PONCE FINANCIAL GROUP, INC. General
Management's discussion and analysis of the financial condition and results of operations atMarch 31, 2022 andDecember 31, 2021 , and for the three months endedMarch 31, 2022 and 2021, is intended to assist in understanding the financial condition and results of operations ofPonce Financial Group, Inc. (the "Company"). The information contained in this section should be read in conjunction with the unaudited financial statements and the notes thereto appearing in Part I, Item 1, of this quarterly report on Form 10-Q. OnJanuary 26, 2022 , the assets and liabilities ofMortgage World Bankers, Inc. ("Mortgage World "), a wholly owned subsidiary ofPDL Community Bancorp , were transferred to the Bank. Except for the winding up of its operations,Mortgage World ceased to conduct business as a separate entity and is now operated as a division of the Bank. OnJanuary 27, 2022 ,Ponce Financial Group, Inc. andPDL Community Bancorp announced that the conversion and reorganization ofPonce Bank Mutual Holding Company from the mutual to stock form of organization and related stock offering was consummated at the close of business. As a result of the closing of the conversion and reorganization and stock offering,Ponce Financial Group, Inc. is now the holding company forPonce Bank ("Ponce Bank " or the "Bank").Ponce Bank's former mutual holding companies,PDL Community Bancorp andPonce Bank Mutual Holding Company , have ceased to exist.
Cautionary Note Regarding Forward-Looking Statements
This quarterly report contains forward-looking statements, which can be identified by the use of words such as "estimate," "project," "intend," "anticipate," "assume," "plan," "seek," "expect," "will," "may," "should," "indicate," "would," "believe," "contemplate," "continue," "target" and words of similar meaning. These forward-looking statements include, but are not limited to:
• statements of the Company's goals, intentions and expectations;
• statements regarding its business plans, prospects, growth and operating
strategies;
• statements regarding the quality of its loan and investment portfolios; and
• estimates of the risks and future costs and benefits;
These forward-looking statements are based on current beliefs and expectations and are inherently subject to significant business, economic and competitive uncertainties and contingencies, many of which are beyond the Company's control. In addition, these forward-looking statements are subject to assumptions with respect to future business strategies and decisions that are subject to change.
The following factors, among others, could cause actual results to differ materially from the anticipated results or other expectations expressed in the forward-looking statements:
• the scope, duration and severity of the COVID-19 pandemic and its related
economic effects, and their effects on our business and operations, our
customers, including their ability to make timely payments on loans, ourservice providers, and on the economy and financial markets in general;
• changes in consumer spending, borrowing and savings habits;
• general economic conditions, either nationally or in the market areas, that
are worse than expected;
• the Company's ability to manage market risk, credit risk and operational
risk in the current economic environment;
• changes in the level and direction of loan delinquencies and write-offs and
changes in estimates of the adequacy of the allowance for loan losses;
• the ability to access cost-effective funding; • fluctuations in real estate values and real estate market conditions; • demand for loans and deposits in the market area;
• the Company's ability to implement and change its business strategies;
• competition among depository and other financial institutions;
• inflation and changes in the interest rate environment that reduce the
Company's margins and yields, its mortgage banking revenues, the fair value
of financial instruments or the level of loan originations, or increase the
level of defaults, losses and prepayments on loans the Company have made
and make;
46--------------------------------------------------------------------------------
• adverse changes in the securities or secondary mortgage markets;
• changes in laws or government regulations or policies affecting financial
institutions, including changes in regulatory fees and capital
requirements;
• the impact of the Dodd-Frank Act and the implementing regulations;
• changes in the quality or composition of the Company's loan or investment
portfolios;
• technological changes that may be more difficult or expensive than expected;
• the inability of third party providers to perform as expected;
• the Company's ability to enter new markets successfully and capitalize on
growth opportunities;
• the Company's ability to successfully integrate into its operations, any
assets, liabilities, customers, systems and management personnel the
Company may acquire and management's ability to realize related revenue
synergies and cost savings within expected time frames, and any goodwill
charges related thereto;
• changes in accounting policies and practices, as may be adopted by the bank
regulatory agencies, the Financial Accounting Standards Board , the
Securities and Exchange Commission or the Public Company Accounting
Oversight Board ;
• the Company's ability to retain key employees;
• the Company's compensation expense associated with equity allocated or
awarded to its employees; and
• changes in the financial condition, results of operations or future
prospects of issuers of securities that the Company may own.
Additional factors that may affect the Company's results are discussed in our Annual Report on Form 10-K for the year endedDecember 31, 2021 under the heading "Risk Factors" filed with theSecurities and Exchange Commission ("SEC") onMarch 31, 2022 , as updated in this Quarterly Report on Form 10-Q. Because of these and other uncertainties, our actual future results may be materially different from the results indicated by these forward-looking statements. The Company is under no duty to and does not assume any obligation to update any forward-looking statements after the date they were made, whether as a result of new information, future events or otherwise.
Employees and
As ofMarch 31, 2022 , the Company had 223 full time equivalent employees. None of the Company's employees are represented by a labor union, and management considers its relationship with employees to be good. The Company believes its ability to attract and retain employees is key to its success. Accordingly, the Company strives to offer competitive salaries and employee benefits to all employees and monitor salaries and other compensation in its market area. The Company encourages and supports the growth and development of its employees. Continual learning and career development is advanced through ongoing performance and development conversations with employees, internally developed training programs and educational reimbursement programs. The Company is responsible for creating an equitable workplace ensuring diversity at all management levels. The Company prides itself on establishing a diverse workforce that serves our diverse customer base in theNew York metro area. The Company's inclusion and diversity program focuses on its workforce, workplace, and community. The Company believes that its business is strengthened by a diverse workforce that reflects the communities in which it operates. The Company believes that all of its team members should be treated with respect and equality, regardless of gender, ethnicity, sexual orientation, gender identity, religious beliefs, or other characteristics. The Company has also broadened its focus on inclusion and diversity by including social and racial equity in its conversations and equipping and empowering its team leaders with appropriate tools and training. While it appears the COVID-19 pandemic has entered into an endemic stage, related measures taken by governments, businesses and individuals as a result of the pandemic continue to cause uncertainty, volatility and disruption in the economy, including the economies of the markets that we serve. In response to the pandemic, we adjusted our business practices, including restricting employee travel, encouraging employees to work from home when possible, implementing social distancing guidelines within our offices, and continuing to hold regular meetings of our pandemic response team. Certain of these measures remain in place due to the continued prevalence of the virus, though, as ofMarch 31, 2022 , all of our customer locations are open and the majority of our employees have schedules that include work at the office. 47 --------------------------------------------------------------------------------
Non-GAAP Financial Measures
The following discussion contains certain non-GAAP financial measures in addition to results presented in accordance with GAAP. These non-GAAP measures are intended to provide the reader with additional supplemental perspective on operating results, performance trends, and financial condition. Non-GAAP financial measures are not a substitute for GAAP measures; they should be read and used in conjunction with the Company's GAAP financial information. The Company's non-GAAP measures may not be comparable to similar non-GAAP information which may be presented by other companies. In all cases, it should be understood that non-GAAP operating measures do not depict amounts that accrue directly to the benefit of shareholders. An item that management excludes when computing non-GAAP adjusted earnings can be of substantial importance to the Company's results and condition for any particular year. A reconciliation of non-GAAP financial measures to GAAP measures is provided below. TheSEC has exempted from the definition of non-GAAP financial measures certain commonly used financial measures that are not based on GAAP. Management believes that these non-GAAP financial measures are useful in evaluating the Company's financial performance and facilitate comparisons with the performance of other financial institutions. However, the information should be considered supplemental in nature and not as a substitute for related financial information prepared in accordance with GAAP. The table below includes references to the Company's net income (loss) and earnings (loss) per share for the three months endedMarch 31, 2022 and 2021 before gain on sale of real property and the Company's contribution to thePonce De Leon Foundation . In management's view, that information, which is considered non-GAAP information, may be useful to investors as it will improve an understanding of core operations for the current and future periods. The non-GAAP net (loss) income amount and (loss) earnings per share reflect adjustments related to the non-recurring gain on sale of real property and the Company's contribution to thePonce De Leon Foundation , net of tax effect. A reconciliation of the non-GAAP information to GAAP net income (loss) and earnings (loss) per share is provided below.
Non-GAAP Reconciliation - Net (Loss) Income before Gain on Sale of Real Property
and Contribution to the
Three Months Ended Three Months Ended
March 31, 2022 March 31, 2021
(Dollars in thousands,
except per share data)
Net (loss) income - GAAP $ (6,820 ) $ 2,452
Gain on sale of real property - (663 )
Contribution to the Ponce De Leon Foundation 4,995 -
Income tax provision (benefit) (1,049 ) 139
Net (loss) income - non-GAAP $ (2,874 ) $ 1,928
(Loss) earnings per common share (GAAP) (1) $ (0.31 ) $ 0.15
(Loss) earnings per common share (non-GAAP) (1) $ (0.13 ) $ 0.12
(1) (Loss) earnings per share were computed (for the GAAP and non-GAAP basis)
based on the weighted average number of basic shares outstanding for the
three months ended March 31, 2022 and 2021 (21,721,113 shares and
16,548,196 shares, respectively).
COVID-19 Pandemic and the CARES Act
OnMarch 27, 2020 ,Congress passed, and the President signed, the Coronavirus Aid, Relief, and Economic Security Act (the "CARES Act") to address the economic effects of the COVID-19 pandemic. The CARES Act appropriated$349.0 billion for PPP loans and onApril 24, 2020 , theU.S. Small Business Administration ("SBA") received another$310.0 billion in PPP funding. OnDecember 27, 2020 , the Economic Aid Act appropriated$284.0 billion for both first and second draw PPP loans, bringing the total appropriations for PPP loans to$943.0 billion . PPP ended onMay 31, 2021 . Loans under the PPP that meet SBA requirements may be forgiven in certain circumstances, and are 100% guaranteed by the SBA. The Company had received SBA approval and originated 5,340 PPP loans, of which 737 loans totaling$86.0 million were outstanding atMarch 31, 2022 . PPP loans have a two-year or five-year term, provide for fees of up to 5% of the loan amount and earn interest at a rate of 1% per annum. It is our expectation that a significant portion of these remaining loans will ultimately be forgiven by the SBA in accordance with the terms of the program. As ofMarch 31, 2022 , the average authorized loan size was$117,000 and the median authorized loan size was$14,000 . The Bank, which is designated as both aCommunity Development Financial Institution ("CDFI") 48 -------------------------------------------------------------------------------- and aMinority Depository Institution ("MDI"), originated 5,340 PPP loans in the amount of$261.4 million , which, based upon information provided by the SBA, significantly exceeded the reported average performance of banks in our peer group. As a result of the initial COVID-19 pandemic outbreak, the Company continues to alter the way it has historically provided services to its deposit customers while seeking to maintain normal day-to-day back-office operations and lending functions. To that end, as ofMarch 31, 2022 , all back-office and lending personnel have been formed into teams which alternate between a remote and in office work environment while the branch network continues to provide traditional banking services to its communities and has for the most part returned to normal operating hours while continuing to shift service delivery to electronic and web-based products. The Company continues its extensive and intensive communications program geared to informing customers of the alternative resources provided by the Company for retaining access to financial services, closing loans and conducting banking transactions, such as ATM networks, online banking, mobile applications, remote deposits and the Company's Contact Center. The Company proactively manages its day-to-day operations by using video and telephonic conferencing. The Company remains vigilant of the potential for other COVID-19 variant outbreaks and remains prepared to restore the necessary protocols to minimize any disruptions to its current operations and services.
Federal Economic Relief Funds To Aid Lending
OnAugust 10, 2021 , the Company through its subsidiary, the Bank, received from theUnited States Department of the Treasury ("Treasury") a grant in the amount of$1.8 million in federal Economic Relief Funds for Small Businesses under theTreasury's Rapid Response Program for CDFIs . TheTreasury also has determined that the Company is eligible to receive up to$225.0 million in capital under theTreasury's Emergency Capital Investment Program ("ECIP") for CDFI and MDI institutions, which funding amountTreasury has determined will be$185.6 million , subject to increase as further funds become available. The Company has indicated toTreasury its willingness to accept such additional funds. Closing of the ECIP funding has been tentatively scheduled byTreasury to be onJune 7, 2022 . Critical Accounting Policies Accounting estimates are necessary in the application of certain accounting policies and procedures and are particularly susceptible to significant change. Critical accounting policies are defined as those involving significant judgments and assumptions by management and that could have a material impact on the carrying value of certain assets, liabilities or on income under different assumptions or conditions. Management believes that the most critical accounting policy relates to the allowance for loan losses. The allowance for loan losses is established as probable incurred losses are estimated to have occurred through a provision for loan losses charged to earnings. Loan losses are charged against the allowance when management believes the uncollectibility of a loan balance is confirmed. Subsequent recoveries, if any, are credited to the allowance. The discussion and analysis of the financial condition and results of operations are based on the Company's consolidated financial statements, which are prepared in conformity with GAAP. The preparation of these consolidated financial statements requires management to make estimates and assumptions affecting the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities, and the reported amounts of income and expenses. The estimates and assumptions used are based on historical experience and various other factors and are believed to be reasonable under the circumstances. Actual results may differ from these estimates under different assumptions or conditions, resulting in a change that could have a material impact on the carrying value of our assets and liabilities and our results of operations.
See Note 1, "Nature of Business and Summary of Significant Accounting Policies," to the accompanying Financial Statements for a discussion of significant accounting policies.
Factors Affecting the Comparability of Results
Sale of Real Property.
OnFebruary 11, 2021 , the Company completed the sale of real property located at3821 Bergenline Avenue ,Union City, New Jersey for a sale price of$2.4 million . Concurrent with the sale, the Bank and the purchaser entered into a fifteen-year lease agreement whereby the Bank will lease back this real property at an initial annual base rent of approximately$145,000 subject to annual rent increases of 1.5%. Under the lease agreement, the Bank has four (4) consecutive options to extend the term of the lease by five (5) years for each such option. The sale lease-back resulted in a gain of approximately$623,000 , net of expenses, which is included in other non-interest income in the accompanying Consolidated Statements of Operations. 49 --------------------------------------------------------------------------------
OnJanuary 27, 2022 , the Company made a$5.0 million contribution to thePonce De Leon Foundation as part of the conversion and reorganization, which is included in non-interest expense for the three months endedMarch 31, 2022 , in the accompanying Consolidated Statements of Operations.
Write-off and Write-Down.
In 2020, the Company entered into a business arrangement with the FinTech startup companyGrain Technologies, Inc. ("Grain"). Grain's product is a mobile application geared to the underbanked, minorities and new generations entering the financial services market. In employing this mobile application, the Bank uses non-traditional underwriting methodologies to provide revolving credit to borrowers who otherwise may gravitate to using alternative non-bank lenders. Under the terms of its agreement with Grain, the Bank is the lender for Grain-originated microloans with credit lines currently up to$1,000 and, where applicable, the depository for related security deposits. Grain originates and services these microloans and is responsible for maintaining compliance with the Bank's origination and servicing standards, as well as applicable regulatory and legal requirements. If a microloan is found to be fraudulent, becomes 120 days delinquent upon 120 days of origination or defaults due to a failure of Grain to properly service the microloan, the Bank's applicable standards for origination or servicing are deemed to have not been complied with and the microloan is put back to Grain, who then becomes responsible for the microloan and any related losses. The microloans put back to Grain are accounted for as an "other asset," specifically referred to herein as the "Grain Receivable." The Bank, pursuant to its agreement with Grain, atDecember 31, 2021 , had 59,180 microloans outstanding, net of put backs, with credit extensions aggregating$33.9 million . Of these microloans, the Bank estimates that 80 percent have been made in low- and low-to-moderate income census tracts with an estimated 56 percent made to minority borrowers. AtMarch 31, 2022 , the Bank had 54,247 microloans outstanding, net of put backs, with an aggregate balance totaling$31.0 million and which were performing, in management's opinion, comparably to similar portfolios. Under the agreement with the Bank, Grain earns origination and servicing fees based on the Bank's earnings from the microloans. Since entering into the agreement with Grain in 2020 throughMarch 31, 2022 , the Bank has paid Grain$1.9 million in such fees. The Company also has directly invested$1.0 million in Grain. Grain has been victimized by cyber fraud using synthetic and other forms of fraudulent identifications, a phenomenon that has become prevalent with FinTechs. Since the beginning of its agreement with Grain throughMarch 31, 2022 , 24,719 microloans amounting to$17.0 million have been deemed to be fraudulent and put back to Grain, of which, as ofMarch 31, 2022 ,$11.8 million remain outstanding in the Grain Receivable (inclusive of a$1.8 million reserve established as ofDecember 31, 2021 by the Bank using a$1.8 million grant received from theU.S. Treasury Department's Rapid Response Program to reduce the Grain Receivable atDecember 31, 2021 to$8.5 million , an amount management considered collectible at the time under the facts and circumstances then known). Grain has agreed to apply at least 85% of origination and servicing fees received from the Bank as payment for the Grain Receivable, and, upon the completion of a series A financing, pay all amounts due on the Grain Receivable. Although Grain has successfully held pre-series A fundraising rounds, including throughApril 30, 2022 , Grain remains a pre-profit startup highly dependent on earnings from its relationship with the Bank, a new relationship with another financial institution, and further capital raises which may not materialize. Accordingly, Grain's ability to pay the Grain Receivable in the short term, taking into account current economic conditions and regulatory requirements, was considered. Based on further investigation, evaluation and financial analysis during the first quarter of 2022, the Company has assessed the collectability of the$11.8 million remaining Grain Receivable and has determined that it is appropriate to write-off approximately$6.3 million and provide for an additional reserve of$1.7 million , after applying a$1.6 million security deposit set-off, leaving a net Grain Receivable balance of$2.2 million atMarch 31, 2022 . This write-off and write-down has negatively affected the Company's pre-tax earnings by approximately$8.1 million and its net income by approximately$5.7 million , or approximately ($0.26 ) and ($0.26 ) per basic and diluted share, respectively, on an after-tax basis. In arriving at the amounts to be written-off and written-down, the Company considered, among other things, the Bank's right to offset security deposits associated with fraudulent loans, payments received from Grain subsequent toDecember 31, 2021 , and the discounted net present value of future cash flows reasonably expected to be received by the Bank from Grain over the next 18 months, based on prior payments, and the Bank's estimate for any additional incurred fraudulent identities in the Grain portfolio. The Bank determined that a 12% discount rate was appropriate in calculating net present value of such payments. In addition, the Bank has considered the likelihood of Grain prevailing in litigation it has instituted against a third party vendor where Grain is demanding damages resulting from fraudulent loans originated by Grain that were subject to the synthetic identifications that Grain's vendor failed to identify. Grain is presently conducting a capital raise in the form of a private placement of securities which has not been incorporated into the analysis. Grain is also currently in the process of reviewing and affirming the compliance of the remaining loans in the portfolio, which may have additional fraudulent losses that are currently not estimable. 50 -------------------------------------------------------------------------------- The Company continues to closely monitor its portfolio of consumer loans originated by Grain as well as Grain's refinement of solutions for detecting and preventing cyber fraud in the application for microloans. The Company has requested, and Grain has agreed, that no new microloans be originated until further notice and that further extensions of credit to an existing microloan borrower only be made upon confirmation that such borrower is not fraudulent. The Company also evaluates on a monthly basis the likelihood that Grain will be able to make payments on the Grain Receivable. If, as a result of its continuing evaluation, the Company determines that Grain will not be able to make timely payments on the Grain Receivable or additional Grain originated microloans are found to be fraudulent, the Bank may be required to write-off some or all of the remaining value of the Grain Receivable, which could materially decrease the Company's net income. Further, like other start-up companies, there is a higher level of risk that Grain may not be able to execute its business plan and may fail. In the event Grain were to cease operations, and although it has considered contingency plans, the Bank may have greater difficulty in servicing and collecting the microloan portfolio. In such a case, the level the Bank has provided for in its allowance for loan losses for its microloan portfolio may be inadequate and it may need to increase its provision for loan losses, which could materially decrease the Company's net income. As a consequence of such events the Bank may determine it appropriate to terminate its relationship with Grain and the value of the Company's equity investment in Grain could become impaired.
The
Vision 2025 Evolves
The Company is now in the later stages of its multi-pronged effort to upgrade its infrastructure, adopt electronic banking services and restructure its retail business model. Dubbed internally "Vision 2020," the effort has resulted in significant beneficial results, continues to involve significant investments and has served to ameliorate the otherwise detrimental effects of the COVID-19 pandemic. As part of Vision 2020, the Company partnered withSalesforce to deploy applications throughout the organization, including retail services, lending processes, back-office operations, digital banking and loan underwriting. Although the full implementation of the applications, dubbed internally as "GPS, a Guided Path to Success," was delayed due to the COVID-19 pandemic, it was fully implemented by the end 2021. The infrastructure upgrade has focused primarily on implementing technology, cybersecurity and network progression while establishing a Virtual Private Network ("VPN"). To date the infrastructure upgrade has resulted in relocating and migrating network and in-house servers, replacing outdated PCs, enhancing internet capabilities, purchasing and deploying VPN-enabled laptops to a significant majority of the Bank's personnel and the redeployment of disaster recovery capabilities. The Company has achieved certain manpower-related cost savings and enabled the uninterrupted continuity of operations by its staff working remotely during the COVID-19 pandemic using its newly deployed disaster recovery capabilities. The infrastructure upgrade has added resiliency, capacity and redundancies to the Company's technology structures and enhances the capability of the Company to increase its flexibility with alternate locations of personnel. The Company has adopted and deployed over 48 new electronic banking services, products and applications since late 2018. These services range from on-line banking, mobile banking, bill pay, positive pay, remote deposit capture, cash management services, e-statements, data storage and management, ACH services, electronic document storage, a paperless environment, dual-language telephone banking service and VoIP telecommunications with an automation-based, dual-language Customer Contact Center. These services have not only enabled the Company to continue serving its customers as they, and the Company, converted to a remote work environment; the services have served to increase the product penetration and deepening relationships with customers. The Company has also added to its social media capabilities and has begun to use them in coordination with new targeted marketing campaigns now enabled by GPS and its Marketing Cloud platform. The combination of social media and targeted marketing campaigns was particularly effective with PPP loan originations using many partnerships established with non-profit groups and community-based organizations. Such efforts enabled the Company to more than triple the number of second round PPP loan applications compared to the first round, and has resulted in significant growth in retail deposits and new relationships. The Company is also in the final stages of deploying a Fintech-based small business automated lending technology in partnership withLendingFront Technologies, Inc. The technology is a mobile application that digitizes the lending workflow from pre-approval to servicing and enables the Company to originate, close and fund small business loans within very short spans of time, without requiring a physical presence within banking offices and with automated underwriting using both traditional and non-traditional methods. The application has full loan origination and servicing capabilities and is integrated withSalesforce . All Commercial Relationship Officers and Business Development Managers will utilize these capabilities upon the easing of the COVID-19 pandemic and completion of a pilot test. The Company is seeking to establish loan origination partnerships with non-profit and community-based organizations to ensure penetration in underserved and underbanked markets. The Company also established a relationship withSaveBetter, LLC , a fintech startup focusing on brokered deposits. As ofMarch 31, 2022 , the Company had$42.8 million in such deposits. The recent regulatory easing of brokered deposit rules may enable the Company to classify such deposits as core deposits. 51 -------------------------------------------------------------------------------- The Company's on-going adoption of a new retail business model has been all-encompassing. It has involved the redesign of its retail branches, the shift of branch operations to a centralized back office, the deployment of smart ITM-enabled ATMs and Teller Cash Recyclers, the automation of manual processes and, importantly, the adoption of universal bankers and retail sales. In 2019, the Company earned national recognition as Branch Innovators of the Year for its retail banking model at the 2019 Future Branches Retail Banking Summit inAustin, Texas . The Company has renovated most of its branches at costs significantly less than previous efforts largely as a result of economies of scale, design modifications and adoption of buildout techniques used by non-bank retail organizations. The Bank'sRiverdale branch was transformed into a new flagship recapturing previously subleased space. This$1.5 million construction project commenced onMarch 1, 2021 and was completed on time and on budget. Our grand re-opening took place onJuly 27, 2021 and was attended by the Bronx Borough President who praisedPonce Bank for remaining committed to theBronx and for a long history of leadership within the community. OurAstoria branch renovation project was also completed in the second quarter of 2021. The Company intends to renovate up to 7 additional branches in 2022. Renovation is now proceeding at ourSmith Street ,Brooklyn ,Union City, NJ , andSouthern Boulevard ,Bronx , banking branches with the design phase completed atSouthern Boulevard and in process atSmith Street andUnion City . Surveys are complete atForest Hills ,Jackson Heights , andStuyvesant Town branches. The Company has begun incorporating into its retail branches loan origination personnel including a branded Ponce Mortgage Center celebrating our comprehensive offerings made possible by our subsidiaryPonce De Leon Mortgage Corporation as well as the Bank's new division,Mortgage World Bankers . The Company still anticipates creating a full-service branch at its mortgage office located inFlushing ,Queens, New York and a banking satellite at its office inBergenfield, New Jersey , but these projects are temporarily on hold pending completion of other renovations. The Company's mortgage office inFlushing ,Queens , expanded the Company's reach into one of the most underserved areas ofQueens according to recently reported PPP loan penetration data. Vision 2020 already has had a transformational effect on the Company. The Company had approximately$1.06 billion in assets,$918.5 million in loans and$809.8 million in deposits, atDecember 31, 2018 . The Company has since grown to$1.59 billion in assets,$1.30 billion in loans receivables, net of allowance for loan losses of$16.9 million , and$1.18 billion in deposits atMarch 31, 2022 , all while investing in infrastructure, implementing digital banking, acquiringMortgage World , adopting GPS, diversifying its product offering, meeting the challenges of the COVID-19 pandemic, partnering with Fintech companies and assisting its communities with 5,340 PPP loans totaling$261.4 million . The Company raised over$132.0 million in additional capital through our conversion and reorganization and realized approximately$20.0 million in net gain while freeing up approximately$40.0 million in investable funds through our sale-and-leaseback initiative. Now, the Company believes that it is poised to enhance its presence, locally and in similar communities outsideNew York , as a leading CDFI and MDI financial institution holding company. OnDecember 14, 2021 ,Treasury notified the Company that it is eligible to receive an amount up to$185.6 million (which may increased to$225.0 million ) under the ECIP. Under the ECIP,Treasury will provide investment capital directly to depository institutions that are CDFIs or MDIs, such as the Bank or their holding companies such as the Company, to provide loans, grants, and forbearance for small businesses, minority-owned businesses, and consumers, in low-income and underserved communities. If made,Treasury's investment would be in exchange for the Company issuing senior perpetual noncumulative preferred stock directly toTreasury on terms established by theTreasury .Treasury has indicated that the investment will qualify as Tier 1 capital. No dividends will accrue or be due for the first two years after issuance. For years three through ten, depending upon the level of qualified and/or deep impact lending made in targeted communities, as defined in the ECIP guidelines, dividends will be at an annual rate of either 2.0%, 1.25% or 0.5% and, thereafter, will be fixed at one of the foregoing rates. The preferred stock will provide for customary preferences, including provisions upon nonpayment of dividends and board seats in such an event as well as customary protective provisions.Treasury has notified the Company that it anticipates closing the ECIP transaction onJune 7, 2022 . The Company is evaluating the proposed standard terms of the investment provided by theTreasury , as well as other considerations. We cannot provide any assurance or guarantee concerning what the actual terms, conditions and preferences of the senior preferred stock will be or whether they will be acceptable. The Company is cementing Vision 2025, its roadmap to acquiring the resources needed to lead efforts to remediate the disparate effects of the COVID-19 pandemic and the wealth and financial gaps present in its communities and similar communities outside theNew York City metropolitan area. The Company traces its roots to its organization in 1960 asPonce De Leon Federal Savings and Loan Association by Latino leaders concerned that the financial needs of theBronx and its Latino population were not being recognized and addressed. True to its roots, the Company remains committed to ensuring that the disparate effects of the COVID-19 pandemic and the wealth and financial gaps present in minority communities are addressed in earnest 52 -------------------------------------------------------------------------------- The following table presents the Company's PPP loans outstanding as ofMarch 31, 2022 : Aggregate Median Average Number Amount Amount Amount State Counties of Loans of Loans of Loans of Loans (Dollars in thousands) New York Albany 2$ 116 $ 58 $ 58 Bronx 165 14,382 13 87 Dutchess 2 31 15 16 Kings 92 31,918 15 347 Nassau 43 2,591 11 60 New York 107 26,557 16 248 Orange 3 36 11 12 Queens 208 6,483 15 31 Richmond 6 278 17 46 Rockland 4 169 22 42 Suffolk 15 192 11 13 Westchester 24 451 11 19 Total New York 671$ 83,204 $ 14 $ 124 New Jersey Bergen 16$ 678 $ 20 $ 42 Burlington 1 20 20 20 Camden 1 21 21 21 Essex 16 163 12 10 Hudson 15 1,167 19 78 Mercer 2 52 26 26 Monmouth 2 533 267 267 Ocean 3 24 6 8 Passaic 6 58 10 10 Sussex 1 12 12 12 Union 2 16 8 8 Total New Jersey 65$ 2,744 $ 15 $ 42 Pennsylvania Berks 1 16 16 16 Total 737$ 85,964 $ 14 $ 117
Comparison of Financial Condition at
Total Assets. Total consolidated assets decreased$58.9 million , or 3.6%, to$1.59 billion atMarch 31, 2022 from$1.65 billion atDecember 31, 2021 . The decrease in total assets is attributable to decreases of$84.6 million in cash and cash equivalents,$7.9 million in mortgage loans held for sale, at fair value,$6.4 million in other assets,$4.6 million in net loans receivable (inclusive of$50.8 million net decrease in PPP loans),$581,000 in FHLBNY stock and$338,000 , net, in premises and equipment. The decrease in total assets was reduced by increases of$41.5 million in available-for-sale securities,$3.6 million in deferred tax assets and$437,000 in accrued interest receivable. Cash and Cash Equivalents. Cash and cash equivalents decreased$84.6 million , or 55.0%, to$69.3 million atMarch 31, 2022 , compared to$153.9 million atDecember 31, 2021 . The decrease in cash and cash equivalents was primarily the result of purchases of available-for-sale securities, a decrease in net deposits, a decrease in advances of warehouse lines of credit, repayment of advances from the FHLBNY and a contribution to thePonce De Leon Foundation . The decrease in cash and cash equivalents was offset by proceeds from the sale of loans, proceeds from maturities/calls of available-for-sale securities, increase in advance payments by borrowers and proceeds from redemption of FHLBNY stock. 53 -------------------------------------------------------------------------------- Securities. The composition of securities atMarch 31, 2022 andDecember 31, 2021 and the amounts maturing of each classification are summarized as follows: March 31, 2022 December 31, 2021 Amortized Fair Amortized Fair Cost Value Cost Value (in thousands)Available-for-Sale Securities :U.S. Government Bonds: Amounts maturing: Three months or less $ - $ - $ - $ - More than three months through one year - - - - More one year through five years 2,982 2,833 2,981 2,934 More than five years through ten years - - - - 2,982 2,833 2,981 2,934 Corporate Bonds: Amounts maturing: Three months or less - - - - More than three months through one year - - - - More one year through five years 4,000 3,801 4,445 4,381 More than five years through ten years 21,849 21,300 16,798 16,803 25,849 25,101 21,243 21,184 Mortgage-Backed Securities 134,854 126,865 90,950 89,228Total Available-for-Sale Securities $ 163,685 $ 154,799 $ 115,174 $ 113,346 Held-to-Maturity Securities : Mortgage-Backed Securities 927 868 934 914
934
The$41.5 million increase in available-for-sale securities was due to$53.4 million in available-for-sale securities that were purchased during the three months endedMarch 31, 2022 . The increase was offset primarily by a$8.8 million in unrealized loss,$4.5 million in principal payments and one available-for-sale security in the amount of$445,000 was called during the three months endedMarch 31, 2022 . There were no available-for-sale securities sold during the three months endedMarch 31, 2022 . Gross Loans Receivable. The composition of gross loans receivable atMarch 31, 2022 and atDecember 31, 2021 and the percentage of each classification to total loans are summarized as follows: March 31, 2022 December 31, 2021 Increase (Decrease) Amount Percent Amount Percent Dollars Percent (Dollars in thousands) Mortgage loans: 1-4 Family residential Investor-Owned$ 323,442 24.6 %$ 317,304 24.0 %$ 6,138 1.9 % Owner-Occupied 95,234 7.2 % 96,947 7.3 % (1,713 ) (1.8 %) Multifamily residential 368,133 28.0 %
348,300 26.3 % 19,833 5.7 % Nonresidential properties
251,893 19.1 % 239,691 18.1 % 12,202 5.1 % Construction and land
144,881 11.0 % 134,651 10.2 % 10,230 7.6 % Total mortgage loans
1,183,583 90.0 % 1,136,893 86.0 % 46,690 4.1 % Nonmortgage loans: Business loans (1)
100,253 7.6 % 150,512 11.4 % (50,259 ) (33.4 %) Consumer loans (2)
31,899 2.4 % 34,693 2.6 % (2,794 ) (8.1 %) Total nonmortgage loans
132,152 10.0 % 185,205 14.0 % (53,053 ) (28.6 %) Total gross loans
$ 1,315,735 100.0 % $
1,322,098 100.0 %
(1) As of
million and
(2) As of
million and
its arrangement with Grain.
54
--------------------------------------------------------------------------------
The decrease in the loan portfolio was primarily the result of a $50.8 million
decrease in PPP loans at March 31, 2022 compared to December 31, 2021 . Based on
current internal loan reviews, the Company believes that the quality of our
underwriting, our weighted average loan-to-value ratio of 57.3% and our customer
selection processes have served us well and provided us with a reliable base
with which to maintain a well-protected loan portfolio.
Commercial real estate loans, as defined by applicable banking regulations,
include multifamily residential, nonresidential properties, and construction and
land mortgage loans. At March 31, 2022 and December 31, 2021 , approximately 8.6%
and 7.9%, respectively, of the outstanding principal balance of the Bank's
commercial real estate mortgage loans were secured by owner-occupied commercial
real estate. Owner-occupied commercial real estate is similar in many ways to
commercial and industrial lending in that these loans are generally made to
businesses predominantly on the basis of the cash flows of the business rather
than on valuation of the real estate.
Banking regulations have established guidelines relating to the amount of
construction and land mortgage loans and investor- owned commercial real estate
mortgage loans of 100% and 300% of total risk-based capital,
respectively. Should a bank's ratios be in excess of these guidelines, banking
regulations generally require an increased level of monitoring in these lending
areas by bank management. The Bank's policy is to operate within the 100%
guideline for construction and land mortgage loans and up to 400% for investor
owned commercial real estate mortgage loans. Both ratios are calculated by
dividing certain types of loan balances for each of the two categories by the
Bank's total risk-based capital. At March 31, 2022 and December 31, 2021 , the
Bank's construction and land mortgage loans as a percentage of total risk-based
capital was 54.3% and 79.6%, respectively. Investor owned commercial real estate
mortgage loans as a percentage of total risk-based capital was 263.6% and 396.2%
as of March 31, 2022 and December 31, 2021 , respectively. At March 31, 2022 , the
Bank was within the 100% guideline for construction and land mortgage loans and
the 300% guideline for investor owned commercial real estate mortgage loans
established by banking regulators. Management believes that it has established
the appropriate level of controls to monitor the Bank's lending in these areas.
Mortgage Loans Held For Sale. Mortgage loans held for sale, at fair value, at
Deposits. The composition of deposits at
March 31, 2022 December 31, 2021 Increase (Decrease)
Percent Percent
Amount of Total Amount of Total Dollars Percent
(Dollars in thousands)
Demand (1) $ 281,132 23.8 % $ 274,956 22.8 % $ 6,176 2.2 %
Interest-bearing deposits:
NOW/IOLA accounts 33,010 2.8 % 35,280 2.9 % (2,270 ) (6.4 %)
Money market accounts 169,847 14.4 % 186,893 15.5 % (17,046 ) (9.1 %)
Reciprocal deposits 160,510 13.6 % 143,221 11.9 % 17,289 12.1 %
Savings accounts 133,966 11.4 % 134,887 11.2 % (921 ) (0.7 %)
Total NOW, money market, reciprocal
and savings 497,333 42.1 %
500,281 41.5 % (2,948 ) (0.6 %)
Certificates of deposit of
75,130 6.4 % 78,454 6.5 % (3,324 ) (4.2 %)
Brokered certificates of deposit 79,282 6.7 % 79,320 6.6 % (38 ) (0.0 %)
Listing service deposits (2) 53,876 4.6 % 66,411 5.5 % (12,535 ) (18.9 %)
Certificates of deposit less than
$250K 194,412 16.5 % 205,294 17.0 % (10,882 ) (5.3 %) Total certificates of deposit
402,700 34.1 % 429,479 35.6 % (26,779 ) (6.2 %) Total interest-bearing deposits
900,033 76.2 % 929,760 77.1 % (29,727 ) (3.2 %)
Total deposits $ 1,181,165 100.0 % $ 1,204,716 100.0 % $ (23,551 ) (2.0 %)
(1) As of
deposits related to net PPP funding.
(2) As of
$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 . When wholesale funding is necessary to complement the Company's core deposit base, management determines which source is best suited to address both liquidity risk and interest rate risk in line with management objectives. The Company's Interest Rate Risk Policy imposes limitations on overall wholesale funding and noncore funding reliance. The overall reliance on wholesale funding and noncore funding were within those policy limitations as ofMarch 31, 2022 andDecember 31, 2021 . The Management Asset/Liability Committee generally meets on a bi-weekly basis to review funding needs, if any, and to ensure the Company operates within the approved limitations. 55 --------------------------------------------------------------------------------
Advances from FHLBNY. The Bank had outstanding borrowings at
Warehouse Lines of Credit.Mortgage World had maintained two warehouse lines of credit with financial institutions for the purpose of funding the origination and sale of residential mortgages. AtDecember 31, 2021 ,Mortgage World utilized$15.1 million for funding of mortgage loans held for sale and had unused lines of credit of$14.9 million . AtMarch 31, 2022 , the remaining balance of such lines of credit was$753,000 . During the first quarter of 2022,Mortgage World became a division of the Bank and the Bank began funding these loans. Stockholders' Equity. The Company's consolidated stockholders' equity increased$110.3 million , or 58.3%, to$299.6 million atMarch 31, 2022 from$189.3 million atDecember 31, 2021 . This increase in stockholders' equity was mainly attributable to$118.0 million as a result of the sale of equity in the second-step conversion and reorganization,$4.0 million contribution in common stock to thePonce De Leon Foundation ,$366,000 in Employee Stock Ownership Plan shares committed to be released and$351,000 in share-based compensation, offset by$6.8 million in net loss and$5.6 million in other comprehensive loss.
Comparison of Results of Operations for the Three Months Ended
The discussion of the Company's results of operations for the three months ended
Overview. Net loss for the three months endedMarch 31, 2022 was ($6.8 million ) compared to net income of$2.5 million for the three months endedMarch 31, 2021 . Loss per basic and diluted share was ($0.31 ) for the three months endedMarch 31, 2022 compared to earnings per basic and diluted share of$0.15 for three months endedMarch 31, 2021 . The net loss from net income for the three months endedMarch 31, 2022 compared to the three months endedMarch 31, 2021 was due to an increase of$15.2 million in non-interest expense (of which$8.1 million was attributable to the write-off and write-down related to the Grain Receivable and$5.0 million was the contribution to thePonce De Leon Foundation ), a decrease of$1.7 million in non-interest income and an increase of$572,000 in provision for loan losses. The net loss was offset by increases of$4.4 million in net interest income and a$2.9 million benefit for income taxes, rather than a$732,000 provision for income taxes quarter to quarter. Interest and Dividend Income. Interest and dividend income increased$3.8 million , or 25.3%, to$19.0 million for the three months endedMarch 31, 2022 from$15.2 million for the three months endedMarch 31, 2021 . Interest income on loans receivable, which is the Company's primary source of income, increased$3.3 million , or 21.9%, to$18.2 million for the three months endedMarch 31, 2022 from$14.9 million for the three months endedMarch 31, 2021 primarily due to an increase in average loans receivable due mostly to PPP lending. Average loans receivable increased$86.3 million , or 7.0% to$1.33 billion for the three months endedMarch 31, 2022 as compared to$1.24 billion for the three months endedMarch 31, 2021 . Interest and dividend income on available-for-sale securities and FHLBNY stock and deposits due from banks increased$566,000 , or 224.6%, to$818,000 for the three months endedMarch 31, 2022 from$252,000 for the three months endedMarch 31, 2021 . Interest Expense. Interest expense decreased$605,000 , or 26.5%, to$1.7 million for the three months endedMarch 31, 2022 from$2.3 million for the three months endedMarch 31, 2021 , primarily due to a lower average cost of funds. Net Interest Income. Net interest income increased$4.4 million , or 34.5%, to$17.3 million for the three months endedMarch 31, 2022 from$12.9 million for the three months endedMarch 31, 2021 . The increase for the three months endedMarch 31, 2022 compared to three months endedMarch 31, 2021 was attributable to an increase of$3.8 million in interest and dividend income primarily due to an increase in average loans receivable and a decrease of$605,000 in interest expense due primarily to a lower average cost of funds on interest bearing liabilities. Net interest rate spread increased by 72 basis points to 4.48% for the three months endedMarch 31, 2022 from 3.76% for the three months endedMarch 31, 2021 . The increase in the net interest rate spread for the three months endedMarch 31, 2022 compared to the three months endedMarch 31, 2021 was primarily due to an increase in the average yields on interest-earning assets of 44 basis points to 5.14% for the three months endedMarch 31, 2022 from 4.70% for the three months endedMarch 31, 2021 , and a decrease in the average rates paid on interest-bearing liabilities of 28 basis points to 0.66% for the three months endedMarch 31, 2022 from 0.94% for the three months endedMarch 31, 2021 . Net interest margin increased 68 basis points for the three months endedMarch 31, 2022 , to 4.68% from 4.00% for the three months endedMarch 31, 2021 , reflecting both our organic loan growth and the amortization of fee income from our PPP lending. 56 -------------------------------------------------------------------------------- The historically low benchmark federal funds interest rate of the last several years implemented in response the turmoil resulting from COVID-19 pandemic is ending. TheFederal Reserve Board increased the benchmark federal funds interest rate by 25 basis points onMarch 16, 2022 and an additional increase onMay 5, 2022 of 50 basis points. TheFederal Reserve Board has signaled that there will likely be additional federal funds interest rate increases during 2022; may be as many as five more. The recent increase and the anticipated increases are in response to inflation rising at a rate not seen in over 40 years. Because of this rising rate environment, the speed with which it is anticipated to be implemented, the significant competitive pressures in our markets and the potential negative impact of these factors on our deposit and loan pricing, our net interest margin may be negatively impacted. Our net interest income may also be negatively impacted if the demand for loans decreases due to the rate increases, alone or in tandem with the concurrent inflationary pressures. We may be negatively impacted if we are unable to appropriately time adjustments to our funding costs and the rates we earn on our loans. The Bank believes it is well positioned to withstand this rising interest rate environment in the near term as it is asset sensitive. Non-Interest Income. Non-interest income decreased$1.7 million , or 42.8%, to$2.2 million for the three months endedMarch 31, 2022 from$3.9 million for the three months endedMarch 31, 2021 . The decrease in non-interest income for the three months endedMarch 31, 2022 compared to the three months endedMarch 31, 2021 was due to decreases of$1.1 million in income on sale of mortgage loans,$663,000 , net of expenses, from the sale of real properties recognized in the first quarter of 2021,$186,000 in late and prepayment charges and$78,000 in loan origination fees, offset by increases of$124,000 in other non-interest income,$115,000 in brokerage commissions and$111,000 in service charges and fees. Non-Interest Expense. Non-interest expense increased$15.2 million , or 117.4%, to$28.1 million for the three months endedMarch 31, 2022 from$12.9 million for the three months endedMarch 31, 2021 . The increase in non-interest expense for the three months endedMarch 31, 2022 , compared to the three months endedMarch 31, 2021 was attributable to an aggregate$8.1 million in 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,$5.0 million in contribution to thePonce De Leon Foundation in connection with the second-step conversion and reorganization, and increases of$1.5 million in compensation and benefits,$558,000 in occupancy and equipment,$253,000 in data processing expenses,$72,000 in professional fees and$33,000 in marketing and promotional expense, offset by decreases of$174,000 in other operating expenses and$135,000 in direct loan expenses. Income Tax (Benefit) Provision. The Company had a benefit for income taxes of ($2.9 million ) for the three months endedMarch 31, 2022 compared to a provision for income taxes of$732,000 for three months endedMarch 31, 2021 , resulting in effective tax rates of 30.2% and 23.0%, respectively. The increase in the effective tax rate is attributable to an increase of$168,000 in the valuation allowance related to the unused non-deductible portion of the remaining charitable contribution deduction. Segments. The Company has two reportable segments; the Bank and, for the three months endedMarch 31, 2021 ,Mortgage World , and, for the three months endedMarch 31, 2022 ,Mortgage World as a division of the Bank. Income from the Bank consists primarily of interest and fees earned on loans and investment securities and service charges on deposit accounts. Income fromMortgage World consists primarily of taking of applications from the general public for residential mortgage loans, underwriting them to investors' standards, closing and funding them and holding them until they are sold to investors.
The table below shows the results of operations for the Company's segments, the
Bank and
Ponce Bank Mortgage World
For the Three Months Ended March 31 , Increase (Decrease) For the Three Months Ended March 31 , Increase (Decrease)
2022 2021 Dollars Percent 2022 2021 Dollars Percent
(Dollars in thousands)
Interest and dividend income $ 18,888 $ 15,027 $ 3,861 25.7 % $ 130 $ 150 $ (20 ) (13.3 %)
Interest expense 1,696 2,186 (490 ) (22.4 %) 68 140 (72 ) (51.4 %)
Net interest income 17,192 12,841 4,351 33.9 % 62 10 52 *
Provision for loan losses 1,258 686 572 83.4 % - - - - %
Net interest income after provision for loan losses 15,934 12,155 3,779 31.1 % 62 10 52 *
Non-interest income 1,055 1,804 (749 ) (41.5 %) 1,297 2,358 (1,061 ) (45.0 %)
Non-interest expense 20,118 10,000 10,118 101.2 % 2,223 2,291 (68 ) (3.0 %)
(Loss) income before income taxes (3,129 ) 3,959 (7,088 ) (179.0 %) (864 ) 77 (941 ) *
Provision for income taxes 406 1,105 (699 ) (63.3 %) - 40 (40 ) (100.0 %)
Net (loss) income $ (3,535 ) $ 2,854 $ (6,389 ) (223.9 %) $ (864 ) $ 37 $ (901 ) *
* Represents more than 500%.
57
--------------------------------------------------------------------------------Average Balance Sheets
The following table sets forth average outstanding balances, average yields and rates, and certain other information for the periods indicated. No tax-equivalent yield adjustments have been made, as the effects would be immaterial. Average balances are derived from average daily balances. Non-accrual loans were included in the computation of average balances. The yields set forth below include the effect of deferred fees, discounts, and premiums that are amortized or accreted to interest income or interest expense.
For the Three Months Ended
2022 2021
Average Average
Outstanding Average Outstanding Average
Balance Interest Yield/Rate (1) Balance Interest Yield/Rate (1)
(Dollars in thousands)
Interest-earning assets:
Loans (2) $ 1,325,433 $ 18,200 5.57 % $ 1,239,127 $ 14,925 4.88 %
Securities (3) 138,095 717 2.11 % 22,516 176 3.17 %
Other (4) 38,253 101 1.07 % 46,581 76 0.66 %
Total interest-earning assets 1,501,781 19,018 5.14 % 1,308,224 15,177 4.70 %
Non-interest-earning assets 225,006 63,951
Total assets $ 1,726,787 $ 1,372,175
Interest-bearing liabilities:
NOW/IOLA $ 33,083 $ 16 0.20 % $ 33,085 $ 38 0.47 %
Money market 319,806 235 0.30 % 277,104 304 0.44 %
Savings 135,404 32 0.10 % 126,961 39 0.12 %
Certificates of deposit 419,104 803 0.78 % 405,980 1,219 1.22 %
Total deposits 907,397 1,086 0.49 % 843,130 1,600 0.77 %
Advance payments by borrowers 9,808 1 0.04 % 8,899 1 0.05 %
Borrowings 114,688 593 2.10 % 129,755 684 2.14 %
Total interest-bearing liabilities 1,031,893 1,680 0.66 % 981,784 2,285 0.94 %
Non-interest-bearing liabilities:
Non-interest-bearing demand 372,433 - 215,116 -
Other non-interest-bearing liabilities 47,562 - 13,754 -
Total non-interest-bearing liabilities 419,995 - 228,870 -
Total liabilities 1,451,888 1,680 1,210,654 2,285
Total equity 274,899 161,521
Total liabilities and total equity $ 1,726,787 0.66 % $ 1,372,175 0.94 %
Net interest income $ 17,338 $ 12,892
Net interest rate spread (5) 4.48 % 3.76 %
Net interest-earning assets (6) $ 469,888 $ 326,440
Net interest margin (7) 4.68 % 4.00 %
Average interest-earning assets to
interest-bearing liabilities 145.54 % 133.25 %
(1) Annualized where appropriate.
(2) Loans include loans and mortgage loans held for sale, at fair value.
(3) Securities include available-for-sale securities and held-to-maturity
securities.
(4) Includes FHLBNY demand account and FHLBNY stock dividends.
(5) 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.
(6) Net interest-earning assets represent total interest-earning assets less
total interest-bearing liabilities.
(7) Net interest margin represents net interest income divided by average total
interest-earning assets.
58--------------------------------------------------------------------------------
Rate/Volume Analysis
The following table presents the effects of changing rates and volumes on the
Company's net interest income for the periods indicated. The volume column shows
the effects attributable to changes in volume (changes in volume multiplied by
prior rate). The rate column shows the effects attributable to changes in rate
(changes in rate multiplied by prior volume). The total column represents the
sum of the prior columns. For purposes of this table, changes attributable to
both rate and volume, which cannot be segregated, have been allocated
proportionately based on the changes due to rate and the changes due to volume.
For the Three Months Ended March 31,
2022 vs. 2021
Increase (Decrease) Due to Total Increase
Volume Rate (Decrease)
(In thousands)
Interest-earning assets:
Loans (1) $ 1,040 $ 2,235 $ 3,275
Securities (2) 903 (362 ) 541
Other (14 ) 39 25
Total interest-earning assets 1,929 1,912 3,841
Interest-bearing liabilities:
NOW/IOLA - (22 ) (22 )
Money market 47 (116 ) (69 )
Savings 3 (10 ) (7 )
Certificates of deposit 39 (455 ) (416 )
Total deposits 89 (603 ) (514 )
Borrowings (79 ) (12 ) (91 )
Total interest-bearing liabilities 10 (615 ) (605 )
Change in net interest income $ 1,919 $ 2,527 $ 4,446
(1) Loans include loans and mortgage loans held for sale, at fair value. (2) Securities include available-for-sale securities and held-to-maturity securities.
Ponce Bank Segment
Total Assets. The Bank's, excludingMortgage World , total assets decreased$55.8 million , or 3.4%, to$1.57 billion atMarch 31, 2021 from$1.63 billion atDecember 31, 2021 . The decrease in the Bank's total assets was primarily due to decreases of$90.1 million in cash and cash equivalents,$4.6 million in net loans receivable,$4.5 million in other assets,$581,000 in FHLBNY stock and$320,000 in premises and equipment. The decrease in total assets was offset by increases of$41.5 million in available-for-sale securities,$2.5 million in deferred tax assets and$344,000 in accrued interest receivable. Net Income (Loss). The Bank's net loss was ($3.5 million ) for the three months endedMarch 31, 2022 compared to net income of$2.9 million for the three months endedMarch 31, 2021 primarily due to an increase in non-interest expense as a resulf of an aggregate$8.1 million write-off and write down related to the Grain Receivable. Interest and Dividend Income. Interest and dividend income increased$3.9 million , or 25.7%, to$18.9 million for the three months endedMarch 31, 2022 from$15.0 million for the three months endedMarch 31, 2021 . Interest income on loans receivable, which is the Bank's primary source of income, increased$3.3 million , or 22.3% to$18.1 million for the three months endedMarch 31, 2022 from$14.8 million for the three months endedMarch 31, 2021 . 59 -------------------------------------------------------------------------------- The following table presents interest income on loans receivable for the periods indicated: For the Three Months Ended March 31, Change 2022 2021 Amount Percent (Dollars in thousands) 1-4 Family residential$ 5,051 $ 5,136 $ (85 ) (1.7 %) Multifamily residential 3,839 3,507 332 9.5 % Nonresidential properties 3,084 2,412 672 27.9 % Construction and land 2,099 1,891 208 11.0 % Business loans 2,470 906 1,564 172.6 % Consumer loans 1,527
923 604 65.4 %
Total interest income on loans receivable
* Represents more than 500%.
The following table presents interest and dividend income on securities and FHLBNY stock and deposits due from banks for the periods indicated:
For the Three Months Ended March 31, Change
2022 2021 Amount Percent
(Dollars in thousands)
Interest on deposits due from banks $ 36 $ 2 $ 34 *
Interest on available-for-sale securities 716 176 540 306.8 %
Dividend on FHLBNY stock 66 74 (8 ) (10.8 %)
Total interest and dividend income $ 818 $
252
* Represents more than 500%.
Interest Expense. Interest expense decreased$490,000 , or 22.4%, to$1.7 million for the three months endedMarch 31, 2022 from$2.2 million for the three months endedMarch 31, 2021 .
The following table presents interest expense for the periods indicated:
For the Three Months Ended March 31, Change
2022 2021 Amount Percent
(Dollars in thousands)
Certificates of deposit $ 803 $ 1,219 $ (416 ) (34.1 %)
Money market 237 308 (71 ) (23.1 %)
Savings 33 39 (6 ) (15.4 %)
NOW/IOLA 16 38 (22 ) (57.9 %)
Advance payments by borrowers 1 1 - - %
Borrowings 606 581 25 4.3 %
Total interest expense $ 1,696 $ 2,186 $ (490 ) (22.4 %)
Net Interest Income. Net interest income increased $4.4 million , or 33.9%, to
$17.2 million for the three months ended March 31, 2022 from $12.8 million for
the three months ended March 31, 2021 , primarily as a result of organic loan
growth and a lower average cost of funds on interest bearing liabilities.
Provision for loan losses. The provision for loan losses represents a charge to
earnings necessary to establish the ALLL that, in management's opinion, should
be adequate to provide coverage for the inherent losses on outstanding loans.
In evaluating the level of the ALLL, management analyzes several qualitative
loan portfolio risk factors including, but not limited to, management's ongoing
review and grading of loans, facts and issues related to specific loans,
historical loan loss and delinquency experience, trends in past due and
non-accrual loans, existing risk characteristics of specific loans or loan
pools, the fair value of underlying collateral, current economic conditions and
other qualitative and quantitative factors which could affect potential credit
60
--------------------------------------------------------------------------------losses. See Note 1, "Nature of Business and Summary of Significant Accounting Policies -Allowance for Loan Losses" of the Notes to the accompanying Consolidated Financial Statements for additional information.
After an evaluation of these factors, the Bank established a provision for loan losses for the three months endedMarch 31, 2022 of$1.3 million compared to$686,000 for the three months endedMarch 31, 2021 . The provision for loan losses during the three months endedMarch 31, 2022 was impacted by the change in qualitative factors during the period related to the microloans originated by Grain. The provision for loan losses during the three months endedMarch 31, 2021 primarily reflects the Bank's assessment of the economic impact of the COVID-19 pandemic on borrowers and their ability to repay in the short-term.
Non-interest Income. Non-interest income decreased
The following table presents non-interest income for the periods indicated:
For the Three Months Ended March 31, Change
2022 2021 Amount Percent
(Dollars in thousands)
Service charges and fees $ 440 $ 329 $ 111 33.7 %
Brokerage commissions 133 - 133 - %
Late and prepayment charges 58 244 (186 ) (76.2 %)
Gain on sale of real property - 663 (663 ) (100.0 %)
Other 424 568 (144 ) (25.4 %)
Total non-interest income $ 1,055 $ 1,804 $ (749 ) (41.5 %)
Non-interest Expense. Non-interest expense increased $10.1 million , or 101.2%,
to $20.1 million for the three months ended March 31, 2022 from $10.0 million
for the three months ended March 31, 2021 . The increase was primarily due to an
aggregate $8.1 million write-off and write-down related to the Grain Receivable
due from Grain for microloans originated by Grain and put back to Grain due to
fraud, and an increase of $1.0 million in compensation and benefits.
The following table presents non-interest expense for the periods indicated:
For the Three Months Ended March 31, Change
2022 2021 Amount Percent
(Dollars in thousands)
Compensation and benefits $ 5,095 $ 4,072 $ 1,023 25.1 %
Occupancy and equipment 3,033 2,498 535 21.4 %
Data processing expenses 836 581 255 43.9 %
Direct loan expenses 768 462 306 66.2 %
Insurance and surety bond premiums 147 146 1 0.7 %
Office supplies, telephone and postage 358 352 6 1.7 %
Professional fees 925 777 148 19.0 %
Grain write-off and write-down 8,074 - 8,074 - %
Marketing and promotional expenses 61 29 32 110.3 %
Directors fees 71 69 2 2.9 %
Regulatory dues 83 60 23 38.3 %
Other operating expenses 667 954 (287 ) (30.1 %)
Total non-interest expense $ 20,118 $ 10,000$ 10,118 101.2 % Mortgage World Segment Total Assets.Mortgage World's total assets decreased$4.2 million , or 20.7%, to$15.9 million atMarch 31, 2022 from$20.1 million atDecember 31, 2021 . The decrease inMortgage World's total assets was primarily due to decreases of$7.9 million in mortgage loans held for sale, at fair value,$503,000 in other assets,$41,000 in loans receivable and$18,000 in premises and equipment. The 61 --------------------------------------------------------------------------------
decrease in
Net Income (Loss).
Non-interest Income. Non-interest income decreased$1.1 million , or 45.0%, to$1.3 million for the three months endedMarch 31, 2022 from$2.4 million for the three months endedMarch 31, 2021 . The decrease in non-interest income was attributable to a decrease of$1.1 million in gain on sale of mortgage loans.
The following table presents non-interest income for the periods indicated:
For the Three Months Ended March 31, Change
2022 2021 Amount Percent
(Dollars in thousands)
Brokerage commissions $ 205 $ 223 $ (18 ) (8.1 %)
Gain on sale of mortgage loans 418 1,508 (1,090 ) (72.3 %)
Loan origination 461 539 (78 ) (14.5 %)
Other 213 88 125 142.0 %
Total non-interest income $ 1,297 $ 2,358 $ (1,061 ) (45.0 %)
Non-interest Expense. Non-interest expense decreased
The following table presents non-interest expense for the periods indicated:
For the Three Months Ended March 31, Change
2022 2021 Amount Percent
(Dollars in thousands)
Compensation and benefits $ 1,679 $ 1,241 $ 438 35.3 %
Occupancy and equipment 144 122 22 18.0 %
Data processing 11 13 (2 ) (15.4 %)
Direct loan expense 106 547 (441 ) (80.6 %)
Office supplies, telephone and postage 47 57 (10 ) (17.5 %)
Professional fees 55 244 (189 ) (77.5 %)
Marketing and promotional expenses 10 9 1 11.1 %
Other operating expenses 171 58 113 194.8 %
Total non-interest expense $ 2,223 $ 2,291 $ (68 ) (3.0 %)
Management of Market Risk
General. The most significant form of market risk is interest rate risk because,
as a financial institution, the majority of the Bank's assets and liabilities
are sensitive to changes in interest rates. Therefore, a principal part of our
operations is to manage interest rate risk and limit the exposure of its
financial condition and results of operations to changes in market interest
rates. The Bank's Asset/Liability Management Committee is responsible for
evaluating the interest rate risk inherent in the Bank's assets and liabilities,
for determining the level of risk that is appropriate, given the business
strategy, operating environment, capital, liquidity and performance objectives,
and for managing this risk consistent with policies and guidelines approved by
the Board of Directors. The Bank currently utilizes a third-party modeling
solution that is prepared on a quarterly basis, to evaluate its sensitivity to
changing interest rates, given the Bank's business strategy, operating
environment, capital, liquidity and performance objectives, and for managing
this risk consistent with the guidelines approved by the Board of Directors.
The Bank does not engage in hedging activities, such as engaging in futures,
options or swap transactions, or investing in high-risk mortgage derivatives,
such as collateralized mortgage obligation residual interests, real estate
mortgage investment conduit residual interests or stripped mortgage backed
securities. Mortgage World did not engage in hedging activities to cover the
risks of interest rate movements while it held mortgages for sale. The then low
mortgage interest rates and their limited volatility had effectively mitigated
such risks.
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Net Interest Income Simulation Models. Management utilizes a respected,
sophisticated third party designed asset liability modeling software that
measures the Bank's earnings through simulation modeling. Earning assets,
interest-bearing liabilities and off-balance sheet financial instruments are
combined with forecasts of interest rates for the next 12 months and are
combined with other factors in order to produce various earnings simulations
over that same 12-month period. To limit interest rate risk, the Bank has policy
guidelines for earnings risk which seek to limit the variance of net interest
income in both gradual and instantaneous changes to interest rates. As of
March 31, 2022 , in the event of an instantaneous upward and downward change in
rates from management's interest rate forecast over the next twelve months,
assuming a static balance sheet, the following estimated changes are calculated:
Net Interest Income Year 1 Change
Rate Shift (1) Year 1 Forecast from Level
(Dollars in thousands)
+400 $ 68,379 (5.15%)
+300 69,421 (3.71%)
+200 70,410 (2.33%)
+100 71,339 (1.05%)
Level 72,093 -%
-100 71,961 (0.18%)
(1) Assumes an instantaneous uniform change in interest rates at all maturities.
Although an instantaneous and severe shift in interest rates was used in this analysis to provide an estimate of exposure under these scenarios, management believes that a gradual shift in interest rates would have a more modest impact. Further, the earnings simulation model does not take into account factors such as future balance sheet growth, changes in product mix, changes in yield curve relationships, and changing product spreads that could alter any potential adverse impact of changes in interest rates. The behavior of the deposit portfolio in the baseline forecast and in alternate interest rate scenarios set out in the table above is a key assumption in the projected estimates of net interest income. The projected impact on net interest income in the table above assumes no change in deposit portfolio size or mix from the baseline forecast in alternative rate environments. In higher rate scenarios, any customer activity resulting in the replacement of low-cost or noninterest-bearing deposits with higher-yielding deposits or market-based funding would reduce the benefit in those scenarios.
At
Economic Value of Equity Model. While earnings simulation modeling attempts to
determine the impact of a changing rate environment to net interest income, the
Economic Value of Equity Model ("EVE") measures estimated changes to the
economic values of assets, liabilities and off-balance sheet items as a result
of interest rate changes. Economic values are determined by discounting expected
cash flows from assets, liabilities and off-balance sheet items, which
establishes a base case EVE. Rates are then shocked as prescribed by the
Interest Rate Risk Policy to measure the sensitivity in EVE values for each of
those shocked rate scenarios versus the base case. The Interest Rate Risk Policy
sets limits for those sensitivities. At March 31, 2022 , the EVE modeling
calculated the following estimated changes in EVE due to instantaneous upward
and downward changes in rates:
EVE as a Percentage of Present
Value of Assets (3)
Estimated Increase (Decrease) in Increase
Change in Interest Estimated EVE EVE (Decrease)
Rates (basis points) (1) EVE (2) Amount Percent Ratio (4) (basis points)
(Dollars in thousands)
+400 $ 223,690 $ (77,286 ) (25.68 %) 15.32 % (2,568 )
+300 241,665 (59,311 ) (19.71 %) 16.19 % (1,971 )
+200 260,186 (40,790 ) (13.55 %) 17.03 % (1,355 )
+100 280,786 (20,190 ) (6.71 %) 17.95 % (671 )
Level 300,976 - - % 18.79 % -
-100 326,945 25,969 8.63 % 19.92 % 863
(1) Assumes an instantaneous uniform change in interest rates at all maturities.
(2) EVE is the discounted present value of expected cash flows from assets,
liabilities and off-balance sheet contracts.
(3) Present value of assets represents the discounted present value of incoming
cash flows on interest-earning assets.
(4) EVE Ratio represents EVE divided by the present value of assets.
63
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Although an instantaneous and severe shift in interest rates was used in this
analysis to provide an estimate of exposure under these scenarios, management
believes that a gradual shift in interest rates would have a more modest impact.
Since EVE measures the discounted present value of cash flows over the estimated
lives of instruments, the change in EVE does not directly correlate to the
degree that earnings would be impacted over a shorter time horizon (i.e., the
current year). Further, EVE does not take into account factors such as future
balance sheet growth, changes in product mix, changes in yield curve
relationships, and changing product spreads that could alter the adverse impact
of changes in interest rates.
At
Most Likely Earnings Simulation Models. Management also analyzes a most-likely earnings simulation scenario that projects the expected change in rates based on a forward yield curve adopted by management using expected balance sheet volumes forecasted by management. Separate growth assumptions are developed for loans, investments, deposits, etc. Other interest rate scenarios analyzed by management may include delayed rate shocks, yield curve steepening or flattening, or other variations in rate movements to further analyze or stress the balance sheet under various interest rate scenarios. Each scenario is evaluated by management and weighted to determine the most likely result. These processes assist management to better anticipate financial results and, as a result, management may determine the need to review other operating strategies and tactics which might enhance results or better position the balance sheet to reduce interest rate risk going forward. Each of the above analyses may not, on its own, be an accurate indicator of how net interest income will be affected by changes in interest rates. Income associated with interest-earning assets and costs associated with interest-bearing liabilities may not be affected uniformly by changes in interest rates. In addition, the magnitude and duration of changes in interest rates may have a significant impact on net interest income. For example, although certain assets and liabilities may have similar maturities or periods of repricing, they may react in different degrees to changes in market interest rates. Interest rates on certain types of assets and liabilities fluctuate in advance of changes in general market rates, while interest rates on other types may lag behind changes in general market rates. In addition, certain assets, such as adjustable rate mortgage loans, have features (generally referred to as interest rate caps and floors) which limit changes in interest rates. Prepayment and early withdrawal levels also could deviate significantly from those assumed in calculating the maturity of certain instruments. The ability of many borrowers to service their debts also may decrease during periods of rising interest rates. The Asset/Liability Committee reviews each of the above interest rate sensitivity analyses along with several different interest rate scenarios as part of its responsibility to provide a satisfactory, consistent level of profitability within the framework of established liquidity, loan, investment, borrowing and capital policies. Management's model governance, model implementation and model validation processes and controls are subject to review in the Bank's regulatory examinations to ensure they are in compliance with the most recent regulatory guidelines and industry and regulatory practices. Management utilizes a respected, sophisticated third party designed asset liability modeling software to help ensure implementation of management's assumptions into the model are processed as intended in a robust manner. That said, there are numerous assumptions regarding financial instrument behaviors that are integrated into the model. The assumptions are formulated by combining observations gleaned from the Bank's historical studies of financial instruments and the best estimations of how, if at all, these instruments may behave in the future given changes in economic conditions, technology, etc. These assumptions may prove to be inaccurate. Additionally, given the large number of assumptions built into Bank's asset liability modeling software, it is difficult, at best, to compare its results to other banks. The Asset/Liability Management Committee may determine that the Company should over time become more or less asset or liability sensitive depending on the underlying balance sheet circumstances and its conclusions regarding interest rate fluctuations in future periods. The historically low benchmark federal funds interest rate of the last several years implemented in response the turmoil resulting from COVID-19 pandemic is ending. TheFederal Reserve Board increased the benchmark federal funds interest rate by 25 basis points onMarch 16, 2022 and an additional increase onMay 5, 2022 of 50 basis points. TheFederal Reserve Board has signaled that there will likely be additional federal funds interest rate increases during 2022; maybe as many as five more. The recent increase and the anticipated increases are in response to inflation rising at a rate not seen in over 40 years. Because of this rising rate environment, the speed with which it is anticipated to be implemented, the significant competitive pressures in our markets and the potential negative impact of these factors on our deposit and loan pricing, our net interest margin may be negatively impacted. Our net interest income may also be negatively impacted if the demand for loans decreases due to the rate increases, alone or in tandem with the concurrent inflationary pressures. We may be negatively impacted if we are unable to appropriately time adjustments to our funding costs and the rates we earn on our loans. The Bank believes it is well positioned to withstand this rising interest rate environment in the near term as it is asset sensitive. GAP Analysis. In addition, management analyzes interest rate sensitivity by monitoring the Bank's interest rate sensitivity "gap." The interest rate sensitivity gap is the difference between the amount of interest-earning assets maturing or repricing within a specific time period and the amount of interest bearing-liabilities maturing or repricing within that same time period. A gap is considered positive when the amount of interest rate sensitive assets maturing or repricing during a period exceeds the amount of interest rate sensitive 64 --------------------------------------------------------------------------------
liabilities maturing or repricing during the same period, and a gap is considered negative when the amount of interest rate sensitive liabilities maturing or repricing during a period exceeds the amount of interest rate sensitive assets maturing or repricing during the same period.
The following table sets forth the Company's interest-earning assets and its interest-bearing liabilities atMarch 31, 2022 , which are anticipated to reprice or mature in each of the future time periods shown based upon certain assumptions. The amounts of assets and liabilities shown which reprice or mature during a particular period were determined in accordance with the earlier of term to repricing or the contractual maturity of the asset or liability. The table sets forth an approximation of the projected repricing of assets and liabilities atMarch 31, 2022 , on the basis of contractual maturities, anticipated prepayments and scheduled rate adjustments. The loan amounts in the table reflect principal balances expected to be redeployed and/or repriced as a result of contractual amortization and as a result of contractual rate adjustments on adjustable-rate loans. March 31, 2022 Time to Repricing Non Total Earning Earning Assets & Zero Days Zero Days Zero Days Assets & Non Zero to 90 Zero to to One to Two to Five Five Years Costing Costing Days 180 Days Year Years Years Plus Liabilities Liabilities Total (Dollars in thousands) Assets: Interest-bearing deposits in banks$ 37,127 $ 37,127 $ 37,127 $ 37,127 $ 37,127 $ 37,127 $ 37,127 $ 32,168 $ 69,295 Securities (1) 4,327 8,189 15,273 30,190 90,452 164,820 164,820 (9,094 ) 155,726 Placements with banks 2,490 2,490 2,490 2,490 2,490 2,490 2,490 - 2,490 Net loans (includes LHFS) 180,239 255,233 424,521 688,852 1,347,997 1,407,002 1,407,002 (98,584 ) 1,308,418 FHLBNY stock 5,420 5,420 5,420 5,420 5,420 5,420 5,420 - 5,420 Other assets - - - - - - - 53,248 53,248 Total$ 229,603 $ 308,459 $ 484,831 $ 764,079 $ 1,483,486 $ 1,616,859 $ 1,616,859 $ (22,262 ) $ 1,594,597 Liabilities: Non-maturity deposits$ 56,859 $ 113,718 $ 227,432 $ 294,354 $ 453,023 $ 524,654 $ 524,654 $ 253,811 $ 778,465 Certificates of deposit 78,842 149,482 242,479 288,139 399,115 403,077 403,077 (377 ) 402,700 Other liabilities - 65,000 68,600 93,375 93,375 93,375 93,375 20,478 113,853 Total liabilities 135,701 328,200 538,511 675,868 945,513 1,021,106 1,021,106 273,912 1,295,018 Capital - - - - - - - 299,579 299,579 Total liabilities and capital$ 135,701 $ 328,200 $ 538,511 $ 675,868 $ 945,513 $ 1,021,106 $ 1,021,106 $ 573,491 $ 1,594,597 Asset/liability gap$ 93,902 $ (19,741 ) $ (53,680 ) $ 88,211 $ 537,973 $ 595,753 $ 595,753 Gap/assets ratio 169.20 % 93.99 % 90.03 % 113.05 % 156.90 % 158.34 % 158.34 %
(1) Includes available-for-sale securities and held-to-maturity securities.
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The following table sets forth the Company's interest-earning assets and its
interest-bearing liabilities at December 31, 2021 , which are anticipated to
reprice or mature in each of the future time periods shown based upon certain
assumptions. The amounts of assets and liabilities shown which reprice or mature
during a particular period were determined in accordance with the earlier of
term to repricing or the contractual maturity of the asset or liability. The
table sets forth an approximation of the projected repricing of assets and
liabilities at December 31, 2021 , on the basis of contractual maturities,
anticipated prepayments and scheduled rate adjustments. The loan amounts in the
table reflect principal balances expected to be redeployed and/or repriced as a
result of contractual amortization and as a result of contractual rate
adjustments on adjustable-rate loans.
December 31, 2021
Time to Repricing
Non
Total Earning
Earning Assets &
Zero Days Zero Days Zero Days Five Assets & Non
Zero to Zero to to One to Two to Five Years Costing Costing
90 Days 180 Days Year Years Years Plus Liabilities Liabilities Total
(Dollars in thousands)
Assets:
Interest-bearing deposits in banks$ 153,894 $ 153,894 $ 153,894 $ 153,894 $ 153,894 $ 153,894 $ 153,894 $ -$ 153,894 Securities (1) 4,993 8,939 16,365 33,316 79,592 116,270 116,270 (1,990 ) 114,280 Placement with banks 2,490 2,490 2,490 2,490 2,490 2,490 2,490 - 2,490 Net loans (includes LHFS) 166,991 276,112 446,737 670,281 1,249,032 1,309,504 1,309,504 11,410 1,320,914 FHLBNY stock 6,005 6,005 6,005 6,005 6,005 6,005 6,005 (4 ) 6,001 Other assets - - - - - - - 55,931 55,931 Total$ 334,373 $ 447,440 $ 625,491 $ 865,986 $ 1,491,013 $ 1,588,163 $ 1,588,163 $ 65,347 $ 1,653,510 Liabilities: Non-maturity deposits$ 17,858 $ 35,716 $ 71,433 $ 142,867 $ 310,403 $ 381,627 $ 381,627 $ 393,610 $ 775,237 Certificates of deposit 73,838 143,956 255,074 303,917 425,479 429,479 429,479 - 429,479 Other liabilities 12,880 12,880 47,880 106,255 106,255 106,255 106,255 153,283 259,538 Total liabilities 104,576 192,552 374,387 553,039 842,137 917,361 917,361 546,893 1,464,254 Capital - - - - - - - 189,256 189,256 Total liabilities and capital$ 104,576 $ 192,552 $ 374,387 $ 553,039 $ 842,137 $ 917,361 $ 917,361 $ 736,149 $ 1,653,510 Asset/liability gap$ 229,797 $ 254,888 $ 251,104 $ 312,947 $ 648,876 $ 670,802 $ 670,802 Gap/assets ratio 319.74 % 232.37 % 167.07 % 156.59 % 177.05 % 173.12 % 173.12 %
(1) Includes available-for-sale securities and held-to-maturity securities.
Certain shortcomings are inherent in the methodologies used in the above interest rate risk measurements. Modeling changes require making certain assumptions that may or may not reflect the manner in which actual yields and costs respond to changes in market interest rates. In this regard, the net interest income and EVE tables presented assume that the composition of the interest-sensitive assets and liabilities existing at the beginning of a period remains constant over the period being measured and assumes that a particular change in interest rates is reflected uniformly across the yield curve regardless of the duration or repricing of specific assets and liabilities. Accordingly, although the net interest income and EVE tables provide an indication of the interest rate risk exposure at a particular point in time, such measurements are not intended to and do not provide a precise forecast of the effect of changes in market interest rates on net interest income and EVE and will differ from actual results. Furthermore, although certain assets and liabilities may have similar maturities or periods to repricing, they may react in different degrees to changes in market interest rates. Additionally, certain assets, such as adjustable-rate loans, have features that restrict changes in interest rates both on a short-term basis and over the life of the asset. In the event of changes in interest rates, prepayment and early withdrawal levels would likely deviate significantly from those assumed in calculating the gap table.
Interest rate risk calculations also may not reflect the fair values of financial instruments. For example, decreases in market interest rates can increase the fair values of loans, deposits and borrowings.
Liquidity and Capital Resources
Liquidity describes the ability to meet the financial obligations that arise in the ordinary course of business. Liquidity is primarily needed to meet the borrowing and deposit withdrawal requirements of the Company's customers and to fund current and future planned expenditures. The primary sources of funds are deposits, principal and interest payments on loans and available-for-sale securities and proceeds from the sale of loans. The Bank also has access to borrow from the FHLBNY. AtMarch 31, 2022 andDecember 31, 2021 , the Bank had$93.4 million and$106.3 million , respectively, of term and overnight outstanding advances from the FHLBNY, and also had a guarantee from the FHLBNY through letters of credit of up to$21.5 million , both as ofMarch 31, 2022 andDecember 31, 2021 . AtMarch 31, 2022 andDecember 31, 2021 , there was eligible collateral of approximately$377.2 million and$362.3 million , respectively, in mortgage loans available to secure advances from the FHLBNY. The Bank also has an unsecured line of credit of$25.0 million with a correspondent bank, of which there was none outstanding atMarch 31, 2022 andDecember 31, 2021 . The Bank did not have any outstanding securities sold under repurchase agreements with brokers as ofMarch 31, 2022 andDecember 31, 2021 . As ofDecember 31, 2021 ,Mortgage World maintained two warehouse lines of credit with financial institutions for the purpose of funding the origination and sale of residential mortgage loans, with maximum credit lines of$30.0 million , of which$15.1 million was utilized, 66 --------------------------------------------------------------------------------
with
Although maturities and scheduled amortization of loans and securities are predictable sources of funds, deposit flows and loan prepayments are greatly influenced by market interest rates, economic conditions, and competition. The most liquid assets are cash and interest-bearing deposits in banks. The levels of these assets are dependent on operating, financing, lending, and investing activities during any given period. Net cash provided by operating activities was$12.0 million and$22.6 million for the three months endedMarch 31, 2022 and 2021, respectively. Net cash used in investing activities, which consists primarily of disbursements for loan originations, purchases of new securities, and purchase of equipment offset by principal collections on loans, proceeds from maturing securities and pay downs on mortgage-backed securities, and proceeds from the sale of real estate was$(44.8 million) and$(86.1 million) for the three months endedMarch 31, 2022 and 2021, respectively. Net cash (used in) provided by financing activities, consisting of activities in deposit accounts, advances, and repurchase and sale of shares as treasury stock, was ($51.8 million ) and$81.5 million for the three months endedMarch 31, 2022 and 2021, respectively. Based on the Company's current assessment of the economic impact of the COVID-19 pandemic, theRussia -Ukraine conflict and current global and regional market conditions on its borrowers, management has determined that these may be a detriment to borrowers' ability to repay in the short-term and that the likelihood of long-term detrimental effects will depend significantly on the resolution of these factors and the resumption of normalized economic activities, a factor not yet determinable. The Bank's management also took steps to enhance the Company's liquidity position by increasing its on balance sheet cash and cash equivalents position in order to meet unforeseen liquidity events and to fund upcoming funding needs. AtMarch 31, 2022 andDecember 31, 2021 , all regulatory capital requirements were met, resulting in the Company and the Bank being categorized as well capitalized atMarch 31, 2022 andDecember 31, 2021 . Management is not aware of any conditions or events that would change this categorization.
Material Cash Requirements
Commitments. As a financial services provider, the Company routinely is a party to various financial instruments with off-balance-sheet risks, such as commitments to extend credit and unused lines of credit. Although these contractual obligations represent the Company's future cash requirements, a significant portion of commitments to extend credit may expire without being drawn upon. Such commitments are subject to the same credit policies and approval process accorded to loans originated. AtMarch 31, 2022 andDecember 31, 2021 , the Company had outstanding commitments to originate loans and extend credit of$234.3 million and$220.5 million , respectively. It is anticipated that the Company will have sufficient funds available to meet its current lending commitments. Certificates of deposit that are scheduled to mature in less than one year fromMarch 31, 2022 totaled$242.1 million . Management expects that a substantial portion of the maturing time deposits will be renewed. However, if a substantial portion of these deposits are not retained, the Company may utilize FHLBNY advances, unsecured credit lines with correspondent banks, or raise interest rates on deposits to attract new accounts, which may result in higher levels of interest expense. Contractual Obligations. In the ordinary course of its operations, the Company enters into certain contractual obligations. Such obligations include data processing services, operating leases for premises and equipment, agreements with respect to borrowed funds and deposit liabilities. There have been no material changes in the Company's material cash requirements under its contractual obligations as discussed in its most recent annual report on Form 10-K. Other Material Cash Requirements. In addition to contractual obligations, the Company's material cash requirements also includes compensation and benefits expenses for its employees, which were$7.1 million for the three months endedMarch 31, 2022 . The Company also has material cash requirements for occupancy and equipment expenses, excluding depreciation and amortization of$467,000 , related to rental expenses, general maintenance and cleaning supplies, guard services, software licenses and other miscellaneous expenses, which were$2.7 million for the three months endedMarch 31, 2022 . 67
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