Company Notes Series (#10): Ponce Financial Group

Editor’s note: This is the latest edition in the “Company Notes Series”, where we periodically share our notes on companies we’ve studied in the recent past but currently have no vested interest in (we may invest in or sell shares in the companies mentioned at any time). The notes are raw and not updated, and the “as of” date for the data is given at the start of the notes. The first eight editions in the series can be found here, here, here, here, here, here, here,  here, and here. Please share your thoughts on the series through the “Contact Us” page; your feedback will determine if we continue with it. Thanks in advance!

Start of notes for Ponce Financial Group

Data as of 2025-06-07

Background on Ponce Financial Group

  • Ticker: PDLB
  • Listed exchange: NASDAQ
  • HQ location: Bronx, New York
  • Ponce Financial Group is the holding company for Ponce Bank (from here on in this set of notes, Ponce Financial Group will be referred to as PDLB)
  • Ponce Bank was established in 1960 under the name Ponce De Leon Federal Savings and Loan Association. In 1985, the bank changed its name to Ponce De Leon Federal Savings Bank. In 1997, the bank changed its name again to Ponce De Leon Federal Bank. In 2017, the bank adopted its current name of Ponce Bank.
  • Ponce Bank conducted a second-step conversion that was completed on 27 January 2022. The first-step of the conversion was conducted in September 2017. When the second-step conversion was completed, PDLB had 24.712 million shares outstanding.
  • PDLB’s banking offices are all located in New York; at the end of 2024, PDLB had 13 full service banking and 5 mortgage loan offices.
  • PDLB engages primarily in making mortgage loans consisting of one-to-four family residential (both investor-owned and owner-occupied), multifamily residential, nonresidential properties and construction and land, and, to a lesser extent, in business and consumer loans – see Figure 1. As of 31 March 2025, PDLB’s weighted-average loan-to-value ratio for its loans portfolio is a healthy 56.4%. PDLB’s loans are granted to customers who are located primarily in the New York City metropolitan area.
Figure 1; Source: PDLB 2025 Q1 10-Q

Details of PDLB’s ECIP preferred stock

  • The acronym ECIP stands for Emergency Capital Investment Program. The ECIP was set up by the US Treasury to provide investment capital directly to CDFIs (Community Development Financial Institutions) or MDIs (Minority Depository Institutions) to provide loans, grants, and forbearance for small businesses, minority-owned businesses, and consumers, in low-income and underserved communities.
  • On 7 June 2022, PDLB issued 225,000 shares of preferred stock for US$225.000 million to the US Treasury, as part of the Treasury’s ECIP.
  • The ECIP preferred stock issued by PDLB has the following characteristics:
    • No dividends will accrue for the preferred stock in the first two years after issuance. For years three through 10, 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 2.0%, 1.25%, or 0.5% and, thereafter, will be fixed at one of the foregoing rates. As of 2025 Q1, PDLB has reported 11 consecutive quarters for which it has met both the Deep Impact and Qualified Lending Conditions, and the ECIP preferred stock currently has a dividend rate of 0.5%. 
    • As a participant in the ECIP, PLDB must adopt the Treasury’s standards for executive compensation and luxury expenses for the period during which the Treasury holds the ECIP preferred stock. PDLB also cannot pay dividends or repurchase its common stock unless it meets certain income-based tests and has paid the required dividends on the ECIP preferred Stock; PDLB started paying the ECIP preferred stock’s dividend in 2024.
    • On 20 December 2024, PDLB entered into an option agreement with the US Treasury to repurchase the ECIP preferred stock. PDLB now has the option to purchase all of the ECIP preferred stock during the first 15 years from the date of issue of the preferred stock. The purchase price will be based on a seemingly publicly-undisclosed formula to calculate the present value of the preferred stock, but management expects the purchase price to be at a substantial discount to the face value of the preferred stock, potentially less than 7 cents on the dollar. This is in line with the US Treasury’s announcement on 13 August 2024 that as of March 2024, any repurchases of ECIP preferred stock by the issuer can be done at a price ranging from 7% to 28% of the principal amount. As another sense check, given the current dividend rate of 0.5% on PDLB’s ECIP preferred stock, the annual cash flow accruing to the US Treasury is US$1.125 million; the present value of a perpetual annual cash flow of US$1.125 million, at a discount rate of 5%, is US$22.5 million, which is just 10% of the face value of PDLB’s ECIP preferred stock.
    • PDLB cannot exercise the option to repurchase the ECIP preferred stock until at least one of the Threshold Conditions are met and the earliest possible date by which a Threshold Condition may be met is 30 June 2026. The Threshold conditions are, such that, in the first 10 years from the issue of the ECIP preferred stock, PDLB meets either of: (1) over any 16 consecutive quarters, an average of at least 60% of PDLB’s total loan originations qualifies as Deep Impact Lending, (2) over any 24 consecutive quarters, an average of at least 85% of PDLB’s total loan originations qualifies as Qualified Lending, and (3) the preferred stock has a dividend rate of no more than 0.5%. As mentioned earlier, as of 2025 Q1, PDLB has reported 11 consecutive quarters for which it has met both the Deep Impact and Qualified Lending Conditions, and the ECIP preferred stock currently has a dividend rate of 0.5%.
    • Qualified Lending and Deep Impact Lending are, broadly speaking, loans made to (1) low-to-moderate income individuals, (2) rural communities, low-income communities, underserved communities, minority communities, and counties in persistent poverty, (3) small businesses and farms, and (4) affordable housing projects, public welfare and community development investments, and community facilities.
  • If PDLB ends up meeting at least one of its Threshold Conditions by 30 June 2026, and its US$225 million in ECIP preferred stock can be repurchased for US$15.75 million (7%) or less, at least US$209.25 million can be added to PDLB’s common stockholder’s equity. In the meantime, the ECIP preferred stock serves as a very low-cost source of capital for PDLB, given the annual dividend rate of just 0.5%.

Investing information on PDLB

  • PDLB is a thrift conversion – see here for how to invest in thrifts
  • As of 31 March 2025, PDLB had total assets of US$3.090 billion and common stockholders’ equity of US$288.886 million, giving a common stockholders’ equity to assets ratio of a poor 9.3%. PDLB’s total assets include securities held-to-maturity at amortized cost of US$358.024 million as of 31 March 2025; these securities have a marked-to-market value of US$349.518 million, so the difference is not material and can be ignored in the calculation of PDLB’s common stockholders’ equity. But the true economic value of PDLB’s ECIP preferred stock (see the “Details of PDLB’s ECIP preferred stock” section) should be factored into the calculation of PDLB’s common stockholders’ equity. Assuming the ECIP preferred stock can be repurchased for US$15.75 million (7% of the face value), PDLB’s adjusted common stockholders’ equity becomes US$498.136 million, and the common stockholders’ equity to assets ratio becomes a good 16.1%. 
  • As of 07 June 2025, PDLB has a stock price of US$13.36. Its latest financials (for the 3 months ended 31 March 2025) has its share count as 23.9662 million and its reported tangible book value per share as US$12.05. This gives a high price-to-reported tangible book (PTRB) ratio of 1.11. But if PDLB’s adjusted common stockholders’ equity of US$498.136 million is used, its price-to-adjusted tangible book (PTAB) ratio becomes an attractive 0.64.
  • PDLB has not bought back shares since its second-step conversion, and that’s a bad sign on management’s understanding of capital allocation, especially since PDLB is now trading at a deep discount to its adjusted tangible book value.
  • Non-performing loans were 0.88% of total assets in 2025 Q1, while non-performing assets as a percentage of total assets were 0.91% in 2024, 0.65% in 2023, 0.78% in 2022, 1.07% in 2021, and 1.35% in 2020. These are not exceptional nor bad.
  • PDLB’s annualised return on reported common stockholders’ equity in 2025 Q1 was a strong (relative for a thrift!) 7.97%. Using the adjusted common stockholders’ equity, the annualised ROE is still decent (again, relative for a thrift!) at 4.6%. But PDLB’s net income has been volatile since its second-step conversion: It was US$10.334 million in 2024, US$3.352 million in 2023, and -US$30.0 million in 2022. 
  • PDLB’s three senior-most leaders are:
    • Steven Tsavaris, executive chairman of PDLB. Tsavaris has served as a director since 1990. He joined Ponce Bank in 1995 as an executive president and became CEO of Ponce Bank in 2011. He became chairman of the board and CEO of Ponce Bank in 2013. Tsavaris is already 75.
    • Carlos Naudon, president and CEO of PDLB. Naudon has served as a director since 2014. He became president and COO of Ponce Bank in 2015, and is currently the president and CEO of Ponce Bank. Naudon is already 74.
    • Sergio Vaccaro, executive vice president and CFO of PDLB. Vaccaro joined PDLB in June 2022 in his current role. Prior to PDLB, he was the CFO of Private Bank America at HSBC from 2015 to May 2022. Vaccaro is still young at 49.
  • The compensation of Tsavaris, Naudon, and Vaccaro in 2024 are high, as shown in Figure 2 below, when compared to PDLB’s net income; their compensation for 2023 are even higher, although the step-down in 2024 is welcome to see.
  •  As of 16 April 2025, Tsavaris, Naudon, and Vaccaro control 476,142 shares, 500,149 shares, and 22,660 shares respectively; based on PDLB’s share price of US$13.36 as of 07 June 2025, the value of their stakes are US$6.361 million, US$6.682 million, and US$0.303 million, respectively. For Tsavaris and Naudon, who are the two most important leaders in PDLB, their equity values significantly outstrips their annual compensation.
Figure 2; Source: PDLB 2024 Def 14-A
  • Tsavaris, Naudon, and Vaccaro have compensation plans that include attractive change in control provisions. In the event that PDLB or Ponce Bank is acquired and the employment of Tsavaris and Naudon ends, they are each entitled to a severance package that includes: (1) 3x the amount of their highest gross income in the three years before their termination, (2) an amount equal to the value of any restricted stock, stock options, or stock awards, whether vested or unvested, and (3) 2 years of health insurance. In the case of Vaccaro, he is entitled to a severance package that includes: (1) 1.5x the amount of his average annual compensation in the five years before his termination, or whatever number of years that applies if he has been employed for less than five years, and (2) continuation of life, medical and disability coverage that is substantially identical to the coverage maintained by PDLB.
  • Putting everything together, it appears that PDLB is a thrift with (1) a low valuation, (2) a management team that does not seem to appreciate capital allocation, (3) average lending operations, and (4) a management team at retirement age with high ownership in PDLB and attractive change in control provisions, giving them incentive to sell the bank. PDLB’s second-step conversion was completed in January 2022, so it can already sell itself if management wants to (January 2025 would have been the 3-year anniversary), but management may be waiting for 30 June 2026, because that is the earliest date on which PDLB can repurchase its ECIP preferred stock. Management commented in the 2024 Q4 earnings release that they intend to repurchase the ECIP preferred stock:

    “We are working diligently to ensure that we will meet the conditions necessary to allow us to repurchase our ECIP preferred stock in the future. The agreement we executed with the U.S. Treasury in December 2024, allows for a repurchase of the ECIP preferred stock once we have achieved Deep Impact Lending, as defined under the ECIP program, that is at least 60% of our total originations on average over 16 consecutive quarters, provided that we also meet certain other conditions at the time we exercise the repurchase option. As of December 31, 2024, our Deep Impact Lending over the last 10 consecutive quarters stands at 79%, well above the threshold. Also, from second quarter of 2024 to fourth quarter of 2024, we have originated $514 million of Deep Impact Lending as well as $54 million of qualified lending which represents 383% of our base, which period, together with the first quarter of 2025, will determine the rate of dividends payable on the ECIP preferred stock from the third quarter of 2025 to the second quarter of 2026. With one quarter to go, we are confident that we will get to over 400% of our base and ensure another year of preferred dividends of 0.50%, which is the lowest dividend rate.”
  • Assuming that (1) PDLB has a return on common stockholders’ equity of 7% in 2025, (2) PDLB’s ECIP preferred stock can be repurchased for 7% of face value in June 2026, and thus US$209.25 million can be added to PDLB’s common stockholder’s equity, (3) PDLB has an annualised return on common stockholders’ equity of 4% in 2026 H1, and in subsequent years and (4) PDLB gets acquired at a P/TB ratio of 1.2 eventually. Under these assumptions, the theoretical returns are shown in Table 1.
Table 1
  • Assuming that (1) PDLB has a return on common stockholders’ equity of 7% in 2025, (2) PDLB’s ECIP preferred stock can be repurchased for 7% of face value in June 2026, and thus US$209.25 million can be added to PDLB’s common stockholder’s equity, (3) PDLB has an annualised return on common stockholders’ equity of 4% in 2026 H1, and in subsequent years and (4) PDLB gets acquired at a P/TB ratio of 1 eventually. Under these assumptions, the theoretical returns are shown in Table 2.
Table 2

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