Ponce Financial Group, Inc. Reports Fourth Quarter 2022 Results

NEW YORK, Jan. 30, 2023 (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”), today announced results for the fourth quarter of 2022.

Fourth Quarter Highlights (Compared to Prior Periods):

• Net loss of ($9.2) million or ($0.40) per diluted share, for the three months ended December 31, 2022, as compared to net loss of ($14.7) million, or ($0.64) per diluted share for the three months ended September 30, 2022 and net income of $15.0 million, or $0.89 per diluted share for the three months ended December 31, 2021.
• Included in the ($9.2) million 2022 fourth quarter results is a $10.4 million increase in net provision for loan loss reserves/unused commitments to our Grain-originated microloan portfolio, as well as a reversal of $0.8 million of loan origination income that had been taken upfront (as opposed to deferred over the life of the loan).
• Net interest income of $16.2 million for the fourth quarter of 2022 decreased $1.4 million, or 8.21%, from the prior quarter and $0.6 million, or 3.67%, from the same quarter last year, largely due to an increase in funding costs driven by the significant increase in interest rates during the quarter.
• Net interest margin was 2.98% for the fourth quarter of 2022, a decrease from 3.62% for the prior quarter and from 4.51% for the same quarter last year. The reduction was largely attributable to an increase of lower yielding securities in the Company's portfolio and to an increase in the cost of funds.
• Securities totaled $640.3 million as of December 31, 2022, an increase of $526.0 million, or 460.31%, from December 31, 2021.
• Net loans receivable were $1.49 billion as of December 31, 2022, an increase of $188.0 million, or 14.41%, from December 31, 2021. The increase of $188.0 million was attributable to a $304.8 million net increase in non-PPP loans partially offset by a $116.7 million decrease in PPP loans.
• Deposits were $1.25 billion as of December 31, 2022, an increase of $47.7 million, or 3.96%, from December 31, 2021.

President and Chief Executive Officer’s Comments

Carlos P. Naudon, Ponce Financial Group’s President and CEO, stated “We took action this quarter, within applicable guidelines, to further reduce future exposure to our consumer microloan program with Grain by reducing available credit lines for many borrowers. Grain unused credit line exposure was reduced from $15.3 million at the end of the third quarter of 2022 to $0.4 million at the end of the fourth quarter of 2022. We also increased our allowance for loan losses for this portfolio to $15.4 million, leaving us with total possible remaining exposure, inclusive of unused commitments, of $3.2 million at year-end, down from previous exposure of $28.6 million at the end of the third quarter. We also retained $1.4 million of security deposits from Grain borrowers, which may be available to offset the remaining exposure. While we are winding down our partnership with Grain, we will continue to explore and foster other partnerships, to invest in our people and in efficiency enhancing technologies and to use all available capital management tools to deliver value to our stakeholders as a nationally recognized MDI and CDFI institution.

Mr. Naudon continued, “Looking to the coming year, we are focused on successfully navigating a dramatically changed environment compared to a year ago in terms of credit costs and economic uncertainty. We are keenly aware, as many others in our industry have pointed out, that the road ahead will continue to be more volatile as we navigate through this necessary adjustment from an extended period of ultra-low interest rates. Fortunately for Ponce, during 2022 we significantly increased our capital base, both due to the second-step conversion as well as the $225 million sale of our perpetual preferred stock to the U.S. Department of the Treasury, as evidenced by our strong capital ratios. Our financial strength provides significant capacity for future growth, but we will be patient and judicious in deploying this capital while at the same time making use of our strength to support underserved but not undeserving members of our communities.”

Executive Chairman’s Comment

Steven A. Tsavaris, Ponce Financial Group’s Executive Chairman, added, “Despite a challenging environment, we were able to add almost $200 million to our loan portfolio across most categories during the quarter. We saw healthy growth in our multi-family loan and non-qualified mortgage portfolios. The loan portfolio, excluding Grain originations, continues to show great resiliency and continues to enjoy low LTVs”.

Selected performance metrics are as follows (refer to “Key Metrics” for additional information):

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.

Summary of Results of Operations

Net loss for the year ended December 31, 2022, was ($30.0) million compared to net income of $25.4 million for the year ended December 31, 2021. This variance was largely due to charges related to Grain and a contribution to the Ponce De Leon Foundation this year, gains on property sales last year versus a loss on equipment sale this year, higher compensation and occupancy expenses and a reduction on the income on sale of mortgage loans.

Net Interest Income and Net Margin

Net interest income for the year ended December 31, 2022, was $66.6 million compared to $58.8 million for the year ended December 31, 2021. This increase is largely explained by the increases in the securities and loan portfolios.

Net interest margin was 3.75% for the year ended December 31, 2022 compared to 4.13% for the same period last year, a decrease of 38bps. The decrease in net interest margin was a result of an increase in the cost of funds driven by higher interest rates as well as a higher proportion of investment securities within interest-earning assets. These securities offer lower yields versus traditional loans.

Non-interest Income

Non-interest income for the three months ended December 31, 2022, was $0.4 million, a decrease of $1.1 million, or 72.29%, compared to the three months ended September 30, 2022 and a decrease of $18.7 million, or 97.72%, compared to the three months ended December 31, 2021.

The $1.1 million decrease in non-interest income for the three months ended December 31, 2022 compared to the three months ended September 30, 2022 was impacted by the reversal of loan origination income that had been taken upfront (as opposed to deferred) as well as lower income on sale of mortgage loans.

The $18.7 million decrease in non-interest income for the three months ended December 31, 2022 compared to the three months ended December 31, 2021 was attributable to the non-recurring $15.4 million gains on sale of property last year, a $1.4 million reduction in loan origination fees and a $1.3 million reduction in income on sale of mortgage loans.

Non-interest income for the year ended December 31, 2022, decreased $28.2 million, or 81.47%, to $6.4 million compared to $34.6 million for the year ended December 31, 2021. The decrease is primarily due to $20.3 million gains on sale of property last year versus a loss on sale of equipment of $0.4 million, a $4.5 million reduction in income on sale of mortgage loans and a $1.7 million reduction in loan origination fees this year.

Non-interest Expense

Non-interest expense for the three months ended December 31, 2022, was $15.8 million, a decrease of $9.7 million, or 37.97%, compared to the three months ended September 30, 2022 and $0.1 million, or 0.56%, compared to the three months ended December 31, 2021. The $9.7 million decrease from the three months ended September 30, 2022 was mainly attributable to the Grain write-off and write-down in the third quarter and to a lesser extent, a decrease in compensation and benefits expense as we reduced the bonus accrual during the fourth quarter. The $0.1 million decrease from the three months ended December 31, 2021 was attributable to a decrease of $0.6 million in direct loan expense, a $0.5 million recovery of Grain charge-offs and a decrease of $0.5 million in compensation and benefits expense, offset by increases of $0.9 million in occupancy and equipment, mainly due to rental expenses incurred after the sale of property during 2021 and $0.3 million in data processing expenses.

Non-interest expense for the year ended December 31, 2022, was $85.8 million, an increase of $28.7 million or 50.19%, compared to $57.1 million the year ended December 31, 2021. The $28.7 million increase in non-interest expense was attributable to the $17.9 million Grain write-off and write-down, $5.0 million contribution to the Ponce De Leon Foundation, and increases of $4.7 million in compensation and benefits expense, $2.6 million in occupancy and equipment expenses, $0.8 million in data processing expenses, $0.5 million in other operating expenses, $0.4 million in marketing and promotional expenses and $0.3 million in insurance and surety bond premiums. These items were partially offset by decreases of $1.7 million in professional fees, $1.4 million in direct loan expenses and $0.5 million in office supplies, telephone and postage.

Balance Sheet Summary

Total assets increased $658.5 million, or 39.82%, to $2.31 billion as of December 31, 2022 from $1.65 billion as of December 31, 2021. The increase in total assets is largely attributable to an increase of $509.9 million resulting from the purchases in held-to-maturity securities utilizing the $225.0 million received from the issuance of preferred stock to the U.S. Treasury pursuant to its Emergency Capital Investment Program. The increase in total assets is further impacted by increases of $188.0 million in net loans receivable (inclusive of a $116.7 million net decrease in PPP loans), $33.4 million in right of use assets, $18.7 million in Federal Home Loan Bank of New York stock, $16.2 million resulting from the purchase of available-for-sale securities and $12.3 million in deferred tax assets. These increases are partially offset by decreases of $99.5 million in cash and equivalents, $13.9 million in mortgage loans held for sale, at fair value and $6.2 million in other assets.

Total liabilities increased $355.0 million, or 24.25%, to $1.82 billion as of December 31, 2022 from $1.46 billion as of December 31, 2021. The increase in total liabilities was largely attributable to increases of $411.1 million in advances from FHLBNY, $47.7 million in deposits, and $34.5 million in operating lease liabilities, offset by decreases of $122.0 million in subscription liabilities related to the conversion of the mutual holding company to a stock company held as of December 31, 2021 pending the closing of the conversion and reorganization on January 27, 2022 and $15.1 million in warehouse lines of credit.

Total stockholders’ equity increased $303.4 million, or 160.34%, to $492.7 million as of December 31, 2022, from $189.3 million as of December 31, 2021. This increase in stockholders’ equity was largely attributable to the $225.0 million issuance of preferred stock to the U.S. Department of the Treasury pursuant to its Emergency Capital Investment Program and the $118.0 million received as a result of the sale of common stock in the conversion of the mutual holding company to a stock company.

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, 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; anticipated losses with respect to the Company's investment in Grain; 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 Subsidiaries
Consolidated 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 Subsidiaries
Consolidated Statements of Operations
(Dollars in thousands, except per share data)

1. Amounts for the quarterly period ended December 31, 2022 include the reversal of $0.8 million of loan origination income that had been taken upfront in prior quarters of 2022 (as opposed to deferred over the life of ‎the loan)‎.

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

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

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

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

1. As of December 31, 2022, September 30, 2022, June 30, 2022, March 31, 2022, and December 31, 2021, business loans include $20.0 million, $24.7 million, $30.8 million, $86.0 million and $136.8 million, respectively, of PPP loans.
2. As of December 31, 2022, September 30, 2022, June 30, 2022, March 31, 2022, December 31, 2021, consumer loans include $18.2 million, $21.5 million, $28.3 million, $31.0 million and $33.9 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 Subsidiaries
Grain Loan Exposure

1. Includes $0.03 million for allowance for unused commitments on the $0.4 million of unused commitments available to Grain originated borrowers reported in other liabilities in the accompanying Consolidated Statements of Financial Conditions. Excludes $1.4 million of security deposits by Grain originated borrowers reported in deposits in the accompanying Consolidated Statements of Financial Conditions.

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

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

1. As of December 31, 2022, September 30, 2022, June 30, 2022, March 31, 2022 and December 31, 2021, there were $13.6 million, $13.8 million, $18.5 million, $19.0 million, and $29.0 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