly both through organic loan and deposit growth, as well as highly opportunistic acquisitions.
−Removed: The Bank’s management team has utilized their strong local community ties, along with their experience with both federal and New York bank regulatory agencies, to create a bank that we believe emphasizes strong credit quality, a solid balance sheet, and a robust capital base.
−Removed: In 2019, we acquired Chinatown Federal Savings Bank (“CFSB”) for a total purchase price of $13.6 million.
−Removed: We acquired total assets of $141.3 million, total loans of $93.6 million and total deposits of $110.0 million, as well as three branches in Manhattan and Brooklyn, NY (one of which, the Canal Street branch, was subsequently closed).
+Added: The Bank’s management team has utilized its strong local community ties and experience with federal and New York bank regulatory agencies to create a bank that we believe emphasizes strong credit quality, a solid balance sheet, and a robust capital base.
+Added: In 2019, we acquired Chinatown Federal Savings Bank (“CFSB”).
The transaction helped us enhance and diversify our funding profile and further enhance our visibility in the New York City market where much of our lending activities take place.
On May 26, 2021, the Company completed the acquisition of Savoy Bank (“Savoy”), a privately held commercial bank founded to provide banking services to small business owners in and around New York City.
−Removed: With the Savoy acquisition, we have expanded our commercial banking capabilities significantly, with a particular focus on small business clients and Small Business Administration (“SBA”) lending.
−Removed: Our one- to four-family residential mortgage segment has a particular niche focus on non-conforming loans, primarily secured by both owner-occupied and investment properties.
+Added: With the Savoy acquisition, we expanded our commercial banking capabilities significantly, with a particular focus on small business clients and Small Business Administration (“SBA”) lending.
+Added: In May 2022, the Company completed an initial public offering (“IPO”) of its common stock resulting in net proceeds of $27.7 million.
+Added: The Company listed its shares on The Nasdaq Global Select Market in connection with the IPO.
+Added: In October 2023, the Company’s Board of Directors approved a change in the Company’s fiscal year end from September 30 to December 31.
+Added: Accordingly, the Company will report a transition quarter that runs from October 1, 2023 through December 31, 2023 (the “Stub Period”).
+Added: The Company’s next full fiscal year will be the calendar year January 1, 2024 through December 31, 2024.
+Added: All references in Part I of this report to a quarter or year are to the Company’s historical fiscal quarter or fiscal year unless otherwise stated.
+Added: Our one- to four-family residential mortgage segment has a particular niche focus on non-conforming loans, primarily secured by owner-occupied and investment properties.
The segment has proven particularly appealing to Asian American borrowers in the New York City boroughs.
−Removed: We offer a variety of deposit accounts to both businesses and consumers through our branch network, which we believe complements our niche lending efforts.
+Added: We offer a variety of deposit accounts to businesses and consumers through our branch network, which we believe complements our niche lending efforts.
Additionally, we have expanded our deposit products to include a full line of municipal banking accounts, which has allowed us to capture additional customers in our operating footprint.
+Added: During the fourth calendar quarter of 2023, we have begun offering business banking services to the legal, licensed cannabis industry in New York state.
Lending Activities
Our lending strategy is to maintain a broadly diversified loan portfolio based on the type of customer (i.e., businesses versus individuals), type of loan product (e.g., owner occupied commercial real estate, commercial loans, etc.), geographic location and industries in which our business customers are engaged (e.g., manufacturing, retail, hospitality, etc.).
−Removed: We principally focus our lending activities on loans that we originate to borrowers located in our market areas.
−Removed: 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.
−Removed: 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.
+Added: We offer personal and 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.
Residential real estate .
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Other one- to four-family credit products include home equity loans and first-time home buyer loans.
−Removed: We take a comprehensive approach to mortgage underwriting, resulting in an average loan-to-value of the portfolio at origination of 56%.
Our one- to four-family residential real estate portfolio is secured by real estate, the value of which may fluctuate significantly over a short period of time as a result of market conditions in the area in which the real estate is located.
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Single-family residential mortgage loans held for sale are generally sold with the servicing rights released.
−Removed: Historically, we have sold many of these non-qualified single-family residential mortgage loans to other financial institutions, including banks and non-banks.
−Removed: While our loan sales to date have been primarily to one financial institution, we expect to expand our network of purchasers that will acquire our one- to four-family loan products.
+Added: However, due to the pace of interest rate increases since 2022, the Bank’s secondary market sale activity remains less active, and the Bank continues originating residential loans for its own portfolio.
Commercial real estate .
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Our management team has extensive knowledge of the markets where we operate and our borrowers.
−Removed: We focus on what we believe to be high quality credits with acceptable loan-to-value ratios, income- producing properties with strong cash flow characteristics, and strong collateral profiles.
−Removed: Our loan-to-value policy limit is 75% for commercial real estate loans.
+Added: We focus on what we believe to be high quality credits with acceptable loan-to-value ratios, income- producing properties with strong cash flow and collateral profiles.
The weighted average LTV was 60% for this portfolio as of September 30, 2023.
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The real estate securing our existing non-owner occupied commercial real estate loans is primarily multi-family, mixed-use and commercial properties.
−Removed: Owner-occupied properties include a wide variety of property types, including offices, warehouses, retail centers, and hotels.
−Removed: Our owner-occupied lending efforts were significantly enhanced with the Savoy merger.
+Added: Owner-occupied properties comprise a wide variety of property types, including offices, warehouses, retail centers, and hotels.
Our construction portfolio is small, representing only $13.0 million in total balances at September 30, 2023.
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We provide a mix of variable and fixed rate commercial and industrial loans, which we refer to as C&I loans.
−Removed: The loans are typically made to small and medium-sized businesses for working capital needs, business expansions and for trade financing.
+Added: The loans are typically made to small and medium-sized businesses for working capital needs, business expansions and trade financing.
We extend commercial business loans on an unsecured and secured basis for working capital, accounts receivable and inventory financing, machinery and equipment purchases, and other business purposes.
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We expect C&I lending to be a key component of our growth going forward.
−Removed: Prior to the acquisition of Savoy, we had a very limited portfolio of commercial and industrial loans.
−Removed: Savoy brought significant expertise in this area.
As of September 30, 2023, our commercial and industrial loans comprised $87.6 million, or 4.7%, of total loans held for investment.
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Our SBA loans are secured by commercial real estate and/or business assets.
−Removed: Our participation in SBA lending, excluding activities related to the Paycheck Protection Program (“PPP”), were a direct result of the merger transaction with Savoy, including acquiring their SBA portfolio, employees and infrastructure.
We offer mostly SBA 7(a) variable-rate loans.
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We monitor SBA loans by collateral type.
−Removed: From time to time, we will also originate SBA 504 loans, which are real estate backed commercial mortgages where we have the first mortgage and the SBA has the second mortgage on the property.
+Added: From time to time, we will also originate SBA 504 loans, which are real estate backed commercial mortgages where we have first mortgages and the SBA has second mortgages on the properties.
We also, from time-to-time, originate loans guaranteed by the United States Department of Agriculture (“USDA”), which have characteristics that are similar to those of SBA 7(a) loans.
−Removed: We originate all such loans through our loan officers and through brokers.
−Removed: Historically, we have primarily originated SBA and USDA guaranteed loans only in the New York metropolitan area.
−Removed: However, we intend to expand our guaranteed lending program and seek to become a national lender under these programs.
−Removed: As a first step, we have hired a lending team based in the Southeast, and will begin originating guaranteed loans referred by that team in 2023.
+Added: We originate all such loans through our loan officers and brokers to borrowers located in, and secured by collateral located in, New York and New Jersey, our primary trade area, as well as in other states across the country.
Deposits and Funding
−Removed: Checking accounts consist of both retail and business demand deposit products.
−Removed: NOW accounts consist of both retail and business interest-bearing transaction accounts that have minimum balance requirements.
−Removed: Money market accounts consist of products that provide a market rate of interest to depositors.
+Added: Checking accounts consist of retail and business demand deposit products.
+Added: NOW accounts consist of retail and business interest-bearing transaction accounts that have minimum balance requirements.
+Added: Money market accounts consist of products that provide market rates of interest to depositors.
Our savings accounts consist of statement type accounts.
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This initiative is also consistent with our branch-lite and highly efficient approach to growing our balance sheet.
−Removed: The team and relationships we have allow us to compete throughout the Long Island market without the expense constraints of physical locations.
+Added: The team and relationships we have allow us to compete throughout the Long Island market without the expense constraints of multiple physical locations.
As of September 30, 2023, we had $313.2 million in municipal deposits at an average rate of 4.53%.
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The Company’s compensation package is designed to maintain market competitive total rewards programs for all employees in order to attract and retain superior talent.
−Removed: As a result of the pandemic, we also implemented flexible scheduling, which has allowed us to remain competitive.
+Added: We also implemented flexible scheduling, which has allowed us to remain competitive.
The financial services industry is highly competitive.
We compete for loans, deposits, and financial services in all of our principal markets.
−Removed: We compete directly with other bank and nonbank institutions located within our markets, internet-based banks, out-of-market banks and bank holding companies that advertise or otherwise serve our markets, money market funds and other mutual funds, brokerage houses, and various other financial institutions.
+Added: We compete directly with other bank and nonbank institutions located within our markets, internet-based banks, out-of-market banks and bank holding companies that advertise in or otherwise serve our markets, money market funds and other mutual funds, brokerage houses, and various other financial institutions.
Additionally, we compete with insurance companies, leasing companies, regulated small loan companies, credit unions, governmental agencies and commercial entities offering financial services products, including nonbank lenders and so-called financial technology companies.
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An institution’s assessment rate depends upon the perceived risk of the institution to the DIF, with institutions deemed less risky paying lower rates.
−Removed: Currently, assessments for institutions of less than $10 billion of total assets are based on financial measures and supervisory ratings derived from statistical models estimating the probability of failure within three years.
−Removed: Assessment rates (inclusive of possible adjustments) currently range from 1.5 to 30 basis points of each institution’s total assets less tangible capital.
+Added: Assessments for institutions of less than $10 billion of total assets, such as the Bank, are based on financial measures and supervisory ratings derived from statistical models estimating the probability of failure within three years.
+Added: Assessment rates (inclusive of possible adjustments) range from 1.5 to 30 basis points of each institution’s total assets less tangible capital.
The FDIC may increase or decrease the range of assessments uniformly, except that no adjustment can deviate more than two basis points from the base assessment rate without notice and comment rulemaking.
−Removed: The FDIC has the authority to increase insurance assessments.
+Added: By final rule adopted in October 2022, the FDIC increased the initial base deposit insurance assessment rates by 2 basis points beginning in the first quarterly assessment period of 2023.
+Added: As a result, effective January 1, 2023, assessment rates for institutions of the Bank’s size ranged from 3.5 to 32 basis points.
A significant increase in insurance premiums would have an adverse effect on the operating expenses and results of operations of the Bank.
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These rules do not establish an explicit supervisory threshold.
−Removed: The agencies intend, at a subsequent date, to incorporate explicit minimum requirements for interest rate risk into their risk-based capital standards and have proposed a supervisory model to be used together with bank internal models to gather data and hopefully propose, at a later date, explicit minimum requirements.
+Added: The agencies intend, at a subsequent date, to incorporate explicit minimum requirements for interest rate risk into their risk-based capital standards and have proposed a supervisory model to be used together with bank internal models to gather data and propose, at a later date, explicit minimum requirements.
The United States is a member of the Basel Committee on Banking Supervision (the “Basel Committee”) that provides a forum for regular international cooperation on banking supervisory matters.
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As of September 30, 2023, the Bank’s current capital levels exceeded the applicable minimum capital requirements, including the capital conservation buffer, as prescribed in the Basel III capital rules.
−Removed: As a result of the Economic Growth Act, banking regulatory agencies adopted a revised definition of “well capitalized” for financial institutions and holding companies with assets of less than $10 billion and that are not determined to be ineligible by their primary federal regulator due to their risk profile, which is referred to as a Qualifying Community Bank.
+Added: As a result of the Economic Growth Act, banking regulatory agencies adopted a revised definition of “well capitalized” for financial institutions and holding companies with assets of less than $10 billion that are not determined to be ineligible by their primary federal regulator due to their risk profile, which is referred to as a Qualifying Community Bank.
The new definition expanded the ways that a Qualifying Community Bank may meet its capital requirements and be deemed “well capitalized.” The new rule establishes a community bank leverage ratio, or CBLR, equal to the tangible equity capital divided by the average total consolidated assets.
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As described above, the Bank has not elected to follow the CBLR so the generally applicable prompt corrective action requirements remain applicable to the Bank.
−Removed: corrective action requirements, insured depository institutions are required to meet the following in order to qualify as “well capitalized:” total risk-based capital ratio of 10% or greater, a Tier 1 risk-based capital ratio of 8% or greater, a common equity tier 1 capital ratio of 6.5% or greater, a leverage ratio of 5% or greater, and not be subject to any order or final capital directive by the FDIC to meet and maintain a specific capital level for any capital measure.
+Added: Under prompt corrective action requirements, insured depository institutions are required to meet the following in order to qualify as “well capitalized”:
+Added: total risk-based capital ratio of 10% or greater, a Tier 1 risk-based capital ratio of 8% or greater, a common equity tier 1 capital ratio of 6.5% or greater, a leverage ratio of 5% or greater, and not be subject to any order or final capital directive by the FDIC to meet and maintain a specific capital level for any capital measure.
Non-member banks that have insufficient capital are subject to certain mandatory and discretionary supervisory measures.
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The term “covered transaction” includes, among other things, the making of a loan to an affiliate, a purchase of assets from an affiliate, the issuance of a guarantee on behalf of an affiliate and the acceptance of securities of an affiliate as collateral for a loan.
−Removed: All such transactions are required to be on terms and conditions that are consistent with safe and sound banking practices and no transaction may involve the acquisition of any “low quality asset” from an affiliate unless certain
−Removed: conditions are satisfied.
+Added: All such transactions are required to be on terms and conditions that are consistent with safe and sound banking practices and no transaction may involve the acquisition of any “low quality asset” from an affiliate unless certain conditions are satisfied.
Certain covered transactions, such as loans to or guarantees on behalf of an affiliate, must be secured by collateral in amounts ranging from 100 to 130 percent of the loan amount, depending upon the type of collateral.
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As of the date of its most recent examination, the Bank was rated “Satisfactory” with respect to its CRA compliance.
+Added: The banking regulatory agencies have recently substantially amended their regulations implementing the CRA to, among other things, move away from standards based upon the location of a bank’s branches and toward a focus on the location of its loans.
+Added: These regulations are not yet effect, and management has not yet determined the impact of these new regulations on the Bank.
New York State Regulation
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It also requires banks to safeguard personal information of consumer customers.
−Removed: Some state laws also protect the privacy of information of state residents and require adequate security for such data, and certain state laws may, and newly issued federal regulations do, in some circumstances, require the Bank to notify affected individuals of security breaches of computer databases that contain their personal information.
+Added: Some state laws also protect the privacy of information of state residents and require adequate security for such data, and certain state laws may, and issued federal regulations do, in some circumstances, require the Bank to notify affected individuals of security breaches of computer databases that contain their personal information.
These laws and regulations may also require the Bank to notify law enforcement, regulators or consumer reporting agencies in the event of a data breach, as well as businesses and governmental agencies that own data.
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In addition, the Bank is subject to certain state laws and regulations designed to protect consumers.
−Removed: The Coronavirus Aid, Relief and Economic Security Act
−Removed: The CARES Act, which became law on March 27, 2020, provided over $2 trillion to combat the COVID-19 pandemic and stimulate the economy.
−Removed: The law had several provisions relevant to financial institutions, including:
−Removed: ● Allowing institutions not to characterize loan modifications relating to the COVID-19 pandemic as a troubled debt restructuring (“TDR”) and also allowing them to suspend the corresponding impairment determination for accounting purposes;
−Removed: ● Temporarily reducing the community bank leverage ratio alternative available to institutions of less than $10 billion of assets to 8%.
−Removed: The ratio increased to 8.5% for 2021 and reverts to 9% thereafter;
−Removed: ● The establishment of the PPP, a specialized low-interest forgivable loan program funded by the U.S.
−Removed: Treasury Department and administered through the SBA’s 7(a) loan guaranty program to support businesses affected by the COVID-19 pandemic.
−Removed: The program ended in May 2021;
−Removed: ● The ability of a borrower of a federally-backed mortgage loan (VA, FHA, USDA, Freddie Mac and Fannie Mae) experiencing financial hardship due, directly or indirectly, to the COVID-19 pandemic, to request forbearance from paying their mortgage by submitting a request to the borrower’s servicer affirming their financial hardship during the COVID-19 emergency.
−Removed: Such a forbearance could be granted for up to 180 days, subject to extension for an additional 180-day period upon the request of the borrower.
−Removed: During that time, no fees, penalties or interest beyond the amounts scheduled or calculated as if the borrower made all contractual payments on time and in full under the mortgage contract could accrue on the borrower’s account.
−Removed: Except for vacant or abandoned property, the servicer of a federally-backed mortgage was prohibited from taking any foreclosure action, including any eviction or sale action, for not less than the 60-day period beginning March 18, 2020, which period has been subsequently been extended several times by federal mortgage-backing agencies.
Other Regulations
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● The Fair Debt Collection Act, governing the manner in which consumer debts may be collected by collection agencies;
+Added: ● The Coronavirus Aid, Relief and Economic Security Act;
● The rules and regulations of the various federal agencies charged with the responsibility of implementing such federal laws.
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(iv) acting as fiduciary, investment or financial advisor;
−Removed: personal or real property;
+Added: (v) leasing personal or real property;
(vi) making investments in corporations or projects designed primarily to promote community welfare;
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Capitalization
−Removed: Bank holding companies are subject to consolidated regulatory capital requirements, which have historically been similar to, though less stringent than, those for the Bank.
−Removed: Federal legislation, however, required the FRB to promulgate consolidated capital requirements for depository institution holding companies that are no less stringent, both quantitatively and in terms of components of capital, than those applicable to depository institutions.
+Added: Bank holding companies are subject to consolidated regulatory capital requirements that are no less stringent, both quantitatively and in terms of components of capital, than those applicable to depository institutions.
As a result, consolidated regulatory capital requirements identical to those applicable to the subsidiary banks generally apply to bank holding companies.
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In general, the policy provides that dividends should be paid only out of current earnings and only if the prospective rate of earnings retention by the holding company appears consistent with the organization’s capital needs, asset quality and overall supervisory financial condition.
−Removed: Separate regulatory guidance provides for prior consultation with FRB staff concerning dividends in certain circumstances such as where the company’s net income for the past four quarters, net of dividends previously paid over that period, is insufficient to fully fund the dividend or the company’s overall rate or earnings retention is inconsistent with the company’s capital needs and overall financial condition.
+Added: Separate regulatory guidance provides for prior consultation with FRB staff concerning dividends in certain circumstances such as where the company’s net income for the past four quarters, net of dividends previously paid over that period, is insufficient to fully fund the dividend or the company’s overall rate of earnings retention is inconsistent with the company’s capital needs and overall financial condition.
The ability of a bank holding company to pay dividends may be restricted if a subsidiary bank becomes undercapitalized.
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Under the Change in Bank Control Act, no person may acquire control of a bank holding company such as the Company unless the FRB has prior written notice and has not issued a notice disapproving the proposed acquisition.
−Removed: In evaluating such notices, the FRB takes into consideration such factors as the financial resources, competence, experience and integrity of the acquirer, the future prospects the bank holding company involved and its subsidiary bank and the competitive effects of the acquisition.
+Added: In evaluating such notices, the FRB takes into consideration such factors as the financial resources, competence, experience and integrity of the acquirer, the future prospects of the bank holding company involved and its subsidiary bank and the competitive effects of the acquisition.
In January 2020, the Federal Reserve substantially revised its control regulations.
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The Federal Reserve Board may require the company to enter into passivity and, if other companies are making similar investments, anti-association commitments.
−Removed: Acquisition of more than 10% of any class of a bank holding company’s voting stock constitutes a rebuttable presumption of control under the regulations under certain circumstances including where, as will be the case with the Company, the issuer has registered securities under Section 12 of the Securities Exchange Act of 1934.
+Added: Acquisition of more than 10% of any class of a bank holding company’s voting stock constitutes a rebuttable presumption of control under the regulations under certain circumstances including where, as is the case with the Company, the issuer has registered securities under Section 12 of the Securities Exchange Act of 1934.
Federal Securities Laws
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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.