Ponce Financial Group (PDLB) risk factors, FY2024 10-K

Risks Related to CDFI and MDI Status

1. 01We may lose the ability to obtain grants and awards available to CDFIs and/or MDIs institutions

Risks Related to our Lending Activities

1. 02We have increased our multifamily, nonresidential and construction and land loans, and intend to continue to increase originations of these types of loans. These loans may carry greater credit risk than loans secured by one-to-four family real estate that could adversely affect our financial condition and net income
2. 03Our business and our customers are impacted by inflationary pressures
3. 04The unseasoned nature of our multifamily, nonresidential and construction and land loans portfolio may result in changes to our estimates of collectability, which may lead to additional provisions or charge-offs, which could hurt our profits
4. 05Our business may be adversely affected by credit risk associated with residential property
5. 06If our allowance for credit losses is not sufficient to cover actual loan losses, our earnings and capital could decrease
6. 07On January 1, 2023, the Company adopted Current Expected Credit Loss, or CECL. CECL requires financial institutions to determine periodic estimates of lifetime expected credit losses on loans, and recognize the expected credit losses as allowances for credit losses
7. 08A worsening of economic conditions in our market area could reduce demand for our products and services and/or result in increases in our level of nonperforming loans, which could adversely affect our operations, financial condition and earnings
8. 09the net worth and liquidity of loan guarantors may decline, impairing their ability to honor commitments to us
9. 10We are subject to environmental liability risk associated with lending activities or properties we own

Risks Related to our Business Strategy

1. 11Our business strategy includes growth, and our financial condition and results of operations could be negatively affected if we fail to grow or fail to manage our growth effectively. Growing our operations could also cause our expenses to increase faster than our revenues
2. 12We may incur losses due to minority investments in other financial technology related companies
3. 13New lines of business or new products and services may subject us to additional risks
4. 14Our emphasis on construction lending involves risks that could adversely affect our financial condition and results of operations
5. 15Our efficiency ratio is high, and we anticipate that it may remain high, as a result of the ongoing implementation of our business strategy
6. 16Stock has a dividend rate of no more than 0.5%, which dividend rate is calculated pursuant to the ECIP and the terms thereof, at each of six consecutive Reset Dates, as defined in the ECIP
7. 17We may be dependent on borrowings from the FHLBNY and FRBNY to grow our lending activities, which may negatively impact our results of operations

Risks Related to Competitive Matters

1. 18Strong competition within our market areas may limit our growth and profitability
2. 19Our small size makes it more difficult for us to compete

Risks Related to Our Management

1. 20We depend on our management team to implement our business strategy and execute successful operations and we could be harmed by the loss of their services
2. 21Adherence to our internal policies and procedures by management is critical to our performance and how we are perceived by our regulators

Risks Related to Interest Rates

1. 22Interest rates may rise and the possibility that we may access higher-cost funds to support our loan growth and operations may adversely affect our net interest income and profitability
2. 23Future changes in interest rates could reduce our profits and asset values
3. 24the interest expense we pay on interest-bearing liabilities, such as deposits and borrowings
4. 25Any substantial, unexpected, prolonged change in market interest rates could have a material adverse effect on our financial condition, liquidity and results of operations. Changes in the level of interest rates also may negatively affect the value of our assets and ultimately affect our earnings
5. 26Changes in the valuation of securities held could adversely affect us

Risks Related to Laws and Regulations

1. 27Changes in laws and regulations and the cost of regulatory compliance with new laws and regulations may adversely affect our operations and/or increase our costs of operations
2. 28Our New York State multi-family loan portfolio could be adversely impacted by changes in legislation or regulation, primarily rent control and rent stabilization
3. 29We may be limited in our ability to originate new construction loans in our market area due to legislative changes
4. 30Imposition of limits by the bank regulators on construction lending activities could curtail our growth and adversely affect our earnings
5. 31Non-compliance with the USA PATRIOT Act, Bank Secrecy Act, or other laws and regulations could result in fines or sanctions
6. 32Our ability to originate loans could be restricted by recently adopted federal regulations
7. 33terms of longer than 30 years
8. 34We are subject to stringent capital requirements, which may adversely impact our return on equity, require us to raise additional capital, or limit our ability to pay dividends or repurchase shares
9. 35We have analyzed these capital requirements, and the Bank meets all of these requirements, including the 2.5% capital conservation buffer
10. 36The Federal Reserve Board may require us to commit capital resources to support Ponce Bank
11. 37Monetary policies and regulations of the Federal Reserve Board could adversely affect our business, financial condition and results of operations

Risk Related to our Operations

1. 38We face significant operational risks because the financial services business involves a high volume of transactions and increased reliance on technology, including risk of loss related to cyber security breaches
2. 39Negative developments in the U.S. in our primary markets may adversely impact our results in the future
3. 40a decrease in net interest income from our lending and deposit gathering activities
4. 41The cost of finance and accounting systems, procedures and controls in order to satisfy our public company reporting requirements increases our expenses

Risks Related to Accounting Matters

1. 42Changes in accounting standards could affect reported earnings
2. 43Changes in management’s estimates and assumptions may have a material impact on our consolidated financial statements and our financial condition or operating results
3. 44Financial challenges at other banking institutions could lead to depositor concerns that spread within the banking industry causing disruptive deposit outflows and other destabilizing results
4. 45Ineffective liquidity management could adversely affect our financial results and condition
5. 46By engaging in derivative transactions, we are exposed to additional credit and market risk in our banking business
6. 47Legal and regulatory proceedings and related matters could adversely affect us
7. 48We are a community bank and our ability to maintain our reputation is critical to the success of our business and the failure to do so may materially adversely affect our performance
8. 49Our Equity Incentive Plans have increased our expenses and reduced our income, and may dilute your ownership interests
9. 50Societal responses to climate change could adversely affect our business and performance, including indirectly through impacts on our customers
10. 51Our historical markets, minority and immigrant individuals, may be threatened by gentrification and adverse political developments, which could decrease our growth and profitability