Ponce Financial Group, Inc. — FY2023 Form 10-K
Business context and reporting period. This is the annual report for the fiscal year ended December 31, 2023, not a standalone fourth-quarter filing. Ponce Financial Group is the holding company of Ponce Bank, a federally chartered savings association and certified Community Development Financial Institution and Minority Depository Institution serving the New York City metropolitan area. The Bank principally takes deposits and makes real-estate-secured loans.
Financial highlights
| Metric | FY2023 / Dec. 31, 2023 | Comparable period |
|---|---|---|
| Total assets | $2.75 billion | $2.31 billion at Dec. 31, 2022; up 19.0% |
| Gross loans / net loans | $1.92 billion / $1.90 billion | Gross loans up 26.0% from $1.53 billion |
| Deposits | $1.51 billion | $1.25 billion; up 20.4% |
| Borrowings | $684.4 million | $517.4 million |
| Cash and cash equivalents | $139.2 million | $54.4 million |
| Net interest income / margin | $65.3 million / 2.66% | $66.6 million / 3.66% in 2022 |
| Net income (loss) | $3.35 million; $0.15 per share | $(30.0) million; $(1.32) per share in 2022 |
| Operating cash flow | $6.5 million | $9.8 million in 2022 |
| Stockholders’ equity | $491.4 million | $492.7 million at Dec. 31, 2022 |
Fourth-quarter 2023 net income was $518,000, compared with a $9.2 million net loss in fourth-quarter 2022. Quarterly results can be uneven; the filing reports quarterly provision for credit losses, noninterest income, and expenses that varied materially.
Performance and changes versus 2022
- Interest and dividend income rose 52.1% to $125.9 million, but interest expense increased 275.3% to $60.6 million as deposit and borrowing costs repriced higher. Net interest income consequently fell 2.0%.
- Net interest rate spread narrowed to 1.65% from 3.16%; net interest margin declined to 2.66% from 3.66%. Average yield on earning assets rose to 5.12%, while the average cost of interest-bearing liabilities rose to 3.47%.
- Provision for credit losses was $973,000, down from $24.0 million in 2022. Noninterest expense fell 20.0% to $68.7 million, primarily reflecting the prior-year $17.9 million Grain-related write-off and $5.0 million foundation contribution. FY2023 also included $1.5 million of Grain recoveries.
- Noninterest income increased 59.3% to $10.2 million, including $4.2 million of Treasury grants. Reported profitability therefore includes grant income and Grain-related recoveries.
- Loan growth was concentrated in commercial real estate and construction: multifamily, nonresidential, and construction/land loans totaled $1.40 billion, or 72.7% of loans, versus 64.7% a year earlier. Construction and land loans rose 172.4% to $503.9 million.
- Deposits grew $255.2 million. Borrowings from the Federal Home Loan Bank of New York and Federal Reserve Bank of New York increased to $684.4 million; their year-end weighted-average rate was 4.10%.
Credit, liquidity, capital, and other key matters
- The allowance for credit losses was $26.2 million, 1.36% of gross loans, versus $34.6 million and 2.27% in 2022. Net charge-offs were $6.6 million. Nonaccrual loans, including nonaccruing modifications, were $12.7 million; nonperforming loans were 0.66% of gross loans.
- Available-for-sale securities had $19.9 million of gross unrealized losses at year-end; held-to-maturity securities had $12.4 million. Management attributed securities losses primarily to interest rates, not credit deterioration. Securities totaled $581.7 million in fair value/carrying amounts as presented in the filing.
- Year-end deposits included $600.8 million of certificates of deposit, of which $449.5 million mature in 2024. Management expects substantial renewal, but nonrenewal could require replacement funding or higher deposit rates. The Bank reported 74.6% of deposits as FDIC-insured and another 4.4% fully collateralized.
- The Bank reported $591.5 million in commitments to originate loans and extend credit. It stated it expected sufficient funds to meet current commitments. Additional FHLBNY borrowing capacity was reported at $344.0 million, subject to collateral and lender terms.
- The Bank was categorized as well capitalized. At year-end, its total risk-based capital ratio was 23.30%, common equity Tier 1 ratio 22.05%, and Tier 1 leverage ratio 17.49%. The company received $225 million of Treasury preferred capital through ECIP in 2022; common dividends and repurchases remain subject to ECIP and regulatory restrictions.
- Operating, investing, and financing cash flows were $6.5 million, $(332.9) million, and $411.2 million, respectively. Investing outflows primarily reflected loan growth; financing inflows included deposit growth and borrowings.
Outlook, risks, contingencies, and unusual items
- The filing gives no quantified earnings, margin, loan-growth, or deposit-growth guidance. Management describes priorities including lowering funding costs, improving net interest margin and profitability, investing in technology, and strengthening risk and compliance controls.
- Management highlights rate sensitivity: its year-end model estimated a 2.78% decline in one-year net interest income under an instantaneous 100-basis-point rate increase and a 4.33% decline in economic value of equity. These are model estimates based on assumptions, not forecasts.
- Key risks include the rapidly growing, relatively unseasoned commercial real estate and construction portfolio; New York-area property and rent regulation; inflation and borrower repayment capacity; competition for deposits; reliance on higher-cost wholesale funding; interest-rate exposure; and operational, vendor, and cybersecurity risks.
- The New York City 421-a tax exemption program expired at the end of 2023. Management expects construction-loan demand in its market could diminish absent a replacement program. The filing also warns that regulators could scrutinize or constrain concentrated commercial real estate lending.
- Grain-related cyber fraud led to substantial historical write-downs and charge-offs. The Bank stopped originating new Grain loans in 2022 and assumed servicing of remaining loans in November 2023. Year-end net exposure to Grain borrowers was approximately $1.0 million after allowance, excluding unused commitments and borrower security deposits.
- Other notable items: the Bank adopted CECL on January 1, 2023; received $3.7 million and $0.5 million Treasury grants; entered two interest-rate swaps with $250 million total notional; and repurchased 1.235 million common shares for approximately $11.0 million. No material adverse pending legal proceeding was reported. The auditor issued an unqualified opinion and identified the allowance for credit losses as a critical audit matter.
Most important facts for investors to verify
- Whether net interest margin stabilizes as deposit costs, wholesale funding, and loan yields reset.
- Credit performance and collateral values in construction, multifamily, and nonresidential loans, including the large increase in construction exposure and loans in process.
- Allowance adequacy under CECL, given portfolio growth, limited seasoning, and the judgment involved in forecasts and qualitative adjustments.
- Deposit retention and replacement funding for the $449.5 million of certificates maturing in 2024; also verify borrowing availability and collateral requirements.
- How much recurring profitability depends on grants, recoveries, and other items that may not recur, and whether expense growth and the high efficiency ratio improve.
- ECIP preferred-stock dividend terms, restrictions on common-stock distributions, and the effects of share-based compensation and future dilution.