$20.27
$42.50
bear $20.27
base $34.33
bull $42.50
margin of safety $20.00
market price* $24.13
Hanover Bancorp owns Hanover Community Bank, a $2.3 billion commercial bank headquartered in Mineola, New York, with branches in Nassau, Suffolk, Queens, Kings (Brooklyn) and New York (Manhattan) Counties and in Monmouth County, New Jersey. It earns its living mainly on the spread between what it collects on about $2.0 billion of loans (multifamily and commercial real estate, residential mortgages, C&I and SBA loans) and what it pays on about $2.0 billion of deposits. Since buying Savoy Bank in May 2021 it has also run an SBA 7(a) lending business that sells the 75% government-guaranteed portion of the loans it makes for a gain, plus a residential loan-sale operation. A large and growing share of its funding comes from New York local governments: municipal deposits were $700.7 million, or 34.5% of deposits, at the end of 2025, at an average cost of 3.01%. Since late 2023 the bank has also provided deposit and lending services to state-licensed cannabis businesses in New York; it does not sell cannabis itself, but because the product remains federally illegal this niche carries regulatory risk. How we measured earnings. We start from operating cash flow and remove working-capital swings, stock-based pay and the capital spending needed to maintain the branches. Two bank-specific judgements matter. First, the bank's gains on selling SBA and residential loans are treated as real, recurring earnings: the business has booked them every year since 2020 ($0.9 million to $10.9 million a year), and the accounting only understates operating cash flow because proceeds from loans moved out of the portfolio are reported as investing cash. Second, the provision for credit losses is treated as a real cost rather than added back as a non-cash charge, because loan losses are the main cost of running a bank. On that basis owner earnings per share were $2.11 in the year to September 2023, $2.20 in calendar 2024 and $1.85 in calendar 2025 (the three-month transition period in late 2023, when the bank moved to a calendar year, is not counted as a year). We anchor on the median of those three years, $2.11. Earlier years describe a different business: 2020 and 2021 came before or during the Savoy integration and included pandemic PPP lending, and fiscal 2022 ($3.76) benefited from near-zero deposit costs that ended in 2023, when interest paid jumped from $7.6 million to $49.6 million. Why 2025 is not the new normal. 2025 owner earnings fell 16%, almost entirely because of credit. In the fourth quarter of 2025 management ran what it called a strategic credit cleanup, charging off $9.6 million, including a $4.0 million partial charge-off on a C&I borrower hurt by tariffs and the sale of $5.0 million of non-performing residential loans. Net charge-offs for the year were $14.2 million against $1.6 million in 2024, and the provision was $10.4 million against $4.9 million. The first half of 2026 supports treating this as a cleanup rather than a new run rate: the provision fell to $1.0 million from $3.0 million a year earlier, net interest income rose to $33.1 million from $29.4 million and net income rose to $5.9 million from $4.0 million. So our base case starts from the normal $2.11 level rather than from the 2025 figure. That is a return to a level the bank has already earned under today's interest rates, not credited growth. Debt. For a bank, deposits and borrowings are the raw material of the business and interest is an operating cost. So we value earnings after interest and do not subtract debt separately. The holding company's $25 million of subordinated notes switched from a fixed 5.00% to floating (three-month SOFR plus 4.874%, 8.76% at year-end 2025) in October 2025, and subordinated debt on the balance sheet rose to about $34 million by June 2026. The higher cost trims about $0.05 a share from the normal level in the base case. At June 2026 the company had about $203 million of shareholders' equity, or roughly $26 a share of tangible book value after $19.2 million of goodwill. Base case, about $34.33 a share. Owner earnings of $2.06 a share: the $2.11 median less the higher subordinated-debt cost. They are held flat for the next ten years and beyond, discounted at 6%. We credit no growth. The bank grew its balance sheet from $0.85 billion in 2020 to $2.3 billion, but that came from an acquisition, from the rate cycle and from winning deposits, and none of those is a repeatable, self-funded process we can count on. What keeps the earnings going after year ten is the bank charter and a deposit franchise, enlarged by the acquisitions of CFSB in 2019 and Savoy in 2021, that has stayed profitable through the 2023 rate shock and the 2025 credit cleanup. Flat nominal earnings also mean the franchise slowly shrinks after inflation. Bear case, about $20.27 a share. It is built from risks the filings name. (1) Credit costs stay at 2025 levels rather than returning to normal: a provision of about $10.4 million a year instead of about $4.9 million costs about $0.57 a share after tax. Commercial real estate is 360% of capital, and $175.9 million (9% of loans) is New York rent-regulated multifamily, where state legislation limits rent increases. (2) Keeping the $700.7 million of rate-sensitive municipal deposits costs 0.25 percentage points more, about $0.18 a share. (3) The subordinated notes stay near 8.8%, about $0.10 a share. That leaves $1.26 a share of annual earning power, worth about $21.00. From that we deduct a one-time loss of about $0.73 a share, equal to 4% of the rent-regulated multifamily book. The bank stays solvent and profitable in this case, but earning only about 60% of its normal level. The shares would be worth well below tangible book. Bull case, about $42.50 a share. Owner earnings of $2.55 a share, held flat. This is the run rate shown in the second quarter of 2026 ($4.1 million of net income, $0.55 a diluted share, or about $2.25 annualized, plus recurring non-cash charges net of maintenance capital spending). It assumes the wider lending margin already visible in 2026 holds and credit stays at the low first-half 2026 level. SBA loan sales were also running higher in the first half of 2026 ($64.4 million of held-for-sale loan proceeds against $42.6 million a year earlier), but no growth beyond today's run rate is credited even in the bull case. What could make this wrong. A second wave of losses in rent-regulated multifamily or tariff-exposed C&I loans. Loss of municipal deposits, which are short-term, rate-sensitive and a third of funding. Changes to the SBA program, including government shutdowns that halt loan sales. A shift in federal enforcement toward banks that serve cannabis businesses. On the other side, the first-half 2026 improvement rests on only two quarters. If it holds through the rest of 2026, the normal level would move toward the bull case. Margin-of-safety price. With a leveraged balance sheet, commercial real estate concentration and reliance on municipal funding, a wide margin of safety is warranted. The margin-of-safety price of $20.00 a share is about 42% below the base case, roughly the bear-case value and below tangible book. From that price, a return to base value within about three years implies roughly 20% a year.