PDLB

Business Context and Reporting Period

Ponce Financial Group, Inc. (PDLB) is a financial holding company and the parent of Ponce Bank, National Association, a Community Development Financial Institution (CDFI) and Minority Depository Institution (MDI). The company operates primarily in the New York City metropolitan area, focusing on lending to small businesses, minority-owned businesses, and consumers in low-income communities. This report covers the quarterly period ended June 30, 2026.

Key Financial Metrics

Material Changes vs. Prior Period

• Profitability Growth: Net income available to common stockholders increased 41.2% year-over-year for the three months ended June 30, 2026, and 44.0% for the six-month period. This was driven primarily by a 23.1% increase in net interest income.
• Loan Portfolio Expansion: Total gross loans increased by $284.7 million (10.8%) compared to December 31, 2025. Multifamily residential loans grew significantly by $301.1 million (39.8%), while construction and land loans decreased by $36.9 million due to refinancing into permanent facilities.
• Deposit Growth: Total deposits rose $225.2 million (11.0%) to $2.27 billion. Money market accounts increased by $149.5 million, and brokered certificates of deposit grew by $26.6 million.
• Provision for Credit Losses: The provision for credit losses increased to $2.1 million for Q2 2026 from $1.6 million in Q2 2025, and $3.8 million YTD 2026 compared to $1.3 million YTD 2025, reflecting portfolio growth and specific risk assessments.
• Interest Rate Environment: Net interest margin expanded to 3.64% YTD 2026 from 3.12% YTD 2025, benefiting from higher yields on interest-earning assets (6.26%) and lower costs on interest-bearing liabilities (3.39%).

Guidance, Outlook, and Risks

• ECIP Preferred Stock Repurchase: The Company believes it has met the threshold conditions to exercise its option to repurchase $225 million of Preferred Stock issued under the Treasury's Emergency Capital Investment Program (ECIP). The repurchase price is expected to be at a substantial discount to face value. Closing is anticipated within 30 to 90 days of satisfying all conditions.
• Branch Expansion: The Company continues to expand its physical footprint, having opened a new branch in Inwood, New York, in September 2025, and redesigning its Westchester Avenue branch to serve as a community hub.
• Interest Rate Risk: Management utilizes simulation models to monitor interest rate risk. As of June 30, 2026, the bank is asset-sensitive in the short term. A 100 basis point increase in rates is projected to decrease net interest income by 2.42% over the next 12 months, while a 100 basis point decrease is projected to increase it by 1.26%.
• Regulatory Capital: The Company and the Bank remain "well capitalized" under regulatory frameworks, with a Total Capital to Risk-Weighted Assets ratio of 20.00% and a Tier 1 Capital to Risk-Weighted Assets ratio of 18.99% as of June 30, 2026.
• Risk Factors: Key risks include the impact of rising interest rates on loan demand and borrower repayment ability, volatility in the financial services sector, and the ability to manage credit risk in a concentrated geographic market (New York City).

Investor Verification Checklist

• ECIP Repurchase Status: Verify the final consummation of the Preferred Stock repurchase and the actual purchase price paid, as this will significantly impact future earnings and equity.
• Loan Concentration: Review the concentration of commercial real estate and construction loans, which represent a significant portion of the portfolio, and monitor the quality of these assets given the economic environment.
• Deposit Stability: Assess the stability of the $225 million increase in deposits, particularly the reliance on brokered certificates of deposit and money market accounts, to ensure funding costs remain manageable.
• Provision Trends: Monitor the trend in the provision for credit losses relative to the growth in the loan portfolio to ensure the allowance for credit losses remains adequate.
• Regulatory Compliance: Confirm continued compliance with CDFI and MDI requirements, which are tied to the favorable terms of the ECIP Preferred Stock.