Ponce Financial Group, Inc. Announces 2022 Second Quarter Results

NEW YORK, July 29, 2022 (GLOBE NEWSWIRE) -- Ponce Financial Group, Inc., as the successor by merger with PDL Community Bancorp (the “Company”) (NASDAQ: PDLB), the holding company for Ponce Bank (the “Bank”), reported net income of $771,000, or $0.03 per basic and diluted share, for the second quarter of 2022, compared to a net loss of ($6.8 million), or ($0.31) per basic and diluted share, for the prior quarter and net income of $5.9 million, or $0.35 per basic and diluted share, for the second quarter of 2021.

Second Quarter Highlights

• Completed a private placement of $225.0 million of Senior Non-Cumulative Perpetual Preferred Stock, Series A, to the U.S. Department of Treasury pursuant to the Emergency Capital Investment Program.
• Net interest income of $15.5 million for the second quarter of 2022 decreased $1.9 million, or 10.67%, from the prior quarter due to a reduction in PPP fee amortization. Net interest income for the second quarter of 2022 increased $1.8 million, or 12.79%, from the same quarter last year.
• Income before taxes was $283,000 for the second quarter of 2022 as compared to a loss before taxes of ($9.8 million) for the prior quarter and income before taxes of $7.8 million for the same quarter last year. Included in the second quarter of 2022 is $1.5 million in additional write-offs of the receivable due from Grain Technologies, Inc. (“Grain”) for microloan originations put back to Grain. Included in the first quarter of 2022 is a $6.3 million write-off and $1.7 million in additional reserves for the receivable due from Grain for microloan originations put back to Grain.
• Average cost of interest-bearing deposits was 0.54% for the second quarter of 2022, an increase from 0.49% for the prior quarter and a decrease from 0.67% for the same quarter last year.
• Net interest margin was 4.10% for the second quarter of 2022, a decrease from 4.68% for the prior quarter and an increase from 3.84% for the same quarter last year.
• Net interest rate spread was 3.86% for the second quarter of 2022, a decrease from 4.48% for the prior quarter and an increase from 3.60% for the same quarter last year.
• Efficiency ratio was 93.77% for the second quarter of 2022 compared to 143.50% for the prior quarter and 61.80% for the same quarter last year.
• Non-performing loans of $18.6 million as of June 30, 2022 increased $9.6 million year-over-year and were 1.39% of total gross loans receivable at June 30, 2022. The increase was largely attributable to a completed $6.6 million condominium construction loan which is now in the selling phase and has sales under contracts.
• Net loans receivable were $1.32 billion at June 30, 2022, an increase of $19.2 million, or 1.47%, from December 31, 2021. The increase of $19.2 million was attributable to a $125.2 million increase in non-PPP loans partially offset by a $106.0 million decrease in PPP loans.
• Securities increased $210.6 million in held-to-maturity securities and by $26.7 million in available-for-sale securities from December 31, 2021. The increase in the securities portfolio is designed to increase interest income and enhance the diversification in interest-earning assets.
• Deposits were $1.15 billion at June 30, 2022, a decrease of $56.0 million, or 4.65%, from December 31, 2021.
• An Environmental, Social and Governance Committee was established; it is comprised of the Executive Management Team and is currently in the process of developing a materiality assessment in order to determine what issues, practices, and policies are most important to key stakeholders.

President and Chief Executive Officer’s Comments

Carlos P. Naudon, President and CEO, stated that “we have raised additional equity capital of $328.8 million since December 31, 2021, giving us an unprecedented $518.1 million in stockholder’s equity with which to carry out our mission and add value to our stakeholders, which now includes the United States Treasury, as the holder of our preferred stock. We have begun the process of leveraging that capital, increasing our cash and securities portfolio to a combined $626.4 million from $268.2 million last year, positioning us for additional growing sources of interest income, a new strategic priority. We continue to assess the performance of our microloan portfolio and its strategic impact on our mission as an MDI and CDFI. We are balancing our need to acquire and retain talent necessary to grow our Company with our financial performance.”

Executive Chairman’s Comments

Steven A. Tsavaris, Executive Chairman, noted that “we continue to focus on growing our loan portfolio, net of PPP loans. We increased our net loans receivable by $19.2 million, or 1.47%, since December 31, 2021. Most telling, the reported growth masks the $125.2 million increase in non-PPP loans due to the concurrent $106.0 million reduction in PPP loans. The portfolio of mortgage loans has grown 17.1% year-over-year and 11.1% since December 31, 2021. Our loan growth reflects the resilience of rent stabilized housing, and its construction, in our communities, as well as the attractiveness of our non-qualified mortgages to business customers. We continue to be humbled by the retention of relationships after PPP loan forgivenesses.”

Summary of Results of Operations

Net income for the three months ended June 30, 2022 was $771,000, compared to ($6.8 million) of net loss for the three months ended March 31, 2022 and $5.9 million of net income for the three months ended June 30, 2021.

The $771,000 net income for the three months ended June 30, 2022, was a $7.6 million increase compared to the prior quarter. This increase was attributable to a decrease of $11.5 million in non-interest expense, offset by decreases of $2.5 million of benefit for income taxes and $1.9 million of net interest income. The $11.5 million decrease in non-interest expense reflects the lower write-down of Grain receivable and the nonrecurring contribution to the Ponce De Leon Foundation during the three months ended March 31, 2022.

The $771,000 net income for the three months ended June 30, 2022, was a $5.2 million reduction compared to the same quarter last year. This reduction was due to an increase of $2.9 million in non-interest expense, a decrease of $6.2 million in non-interest income and an increase of $231,000 in provision for loan losses, partially offset by an increase of $1.8 million in net interest income and a decrease of $2.4 million in provision for income taxes quarter over quarter.

The ($6.0 million) net loss for the six months ended June 30, 2022 is a $14.4 million decrease compared to the same period last year. This variance was largely due to an increase of $18.1 million in non-interest expense explained by the one-off expenses mentioned above as well as by an increase in compensation and benefits. Non-interest income was down by $7.8 million given the gain on sale of real property booked last year of $4.8 million coupled with a reduction in income on the sale of mortgage loans. Net interest income after provision for loan losses was up by $5.4 million on higher volumes.

Net interest income for the three months ended June 30, 2022 was $15.5 million, a decrease of $1.9 million, or 10.67%, compared to the three months ended March 31, 2022 and an increase of $1.8 million, or 12.79%, compared to the three months ended June 30, 2021. The decrease of $1.9 million in net interest income for the three months ended June 30, 2022 compared to the three months ended March 31, 2022 was due to a reduction in PPP fee amortization. The increase of $1.8 million in net interest income for the three months ended June 30, 2022 compared to the three months ended June 30, 2021 was due to higher average interest-earning assets of $81.6 million and higher net interest margin of 26bps.

Net interest income for the six months ended June 30, 2022 was $32.8 million, an increase of $6.2 million, or 23.29%, compared to the six months ended June 30, 2021. This increase was due to increases in average interest-earning assets of $137.3 million and net interest margin of 48bps.

Non-interest income of $2.2 million for both the three months ended June 30, 2022 and the three months ended March 31, 2022, decreased $6.2 million from $8.3 million for the three months ended June 30, 2021. Excluding the $4.2 million gain, net of expense, from sale of real properties during the three months ended June 30, 2021, non-interest income decreased $2.0 million from $4.2 million for the three months ended June 30, 2021 compared to $2.2 million for the three months ended June 30, 2022, largely due to decreases in income on mortgage loan sales and originations, reflecting both a slowdown in the secondary mortgage markets for refinances as well as the retention in portfolio of originated non-qualified mortgage loans.

The $2.2 million of non-interest income for both the three months ended June 30, 2022 and the three months ended March 31, 2022 was impacted by increases of $519,000 in other non-interest income and $135,000 in late and prepayment charges, offset by decreases of $364,000 in loan origination fees, $218,000 in income on sale of mortgage loans and $124,000 in brokerage commissions, quarter over quarter.

The decrease of $6.2 million in non-interest income for the three months ended June 30, 2022 compared to the three months ended June 30, 2021 was due to the absence of the one-time $4.2 million in gain, net of expenses, from the sale of real properties recognized during the three months ended June 30, 2021, combined with decreases of $1.1 million in income on sale of mortgage loans, $874,000 in loan origination fees, $216,000 in brokerage commissions and $105,000 in late and prepayment charges, offset by increases of $218,000 in other non-interest income and $79,000 in service charges and fees.

Non-interest income decreased $7.8 million to $4.4 million for the six months ended June 30, 2022 from $12.2 million for the six months ended June 30, 2021. The decrease of $7.8 million was due to a one-time $4.8 million gain, net of expenses, from the sale of real properties recognized during the six months ended June 30, 2021, combined with decreases of $2.2 million in income on sale of mortgage loans, $952,000 in loan origination fees, $291,000 in late and prepayment charges and $101,000 in brokerage commissions, offset by increases of $342,000 in other non-interest income and $190,000 in service charges and fees.

Non-interest expense decreased $11.5 million, or 40.98%, to $16.6 million for the three months ended June 30, 2022 from $28.1 million for the three months ended March 31, 2022 and increased $2.9 million, or 21.46%, from $13.6 million for the three months ended June 30, 2021.

The decrease of $11.5 million in non-interest expense for the three months ended June 30, 2022, compared to the three months ended March 31, 2022, was attributable to an aggregate $8.1 million write-off and write-down related to the receivable due from Grain for microloans originated by Grain and put back to Grain due to fraud in the first quarter of 2022 compared to an additional $1.5 million write-off and write-down in the second quarter of 2022, and a $5.0 million contribution to the Ponce De Leon Foundation in connection with the second-step conversion and reorganization during the first quarter of 2022. Other decreases in non-interest expense included $369,000 in direct loan expenses and $214,000 in compensation and benefits, offset by increases of $414,000 in professional fees and $205,000 in other operating expenses.

The increase of $2.9 million in non-interest expense for the three months ended June 30, 2022, compared to the three months ended June 30, 2021 is a result of increases of $2.7 million in compensation and benefits, $1.5 million in write-off and write-down in the second quarter of 2022 related to the receivable due from Grain for microloans originated by Grain and put back to Grain due to fraud, $399,000 in occupancy and equipment, $103,000 in other operating expenses and $91,000 in data processing expenses, offset by decreases of $1.2 million in professional fees and $646,000 in direct loan expenses. The $2.7 million increase of compensation and benefits related to nonrecurring expense amortization related to PPP loans and new hires.

Non-interest expense increased $18.1 million to $44.6 million for the six months ended June 30, 2022 from $26.6 million for the six months ended June 30, 2021. The increase in non-interest expense for the six months ended June 30, 2022 compared to the six months ended June 30, 2021 was attributable to an aggregate $9.6 million write-off and write down related to the receivable due from Grain for microloans originated by Grain and put back to Grain due to fraud, a $5.0 million contribution to the Ponce De Leon Foundation in connection with the second-step conversion and reorganization during the first quarter of 2022. Other increases in non-interest expense included $4.1 million in compensation and benefits, $957,000 in occupancy and equipment reflecting rental expenses on facilities that were sold and leased back and $344,000 in data processing expenses, offset by decreases of $1.1 million in professional fees and $781,000 in direct loan expenses. The $4.1 million increase of compensation and benefits related to nonrecurring expense amortization related to PPP loans and new hires.

Summary of Balance Sheet

Total assets increased $388.8 million, or 23.51%, to $2.04 billion at June 30, 2022 from $1.65 billion at December 31, 2021. The increase in total assets is attributable to increases of $210.6 million in held-to-maturity securities and $120.9 million in cash and cash equivalents. Other increases in total assets are $26.7 million in available-for-sale securities, $19.2 million in net loans receivable (inclusive of $106.0 million net decrease in PPP loans), $10.4 million in FHLBNY stock, $5.8 million in deferred tax assets, $1.5 million in other assets and $893,000 in accrued interest receivable. The increase in total assets was reduced by decreases of $6.6 million in mortgage loans held for sale, at fair value and $672,000, net, in premises and equipment.

Total liabilities increased $59.9 million, or 4.09%, to $1.52 billion at June 30, 2022 from $1.46 billion at December 31, 2021. The increase in total liabilities was mainly attributable to increases of $228.1 million in advances from FHLBNY and $24.0 million in other liabilities offset by decreases of $122.0 million in second-step liabilities held at December 31, 2021 pending the closing of the conversion and reorganization on January 27, 2022, $56.0 million in deposits and $15.1 million in warehouse lines of credit.

Total stockholders’ equity increased $328.8 million, or 173.75%, to $518.1 million at June 30, 2022 from $189.3 million at December 31, 2021. This increase in stockholders’ equity was mainly attributable to the $225.0 million issuance of preferred stock to the U.S. Treasury pursuant to its Emergency Capital Investment Program, $118.0 million as a result of the sale of common stock in the second-step mutual conversion and reorganization, $4.0 million equity contribution to the Ponce De Leon Foundation, $756,000 in share-based compensation and $690,000 in Employee Stock Ownership Plan shares committed to be released offset by $13.6 million in accumulated other comprehensive loss and $6.0 million in net loss.

Pursuant to the conversion and reorganization, PDL Community Bancorp treasury stock was extinguished on January 27, 2022. Ponce Financial Group, Inc. currently has no treasury stock.

About Ponce Financial Group, Inc.

Ponce Financial Group, Inc., as the successor by merger with PDL Community Bancorp, is the holding company for Ponce Bank. Ponce Bank is a Minority Depository Institution, a Community Development Financial Institution, and a certified Small Business Administration lender. Ponce Bank’s business primarily consists of taking deposits from the general public and to a lesser extent alternative funding sources and investing those funds, together with funds generated from operations and borrowings, in mortgage loans, consisting of 1-4 family residences (investor-owned and owner-occupied), multifamily residences, nonresidential properties and construction and land, and, to a lesser extent, in business and consumer loans. Ponce Bank also invests in securities, which consist of U.S. Government and federal agency securities and securities issued by government-sponsored or government-owned enterprises, as well as, mortgage-backed securities, corporate bonds and obligations, and Federal Home Loan Bank stock.

Forward Looking Statements

Certain statements herein constitute forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Exchange Act and are intended to be covered by the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Such statements may be identified by words such as “believes,” “will,” “would,” “expects,” “project,” “may,” “could,” “developments,” “strategic,” “launching,” “opportunities,” “anticipates,” “estimates,” “intends,” “plans,” “targets” and similar expressions. These statements are based upon the current beliefs and expectations of management and are subject to significant risks and uncertainties. Actual results may differ materially from those set forth in the forward-looking statements as a result of numerous factors. Factors that could cause such differences to exist include, but are not limited to, adverse conditions in the capital and debt markets and the impact of such conditions on business activities; changes in interest rates; competitive pressures from other financial institutions; the effects of general economic conditions on a national basis or in the local markets in which Ponce Bank operates, including changes that adversely affect borrowers’ ability to service and repay Ponce Bank’s loans; the anticipated impact of the COVID-19 pandemic and Ponce Bank’s attempts at mitigation; changes in the value of securities in the investment portfolio; changes in loan default and charge-off rates; fluctuations in real estate values; the adequacy of loan loss reserves; decreases in deposit levels necessitating increased borrowing to fund loans and investments; operational risks including, but not limited to, cybersecurity, fraud and natural disasters; changes in government regulation; changes in accounting standards and practices; the risk that intangibles recorded in the financial statements will become impaired; demand for loans in Ponce Bank’s market area; Ponce Bank’s ability to attract and maintain deposits; risks related to the implementation of acquisitions, dispositions, and restructurings; the risk that Ponce Financial Group, Inc. may not be successful in the implementation of its business strategy; changes in assumptions used in making such forward-looking statements and the risk factors described in Ponce Financial Group, Inc.’s Annual Report on Form 10-K and Quarterly Reports on Form 10-Q as filed with the Securities and Exchange Commission (the “SEC”), which are available at the SEC’s website, www.sec.gov. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of this release. Ponce Financial Group, Inc. disclaims any obligation to publicly update or revise any forward-looking statements to reflect changes in underlying assumptions or factors, new information, future events or other changes, except as may be required by applicable law or regulation.

Ponce Financial Group, Inc., as the successor by merger with PDL Community Bancorp, and SubsidiariesConsolidated Statements of Financial Condition(Dollars in thousands, except for share data)

Ponce Financial Group, Inc., as the successor by merger with PDL Community Bancorp, and SubsidiariesConsolidated Statements of Operations(Dollars in thousands, except per share data)

Ponce Financial Group, Inc., as the successor by merger with PDL Community Bancorp, and SubsidiariesConsolidated Statements of Operations(Dollars in thousands, except per share data)

* Represents more than 500%

Ponce Financial Group, Inc., as the successor by merger with PDL Community Bancorp, and SubsidiariesKey Metrics

(1)  Annualized where appropriate.(2)  Net interest rate spread represents the difference between the weighted average yield on interest-earning assets and the weighted average rate of interest-bearing liabilities.(3)  Net interest margin represents net interest income divided by average total interest-earning assets.(4)  Efficiency ratio represents noninterest expense divided by the sum of net interest income and noninterest income.

Ponce Financial Group, Inc., as the successor by merger with PDL Community Bancorp, and SubsidiariesSecurities Portfolio

(1)  Comprised of Federal Home Loan Mortgage Corporation (“FHLMC”), Federal National Mortgage Association (“FNMA”) and Ginnie Mae (“GNMA”) issued securities.

(1) Comprised of FHLMC, FNMA and GNMA issued securities.

Ponce Financial Group, Inc., as the successor by merger with PDL Community Bancorp, and SubsidiariesLoan Portfolio

(1)   As of June 30, 2022, March 31, 2022, December 31, 2021, September 30, 2021, and June 30, 2021, business loans include $30.8 million, $86.0 million, $136.8 million, $195.9 million and $241.5 million, respectively, of PPP loans.(2)  As of June 30, 2022, March 31, 2022, December 31, 2021, September 30, 2021 and June 30, 2021, consumer loans include $28.3 million, $31.0 million, $33.9 million, $35.5 million and $32.0 million, respectively, of loans originated by the Bank pursuant to its arrangement with Grain.

Ponce Financial Group, Inc., as the successor by merger with PDL Community Bancorp, and SubsidiariesGrain Loan Exposure

Ponce Financial Group, Inc., as the successor by merger with PDL Community Bancorp, and SubsidiariesAllowance for Loan Losses

Ponce Financial Group, Inc., as the successor by merger with PDL Community Bancorp, and SubsidiariesDeposits

(1)  As of June 30, 2022, March 31, 2022, December 31, 2021, and September 30, 2021, June 30, 2021, there were $18.5 million, $19.0 million, $29.0 million, $28.9 million and $28.9 million, respectively, in individual listing service deposits amounting to $250,000 or more. All brokered certificates of deposit individually amounted to less than $250,000.

Ponce Financial Group, Inc., as the successor by merger with PDL Community Bancorp, and Subsidiaries Nonperforming Assets

Ponce Financial Group, Inc., as the successor by merger with PDL Community Bancorp, and Subsidiaries Average Balance Sheets