Ponce Financial Group, Inc. — FY2022 Form 10-K
Reporting period: Fiscal year ended December 31, 2022. Ponce Financial Group is the holding company for Ponce Bank, a New York metropolitan-area community bank and certified CDFI and MDI. The company completed its mutual-to-stock conversion in January 2022; Mortgage World’s assets and liabilities were transferred to the Bank.
Financial performance and position
| Metric | FY2022 / year-end | Comparison |
|---|---|---|
| Total assets | $2.312 billion | Up 39.8% from $1.654 billion |
| Gross loans | $1.526 billion | Up 15.4%; net loans were $1.493 billion |
| Deposits | $1.252 billion | Up 4.0% |
| Net interest income | $66.6 million | Up 13.2% |
| Net interest margin | 3.75% | 4.13% in 2021; down 38 basis points |
| Net interest rate spread | 3.27% | 3.90% in 2021 |
| Provision for loan losses | $24.0 million | $2.7 million in 2021 |
| Net income (loss) | $(30.0) million; $(1.32) per share | $25.4 million income; $1.52 basic EPS in 2021 |
| Cash and cash equivalents | $54.4 million | Down from $153.9 million |
| FHLBNY advances | $517.4 million | Up from $106.3 million |
| Stockholders’ equity | $492.7 million | Up from $189.3 million, primarily from capital issuance |
Net interest income benefited from loan growth and higher securities income, while interest expense rose 95.7% to $16.1 million. Non-interest income fell 81.5% to $6.4 million, principally because 2021 included $20.3 million of gains on property sales. Non-interest expense rose 50.2% to $85.8 million. The filing’s narrative appears to misstate the direction of net interest margin: the reported figures show a decline from 4.13% to 3.75%.
Cash flow was $9.8 million provided by operating activities, $777.1 million used in investing activities, and $667.7 million provided by financing activities. The large investing outflow primarily reflects securities purchases and loan growth. The company received $225 million from the U.S. Treasury’s ECIP in exchange for preferred stock; no preferred dividends accrue for the first two years, and later rates depend on qualifying lending. The Bank reported regulatory capital ratios well above minimums, including a 30.53% total risk-based capital ratio and 20.47% Tier 1 leverage ratio at year-end.
Material changes and credit quality
- Gross loans grew $203.6 million. Multifamily, nonresidential, and construction-and-land loans together reached $987.7 million, or 64.7% of loans, compared with 54.7% a year earlier.
- The allowance for loan losses increased to $34.6 million from $16.4 million, or 2.27% of gross loans. Net charge-offs were $5.8 million, compared with $1.2 million in 2021.
- Nonaccrual loans were $13.7 million; nonperforming loans were 0.90% of gross loans. Construction-and-land loans included $7.6 million on nonaccrual at year-end.
- Available-for-sale securities had $22.4 million of gross unrealized losses; held-to-maturity securities had $15.3 million. Management attributed the losses primarily to interest rates and stated it did not consider them credit impairments.
- The Bank adopted lease accounting effective January 1, 2022, recording $33.4 million of operating lease right-of-use assets and $34.5 million of lease liabilities at year-end.
Unusual items, outlook, and risks
- Grain and cyber fraud: The company recorded a $17.94 million Grain-related expense line, including a $16.9 million net write-off/write-down of receivables and a $1.0 million write-off of its Grain investment. Grain-related loans outstanding were $18.2 million, against a $15.4 million allowance, leaving $2.7 million net exposure. No new Grain microloans were originated after May 31, 2022; further extensions were restricted pending fraud checks.
- Other one-time items: The company contributed $5.0 million to the Ponce De Leon Foundation. It reported a $0.4 million loss on sale of equipment. Management’s non-GAAP reconciliation showed a $25.7 million net loss, excluding specified property-sale and foundation items; this measure still reflects the Grain charges.
- Fourth quarter: The company reported a $9.2 million net loss, including a $12.6 million loan-loss provision. The filing provides quarterly results but no forward earnings guidance.
- Outlook: Management described the Bank as asset-sensitive and said it believed it was positioned to withstand rising rates in the near term. However, its model estimated that an instantaneous 100-basis-point rate increase would reduce first-year net interest income by 1.72%; model results depend on assumptions and are not forecasts. Management cited inflation, rate changes, local economic conditions, and funding costs as uncertainties.
- Key risks: Concentration in New York-area commercial real estate and construction lending; relatively unseasoned loan growth; Grain fraud and servicing risk; rising funding costs and reliance on FHLBNY advances; deposit liquidity and competition; unrealized securities losses; and regulatory, cybersecurity, and operational risks. CECL became effective January 1, 2023; management anticipated an approximately $31.5 million loan allowance and a $0.7 million held-to-maturity securities allowance upon adoption.
- The company reported that 61.1% of deposits were FDIC-insured and an additional 1.1% fully collateralized at year-end. It paid no common dividends and stated it had no current plan to do so.
Important facts for investors to verify
- How Grain loan performance, collections, fraud controls, and allowance adequacy develop after the 2022 write-offs.
- Whether higher delinquencies or losses emerge in the expanded commercial real estate and construction portfolio, including large exposures and geographic concentrations.
- Deposit retention, uninsured-deposit levels, available collateral, and the cost and maturity profile of the $517.4 million in FHLBNY advances.
- The actual CECL transition adjustment and subsequent credit-loss provisions, compared with management’s estimate.
- How rising rates affect deposit pricing, net interest margin, and the value or liquidity of securities, particularly the large held-to-maturity portfolio.
- ECIP preferred-stock dividend rates and restrictions, along with the effect of preferred claims and potential stock-based compensation on common shareholders.