Ponce Financial (PDLB) - 2025 Q2 - Quarterly Report

PART I. FINANCIAL INFORMATION This section presents the unaudited consolidated financial statements and management's discussion and analysis Item 1. Consolidated Financial Statements This section presents the unaudited consolidated financial statements and detailed notes explaining accounting policies Consolidated Statements of Financial Condition (Unaudited) Total assets increased to $3.15 billion, driven by growth in loans receivable and deposits, while borrowings decreased | Metric | June 30, 2025 (in thousands) | December 31, 2024 (in thousands) | Change (in thousands) | % Change | | :-------------------------------- | :----------------------------- | :------------------------------- | :-------------------- | :------- | | Total assets | $3,153,869 | $3,039,938 | $113,931 | 3.75% | | Loans receivable, net | $2,458,712 | $2,286,599 | $172,113 | 7.53% | | Total liabilities | $2,632,781 | $2,534,438 | $98,343 | 3.88% | | Deposits | $2,042,209 | $1,884,864 | $157,345 | 8.35% | | Borrowings | $536,100 | $596,100 | $(60,000) | -10.07% | | Total stockholders' equity | $521,088 | $505,500 | $15,588 | 3.08% | Consolidated Statements of Operations (Unaudited) Net income and earnings per common share significantly improved for both periods, primarily due to increased net interest income | Metric (in thousands) | 3 Months Ended June 30, 2025 | 3 Months Ended June 30, 2024 | 6 Months Ended June 30, 2025 | 6 Months Ended June 30, 2024 | | :-------------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | | Net interest income | $24,426 | $17,904 | $46,629 | $36,727 | | Provision (benefit) for credit losses | $1,626 | $(867) | $1,341 | $(883) | | Non-interest income | $2,060 | $2,258 | $4,441 | $3,965 | | Non-interest expense | $16,869 | $16,640 | $33,757 | $33,426 | | Net income | $6,100 | $3,192 | $12,059 | $5,606 | | Net income available to common stockholders | $5,818 | $3,117 | $11,496 | $5,531 | | Basic EPS | $0.26 | $0.14 | $0.51 | $0.25 | | Diluted EPS | $0.25 | $0.14 | $0.50 | $0.25 | Consolidated Statements of Comprehensive Income (Unaudited) Total comprehensive income significantly increased, driven by higher net income and positive unrealized gains on securities | Metric (in thousands) | 3 Months Ended June 30, 2025 | 3 Months Ended June 30, 2024 | 6 Months Ended June 30, 2025 | 6 Months Ended June 30, 2024 | | :-------------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | | Net income | $6,100 | $3,192 | $12,059 | $5,606 | | Net change in unrealized gain (losses) on securities | $595 | $42 | $2,859 | $(1,154) | | Income (tax) benefit effect | $(127) | $(9) | $(609) | $246 | | Total other comprehensive income (loss), net of tax | $468 | $33 | $2,250 | $(908) | | Total comprehensive income | $6,568 | $3,225 | $14,309 | $4,698 | | Total comprehensive income available to common stockholders | $6,286 | $3,150 | $13,746 | $4,623 | Consolidated Statements of Stockholders' Equity (Unaudited) Stockholders' equity increased to $521.1 million, primarily from net income and other comprehensive income, offset by dividends | Metric (in thousands) | Balance, December 31, 2024 | Net Income | Other Comprehensive Income, net of tax | Preferred Stock Dividend | ESOP shares committed to be released | Share-based compensation | Balance, June 30, 2025 | | :-------------------------------- | :------------------------- | :--------- | :------------------------------------- | :----------------------- | :----------------------------------- | :----------------------- | :--------------------- | | Total Stockholders' Equity | $505,500 | $12,059 | $2,250 | $(563) | $901 | $956 | $521,088 | Consolidated Statements of Cash Flows (Unaudited) Operating activities generated positive cash flow, investing used cash for loan growth, and financing provided cash from deposits | Cash Flow Activity (in thousands) | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :-------------------------------- | :----------------------------- | :----------------------------- | | Net cash provided by (used in) operating activities | $19,261 | $(1,092) | | Net cash used in investing activities | $(129,243) | $(129,384) | | Net cash provided by financing activities | $96,782 | $94,452 | | Net decrease in cash and cash equivalents | $(13,200) | $(36,024) | | Cash and cash equivalents at end of period | $126,639 | $103,166 | Notes to Consolidated Financial Statements (Unaudited) Detailed disclosures cover accounting policies, financial instruments, regulatory compliance, and specific financial details Note 1. Nature of Business Ponce Financial Group operates as one segment, with financial statements prepared under GAAP requiring significant management estimates - The Company operates as one operating segment and one reportable segment, with the CEO as the Chief Operating Decision Maker (CODM)[26] - Material estimates susceptible to significant change include allowance for credit losses, valuation of real estate, loans held for sale, deferred tax assets, investment securities, and share-based awards[25] Note 2. Preferred Stock The Company issued $225 million in ECIP Preferred Stock with variable dividends and a repurchase option tied to lending - The Company issued $225 million in Preferred Stock to the Treasury under the ECIP to support lending in low-income and underserved communities[28] - Dividend rates on Preferred Stock vary (2.0%, 1.25%, or 0.5%) based on qualified and deep impact lending levels, with the Company currently paying at 0.5%[28][35] - A repurchase option for the Preferred Stock exists, potentially at a substantial discount, if specific 'Threshold Conditions' related to lending are met, with the earliest possible date being June 30, 2026[33][34][35] Note 3. Securities The securities portfolio decreased, with unrealized losses primarily due to interest rate changes, not credit quality | Security Type | June 30, 2025 (Fair Value, in thousands) | December 31, 2024 (Fair Value, in thousands) | Change (in thousands) | % Change | | :-------------------------------- | :--------------------------------------- | :----------------------------------------- | :-------------------- | :------- | | Available-for-sale securities | $96,562 | $104,970 | $(8,408) | -8.01% | | Held-to-maturity securities | $329,279 | $355,294 | $(26,015) | -7.32% | | Total securities | $425,841 | $460,264 | $(34,423) | -7.48% | | Metric (in thousands) | June 30, 2025 | December 31, 2024 | | :-------------------------------- | :------------ | :---------------- | | Total available-for-sale securities (Gross Unrealized Losses) | $(16,581) | $(19,448) | | Total held-to-maturity securities (Gross Unrealized Losses) | $(7,984) | $(12,964) | | Allowance for credit losses on securities | $199 | $216 | - Gross unrealized losses on securities are primarily due to changes in interest rates, not credit quality, particularly for U.S. government-sponsored entities and agencies[46] Note 4. Mortgage Loans Held-for-Sale Mortgage loans held-for-sale decreased significantly to $5.7 million, with a notable portion remaining past due | Metric (in thousands) | June 30, 2025 | December 31, 2024 | Change (in thousands) | % Change | | :-------------------------------- | :------------ | :---------------- | :-------------------- | :------- | | Mortgage loans held-for-sale, at fair value | $5,703 | $10,736 | $(5,033) | -46.88% | | Mortgage loans held-for-sale, contractual principal outstanding | $5,675 | $10,674 | $(4,999) | -46.83% | | Loans held-for-sale greater than 90 days past due and non-accrual | $4,400 | $4,400 | $0 | 0.00% | Note 5. Loans Receivable, Net and Allowance for Credit Losses Net loans receivable increased by 7.5%, driven by construction loans, while non-performing assets decreased | Loan Type (in thousands) | June 30, 2025 | December 31, 2024 | Change (in thousands) | % Change | | :-------------------------------- | :------------ | :---------------- | :-------------------- | :------- | | Total loans, gross | $2,482,206 | $2,308,020 | $174,186 | 7.55% | | Allowance for Credit Losses | $(24,100) | $(22,502) | $(1,598) | 7.10% | | Loans receivable, net | $2,458,712 | $2,286,599 | $172,113 | 7.53% | | Construction and land loans | $883,462 | $733,660 | $149,802 | 20.42% | | Multifamily residential loans | $693,670 | $670,159 | $23,511 | 3.51% | | Business loans | $47,372 | $40,849 | $6,523 | 15.97% | | Metric (in thousands) | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :-------------------------------- | :----------------------------- | :----------------------------- | | Allowance for credit losses on loans at beginning of period | $22,502 | $26,154 | | (Benefit) provision charged to expense | $2,079 | $(375) | | Charge-offs | $(485) | $(2,101) | | Recoveries | $4 | $383 | | Allowance for credit losses on loans at end of period | $24,100 | $24,061 | - Total non-performing assets and accruing modifications to borrowers experiencing financial difficulty decreased by $3.6 million to $28.5 million at June 30, 2025, from $32.1 million at December 31, 2024[212] - The allowance for off-balance sheet credit losses decreased to $2.1 million at June 30, 2025, from $2.8 million at December 31, 2024, with a $0.7 million benefit for credit losses during the six months ended June 30, 2025[74][75] Note 6. Leases The Company holds 23 operating leases with stable ROU assets and liabilities, incurring $2.28 million in lease costs | Metric (in thousands) | June 30, 2025 | December 31, 2024 | | :-------------------------------- | :------------ | :---------------- | | Operating lease ROU assets | $28,806 | $29,093 | | Operating lease liabilities | $30,501 | $30,696 | | Weighted-average remaining lease term-operating leases | 11.8 years | 12.0 years | | Weighted average discount rate-operating leases | 5.1% | 5.1% | | Total lease cost (Six Months Ended June 30) | $2,280 | $2,155 | Note 7. Deposits Total deposits increased by 8.3% to $2.04 billion, driven by money market and demand accounts, offsetting CD decreases | Deposit Type (in thousands) | June 30, 2025 | December 31, 2024 | Change (in thousands) | % Change | | :-------------------------------- | :------------ | :---------------- | :-------------------- | :------- | | Demand | $197,671 | $169,178 | $28,493 | 16.84% | | Money market accounts | $790,939 | $636,219 | $154,720 | 24.32% | | Total interest-bearing deposits | $1,844,538 | $1,715,686 | $128,852 | 7.51% | | Total certificates of deposit | $750,521 | $780,304 | $(29,783) | -3.82% | | Total deposits | $2,042,209 | $1,884,864 | $157,345 | 8.35% | - Scheduled maturities for certificates of deposit in the remainder of 2025 total $494.2 million[81] Note 8. Borrowings Total borrowings decreased by $60 million to $536.1 million due to FHLBNY repayments, reducing interest expense | Metric (in thousands) | June 30, 2025 | December 31, 2024 | Change (in thousands) | % Change | | :-------------------------------- | :------------ | :---------------- | :-------------------- | :------- | | Total borrowings | $536,100 | $596,100 | $(60,000) | -10.07% | | FHLBNY Term advances | $521,100 | $571,100 | $(50,000) | -8.75% | | FHLBNY Overnight line of credit advance | $15,000 | $25,000 | $(10,000) | -40.00% | | Weighted Average Rate | 3.86% | 3.94% | -0.08% | -2.03% | | Interest expense on advances (3 months) | $4,994 | $7,141 | $(2,147) | -30.06% | | Interest expense on advances (6 months) | $10,480 | $15,064 | $(4,584) | -30.43% | Note 9. Earnings Per Common Share Earnings per common share significantly increased for both basic and diluted measures, reflecting improved net income | Metric | 3 Months Ended June 30, 2025 | 3 Months Ended June 30, 2024 | 6 Months Ended June 30, 2025 | 6 Months Ended June 30, 2024 | | :-------------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | | Net income available to common stockholders (in thousands) | $5,818 | $3,117 | $11,496 | $5,531 | | Basic earnings per common share | $0.26 | $0.14 | $0.51 | $0.25 | | Diluted earnings per common share | $0.25 | $0.14 | $0.50 | $0.25 | Note 10. Commitments, Contingencies and Credit Risk Total off-balance sheet commitments decreased to $359.8 million, mainly due to reduced mortgage loan commitments | Commitment Type (in thousands) | June 30, 2025 | December 31, 2024 | Change (in thousands) | % Change | | :-------------------------------- | :------------ | :---------------- | :-------------------- | :------- | | Commitments to grant mortgage loans | $231,946 | $359,170 | $(127,224) | -35.42% | | Unfunded commitments under lines of credit | $127,824 | $52,329 | $75,495 | 144.27% | | Total commitments | $359,770 | $411,499 | $(51,729) | -12.57% | - The Company has unfunded commitments of $1.7 million with Oaktree SBIC Fund, L.P. and $1.4 million with EJF Silvergate Ventures Fund LP as of June 30, 2025[92] - The Company is involved in routine legal proceedings, but management believes their resolution will not materially affect financial condition or results of operations[95] Note 11. Fair Value Financial instruments are measured using a three-level fair value hierarchy, with most recurring measurements in Level 2 | Asset Type (in thousands) | Total Fair Value (June 30, 2025) | Level 1 | Level 2 | Level 3 | | :-------------------------------- | :------------------------------- | :------ | :------ | :------ | | Available-for-Sale Securities | $96,562 | $3,172 | $93,390 | $— | | Mortgage Loans Held for Sale | $5,703 | $— | $5,703 | $— | | Impaired loans (nonrecurring) | $19,474 | $— | $— | $19,474 | - Fair values for cash, FHLBNY stock, and certain liabilities approximate their carrying amounts due to short-term nature or redeemability at cost[98][100] Note 12. Regulatory Capital Requirements Both Ponce Financial Group and Ponce Bank met all regulatory capital requirements, maintaining a 'well capitalized' status | Capital Ratio | Ponce Financial Group, Inc. (June 30, 2025) | Regulatory Minimum | Well Capitalized Minimum | | :-------------------------------- | :------------------------------------------ | :----------------- | :----------------------- | | Total Capital to Risk-Weighted Assets | 22.65% | 8.00% | 10.00% | | Tier 1 Capital to Risk-Weighted Assets | 21.59% | 6.00% | 8.00% | | Common Equity Tier 1 Capital Ratio | 12.49% | 4.50% | 6.50% | | Tier 1 Capital to Total Assets | 17.13% | 4.00% | 5.00% | | Capital Ratio | Ponce Bank (June 30, 2025) | Regulatory Minimum | Well Capitalized Minimum | | :-------------------------------- | :------------------------- | :----------------- | :----------------------- | | Total Capital to Risk-Weighted Assets | 21.22% | 8.00% | 10.00% | | Tier 1 Capital to Risk-Weighted Assets | 20.15% | 6.00% | 8.00% | | Common Equity Tier 1 Capital Ratio | 20.15% | 4.50% | 6.50% | | Tier 1 Capital to Total Assets | 15.99% | 4.00% | 5.00% | - The Bank was categorized as 'well capitalized' by the OCC, and no conditions have changed this status[120] Note 13. Accumulated Other Comprehensive Loss Accumulated other comprehensive loss improved to $(13.0) million, driven by positive changes in AFS unrealized losses | Metric (in thousands) | December 31, 2024 | Change | June 30, 2025 | | :-------------------------------- | :---------------- | :----- | :------------ | | Unrealized losses on available-for-sale securities, net | $(15,297) | $2,250 | $(13,047) | | Total | $(15,297) | $2,250 | $(13,047) | Note 14. Transactions with Related Parties Aggregate loan balances with related parties increased to $8.3 million, while deposits from related parties decreased slightly | Metric (in thousands) | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :-------------------------------- | :----------------------------- | :----------------------------- | | Beginning loan balance | $7,671 | $8,810 | | Originations | $725 | $1,592 | | Payments | $(140) | $(1,099) | | Ending loan balance | $8,256 | $9,303 | | Deposits from related parties (June 30, 2025) | $7,900 | N/A | | Deposits from related parties (December 31, 2024) | $8,800 | N/A | Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management's discussion covers financial performance, condition, key trends, strategies, risk management, and regulatory compliance General This section provides insight into Ponce Financial Group's financial condition and results of operations Cautionary Note Regarding Forward-Looking Statements Forward-looking statements are subject to significant business, economic, and competitive uncertainties, potentially altering actual results - Forward-looking statements are subject to significant uncertainties, including rising interest rates, changes in U.S. trade policies, consumer habits, general economic conditions, and the Company's ability to manage various risks[126][127] Federal Economic Relief Funds To Aid Lending The Company participates in ECIP with $225 million Preferred Stock and received a $1.3 million CDFI award - The Company issued $225 million in Preferred Stock under the ECIP, with dividend rates (currently 0.5%) dependent on qualified and deep impact lending levels[130][132][138] - A repurchase option for the Preferred Stock, potentially at a discount, is contingent on meeting specific 'Threshold Conditions' related to lending, with the earliest exercise date being June 30, 2026[133][137][138] - Ponce Bank received a $1.3 million CDFI Financial Assistance Award and its Westchester Avenue Branch was approved as a Banking Development District, receiving $35.0 million in program deposits[142][143] Westchester Avenue Branch Re-Design Ponce Bank transformed its Westchester Avenue Branch into a 'community hub' with advanced technology and community-centric design - Ponce Bank transformed its Westchester Avenue Branch into a 'community hub' with state-of-the-art banking technologies and community-centric design[144][145] Coral Gables, Florida Office Ponce Bank opened its first Florida office in Coral Gables to serve existing customers and the Hispanic community - Ponce Bank opened its first Florida representative office in Coral Gables on June 1, 2024, targeting existing customers and the large Hispanic community[147] Ponce Bank Plan of Conversion Ponce Bank is converting to a national bank to expand banking powers, including eligibility for municipal deposits - Ponce Bank is converting to a national bank to expand banking powers, including eligibility for municipal deposits in New York[148][149] Critical Accounting Policies The allowance for credit losses is the most critical accounting policy, involving significant judgment and assumptions - The allowance for credit losses is identified as the most critical accounting policy, requiring significant management judgment and assumptions[150] - A 10 basis point increase or decrease in the loss rate factor would result in an approximate $2.5 million change in the credit loss reserve[151] Company's Growth The Company has significantly grown assets, loans, and deposits since 2018, leveraging technology and MDI/CDFI status | Metric | December 31, 2018 (in billions) | June 30, 2025 (in billions) | Growth (in billions) | % Growth | | :-------------------------------- | :------------------------------ | :-------------------------- | :------------------- | :------- | | Total assets | $1.06 | $3.15 | $2.09 | 197.17% | | Loans, net of ACL | $0.9185 | $2.46 | $1.5415 | 167.83% | | Deposits | $0.8098 | $2.04 | $1.2302 | 151.92% | - The Company uses a mobile application for digitized small business lending, enabling automated underwriting and loan origination without a physical presence[153] - The Company's partnership with Raisin Solutions US LLC has resulted in $650.4 million in core deposits as of June 30, 2025[154] Comparison of Financial Condition at June 30, 2025 and December 31, 2024 Total assets increased by 3.7% to $3.15 billion, driven by loans and deposits, while equity also grew Total Assets Total consolidated assets increased by $113.9 million (3.7%) to $3.15 billion, primarily from net loans receivable | Metric | June 30, 2025 (in billions) | December 31, 2024 (in billions) | Change (in millions) | % Change | | :-------------------------------- | :-------------------------- | :---------------------------- | :------------------- | :------- | | Total consolidated assets | $3.15 | $3.04 | $113.9 | 3.7% | | Net loans receivable increase | N/A | N/A | $172.1 | N/A | | Held-to-maturity securities decrease | N/A | N/A | $(31.1) | N/A | | Cash and cash equivalents decrease | N/A | N/A | $(13.2) | N/A | Cash and Cash Equivalents Cash and cash equivalents decreased by $13.2 million to $126.6 million, due to loan growth and borrowing repayments | Metric (in millions) | June 30, 2025 | December 31, 2024 | Change | % Change | | :-------------------------------- | :------------ | :---------------- | :----- | :------- | | Cash and cash equivalents | $126.6 | $139.8 | $(13.2) | -9.4% | | Increase in net loans | N/A | N/A | $179.5 | N/A | | Net repayment of borrowings | N/A | N/A | $60.0 | N/A | | Increase in net deposits | N/A | N/A | $157.3 | N/A | Securities The securities portfolio decreased by $39.5 million, primarily due to calls of AFS and maturities of HTM securities | Metric (in millions) | June 30, 2025 | December 31, 2024 | Change | % Change | | :-------------------------------- | :------------ | :---------------- | :----- | :------- | | Available-for-sale securities | N/A | N/A | $(8.4) | N/A | | Held-to-maturity securities | N/A | N/A | $(31.1) | N/A | | Total decrease in securities portfolio | N/A | N/A | $(39.5) | N/A | - The decrease was primarily due to the call of two available-for-sale securities ($6.0 million) and the maturity of one held-to-maturity security ($10.0 million)[159] Gross Loans Receivable Gross loans receivable increased by 7.5% to $2.48 billion, driven by construction and multifamily residential loans | Loan Type (in thousands) | June 30, 2025 | December 31, 2024 | Change (in thousands) | % Change | | :-------------------------------- | :------------ | :---------------- | :-------------------- | :------- | | Total gross loans receivable | $2,482,206 | $2,308,020 | $174,186 | 7.5% | | Construction and land | $883,462 | $733,660 | $149,802 | 20.4% | | Multifamily residential | $693,670 | $670,159 | $23,511 | 3.5% | | Business loans | $47,372 | $40,849 | $6,523 | 16.0% | - The Bank's construction and land mortgage loans were 169.4% of total risk-based capital (vs. 100% regulatory guideline, 200% internal policy)[166] - Investor-owned commercial real estate mortgage loans were 366.0% of total risk-based capital (vs. 300% regulatory guideline, 450% internal policy)[166] Loans Held For Sale Loans held for sale decreased by $5.0 million (46.9%) to $5.7 million at June 30, 2025 | Metric (in millions) | June 30, 2025 | December 31, 2024 | Change | % Change | | :-------------------------------- | :------------ | :---------------- | :----- | :------- | | Loans held for sale, at fair value | $5.7 | $10.7 | $(5.0) | -46.9% | Deposits Total deposits increased by $157.3 million to $2.04 billion, driven by money market and demand accounts | Deposit Type (in thousands) | June 30, 2025 | December 31, 2024 | Change (in thousands) | % Change | | :-------------------------------- | :------------ | :---------------- | :-------------------- | :------- | | Total deposits | $2,042,209 | $1,884,864 | $157,345 | 8.3% | | Demand | $197,671 | $169,178 | $28,493 | 16.8% | | Money market accounts | $790,939 | $636,219 | $154,720 | 24.3% | | Brokered certificates of deposit | $69,531 | $94,531 | $(25,000) | -26.4% | - The Company's reliance on wholesale funding and noncore funding remained within policy limitations[168] Borrowings Outstanding borrowings decreased by $60 million to $536.1 million, primarily due to FHLBNY advance reductions | Borrowing Type (in millions) | June 30, 2025 | December 31, 2024 | Change | % Change | | :-------------------------------- | :------------ | :---------------- | :----- | :------- | | FHLBNY term advances | $521.1 | $571.1 | $(50.0) | -8.8% | | FHLBNY overnight line of credit advance | $15.0 | $25.0 | $(10.0) | -40.0% | | Total outstanding borrowings | $536.1 | $596.1 | $(60.0) | -10.1% | Stockholders' Equity Stockholders' equity increased by $15.6 million (3.1%) to $521.1 million, driven by net income and OCI | Metric (in millions) | June 30, 2025 | December 31, 2024 | Change | % Change | | :-------------------------------- | :------------ | :---------------- | :----- | :------- | | Total stockholders' equity | $521.1 | $505.5 | $15.6 | 3.1% | | Net income contribution | N/A | N/A | $12.1 | N/A | | Other comprehensive income contribution | N/A | N/A | $2.3 | N/A | | Dividends on preferred shares | N/A | N/A | $(0.6) | N/A | Comparison of Results of Operations for the Three Months Ended June 30, 2025 and 2024 Net income available to common stockholders increased by 86.7% to $5.8 million, driven by net interest income Overview Net income available to common stockholders increased by $2.7 million to $5.8 million, driven by net interest income | Metric (in millions) | 3 Months Ended June 30, 2025 | 3 Months Ended June 30, 2024 | Change | % Change | | :-------------------------------- | :--------------------------- | :--------------------------- | :----- | :------- | | Net income available to common stockholders | $5.8 | $3.1 | $2.7 | 86.7% | | Basic EPS | $0.26 | $0.14 | $0.12 | 85.7% | | Diluted EPS | $0.25 | $0.14 | $0.11 | 78.6% | | Net interest income increase | N/A | N/A | $6.5 | N/A | Interest and Dividend Income Total interest and dividend income increased by $7.1 million (18.2%) to $45.9 million, driven by loan income | Metric (in thousands) | 3 Months Ended June 30, 2025 | 3 Months Ended June 30, 2024 | Change (in thousands) | % Change | | :-------------------------------- | :--------------------------- | :--------------------------- | :-------------------- | :------- | | Total interest and dividend income | $45,860 | $38,792 | $7,068 | 18.2% | | Interest on loans receivable | $40,291 | $31,281 | $9,010 | 28.8% | | Interest on securities | $4,246 | $5,486 | $(1,240) | -22.6% | | Interest on deposits due from banks | $807 | $1,542 | $(735) | -47.7% | Interest Expense Total interest expense increased by $0.5 million (2.6%) to $21.4 million, mainly from higher deposit interest | Metric (in thousands) | 3 Months Ended June 30, 2025 | 3 Months Ended June 30, 2024 | Change (in thousands) | % Change | | :-------------------------------- | :--------------------------- | :--------------------------- | :-------------------- | :------- | | Total interest expense | $21,434 | $20,888 | $546 | 2.6% | | Interest on certificates of deposit | $7,382 | $6,358 | $1,024 | 16.1% | | Interest on money market | $8,930 | $7,209 | $1,721 | 23.9% | | Interest on borrowings | $4,994 | $7,141 | $(2,147) | -30.1% | Net Interest Income Net interest income increased by $6.5 million to $24.4 million, driven by loan income and improved margin | Metric | 3 Months Ended June 30, 2025 | 3 Months Ended June 30, 2024 | Change | % Change | | :-------------------------------- | :--------------------------- | :--------------------------- | :----- | :------- | | Net interest income (in thousands) | $24,426 | $17,904 | $6,522 | 36.4% | | Net interest rate spread | 2.47% | 1.72% | 0.75% | 43.6% | | Net interest margin | 3.27% | 2.62% | 0.65% | 24.8% | Non-Interest Income Non-interest income decreased by $0.2 million to $2.1 million, mainly from lower other non-interest income | Metric (in thousands) | 3 Months Ended June 30, 2025 | 3 Months Ended June 30, 2024 | Change (in thousands) | % Change | | :-------------------------------- | :--------------------------- | :--------------------------- | :-------------------- | :------- | | Total non-interest income | $2,060 | $2,258 | $(198) | -8.8% | | Grant income | $428 | $— | $428 | N/A | | Other non-interest income | $422 | $1,057 | $(635) | -60.1% | | Income on sale of mortgage loans | $169 | $274 | $(105) | -38.3% | Non-Interest Expense Non-interest expense increased by $0.2 million to $16.9 million, driven by occupancy, data processing, and marketing | Metric (in thousands) | 3 Months Ended June 30, 2025 | 3 Months Ended June 30, 2024 | Change (in thousands) | % Change | | :-------------------------------- | :--------------------------- | :--------------------------- | :-------------------- | :------- | | Total non-interest expense | $16,869 | $16,640 | $229 | 1.4% | | Occupancy and equipment | $3,907 | $3,564 | $343 | 9.6% | | Data processing expenses | $1,188 | $1,013 | $175 | 17.3% | | Direct loan expenses | $241 | $633 | $(392) | -61.9% | | Marketing and promotional expenses | $266 | $145 | $121 | 83.4% | Income Tax Provision The provision for income taxes increased by $0.7 million (58.0%) to $1.9 million for the three months | Metric (in thousands) | 3 Months Ended June 30, 2025 | 3 Months Ended June 30, 2024 | Change (in thousands) | % Change | | :-------------------------------- | :--------------------------- | :--------------------------- | :-------------------- | :------- | | Provision for income taxes | $1,891 | $1,197 | $694 | 58.0% | Average Balance Sheets (Three Months) Average interest-earning assets increased to $3.00 billion, with improved yield and lower liability rates | Metric | 3 Months Ended June 30, 2025 | 3 Months Ended June 30, 2024 | Change | | :-------------------------------- | :--------------------------- | :--------------------------- | :----- | | Average interest-earning assets (in thousands) | $2,999,823 | $2,744,077 | $255,746 | | Average Yield on Interest-earning assets | 6.13% | 5.69% | 0.44% | | Average Rate on Interest-bearing liabilities | 3.66% | 3.97% | -0.31% | | Net interest rate spread | 2.47% | 1.72% | 0.75% | | Net interest margin | 3.27% | 2.62% | 0.65% | Rate/Volume Analysis (Three Months) Net interest income increase was primarily driven by interest rate changes, and to a lesser extent, volume changes | Change in Net Interest Income (in thousands) | Due to Volume | Due to Rate | Total Increase (Decrease) | | :------------------------------------------- | :------------ | :---------- | :------------------------ | | Total interest-earning assets | $4,709 | $2,359 | $7,068 | | Total interest-bearing liabilities | $2,941 | $(2,395) | $546 | | Change in net interest income | $1,768 | $4,754 | $6,522 | Comparison of Results of Operations for the Six Months Ended June 30, 2025 and 2024 Net income available to common stockholders more than doubled to $11.5 million, driven by net interest income Overview Net income available to common stockholders increased by $6.0 million to $11.5 million, driven by net interest income | Metric (in millions) | 6 Months Ended June 30, 2025 | 6 Months Ended June 30, 2024 | Change | % Change | | :-------------------------------- | :--------------------------- | :--------------------------- | :----- | :------- | | Net income available to common stockholders | $11.5 | $5.5 | $6.0 | 107.8% | | Basic EPS | $0.51 | $0.25 | $0.26 | 104.0% | | Diluted EPS | $0.50 | $0.25 | $0.25 | 100.0% | | Net interest income increase | N/A | N/A | $9.9 | N/A | Interest and Dividend Income Total interest and dividend income increased by $11.4 million (14.5%) to $89.9 million, driven by loan income | Metric (in thousands) | 6 Months Ended June 30, 2025 | 6 Months Ended June 30, 2024 | Change (in thousands) | % Change | | :-------------------------------- | :--------------------------- | :--------------------------- | :-------------------- | :------- | | Total interest and dividend income | $89,857 | $78,458 | $11,399 | 14.5% | | Interest on loans receivable | $77,427 | $61,945 | $15,482 | 25.0% | | Interest on securities | $8,767 | $11,105 | $(2,338) | -21.1% | | Interest on deposits due from banks | $2,475 | $4,453 | $(1,978) | -44.4% | Interest Expense Total interest expense increased by $1.5 million (3.6%) to $43.2 million, mainly from higher deposit interest | Metric (in thousands) | 6 Months Ended June 30, 2025 | 6 Months Ended June 30, 2024 | Change (in thousands) | % Change | | :-------------------------------- | :--------------------------- | :--------------------------- | :-------------------- | :------- | | Total interest expense | $43,228 | $41,731 | $1,497 | 3.6% | | Interest on certificates of deposit | $15,136 | $12,738 | $2,398 | 18.8% | | Interest on money market | $17,341 | $13,501 | $3,840 | 28.4% | | Interest on borrowings | $10,480 | $15,064 | $(4,584) | -30.4% | Net Interest Income Net interest income increased by $9.9 million to $46.6 million, driven by loan income and improved margin | Metric | 6 Months Ended June 30, 2025 | 6 Months Ended June 30, 2024 | Change | % Change | | :-------------------------------- | :--------------------------- | :--------------------------- | :----- | :------- | | Net interest income (in thousands) | $46,629 | $36,727 | $9,902 | 27.0% | | Net interest rate spread | 2.33% | 1.77% | 0.56% | 31.6% | | Net interest margin | 3.12% | 2.67% | 0.45% | 16.9% | - The Federal Reserve reduced the federal funds rate target range by 50 basis points in September 2024, followed by two 25 basis point cuts in November and December 2024, signaling a shift to bolster the economy[206] Non-Interest Income Non-interest income increased by $0.5 million to $4.4 million, driven by SBA loan sales and grant income | Metric (in thousands) | 6 Months Ended June 30, 2025 | 6 Months Ended June 30, 2024 | Change (in thousands) | % Change | | :-------------------------------- | :--------------------------- | :--------------------------- | :-------------------- | :------- | | Total non-interest income | $4,441 | $3,965 | $476 | 12.0% | | Income on sale of SBA loans | $404 | $— | $404 | N/A | | Grant income | $428 | $— | $428 | N/A | | Late and prepayment charges | $1,227 | $785 | $442 | 56.3% | | Other non-interest income | $1,025 | $1,622 | $(597) | -36.8% | | Income on sale of mortgage loans | $317 | $576 | $(259) | -45.0% | Non-Interest Expense Non-interest expense increased by $0.3 million to $33.8 million, driven by occupancy, operating, and data processing | Metric (in thousands) | 6 Months Ended June 30, 2025 | 6 Months Ended June 30, 2024 | Change (in thousands) | % Change | | :-------------------------------- | :--------------------------- | :--------------------------- | :-------------------- | :------- | | Total non-interest expense | $33,757 | $33,426 | $331 | 1.0% | | Occupancy and equipment | $7,820 | $7,231 | $589 | 8.1% | | Other operating expenses | $2,518 | $2,088 | $430 | 20.6% | | Direct loan expenses | $629 | $1,365 | $(736) | -53.9% | | Professional fees | $2,731 | $3,092 | $(361) | -11.7% | Income Tax Provision The provision for income taxes increased by $1.4 million (53.9%) to $3.9 million for the six months | Metric (in thousands) | 6 Months Ended June 30, 2025 | 6 Months Ended June 30, 2024 | Change (in thousands) | % Change | | :-------------------------------- | :--------------------------- | :--------------------------- | :-------------------- | :------- | | Provision for income taxes | $3,913 | $2,543 | $1,370 | 53.9% | Credit Quality Non-performing assets decreased by $3.6 million to $28.5 million, with a $1.3 million credit loss provision | Metric (in millions) | June 30, 2025 | December 31, 2024 | Change | | :-------------------------------- | :------------ | :---------------- | :----- | | Total non-performing assets and accruing modifications | $28.5 | $32.1 | $(3.6) | | Credit loss provision on loans (6 months) | $1.3 | $(0.7) | $2.0 | | Funded portion provision (6 months) | $2.1 | $(0.4) | $2.5 | | Unfunded portion benefit (6 months) | $(0.7) | $(0.3) | $(0.4) | Average Balance Sheets (Six Months) Average interest-earning assets increased to $3.01 billion, with improved yield and lower liability rates | Metric | 6 Months Ended June 30, 2025 | 6 Months Ended June 30, 2024 | Change | | :-------------------------------- | :--------------------------- | :--------------------------- | :----- | | Average interest-earning assets (in thousands) | $3,011,353 | $2,769,002 | $242,351 | | Average Yield on Interest-earning assets | 6.02% | 5.70% | 0.32% | | Average Rate on Interest-bearing liabilities | 3.69% | 3.93% | -0.24% | | Net interest rate spread | 2.33% | 1.77% | 0.56% | | Net interest margin | 3.12% | 2.67% | 0.45% | Rate/Volume Analysis (Six Months) Net interest income increase was primarily driven by interest rate changes, and to a lesser extent, volume changes | Change in Net Interest Income (in thousands) | Due to Volume | Due to Rate | Total Increase (Decrease) | | :------------------------------------------- | :------------ | :---------- | :------------------------ | | Total interest-earning assets | $8,590 | $2,809 | $11,399 | | Total interest-bearing liabilities | $5,587 | $(4,090) | $1,497 | | Change in net interest income | $3,003 | $6,899 | $9,902 | Management of Market Risk The Company manages interest rate risk through ALCO, using NII simulation and EVE models, indicating policy compliance - The ALCO is responsible for evaluating and managing interest rate risk, using a third-party modeling solution quarterly[222] | Rate Shift | Year 1 Forecast (in thousands) | Year 1 Change from Level | | :-------------------------------- | :----------------------------- | :----------------------- | | +400 bps | $96,600 | (7.66%) | | +100 bps | $103,260 | (1.30%) | | Level | $104,618 | — % | | -100 bps | $105,536 | 0.88% | | -400 bps | $105,020 | 0.38% | | Change in Interest Rates (basis points) | Estimated EVE (in thousands) | Estimated Increase (Decrease) in EVE Amount (in thousands) | Percent Change | | :-------------------------------------- | :--------------------------- | :------------------------------------------------------- | :------------- | | +400 | $432,100 | $(108,819) | (20.12%) | | +100 | $518,452 | $(22,467) | (4.15%) | | Level | $540,919 | — | — % | | -100 | $560,066 | $19,147 | 3.54% | | -400 | $610,908 | $69,989 | 12.94% | - Both Net Interest Income Simulation and Economic Value of Equity (EVE) models indicated compliance with Board-approved Interest Rate Risk Policy at June 30, 2025[227][232] Liquidity and Capital Resources The Company maintains strong liquidity and capital, is 'well capitalized,' and generated positive operating cash flow - The Company and Bank met all regulatory capital requirements and were categorized as 'well capitalized' at June 30, 2025, and December 31, 2024[248] | Cash Flow Activity (in millions) | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :-------------------------------- | :----------------------------- | :----------------------------- | | Net cash provided by (used in) operating activities | $19.3 | $(1.1) | | Net cash used in investing activities | $(129.2) | $(129.4) | | Net cash provided by financing activities | $96.8 | $94.5 | - Outstanding commitments to originate loans and extend credit totaled $359.8 million at June 30, 2025, and certificates of deposit maturing in 2025 totaled $494.2 million[249][250] Item 3. Quantitative and Qualitative Disclosures About Market Risk This item refers to market risk disclosures in Part I, Item 2, detailing strategies and models for interest rate risk Item 4. Controls and Procedures Disclosure controls and procedures were effective, with no material changes to internal controls over financial reporting - The Company's disclosure controls and procedures were deemed effective as of June 30, 2025[256] - No material changes occurred in the Company's internal controls over financial reporting during the six months ended June 30, 2025[257] PART II. OTHER INFORMATION This section covers legal proceedings, risk factors, equity sales, defaults, safety disclosures, other information, and exhibits Item 1. Legal Proceedings The Company is not involved in any material legal proceedings that would significantly affect its financial condition - The Company is not involved in any material legal proceedings[260] Item 1A. Risk Factors This section refers to risk factors in the 2024 Form 10-K and other SEC filings, with no material changes - No material changes have occurred in the Company's Risk Factors from those disclosed in its 2024 Form 10-K[261] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds No unregistered sales of equity securities or use of proceeds were reported for the period Item 3. Defaults Upon Senior Securities No defaults upon senior securities were reported for the period Item 4. Mine Safety Disclosures No mine safety disclosures were reported for the period Item 5. Other Information No other information was reported for the period Item 6. Exhibits This section lists all exhibits filed with the Form 10-Q, including corporate documents and certifications Signatures The report is duly signed by the President, CEO, Executive Vice President, and CFO on August 5, 2025