PDL Community Bancorp
Annual Report 2017

Plain-text annual report

UNITED STATESSECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549 FORM 10-K (Mark One)☒ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934For the fiscal year ended December 31, 2017OR☐TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934FOR THE TRANSITION PERIOD FROM TO Commission File Number 001-38224 PDL Community Bancorp(Exact name of Registrant as specified in its Charter) Federal82-2857928(State or other jurisdiction ofincorporation or organization)(I.R.S. EmployerIdentification No.)2244 Westchester AvenueBronx, NY10462(Address of principal executive offices)(Zip Code)Registrant’s telephone number, including area code: (718) 931-9000 Securities registered pursuant to Section 12(b) of the Act: Common Stock, Par Value $0.01 Per Share; Common stock traded on the NASDAQ stock marketSecurities registered pursuant to Section 12(g) of the Act: NoneIndicate by check mark if the Registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. YES ☐ NO ☒Indicate by check mark if the Registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act. YES ☐ NO ☒Indicate by check mark whether the Registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past90 days. YES ☒ NO ☐Indicate by check mark whether the Registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submittedand posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the Registrant was required tosubmit and post such files). YES ☒ NO ☐Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405) is not contained herein, and will not be contained, to the best ofRegistrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ☒Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growthcompany. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. Large accelerated filer ☐ Accelerated filer ☐ Non-accelerated filer ☐ (Do not check if a smaller reporting company) Smaller reporting company ☒ Emerging growth company ☒ If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financialaccounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). YES ☐ NO ☒The aggregate market value of the voting and non-voting common equity held by non-affiliates of the Registrant, based on the closing price of the shares of common stock onThe NASDAQ Stock Market on March 29, 2018 was $108,033,099.The number of shares of Registrant’s Common Stock outstanding as of March 29, 2018 was 18,463,028.Portions of the Registrant’s Definitive Proxy Statement relating to the Annual Meeting of Stockholders, scheduled to be held on May 10, 2018.  Table of Contents PART I1Item 1. Business1Item 1A. Risk Factors.33Item 1B. Unresolved Staff Comments.42Item 2. Properties.42Item 3. Legal Proceedings.43Item 4. Mine Safety Disclosures.43 PART II44Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.44Item 6. Selected Financial Data.46Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.48Item 7A. Quantitative and Qualitative Disclosures About Market Risk.63Item 8. Financial Statements and Supplementary Data.64Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.107Item 9A. Controls and Procedures.107Item 9B. Other Information.107 PART III107Item 10. Directors, Executive Officers and Corporate Governance.107Item 11. Executive Compensation.107Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.107Item 13. Certain Relationships and Related Transactions, and Director Independence.107Item 14. Principal Accounting Fees and Services.108 PART IV108Item 15. Exhibits, Financial Statement Schedules.108 i CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTSThis annual report contains forward-looking statements, which can be identified by the use of words such as “estimate,” “project,” “believe,”“intend,” “anticipate,” “assume,” “plan,” “seek,” “expect,” “will,” “may,” “should,” “indicate,” “would,” “believe,” “contemplate,” “continue,” “target” andwords of similar meaning. These forward-looking statements include, but are not limited to: •statements of our goals, intentions and expectations; •statements regarding our business plans, prospects, growth and operating strategies; •statements regarding the quality of our loan and investment portfolios; and •estimates of our risks and future costs and benefits. These forward-looking statements are based on our current beliefs and expectations and are inherently subject to significant business,economic and competitive uncertainties and contingencies, many of which are beyond our control. In addition, these forward-looking statementsare subject to assumptions with respect to future business strategies and decisions that are subject to change. We are under no duty to and donot take any obligation to update any forward-looking statements after the date of this prospectus. The following factors, among others, could cause actual results to differ materially from the anticipated results or other expectationsexpressed in the forward-looking statements: •general economic conditions, either nationally or in our market areas, that are worse than expected; •changes in the level and direction of loan delinquencies and write-offs and changes in estimates of the adequacy of the allowance forloan losses; •our ability to access cost-effective funding; •fluctuations in real estate values and real estate market conditions; •demand for loans and deposits in our market area; •our ability to implement and change our business strategies; •competition among depository and other financial institutions; •inflation and changes in the interest rate environment that reduce our margins and yields, our mortgage banking revenues, the fair valueof financial instruments or our level of loan originations, or increase the level of defaults, losses and prepayments on loans we havemade and make; •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 capitalrequirements, including as a result of Basel III; •the impact of the Dodd-Frank Act and the implementing regulations; •changes in the quality or composition of our 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; •our ability to manage market risk, credit risk and operational risk in the current economic environment;ii •our ability to enter new markets successfully and capitalize on growth opportunities; •our ability to successfully integrate into our operations any assets, liabilities, customers, systems and management personnel we mayacquire and our ability to realize related revenue synergies and cost savings within expected time frames, and any goodwill chargesrelated thereto; •changes in consumer spending, borrowing and savings habits; •changes in accounting policies and practices, as may be adopted by the bank regulatory agencies, the Financial Accounting StandardsBoard, the Securities and Exchange Commission or the Public Company Accounting Oversight Board; •our ability to retain key employees; •our compensation expense associated with equity allocated or awarded to our employees; and •changes in the financial condition, results of operations or future prospects of issuers of securities that we may own. iiiPART IItem 1. Business PDL Community BancorpPDL Community Bancorp (hereafter referred to as “we,” “our,” “us,” “PDL Community Bancorp,” or the “Company”), is the majority-ownedsubsidiary of Ponce Bank Mutual Holding Company. PDL Community Bancorp, as the holding company of Ponce Bank (“Ponce Bank” or the“Bank”), a federal stock savings association subsidiary of PDL Community Bancorp, is authorized to pursue other business activities permitted byapplicable laws and regulations for savings and loan holding companies, which may include the acquisition of banking and financial servicescompanies. We have no plans for any mergers or acquisitions, or other diversification of the activities of PDL Community Bancorp at the presenttime.Our cash flow is dependent on earnings from investments and any dividends received from Ponce Bank. PDL Community Bancorp does notown nor lease any property, but instead uses the premises, equipment and furniture of Ponce Bank. At the present time, we employ only personswho are officers of Ponce Bank to serve as officers of PDL Community Bancorp. We use the support staff of Ponce Bank from time to time.These persons are not separately compensated by PDL Community Bancorp. PDL Community Bancorp may hire additional employees, asappropriate; to the extent it expands its business in the future.The Company’s executive office is located at 2244 Westchester Avenue, Bronx, New York 10462, and the telephone number at thataddress is (718) 931-9000.Available InformationUnder Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). PDL Community Bancorp isrequired to file reports, proxy and information statements and other information with the Securities and Exchange Commission (“SEC”). TheCompany electronically files its annual report on Form 10-K, proxy, quarterly reports on Form 10-Q, and current reports on Form 8-K and otherreports as required with the SEC. The SEC website www.sec.gov provides access to all forms which have been filed electronically. Additionally,the Company’s SEC filings and additional shareholder information are available free of charge on the Company’s website, www.poncebank.com(within the Investor Relations section). Information on our website is not and should not be considered part of this annual report.The Company’s common stock is traded on the NASDAQ stock market under the symbol “PDLB.” Ponce BankPonce Bank is a federally-chartered stock savings association headquartered in the Bronx, New York. Ponce Bank was originally charteredin 1960 as a federally-chartered mutual savings and loan association under the name Ponce De Leon Federal Savings and Loan Association. In1985, the Bank changed its name to “Ponce De Leon Federal Savings Bank.” In 1997, the Bank changed its name again to “Ponce De LeonFederal Bank.” The Bank is designated as a Minority Depository Institution under applicable regulations.Business is conducted at our administrative center and 13 banking offices. The banking offices are located in Bronx (5 branches),Manhattan (2 branches), Queens (3 branches) and Brooklyn (3 branches), New York, and one branch in Union City, New Jersey.The Bank’s business consists primarily of taking deposits from the general public and investing those deposits, together with fundsgenerated from operations, in mortgage loans consisting of one-to-four family real estate, including residential owner-occupied and investor-owned,multifamily residential, nonresidential property, construction and land, and, to a lesser extent, business and consumer loans. Subject to marketconditions, we expect to increase our focus on multifamily and nonresidential loans in an effort to grow our overall loan portfolio, increase theoverall yield earned on our loans and assist in managing interest rate risk. We also invest in securities, which have historically consisted primarilyof securities issued by the U.S. Government and federal agencies and mortgage-backed securities issued by U.S. government-sponsoredenterprises. We offer a variety of deposit accounts, including checking accounts, savings accounts and certificate of deposit accounts. We alsouse alternative funding sources such as borrowings and brokered and listing service deposits to complement our existing funding base. 1Market AreaWe are headquartered in the Bronx, New York, with our primary market in the boroughs of New York City (excluding Staten Island) andHudson County, New Jersey. The size and complex nature of the geographic footprint makes for diverse demographics that continue to undergosignificant changes, in terms of economic, racial, ethnic and age parameters, all with potentially substantial long-term institutional ramifications.Our primary deposit base includes a large and stable base of locally employed blue-collar workers with low-to-medium income, middle-aged,and with limited investment funds. Within the base of locally employed blue-collar workers there is a significant, and growing, portion of recentlyimmigrated, younger, lower-skilled laborers. The influx of immigrant lower-skilled workers, however, has been hampered by the increases in rentalrates in the rental housing market within the New York City metropolitan area.Another significant customer segment consists of middle aged and older white-collar, high-income individuals, many of whom are self-employed real estate investors and developers. They constitute a large percentage of the borrowing base of the Bank and, increasingly, arebecoming the source of a significant percentage of commercial deposits.The Bank historically has been funded through local community deposits. Today, the Bank continues to rely primarily on communitydeposits from its market areas to fund investments and loans. However, the mix of community deposits now includes consumer and commercialdeposits but with a strong reliance on time deposits.Until we expanded our branch network, our Bronx-based image and emphasis on personal services to minorities allowed us to maintainadequate market standing in consumer deposits and mortgage loans. The Bank’s branch expansion and the gentrification of substantial parts ofNew York City altered our competitive landscape. The branch expansion resulted in primarily one-time increases in our deposit base. CompetitionThe Bank faces significant competition within its market areas both in making loans and attracting deposits. There is a high concentration offinancial institutions in the Bank’s market area, including national, regional and other locally-operated commercial banks, savings banks, savingsassociations and credit unions. Several “mega” banks exist in the market, such as JPMorgan Chase, Citibank and Capital One, many of whom aremaking a new push for retail deposits. A number of our competitors offer products and services that the Bank does not currently offer, such astrust services, private banking, insurance services and asset management. Additionally, the Bank faces an increasing level of competition fromnon-core financial service providers that do not necessarily maintain a physical presence in the Bank’s market area, such as Quicken Loans,Freedom Mortgage and many internet financial service providers. The litany of competitors facing the Bank is extensive. Deposit market share in the New York area can be difficult to quantify, as some “mega” banks will include large scale deposits from aroundthe world as held at headquarters. However, in Bronx County, New York, where the Bank maintains five branches, it holds 1.88% (June 30, 2017)of the market’s deposits. This represents the Bank’s largest market share in a county level area. Generally speaking, the Bank has been able togrow deposits at about the same rates as its respective markets of operation. For example, between December 31, 2016 and December 31, 2017,the Queens County market increased 7%, and the Bank grew deposits at its branches in tandem with that rate. The Bank will continue to work toimprove its market position by expanding its brand within its current market, and building its capacity to provide more products and services to itscustomer base. Lending ActivitiesGeneral. Our principal lending activity is originating one-to-four family real estate, including residential investor-owned and owner-occupied,multifamily residential, nonresidential property, construction and land, and, to a lesser extent, business and consumer loans.. To a much lesserextent, we also originate commercial and industrial (“C&I”) business loans and consumer loans. We originate real estate and other loans throughour loan officers, marketing efforts, our customer base, walk-in customers and referrals from real estate brokers, builders and attorneys. Subject tomarket conditions and our asset-liability analysis, we seek to increase our emphasis on multifamily and nonresidential loans in an effort to growour overall loan portfolio and increase the overall yield earned on our loans.2Lending activities are conducted primarily by our salaried loan personnel operating at our main and branch office locations including our loanofficers. We also conduct lending activities throughout subsidiary Ponce De Leon Mortgage Corporation. All loans originated by us areunderwritten pursuant to our policies and procedures. We currently intend that substantially all of our mortgage loan originations will be withadjustable interest rates. For our business loan originations, variable rate pricing is offered based on prime rate, plus margin. Loan Portfolio Composition. The following table sets forth the composition of our loan portfolio by type of loan (excluding loans held-for-sale) at the dates indicated. Loans in process at December 31, 2017 and December 31, 2016 were $48.7 million and $21.4 million, respectively. At December 31, 2017 2016 2015 2014 2013 Amount Percent Amount Percent Amount Percent Amount Percent Amount Percent (In thousands) Mortgage loans: 1-4 family residential Investor-owned$287,158 35.51% $227,409 34.90% $203,239 35.25% $190,726 34.54% $195,762 34.27%Owner-Occupied 100,854 12.47% 97,631 14.98% 106,053 18.39% 105,222 19.05% 111,252 19.47%Multifamily residential 188,550 23.31% 158,200 24.28% 122,836 21.30% 110,978 20.10% 107,541 18.82%Nonresidential properties 151,193 18.70% 121,500 18.64% 106,462 18.46% 111,806 20.24% 109,603 19.19%Construction and land 67,240 8.31% 30,340 4.66% 22,883 3.97% 18,707 3.39% 25,567 4.48%Total mortgage loans 794,995 98.30% 635,080 97.46% 561,473 97.37% 537,439 97.32% 549,725 96.23%Nonmortgage loans: Business loans 12,873 1.59% 15,719 2.41% 14,350 2.49% 14,206 2.57% 20,349 3.56%Consumer loans 886 0.11% 843 0.13% 788 0.14% 614 0.11% 1,210 0.21%Total nonmortgage loans 13,759 1.70% 16,562 2.54% 15,138 2.63% 14,820 2.68% 21,559 3.77% 808,754 100.00% 651,642 100.00% 576,611 100.00% 552,259 100.00% 571,284 100.00% Net deferred loan origination costs 1,020 711 535 479 279 Allowance for losses on loans (11,071) (10,205) (9,484) (9,449) (9,940) Loans, net$798,703 $642,148 $567,662 $543,289 $561,623 In addition to the loans in the table above, we did not have any loans held for sale at December 31, 2017 and had $2.1 million of loans heldfor sale at December 31, 2016. 3Loan Products Offered by the Bank. The following table provides a breakdown of the Bank’s loan portfolio (excluding loans held-for-sale)by product type and principal balance outstanding at December 31, 2017: At December 31, 2017 Loan Type # of Loans Principal Balance (Inthousands) % of Portfolio Mortgage loans: 1-4 Family residential Investor-owned 538 $287,158 35.51%Owner-occupied 291 100,854 12.47% Multifamily residential 244 188,550 23.31% Nonresidential properties 205 151,193 18.70% Construction and land Construction 1-4 Investor 5 4,129 0.51%Construction Multifamily 21 61,159 7.56%Construction Nonresidential 2 1,676 0.21%Land loan 1 276 0.03% Nonmortgage loans: Business loans C&I lines of credit 90 9,332 1.15%C&I loans (term) 15 3,541 0.44% Consumer loans Unsecured 39 321 0.04%Passbook 133 565 0.07%Grand Total 1,584 $808,754 100.00% One-to-four Family Investor-Owned Loans. At $287.2 million, or 35.5%, of the Bank’s total loan portfolio at December 31, 2017, investor-owned mortgage loans secured by non-owner-occupied one-to-four family residential represent the Bank’s largest lending category. The majority ofthis portfolio, $246.8 million, or 85.9% are two-to-four family properties (431 accounts), while the remaining $40.4 million, or 14.1%, are primarilysingle family, non-owner-occupied investment properties (107 accounts). The three largest loans in this category are $4.9 million, $3.2 million and$3.1 million. In this category, loans totaling $120.4 million, or 41.8%, are secured by properties located in Queens County, $98.1 million, or 34.1%,in Kings County, $25.8 million, or 9.0%, in Bronx County, and $19.4 million, or 6.7%, in New York County. The rest of this category, less than9.0%, is spread out in other counties and no other concentration exceeded $7.0 million or 5.0%.One-to-four family investor-owned real estate loans involve a greater degree of risk than one-to-four family owner-occupied real estate loans.Rather than depending on the borrower’s repayment ability from employment or other income, the borrower’s repayment ability is primarilydependent on ensuring that a tenant occupies the investor property and has the financial capacity to pay sufficient rent to cover the borrower’sdebt. In addition, if an investor borrower has several loans secured by properties in the same market, the loans have risks similar to a multifamilyreal estate loan and repayment of those loans is subject to adverse conditions in the rental market or the local economy.The Bank imposes strict underwriting guidelines in the origination of such loans, including lower maximum loan-to-value ratios of 70% onpurchases and 65% on refinances, a required minimum debt service coverage ratio (net operating income divided by debt service requirement) of1.20x that must be met by either the property on a standalone basis, or by the inclusion of the owner(s) as co-borrower(s). In addition, all suchloans currently require that the transaction exhibit a global debt service coverage ratio (net operating income divided by debt service requirement)of no less than 1.0x. This coverage ratio indicates that the owner has the capacity to support the loan along with all of his personal obligations. Onoccasion, the Bank has required that the borrower establish a cash reserve to be held at the Bank in order to provide additional security. Themaximum term on such loans is 30 years, typically with five year adjustable rates.4One-to-four Family Owner-occupied Loans. Lending in this category totaled $100.9 million, or 12.5% of the Bank’s total loan portfolio atDecember 31, 2017. None of the loans in this category exceeded $2.0 million in outstanding balances, with the three largest having $1.8 million,$1.6 million and $1.5 million in outstanding balances. There are only 17 loans with an outstanding balance in excess of $1.0 million, which in totalaccount for less than 20% of this category. At December 31, 2017, approximately 39.1% of this category is secured by properties located inQueens County and 10.8% in New York County. None of the other geographical concentrations exceeded 10% of this category.It is the Bank’s policy to underwrite loans secured by one-to-four family owner-occupied residential real estate in a manner that ensuresstrict compliance with Dodd-Frank regulatory requirements. This includes underwriting only mortgages that have a debt-to-income ratio of 43% orless. That is the highest ratio a borrower can have and still receive qualified mortgage. A qualified mortgage is presumed to meet the borrower’sability to repay the loan. As part of this effort, the Bank employs software that tests each loan for compliance.The Bank generally limits loans in this category to a maximum loan-to-value ratio of 90% for a purchase and 80% for a refinance, based onthe lower of the purchase price or appraised value. The maximum loan term is 30 years, self-amortizing. Being that the Bank is a portfolio lender, itpresently does not offer a fixed-rate product. The Bank currently offers mostly 5/1 and 5/5 adjustable rate loans that adjust based on a spreadranging between 2.75% to 3.00% over the one-or five-year Federal Home Loan Bank of New York rate. The maximum amount by which the interestrate may increase generally is limited to 2% for the first two adjustments and 5% for the life of the loan.Multifamily and Non-Residential Lending. At $188.6 million, or 23.3% of the Bank’s total loan portfolio at December 31, 2017, mortgagessecured by multifamily properties represent the Bank’s second largest lending concentration. The nonresidential portfolio accounts for $151.2million, or 18.7%, of the total loan portfolio, and represents the third largest concentration. Combined, the multifamily and non-residential loanportfolios amount to $339.7 million, or 42.0% of the Bank’s total loan portfolio at December 31, 2017. The three largest loans were $7.3 million,$4.9 million and $3.3 million, with the largest being a multifamily residential building, and the other two being nonresidential. Of the total of $339.7million, 97 loans have balances in excess of $1.0 million and account for $196.2 million, or approximately 57.8%, of this lending concentration. Interms of geographical concentrations, $144.9 million, or 42.6%, are secured by properties located in Queens County, $66.1 million, or 19.5%, inBronx County, $55.0 million, or 16.2%, in Kings County, $19.5 million, or 5.8%, in New York County and $19.1 million, or 5.8%, in WestchesterCounty. All other concentrations by county, which account for less than 16.0% of this category, have balances of $10.0 million or less. In thenonresidential portfolio, $34.4 million is classified as owner-used, owner-occupied. The overall mix is diverse in terms of property types, with thelargest concentration being retail and wholesale at $53.3 million, or 35.3%, of the portfolio, industrial and warehouse at $27.9 million, or 18.5%,service, doctor, dentist, beauty, etc. at $21.3 million or 14.1%, offices at $18.0 million, or 11.9%, churches at $11.9 million, or 7.8%, restaurantsat $9.6 million, or 6.4%, and hotels and motels at $6.4 million, or 4.2%. The rest of the portfolio accounts for other property types, with noneexceeding 1.0% as a portfolio concentration.The Bank considers a number of factors in originating multifamily and nonresidential mortgages. Loans secured by multifamily andnonresidential real estate generally have larger balances and involve a greater degree of risk than one-to-four family residential real estate loans.The primary concern in this type of lending is the borrower’s creditworthiness and the viability and cash flow potential of the project. Payments onloans secured by income-producing properties often depend on successful operation and management of the properties. As a result, repayment ofsuch loans may be subject to adverse conditions in the real estate market or the economy as compared to residential real estate loans. Toaddress the risks involved, the Bank evaluates the qualifications and financial resources of the underlying principal of the borrower, including credithistory, profitability and expertise, as well as the value of cash flows and condition of the property securing the loan. When evaluating thequalifications of the borrower, the Bank considers the financial resources of the borrower, the underlying principal of the borrower’s experience inowning or managing similar properties and the borrower’s payment history with the Bank and other financial institutions. In evaluating the propertysecuring the loan, the factors considered include the net operating income of the mortgaged property before debt service and depreciation, the ratioof the loan amount to the appraised value or purchase price of the mortgaged property (whichever is lower), and the debt service coverage ratio. Allmultifamily and non-residential loans are supported by appraisals that conform to the Bank’s appraisal policy. The Bank generally limits themaximum loan-to-value ratio on these loans to 75%, based on the lower of the purchase price or appraised value of the subject property (70% onthe refinance of nonresidential properties such as retail spaces, office buildings, and warehouses). The maximum loan term ranges between 25and 30 years. As is the Bank’s general policy, the Bank offers only adjustable rates on its multifamily and nonresidential mortgages - withadjustments based on a spread currently ranging between 2.75% to 3.00% over the five-year Federal Home Loan Bank of New York rate.5Construction and Land Lending. Construction and land lending totaled $67.2 million, or 8.3%, of the Bank’s total loan portfolio atDecember 31, 2017, (29 projects) with the majority consisting of multifamily residential projects (21 projects). Out of the $67.2 million, $61.2 millionare multifamily, of which $30.2 million are secured by properties located in Kings County, $24.5 million in Queens County, $5.9 million in BronxCounty and $650,000 in New York County. At December 31, 2017, loans in process related to construction loans totaled $48.7 million.The Bank’s typical construction loan has a term of up to 24 months and contains: •a minimum of 5% contingency; •a minimum of 5% retainage; •a loan-to-cost ratio of 70% or less; •an end loan loan-to-value ratio of 65% or less; •an interest reserve; •guarantees of all owners / partners / shareholders of a closely held organization owning 20% or more of company stock or entityownership; and •an option to convert to a permanent mortgage loan upon completion of the project.Construction lending involves additional risks when compared with permanent lending because funds are advanced upon the security of theproject, which is of uncertain value prior to its completion. Because of the uncertainties inherent in estimating construction costs, as well as themarket value of the completed project and the effects of governmental regulation of real property, it is relatively difficult to evaluate accurately thetotal funds required to complete a project and the related loan-to-value ratio. The Bank’s approach to the underwriting of construction loans isdriven by five factors: analysis of the developer; analysis of the contractor; analysis of the project; valuation of the project; and evaluation of thesource of repayment.The developer’s character, capacity and capital are analyzed to determine that the individual or entity has the ability to first complete theproject and then either sell it or carry permanent financing. The general contractor is analyzed for reputation, sufficient expertise and capacity tocomplete the project within the allotted time. The project is analyzed in order to ensure that the project will be completed within a reasonable periodof time according to the plans and specifications, and can either be sold, rented or refinanced once completed. All construction loans aresupported by appraisals which conform to the Bank’s appraisal policy and affirm the value of the project both “As Is” and “As Completed”. Lastly,the Bank reviews the developer’s cash flow estimations for the project on an “As Completed” basis. These projections are compared to theappraiser’s estimates. Debt service coverage using projected rental net income must be at least 1.2x the estimated debt service when operating atstabilized levels.Upon closing of the construction loan, the Bank begins monitoring the project and funding requisitions for completed stages upon inspectionand confirmation by third party firms, such as engineers, of the work performed and its value and quality. Conversion to permanent financingusually occurs upon a conversion underwriting and receipt of certificates of occupancy, as applicable.C&I Loans and Lines of Credit. C&I loans and lines of credit represent less than 2.0% of the Bank’s total loan portfolio at December 31,2017. Unlike real estate loans, which are secured, and whose collateral value tends to be more easily ascertainable, commercial and industrialloans are of higher risk and typically are made on the basis of the borrower’s ability to make repayment from the cash flow of the borrower’sbusiness. The collateral securing these loans may fluctuate in value.Although the Bank’s loan policy allows for the extension of secured and unsecured financing, the Bank usually seeks to obtain collateralwhen in initial discussions with potential borrowers. Unsecured credit facilities are made only to strong borrowers that possess established trackrecords with the Bank (or come highly recommended) and are supported by guarantors. Guarantees are required of any individual or entity owningor controlling 20% or more of the borrowing entity, with exceptions requiring approval from the Board of Directors. When credits are not secured bya specific lien on an asset, the Bank usually requires a general lien on all business assets as evidenced by a UCC filing. Pricing is typically basedon the Wall Street Journal prime rate plus a spread driven by risk rating variables.6Underwriters are required to identify at least two sources of repayment, usually recommend that loans contain covenants, such as minimumdebt service coverage ratios, minimum global debt service coverage ratios, maximum leverage ratios, 30-day “cleanups” or “clean-downs,” asapplicable, and must require periodic financial reporting. In addition, every effort is made to set up borrowers with auto-debit for loan payments, andthey are strongly encouraged to maintain operating accounts at the Bank.Lines of credit are typically short term facilities (12 months) that are provided for occasional or seasonal needs. They are extended to onlyqualifying borrowers who have established cash flow from operations and a clean credit history. An annual 30-day clean-up, or 75% annual pay-down period is required. A clean-up period generally is not required on amortizing secured lines. Guarantors, which are usually required, must haveclean credit histories and a substantial outside net worth. Most lines contain an option to convert to a term loan upon maturity.Secured term loans are long term facilities extended typically for the purpose of financing the purchase of a long term asset. At a minimum,they will be collateralized by the asset being purchased. They may also be secured by an existing long term business asset or outside collateralpledged by the guarantor borrower. Unsecured term loans are usually extended only to well-known borrowers who have established, strong cashflow from operations and a clean credit history. Although Bank policy allows term loans for up to ten years, the preference is to offer self-amortizing term loans based on a term of no more than five to seven years. 7Loan Originations, Purchases and Sales. The following table sets forth our loan originations, sales, purchases and principal repaymentactivities during the periods indicated. Years Ended December 31, 2017 2016 2015 2014 2013 (In thousands) Total loans at beginning of year $651,642 $576,611 $552,259 $571,284 $594,418 Loans originated: Mortgage loans: 1-4 family residential Investor-owned 85,333 57,167 39,309 34,603 31,508 Owner-occupied 15,278 14,741 12,555 11,625 23,001 Multifamily residential 51,451 51,876 34,048 28,965 21,986 Nonresidential properties 56,327 31,408 18,365 15,972 13,850 Construction and land 69,011 5,693 3,497 15,485 10,389 Total mortgage loans 277,400 160,885 107,774 106,650 100,734 Nonmortgage loans: Business 17,873 1,222 7,451 4,540 5,084 Consumer 597 718 692 277 516 Total nonmortgage loans 18,470 1,940 8,143 4,817 5,600 Total loans 295,870 162,825 115,917 111,467 106,334 Loans purchased: Mortgage loans: 1-4 family residential — — — — — Investor-owned — — — — — Owner-occupied — — — — — Multifamily residential — — — — — Nonresidential properties — — — — — Construction and land — — — — — Total mortgage loans — — — — — Nonmortgage loans: Business — — — — — Consumer — — — — — Total nonmortgage loans — — — — — Total loans — — — — — Loans sold: Mortgage loans: 1-4 family residential — — — — — Investor-owned (139) — — — — Owner-occupied (819) — — — — Multifamily residential — — — (850) — Nonresidential properties (2,010) — — — — Construction and land — — — — — Total mortgage loans (2,968) — — (850) — Nonmortgage loans: Business — — — — — Consumer — — — — — Total nonmortgage loans — — — — — Total loans (2,968) — — (850) — Principal repayments and other (135,790) (87,794) (91,565) (129,642) (129,468)Net loan activity 157,112 75,031 24,352 (19,025) (23,134)Total loans at end of year $808,754 $651,642 $576,611 $552,259 $571,284 8Contractual Maturities. The following table sets forth the contractual maturities of our total loan portfolio at December 31, 2017. Demandloans, loans having no stated repayment schedule or maturity, and overdraft loans are reported as being due in one year or less. The tablepresents contractual maturities and does not reflect repricing or the effect of prepayments. Actual maturities may differ. December 31, 2017 One yearor less More thanone yearto five years More thanfive years Total (In thousands) Mortgage loans: 1-4 family residential Investor-owned $1,653 $9,997 $275,508 $287,158 Owner-occupied 2,366 3,247 95,241 100,854 Multifamily residential 3,575 7,340 177,635 188,550 Nonresidential properties 3,658 7,694 139,841 151,193 Construction and land 35,950 31,290 — 67,240 Total mortgage loans 47,202 59,568 688,225 794,995 Nonmortgage loans: Business loans 8,403 4,470 — 12,873 Consumer loans 126 760 — 886 Total nonmortgage loans 8,529 5,230 — 13,759 Total $55,731 $64,798 $688,225 $808,754 The following table sets forth our fixed and adjustable-rate loans at December 31, 2017 that are contractually due after December 31, 2018. Due After December 31, 2018 Fixed Adjustable Total (In thousands) Mortgage loans: 1-4 family residential Investor-owned $23,668 $261,837 $285,505 Owner-occupied 36,076 62,412 98,488 Multifamily residential 9,303 175,672 184,975 Nonresidential properties 15,080 132,455 147,535 Construction and land 31,290 — 31,290 Total mortgage loans 115,417 632,376 747,793 Nonmortgage loans: Business loans 3,480 990 4,470 Consumer loans 760 — 760 Total nonmortgage loans 4,240 990 5,230 Total $119,657 $633,366 $753,023 Loan Approval Procedures and Authority. Our maximum loan to one borrower is 90% of the Bank’s legal lending limit, individually andcumulatively. At December 31, 2017, our internal lending limit to one borrower was $21.1 million. At December 31, 2017, our largest relationshipwas $16.3 million consisting of one multifamily construction project in Kings County, with an outstanding balance of $9.0 million. The secondlargest relationship was $14.0 million consisting of one multifamily construction project located in Queens County. No other loan or loans to oneborrower, individually or cumulatively, exceeded $13.1 million, or 62% of our lending limit.9The Bank’s lending is subject to written policies, underwriting standards and operating procedures. Decisions on loan requests are made onthe basis of detailed applications submitted by the prospective borrower, credit histories that we obtain and property valuations, consistent with ourappraisal policy. The appraisals are prepared by outside independent licensed appraisers and reviewed by third parties, all approved by the Boardof Directors. The Loan Committee usually reviews appraisals in considering a loan application. The performance of the appraisers is also subjectto internal evaluations using scorecards and are assessed periodically. The loan applications are designed primarily to determine the borrower’sability to repay the requested loan, and all information provided with the application and provided checklists as part of the application package arethoroughly evaluated by the loan underwriting department.The lending approval process starts with the processing of the application package, which is reviewed for completeness and then allnecessary agency reports are ordered. Upon initial review and preparation of preliminary documents by the processors in the underwritingdepartment, the file is assigned to an underwriter. The underwriters are responsible for presenting the loan request - with a recommendation - to theLoan Committee and then the Board of Directors, when the credit exposure is greater than the Loan Committee’s authority or there are exceptionsto our loan policy. If approved, closed and booked, the loan reviewers then undertake the responsibility of monitoring the credit file for the life ofthe loan by assessing the borrower’s creditworthiness periodically, given certain criteria and following certain operating procedures. An independentthird party also performs loan reviews following similar criteria and scope under the oversight of the Audit Committee of the Board of Directors.The Bank also offers smaller commercial and consumer loans of up to $250,000 that follow an “Express Approval” process based on certainunderwriting guidelines. Express Approval loans require the signature of only three (3) Loan Committee members.At this time, the Bank does not originate loans with the intent of selling them into the secondary market. Delinquencies and Non-Performing Assets Delinquency Procedures. Collection efforts commence the day following the grace period, normally on the 17th of the month. Those loansthat have experienced sporadic late payments over the previous 12 months are to be reviewed with a greater degree of diligence. Late notices aregenerated and distributed on the 17th and 30th day of the month. The Collection Department will pursue collection efforts up until the 90th day pastdue. At that time, the Bank usually will institute legal proceedings for collection or foreclosure unless it is in the best interest of the Bank to workfurther with the borrower to arrange a suitable workout plan.Prior to acquiring property as a result of foreclosure, the Bank will attain an updated appraisal to determine the fair market value andproceed with net adjustments according to accounting principles. Board of Directors approval will be required.For the years ended December 31, 2017 and 2016, we collected $1.1 million and $159,270, respectively, of interest income on our non-accruing troubled debt restructured loans, of which we recognized $1.0 million and $26,193 into income, respectively. The remaining interestcollected on our non-accruing troubled debt restructured loans for these periods was applied as a principal reduction for the remaining life of theloan, or until the loan is deemed performing. 10Delinquent Loans. The following table sets forth our loan delinquencies, including non-accrual loans, by type and amount at the datesindicated. At December 31, 2017 2016 2015 30-59DaysPast Due 60-89DaysPast Due 90 Daysor MorePast Due 30-59DaysPast Due 60-89DaysPast Due 90 Daysor MorePast Due 30-59DaysPast Due 60-89DaysPast Due 90 Daysor MorePast Due (In thousands) Mortgages: 1-4 Family residential Investor-owned $1,201 $— $472 $2,716 $— $325 $2,306 $659 $805 Owner-occupied 585 — 3,391 2,562 557 1,734 1,023 311 1,712 Multifamily residential 46 — — 819 — — 84 — — Nonresidential properties 11 — 1,882 41 — 1,994 680 55 859 Construction and land — — — — — — — — — Nonmortgage Loans: Business 239 — 51 25 — 22 — — — Consumer — — — — — — — — — Total $2,082 $— $5,796 $6,163 $557 $4,075 $4,093 $1,025 $3,376 At December 31, 2014 2013 30-59DaysPast Due 60-89DaysPast Due 90 Daysor MorePast Due 30-59DaysPast Due 60-89DaysPast Due 90 Daysor MorePast Due (In thousands) Mortgages: 1-4 Family residential Investor-owned $1,413 $320 $1,107 $6,179 $232 $6,887 Owner-occupied 1,477 607 2,183 2,569 703 3,830 Multifamily residential 8 — 2,956 1,466 — 971 Nonresidential properties 1,783 957 176 2,381 789 1,604 Construction and land 2,228 — 1,280 4,774 1,243 2,207 Nonmortgage Loans: Business 195 — 600 1,741 679 — Consumer 2 — — 15 18 — Total $7,106 $1,884 $8,302 $19,125 $3,664 $15,499 Non-Performing Assets. The following table sets forth information regarding our non-performing assets. Non-accrual loans includenon-accruing troubled debt restructurings of $4.6 million, $2.7 million, $4.5 million, $9.0 million, and $24.3 million at December 31, 2017,2016, 2015, 2014 and 2013, respectively. 11 At December 31, 2017 2016 2015 2014 2013 (In thousands) Nonaccrual loans: Mortgage loans: 1-4 family residential Investor-owned $1,034 $809 $1,635 $2,721 $7,365 Owner-occupied 2,624 1,463 1,078 1,036 4,983 Multifamily residential 521 — — 2,957 4,040 Nonresidential properties 1,387 1,614 1,660 72 1,579 Construction and land 1,075 1,145 637 259 3,019 Nonmortgage loans: Business 147 22 13 14 236 Consumer — — — — 29 Total nonaccrual loans (not including non-accruing troubled debt restructured loans) $6,788 $5,053 $5,023 $7,059 $21,251 Non-accruing troubled debt restructured loans: Mortgage loans: 1-4 family residential Investor-owned $1,144 $1,240 $2,599 $4,585 $10,059 Owner-occupied 2,693 646 1,055 1,923 7,471 Multifamily residential — — — — 396 Nonresidential properties 783 783 828 2,427 5,658 Construction and land — — — — — Nonmortgage loans: Business — — — 79 751 Consumer — — — — — Total non-accruing troubled debt restructured loans 4,620 2,669 4,482 9,014 24,335 Total nonaccrual loans $11,408 $7,722 $9,505 $16,073 $45,586 Real estate owned: Mortgage loans: 1-4 family residential Investor-owned $— $— $— $— $— Owner-occupied Multifamily residential — — — — — Nonresidential properties — — — — — Construction and land — — 76 162 1,059 Nonmortgage loans: Business — — — — — Consumer — — — — — Total real estate owned — — 76 162 1,059 Total nonperforming assets $11,408 $7,722 $9,581 $16,235 $46,645 Accruing loans past due 90 days or more: Mortgage loans: 1-4 family residential Investor-owned $7 $— $— $— $— Owner-occupied — — — — — Multifamily residential — — — — — Nonresidential properties — — — 126 127 Construction and land — — — 1,257 894 Nonmortgage loans: Business — — — 600 — Consumer — — — — — Total accruing loans past due 90 days or more $7 $— $— $1,983 $1,021 Accruing troubled debt restructured loans: Mortgage loans: 1-4 family residential Investor-owned $6,559 $6,422 $6,579 $5,179 $2,371 Owner-occupied 4,756 7,271 8,326 9,661 2,476 Multifamily residential — — — — — Nonresidential properties 1,958 4,066 4,186 3,590 2,262 Construction and land — — — — — Nonmortgage loans: Business 477 593 814 970 — Consumer — — — — — Total accruing troubled debt restructured loans $13,750 $18,352 $19,905 $19,400 $7,109 Total nonperforming assets, accruing loans past due 90 days or more and accruing troubled debt restructured loans $25,165 $26,074 $29,486 $37,618 $54,775 Total nonperforming loans to total loans 1.41% 1.19% 1.65% 2.91% 7.98%Total nonperforming assets to total assets 1.23% 1.04% 1.35% 2.28% 6.24%Total nonperforming assets, accruing loans past due 90 days or more and accruing troubled debt restructured loans to total assets 2.72% 3.50% 4.19% 5.33% 7.50% 12For the years ended December 31, 2017 and 2016, we collected $1.2 million and $315,000, respectively, of interest income on our non-accruing loans, of which we recognized $1.1 million and $83,000 into income, respectively. Classified Assets. Federal regulations provide for the classification of loans and other assets, such as debt and equity securities,considered by the Office of the Comptroller of the Currency to be of lesser quality, as “substandard,” “doubtful” or “loss.” An asset is considered“substandard” if it is inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any.“Substandard” assets include those characterized by the “distinct possibility” that the Bank will sustain “some loss” if the deficiencies are notcorrected. Assets classified as “doubtful” have all of the weaknesses inherent in those classified “substandard,” with the added characteristic thatthe weaknesses present make “collection or liquidation in full,” on the basis of currently existing facts, conditions, and values, “highly questionableand improbable.” Assets classified as “loss” are those considered “uncollectible” and of such little value that their continuance as assets withoutthe establishment of a specific loss allowance is not warranted. Assets which do not currently expose the Bank to sufficient risk to warrantclassification in one of the aforementioned categories but possess weaknesses are designated as “special mention” by our management.Under OCC regulations, when an insured institution classifies problem assets as either substandard or doubtful, it may establish generalallowances in an amount deemed prudent by management to cover probable accrued losses. General allowances represent loss allowances whichhave been established to cover probable accrued losses associated with lending activities, but which, unlike specific allowances, have not beenallocated to particular problem assets. When an insured institution classifies problem assets as “loss,” it is required either to establish a specificallowance for losses equal to 100% of that portion of the asset so classified or to charge-off such amount. An institution’s determination as to theclassification of its assets and the amount of its valuation allowances is subject to review by the regulatory authorities, which may require theestablishment of additional general or specific loss allowances.In connection with the filing of our periodic reports with the Office of the Comptroller of the Currency and in accordance with ourclassification of assets policy, we regularly review the problem loans in our portfolio to determine whether any loans require classification inaccordance with applicable regulations.On the basis of this review of our loans, our classified and special mention loans at the dates indicated were as follows: At December 31, 2017 2016 2015 2014 2013 (In thousands) Classified Loans: Substandard $22,999 $19,225 $17,786 $18,862 $53,690 Doubtful — — — — — Loss — — — — — Total classified loans 22,999 19,225 17,786 18,862 53,690 Special mention loans 5,317 2,549 6,469 10,501 22,134 Total classified and special mention loans $28,316 $21,774 $24,255 $29,363 $75,824 Troubled Debt Restructurings. We occasionally modify loans to help a borrower stay current on his or her loan and to avoid foreclosure.We consider modifications only after analyzing the borrower’s current repayment capacity, evaluating the strength of any guarantors based ondocumented current financial information, and assessing the current value of any collateral pledged. We generally do not forgive principal orinterest on loans, but may do so if it is in our best interest and increases the likelihood that we can collect the remaining principal balance. Wemay modify the terms of loans to lower interest rates, which may be at below market rates, to provide for fixed interest rates on loans where fixedrates are otherwise not available, or to provide for interest-only terms. These modifications are made only when there is a reasonable andattainable workout plan that has been agreed to by the borrower and that is in our best interests. At December 31, 2017, we had 49 loans totaling $18.4 million that were classified as troubled debt restructurings. Of these, ten loanstotaling $4.6 million were included in our non-accrual loans at such date because they were not performing in accordance with their modified terms,and the remaining 39 loans, totaling $13.8 million, had been performing in accordance with their modified terms for a minimum of six months sincethe date of restructuring. 13At December 31, 2016, we had 61 loans totaling $23.2 million (including three loans held-for-sale totaling $2.1 million) that were classified astroubled debt restructurings. Of these, ten loans totaling $4.8 million (including all three of our loans held-for-sale totaling $2.1 million) wereincluded in our non-accrual loans at such date because they were not performing in accordance with their modified terms, and the remaining 51loans, totaling $18.4 million, had been performing in accordance with their modified terms for a minimum of six months since the date ofrestructuring. Loans Restructured During All TDRs with a paymentdefault within 12 monthsfollowing the Year Ended December 31, 2017 modification Pre- Post- Balance Modification Modification of Loans Number Recorded Recorded Number at the Time of Loans Balance Balance of Loans of Default Mortgages: 1-4 Family residential 1 $176 $176 — $— Total 1 $176 $176 — $— Combination of rate, maturity, other 1 $176 $176 — $— Total 1 $176 $176 — $— There were no loans restructured during the year ended December 31, 2016. No troubled debt restructurings defaulted within twelve monthsof their modification during the twelve months ended December 31, 2016. Allowance for Loan Losses The Bank has approved and maintained an appropriate, systematic and consistently applied process to determine the dollar amounts of theallowance for loan losses (“ALLL”) that is adequate to absorb inherent losses in the loan portfolio and other held financial instruments. An inherentloss, as defined by U.S. Generally Accepted Accounting Principles (“GAAP”), and applicable banking regulations, is an unconfirmed loss thatprobably exists based on the information that is available as of the evaluation date. It is not a loss that may arise from events that might occur asa result of a possible future event. Arriving at an appropriate allowance involves a high degree of management’s judgment, is inevitably imprecise,and results in a range of possible losses. The determination of the dollar amounts of the ALLL is based on management’s current judgments about the credit quality of the loanportfolio taking into consideration all known relevant internal and external factors that affect loan payments at the end of each month. The dollaramounts reported each month for the ALLL are reviewed at least quarterly by the Board. To ensure that the methodology remains appropriate forthe Bank, the Board periodically has the methodology validated externally and causes revisions to be made when appropriate. The AuditCommittee oversees and monitors the internal controls over the ALLL determination process. The Bank adheres to a safe and sound bankingpractice by maintaining, analyzing, and supporting an adequate ALLL in accordance with GAAP and supervisory guidance. The Bank’s ALLL methodology consists of a system designed and implemented to estimate loan and lease losses. The Bank’s ALLLmethodology incorporates management’s current judgments about the credit quality of the loan and lease portfolio through a disciplined andconsistently applied process. The Bank’s loan policy requires the following when the Bank calculates the level of ALLL: •All loans shall be taken into consideration in the ALLL methodology whether on an individual or group basis. •The Bank shall identify all loans to be evaluated for impairment on an individual basis under ASC 310 and segment the remainder of theloan portfolio into groups (pools) of loans with similar risk characteristics for evaluation and analysis under ASC 450. •All known relevant internal and external factors that may affect the collection of the loan shall be taken into consideration.14 •All known relevant internal and external factors that may affect loan collectability shall be considered and applied consistently; however,when appropriate, these factors may be modified for new factors affecting loan collectability. •The particular risks inherent in different kinds of lending shall be taken into consideration. •The current collateral values, less the costs to sell, shall be taken into consideration when applicable. •The Bank shall require that competent and well-trained personnel perform the analysis, estimates, reviews and other ALLL methodologyfunctions. •The ALLL methodology shall be based on current and reliable information. •The ALLL methodology shall be well documented, in writing, with clear explanations of the supporting analyses and rationale. •The ALLL methodology shall include a systematic and logical method to consolidate the loss estimates and ensure the ALLL balance isrecorded in accordance with GAAP. Loan pools with similar risk characteristics. Loss histories are the starting point for the calculation of ALLL balances. Loss histories arecalculated for each of the pools by aggregating the historical losses less recoveries within the respective pools and annualizing the number overthe determined length of time. The length of time may vary according to the relevance of past periods’ experience to the current period, amongother considerations. The Bank currently uses a prior twelve quarter rolling average for its historical loss rates. Each pool’s historical loss rate is adjusted for the effects of the qualitative or environmental factors. The factors analyzed include: •Changes in lending policies and procedures, including changes in underwriting standards and collection, charge-off, and recoverypractices. •Changes in international, national, regional, and local economic and business conditions and developments that affect the collectabilityof the portfolio, including the condition of various market segments. •Changes in the nature and volume of the portfolio and in the terms of loans. •Changes in the experience, ability and depth of lending management and other relevant staff. •Changes in the volume and severity of past due loans, the volume of nonaccrual loans, and the volume and severity of adverselyclassified or graded loans. •Changes in the quality of the Bank’s loan review system. •Changes in the value of underlying collateral for collateral-dependent loans. •The existence and effect of any concentration of credit, and changes in the level of such concentrations. •The effect of other external factors such as competition and legal and regulatory requirements on the level of estimated credit losses inthe institution’s existing portfolio.The Bank utilizes a risk-based approach to determine the appropriate adjustments for each qualitative factor. A matrix containing definitionsof low, medium, and high risk levels is used to assess the individual factors to determine their respective directional characteristics. These risklevels serve as the foundation for determining the individual adjustments for each factor for each pool of loans.15The qualitative factor adjustments are supported by applicable reports, graphs articles and any other relevant information to evidence anddocument management’s judgment as to the respective levels of risk and adjustment requirements.Each of the qualitative adjustment factors is applied to each of the loan pools to reflect adjustments that increase or decrease the historicalloss rates applied to each loan pool. Each of these adjustment factors is individually supported and justified, and a discrete narrative for each loanpool reflects current information, events, circumstances and conditions influencing the adjustment. The narratives include descriptions of eachfactor, management’s analysis of how each factor has changed over time, which loan pool’s loss rates have been adjusted, the amount by whichloss estimates have been adjusted for changes in conditions, an explanation of how management estimated the impact, and other available datathat support the reasonableness of the adjustments.Once these qualitative adjustment factors are determined for each pool of loans, they are added to the historical loss numbers for eachcorresponding pool of loans to arrive at a loss factor for each pool based on historical loss experience and qualitative or environmental influences.These loss factors are adjusted to appropriately reflect the respective risk rating categories within each pool by applying the weighting factorsdescribed above to those loans within the respective pool’s risk rates.The series of calculations described above can be expressed as the following equation:[(H*P) + (Q*P)] = R, whereH = Historical loss factor for the poolQ = Qualitative/Environmental aggregate adjustment for the poolP = Total loans within the poolR = Required reserve amount for the risk rating category within the pool Specific allowances for identified problem loans. The Bank considers a loan to be impaired when, based on current information andevents, it is probable that the Bank will be unable to collect the scheduled payments of principal or interest when due according to the contractualterms of the loan agreement. All troubled debt restructurings and loans on non-accrual status are deemed to be impaired. A specific valuationallowance is established for the impairment amount of each loan, calculated using the present value of expected cash flows, observable marketprice, or the fair value of the collateral, in accordance with the most likely means of recovery.Factors evaluated in determining impairment include payment status, collateral value, and the probability of collecting scheduled principaland interest payments when due. Loans that experience insignificant payment delays and payment shortfalls generally are not classified asimpaired. The Bank determines the significance of payment delays and payment shortfalls on a case-by-case basis, taking into consideration all ofthe circumstances surrounding the loan and the borrower, including the length of the delay, the reasons for the delay, the borrower’s prior paymentrecord, and the amount of the shortfall in relation to the principal and interest owed.An unallocated component may be maintained to cover uncertainties that could affect our estimate of probable losses. The unallocatedcomponent of the allowance reflects the margin of imprecision inherent in the underlying assumptions used in the methodologies for estimatingallocated and general reserves in the portfolio.Validation of the ALLL. The Bank considers its ALLL methodology valid when it accurately estimates the amount of loss contained in theloan portfolio. The Bank has employed procedures, including the following, when validating the reasonableness of its ALLL methodology anddetermining whether there may be deficiencies in its overall methodology or loan grading process: •A review of trends in loan volume, delinquencies, loan restructurings and concentrations. •A review of previous charge-offs and recovery history, including an evaluation of the timeliness of the entries to record both the charge-offs and the recoveries. •At a minimum, an annual review by a third party that is independent of the ALLL estimation process. •An evaluation of the appraisal process of the underlying collateral.16The Bank supports the independent validation process with the work papers from the ALLL review function and may include the summaryfindings of an independent reviewer. The Board reviews the findings and acknowledges its review in the minutes of its meeting. If the methodologyis changed based upon the findings of the validation process, the documentation that describes and supports the changes is maintained.As an integral part of its examination process, the Office of the Comptroller of the Currency will periodically review our allowance for loanlosses. Following such review, we may determine that it is appropriate to recognize additions to the allowance based on our judgment andinformation available to us at the time of such examination.Current expected credit losses. On June 16, 2016, the Financial Accounting Standards Board issued the current expected credit losses(“CECL”) standard. The new standard will have a pervasive impact on us. In response to the new model, we have reassessed our riskmanagement policies and procedures in order for us to successfully implement CECL. Once adopted, we will have to estimate the allowance forloan losses on expected losses rather than incurred losses. The following table sets forth activity in our allowance for loan losses for the periods indicated. For the Years Ended December 31, 2017 2016 2015 2014 2013 (In thousands) Allowance at beginning of year $10,205 $9,484 $9,449 $9,940 $10,056 Provision (recovery) for loan losses 1,716 (57) 353 1,184 3,426 Charge-offs: Mortgage loans: 1-4 family residential Investor-owned — (38) (142) (494) (1,042)Owner-occupied — — (140) (207) (491)Multifamily residential — (3) (257) (252) (254)Nonresidential properties — — (19) (268) (184)Construction and land — (85) (77) (32) (434)Nonmortgage loans: Business (1,423) — — (945) (1,440)Consumer (6) (13) (8) (19) (18)Total charge-offs (1,429) (139) (643) (2,217) (3,863)Recoveries: Mortgage loans: 1-4 family residential Investor-owned 25 18 53 198 4 Owner-occupied 176 142 10 37 — Multifamily residential 2 1 — 61 32 Nonresidential properties 9 9 31 10 — Construction and land 2 5 — — 133 Nonmortgage loans: Business 359 733 224 231 147 Consumer 6 9 7 5 5 Total recoveries 579 917 325 542 321 Net (charge-offs) recoveries (850) 778 (318) (1,675) (3,542)Allowance at end of year $11,071 $10,205 $9,484 $9,449 $9,940 Allowance for loan losses as a percentage for nonperforming loans 97.05% 132.15% 99.78% 58.79% 21.80%Allowance for loan losses as a percentage of total loans 1.37% 1.57% 1.64% 1.71% 1.74%Net (charge-offs) recoveries to average loans outstanding during the year (0.12%) 0.13% (0.06%) (0.30%) (0.61%) 17Allocation of Allowance for Loan Losses. The following table sets forth the allowance for loan losses allocated by loan category and thepercent of the allowance in each category to the total allocated allowance at the dates indicated. The allowance for loan losses allocated to eachcategory is not necessarily indicative of future losses in any particular category and does not restrict the use of the allowance to absorb losses inother categories. At December 31, 2017 2016 2015 Allowancefor LoanLosses Percent ofAllowancein EachCategoryto TotalAllocatedAllowance Percentof Loansin EachCategoryto TotalLoans Allowancefor LoanLosses Percent ofAllowancein EachCategoryto TotalAllocatedAllowance PercentofLoans inEachCategoryto TotalLoans Allowancefor LoanLosses Percent ofAllowancein EachCategoryto TotalAllocatedAllowance PercentofLoans inEachCategoryto TotalLoans (In thousands) Mortgage loans: 1-4 family residential Investor-owned$3,716 33.57% 35.51% $3,146 30.83% 34.90% $2,843 29.98% 35.25%Owner-occupied 1,402 12.66% 12.47% 1,805 17.69% 14.98% 2,126 22.42% 18.39%Multifamily residential 3,109 28.08% 23.31% 2,705 26.51% 24.28% 1,994 21.02% 21.30%Nonresidential properties 1,424 12.86% 18.70% 1,320 12.92% 18.64% 1,298 13.69% 18.46%Construction and land 1,205 10.89% 8.31% 615 6.03% 4.66% 502 5.29% 3.97%Total mortgage loans 10,856 98.06% 98.30% 9,591 93.98% 97.46% 8,763 92.40% 97.37%Nonmortgage loans: Business 209 1.89% 1.59% 597 5.85% 2.41% 709 7.47% 2.49%Consumer 6 0.05% 0.11% 17 0.17% 0.13% 12 0.13% 0.14%Total nonmortgage loans 215 1.94% 1.70% 614 6.02% 2.54% 721 7.60% 2.63%Total allocated allowance 11,071 100.00% 100.00% 10,205 100.00% 100.00% 9,484 100.00% 100.00%Unallocated — — — Total$11,071 $10,205 $9,484 At December 31, 2014 2013 Allowancefor LoanLosses Percent ofAllowancein EachCategoryto TotalAllocatedAllowance Percent ofLoans inEachCategoryto TotalLoans Allowancefor LoanLosses Percent ofAllowancein EachCategoryto TotalAllocatedAllowance Percent ofLoans inEachCategoryto TotalLoans (In thousands) Mortgage loans: 1-4 family residential Investor-owned$2,727 28.86% 34.54% $2,978 29.96% 34.27%Owner-occupied 2,277 24.10% 19.05% 2,035 20.48% 19.47%Multifamily residential 1,669 17.66% 20.10% 1,538 15.47% 18.82%Nonresidential properties 1,529 16.18% 20.24% 1,321 13.29% 19.19%Construction and land 504 5.33% 3.39% 656 6.60% 4.48%Total mortgage loans 8,706 92.13% 97.32% 8,528 85.80% 96.23%Nonmortgage loans: Business 732 7.75% 2.57% 1,394 14.02% 3.56%Consumer 11 0.12% 0.11% 18 0.18% 0.21%Total nonmortgage loans 743 7.87% 2.68% 1,412 14.20% 3.77%Total allocated allowance 9,449 100.00% 100.00% 9,940 100.00% 100.00%Unallocated — — Total$9,449 $9,940 At December 31, 2017, our allowance for loan losses represented 1.37% of total loans and 97.05% of nonperforming loans. The allowancefor loan losses increased to $11.1 million at December 31, 2017 from $10.2 million at December 31, 2016. There were $850,000 in net loan charge-offs and $778,000 in net loan recoveries during the years ended December 31, 2017 and 2016, respectively.18Although we believe that we use the best information available to establish the allowance for loan losses, future adjustments to theallowance for loan losses may be necessary and results of operations could be adversely affected if circumstances differ substantially from theassumptions used in making the determinations. Furthermore, while we believe that we have established our allowance for loan losses inconformity with GAAP, after a review of our loan portfolio by regulators, we may determine it is appropriate to increase our allowance for loanlosses. In addition, because future events affecting borrowers and collateral cannot be predicted with certainty, the existing allowance for loanlosses may not be adequate and increases may be necessary should the quality of any loan deteriorate as a result of the factors discussedabove. Any material increase in the allowance for loan losses may adversely affect our financial condition and results of operations. Investment Activities General. Our investment policy was adopted by the Board of Directors. The investment policy is reviewed annually by the Board ofDirectors. The Chief Financial Officer is designated as the Chief Investment Officer. The Chief Financial Officer will plan and execute investmentstrategies consistent with the policies approved by the Board of Directors. The Chief Financial Officer provides an investment schedule detailingthe investment portfolio which is reviewed at least quarterly by the Bank’s asset-liability committee and the Board of Directors.Our current investment policy permits, with certain limitations, investments in United States Treasury securities; securities issued by theU.S. government and its agencies or government sponsored enterprises including mortgage-backed and collateralized mortgage obligations(“CMO”) issued by Fannie Mae, Ginnie Mae and Freddie Mac; corporate bonds and obligations, and certificates of deposit in other financialinstitutions.At December 31, 2017 and 2016, our investment portfolio consisted of securities and obligations issued by the U.S. government andgovernment sponsored enterprises and the Federal Home Loan Bank of New York. At December 31, 2017 and 2016, we owned $1.5 million and$1.0 million, respectively, of Federal Home Loan Bank of New York stock. As a member of Federal Home Loan Bank of New York, we are requiredto purchase stock in the Federal Home Loan Bank of New York, which stock is carried at cost and classified as restricted equity securities.Securities Portfolio Composition. The following table sets forth the amortized cost and estimated fair value of our available-for-salesecurities portfolio at the dates indicated, which consisted of U.S. government and federal agencies, pass-through mortgage-backed securities andcertificates of deposit. At December 31, 2017 2016 2015 2014 2013 AmortizedCost EstimatedFair Value AmortizedCost EstimatedFair Value AmortizedCost EstimatedFair Value AmortizedCost EstimatedFair Value AmortizedCost EstimatedFair Value (In thousands) U.S. Government andFederal Agencies $24,911 $24,552 $41,906 $41,559 $71,899 $71,166 $88,828 $87,088 $90,823 $86,662 Certificates of Deposit — — 500 500 — — — — — — Mortgage-BackedSecurities FHLMC Certificates — — 192 216 202 222 212 234 222 238 FNMA Certificates 1,118 1,103 3,600 3,606 4,411 4,432 5,732 5,872 6,536 6,548 GNMA Certificates 3,205 3,242 6,744 6,809 6,084 6,214 7,211 7,380 8,668 8,857 Total $29,234 $28,897 $52,942 $52,690 $82,596 $82,034 $101,983 $100,574 $106,249 $102,305 At December 31, 2017 and December 31, 2016, there were no securities of which the amortized cost or estimated value exceeded 10% ofour total equity. Mortgage-Backed Securities. At December 31, 2017 and 2016, we had mortgage-backed securities with a carrying value of $4.3 millionand $10.5 million, respectively. Mortgage-backed securities are securities issued in the secondary market that are collateralized by pools ofmortgages. Certain types of mortgage-backed securities are commonly referred to as “pass through” certificates because the underlying loans are“passed through” to investors, net of certain costs, including servicing and guarantee fees. Mortgage-backed securities typically are collateralizedby pools of one-to-four family or multifamily mortgages, although we invest primarily in mortgage-backed securities backed by one-to-four familymortgages. The issuers of such securities pool and resell the participation interests in the form of securities to investors such as Ponce Bank. Theinterest rate of the security is lower than the interest rates of the underlying loans to allow for payment of servicing and guaranty fees. All of ourmortgage-backed securities are backed by Freddie Mac and Fannie Mae, which are government-sponsored enterprises, or Ginnie Mae, which is agovernment-owned enterprise.19Residential mortgage-backed securities issued by U.S. government agencies and government-sponsored enterprises are more liquid thanindividual mortgage loans because there is an active trading market for such securities. In addition, residential mortgage-backed securities may beused to collateralize our borrowings. Investments in residential mortgage-backed securities involve a risk that actual payments will be greater orless than the prepayment rate estimated at the time of purchase, which may require adjustments to the amortization of any premium or accretionof any discount relating to such interests, thereby affecting the net yield on our securities. Current prepayment speeds determine whetherprepayment estimates require modification that could cause amortization or accretion adjustments.Portfolio Maturities and Yields. The composition and maturities of the investment securities portfolio at December 31, 2017 aresummarized in the following table. Maturities are based on the final contractual payment dates, and do not reflect the effect of scheduled principalrepayments, prepayments, or early redemptions that may occur. Adjustable-rate mortgage-backed securities are included in the period in whichinterest rates are next scheduled to adjust. One Year or Less More than One Yearthrough Five Years More than Five Yearsthrough Ten Years More than Ten Years Total AmortizedCost WeightedAverageYield AmortizedCost WeightedAverageYield AmortizedCost WeightedAverageYield AmortizedCost WeightedAverageYield AmortizedCost FairValue WeightedAverageYield (In thousands) U.S. Government and Federal Agencies $1,990 1.06% $22,921 1.38% $— — $— — $24,911 $24,552 1.35% Mortgage-BackedSecurities FNMACertificates 9 4.26% — — 1,109 1.85% — — 1,118 1,103 1.87%GNMACertificates — — — — — — 3,205 2.83% 3,205 3,242 2.83%Total $1,999 1.08% $22,921 1.38% $1,109 1.85% $3,205 2.83% $29,234 $28,897 1.32% Sources of Funds General. Deposits have traditionally been our primary source of funds for use in lending and investment activities. We also may useborrowings, primarily from the Federal Home Loan Bank of New York, and brokered and listing service deposits, and unsecured lines of credit withcorrespondent banks, to supplement cash flow needs, lengthen the maturities of liabilities for interest rate risk and to manage the cost offunds. At December 31, 2017, the amount available to the Bank to borrow from the Federal Home Loan Bank of New York was $24.0 million andanother $2.0 million from a correspondent bank. In addition, we receive funds from scheduled loan payments, investment maturities and calls,loan prepayments and income on earning assets. While scheduled loan payments and income on earning assets are relatively stable sources offunds, deposit inflows and outflows can vary widely and are influenced by prevailing interest rates, market conditions and levels of competition.Deposits. Our deposits are generated primarily from our primary market area. We offer a selection of deposit accounts, including demandaccounts, savings accounts, and certificates of deposit to individuals, business entities, non-profit organizations and individual retirementaccounts. Deposit account terms vary, with the primary differences being the minimum balance required, the amount of time the funds mustremain on deposit and the interest rate.Interest rates paid, maturity terms, service fees and premature withdrawal penalties are established on a periodic basis. Deposit rates andterms are based primarily on current operating strategies and market rates, liquidity requirements, rates paid by competitors and growth goals. Werely upon personalized customer service, long-standing relationships with customers, and the favorable image of the Bank in the community toattract and retain deposits. We recently implemented a fully functional electronic banking platform, including a mobile application, remote depositcapture and online bill pay, as a service to our retail and business customers.The flow of deposits is influenced significantly by general economic conditions, changes in money market and other prevailing interest ratesand competition. Additionally, the ability to attract and maintain deposits and the rates paid on these deposits, has been and will continue to besignificantly affected by market conditions.20The following table sets forth the average balance and weighted average rate of our deposit products for the periods indicated. For the Years Ended December 31, 2017 2016 2015 AverageBalance Percent WeightedAverageRate AverageBalance Percent WeightedAverageRate AverageBalance Percent WeightedAverageRate (In thousands) Deposit type: Savings $128,282 18.26% 0.39% $126,573 20.32% 0.26% $122,538 20.50% 0.20%Interest-bearing demand 74,824 10.65% 0.19% 54,493 8.75% 0.18% 46,692 7.81% 0.16%Certificates of deposit 387,232 55.13% 1.53% 371,313 59.62% 1.48% 366,958 61.40% 1.44%Interest-bearing deposits 590,338 84.04% 1.11% 552,379 88.69% 1.07% 536,188 89.71% 1.04%Non-interest bearing demand 112,113 15.96% — 70,407 11.31% — 61,524 10.29% — Total deposits $702,451 100.00% 0.94% $622,786 100.00% 0.95% $597,712 100.00% 0.93% The following table sets forth our deposit activities for the periods indicated. At or For the Years Ended December 31, 2017 2016 2015 (In thousands) Beginning balance $643,078 $599,506 $599,697 Net deposits (withdrawals) before interest credited 64,338 37,647 (5,776)Interest credited 6,569 5,925 5,585 Net increase (decrease) in deposits 70,907 43,572 (191)Ending balance $713,985 $643,078 $599,506 The following table sets forth our certificates of deposit classified by interest rate as of the dates indicated. At December 31, 2017 2016 2015 (In thousands) Interest Rate: 0.05% - 0.99% $33,438 $58,874 $86,624 1.00% - 1.49% 136,865 144,193 131,065 1.50% - 1.99% 107,324 66,455 56,453 2.00% - 2.49% 127,556 94,394 62,224 2.50% - 2.99% 4,878 4,805 26,222 3.00% and greater — — 1,297 Total $410,061 $368,721 $363,885 21The following table sets forth the amount and maturities of our certificates of deposit by interest rate at December 31, 2017. Period to Maturity Less Thanor Equal toOne Year More ThanOne toTwo Years More ThanTwo toThree Years More ThanThree Years Total Percent ofTotal (In thousands) Interest Rate Range: 0.05% - 0.99% $33,330 $108 $— $— $33,438 8.15%1.00% - 1.49% 101,707 32,380 2,353 425 136,865 33.38%1.50% - 1.99% 25,218 27,719 20,876 33,511 107,324 26.17%2.00% - 2.49% 843 21,227 26,769 78,717 127,556 31.11%2.50% - 2.99% — 1,386 2,175 1,317 4,878 1.19%Total $161,098 $82,820 $52,173 $113,970 $410,061 100.00% At December 31, 2017, the aggregate amount of all our certificates of deposit in amounts greater than or equal to $100,000 was $287.3million. The following table sets forth the maturity of these certificates as of December 31, 2017. At December 31,Maturity Period:(In thousands)Three months or less$25,705Over three months through six months 24,447Over six months through one year 52,632Over one year to three years 93,707Over three years 90,774Total$287,265 At December 31, 2017, certificates of deposit equal to or greater than $250,000 totaled $80.3 million of which $33.2 million matures on orbefore December 31, 2018.At December 31, 2017, our passbook savings accounts and certificates of deposit with a passbook feature totaled $230.7 million, reflectingour depositors’ preference for traditional banking services.Borrowings. We may obtain advances from the Federal Home Loan Bank of New York by pledging as security our capital stock at theFederal Home Loan Bank of New York and certain of our mortgage loans and mortgage-backed securities. Such advances may be made pursuantto several different credit programs, each of which has its own interest rate and range of maturities. To the extent such borrowings have differentterms to repricing than our deposits, they can change our interest rate risk profile. At December 31, 2017 and 2016 we had $16.4 million and$3.0 million, respectively, outstanding of Federal Home Loan Bank of New York advances. We had $20.0 million outstanding in unsecuredborrowings with a correspondent bank at December 31, 2017.22The following table sets forth information concerning balances and interest rates on our borrowings at the dates and for the periodsindicated. At or For the Years December 31, 2017 2016 2015 (In thousands) FHLB Advances: Balance outstanding at end of period $16,400 $3,000 $8,000 Average amount outstanding during the period 9,738 1,145 15,050 Maximum outstanding at any month end during the period 55,000 12,000 24,000 Weighted average interest rate during the period 1.08% 0.61% 0.41%Weighted average interest rate at the end of the period 2.02% 0.78% 0.56% Correspondent Borrowings: Balance outstanding at end of period $20,000 $— $— Average amount outstanding during the period 20,000 — — Maximum outstanding at any month end during the period 20,000 — — Weighted average interest rate during the period 1.64% — — Weighted average interest rate at the end of the period 1.64% — — PersonnelAt December 31, 2017, we had 177 full-time equivalent employees. Our employees are not represented by any collective bargaining group. Subsidiaries We have a subsidiary, Ponce Bank, which itself has two subsidiaries, Ponce de Leon Mortgage Corporation, a New York charteredmortgage brokerage entity, whose employees are registered in New York and New Jersey, and PFS Services, Inc., which owns two of ourproperties. Regulation and SupervisionGeneralAs a federally-chartered stock savings association, Ponce Bank is subject to examination, supervision and regulation, primarily by theOffice of the Comptroller of the Currency, and, secondarily, by the Federal Deposit Insurance Corporation (“FDIC”) as the insurer of deposits. Thefederal system of regulation and supervision establishes a comprehensive framework of activities in which the Bank is engaging and is intendedprimarily for the protection of depositors and the FDIC’s Deposit Insurance Fund.Ponce Bank is regulated to a lesser extent by the Board of Governors of the Federal Reserve System, or the “Federal Reserve Board,”which governs the reserves to be maintained against deposits and other matters. In addition, the Bank is a member of and owns stock in theFederal Home Loan Bank of New York, which is one of the 11 regional banks in the Federal Home Loan Bank System. The Bank’s relationshipwith its depositors and borrowers is also regulated, to a great extent, by federal law and, to a lesser extent, state law, including in mattersconcerning the ownership of deposit accounts and the form and content of loan documents.As savings and loan holding companies, PDL Community Bancorp and Ponce Bank Mutual Holding Company, are subject to examinationand supervision by, and are required to file certain reports with, the Federal Reserve Board. PDL Community Bancorp is subject to the rules andregulations of the Securities and Exchange Commission under the federal securities laws.Set forth below are certain material regulatory requirements that are applicable to Ponce Bank and PDL Community Bancorp. Thisdescription of statutes and regulations is not intended to be a complete description of such statutes and regulations and their effects on PonceBank and PDL Community Bancorp. Any change in these laws or regulations, whether by Congress or the applicable regulatory agencies, couldhave a material adverse impact on PDL Community Bancorp, Ponce Bank and their operations.23 Dodd-Frank ActThe Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act“), have made significant changes to the regulatorystructure for depository institutions and their holding companies. However, the Dodd-Frank Act’s changes go well beyond that and affect thelending, investments and other operations of all depository institutions. The Dodd-Frank Act required the Federal Reserve Board to set minimumcapital levels for both bank holding companies and savings and loan holding companies that are as stringent as those required for the insureddepository subsidiaries, and the components of Tier 1 capital for holding companies were restricted to capital instruments that were then currentlyconsidered to be Tier 1 capital for insured depository institutions. Subsequent regulations issued by the Federal Reserve Board generallyexempted from these requirements bank and savings and loan holding companies of less than $1 billion of consolidated assets. The legislationalso established a floor for capital of insured depository institutions that cannot be lower than the standards in effect before its passage anddirected the federal banking regulators to implement new leverage and capital requirements that take into account off-balance sheet activities andother risks, including risks relating to securitized products and derivatives.The Dodd-Frank Act created a new Consumer Financial Protection Bureau with broad powers to supervise and enforce consumer protectionlaws. The Consumer Financial Protection Bureau has broad rule-making authority for a wide range of consumer protection laws that apply to allbanks and savings institutions, such as Ponce Bank, including the authority to prohibit “unfair, deceptive or abusive” acts and practices. TheConsumer Financial Protection Bureau has examination and enforcement authority over all banks and savings institutions with more than$10 billion in assets. Banks and savings institutions with $10 billion or less in assets continue to be examined for compliance by their applicablebank regulators. The legislation also weakened the federal preemption available for national banks and federal savings associations, and gavestate attorneys general the ability to enforce applicable federal consumer protection laws.The Dodd-Frank Act has broadened the base for FDIC insurance assessments. Assessments are based on the average consolidated totalassets less tangible equity capital of a financial institution. The legislation also permanently increased the maximum amount of deposit insurancefor banks, savings institutions and credit unions to $250,000 per separately insured depositor, retroactive to January 1, 2008. The Dodd-Frank Actincreased stockholder influence over boards of directors by requiring publicly traded companies to give stockholders a non-binding vote onexecutive compensation and so-called “golden parachute” payments. The legislation also directed the Federal Reserve Board to promulgate rulesprohibiting excessive compensation paid to holding company executives, regardless of whether the company is publicly traded. Further, thelegislation requires that originators of securitized loans retain a percentage of the risk for transferred loans, directs the Federal Reserve Board toregulate pricing of certain debit card interchange fees and contains a number of reforms related to mortgage origination.Many provisions of the Dodd-Frank Act involve delayed effective dates and/or require implementing regulations. The implementation of thelegislation is an ongoing process and the impact on operations cannot yet fully be assessed. The Dodd-Frank Act has resulted in an increasedregulatory burden and compliance, operating and interest expenses for most financial institutions, including Ponce Bank and PDL CommunityBancorp. In February 2017, the President of the United States issued an executive order stating that a policy of his administration would be tomake regulations efficient, effective, and appropriately tailored. The executive order directed certain regulatory agencies to review and identify lawsand regulations that inhibit federal regulation of the U.S. financial system in a manner inconsistent with the policies stated in the executive order.Any changes in laws or regulation as a result of this review could result in a repeal, amendment to or delayed implementation of the Dodd-FrankAct. On March 13, 2018, the U.S. Senate passed S.2155, a bipartisan regulatory reform bill. Among other provisions, the bill would increase thethreshold to qualify for the Federal Reserve Board’s Small Bank Holding Company Policy Statement from $1.0 billion to $3.0 billion and alsoprovide for charter flexibility for federally-chartered savings banks and associations to adopt the powers of a national bank. This bill must stillmake its way through the U.S. House of Representatives and no assurance can be given that these provisions will ultimately be enacted into law. Federal Bank RegulationsBusiness Activities. A federal savings association derives its lending and investment powers from the Home Owners’ Loan Act, asamended, and applicable federal regulations. Under these laws and regulations, Ponce Bank may invest in mortgage loans secured by residentialand commercial real estate, commercial business and consumer loans, certain types of debt securities and certain other assets, subject toapplicable limits. The Bank may also establish, subject to specified investment limits, service corporation subsidiaries that may engage in certainactivities not otherwise permissible for Ponce Bank, including real estate investment and securities and insurance brokerage.24 Examinations and Assessments. Ponce Bank is primarily supervised by the Office of the Comptroller of the Currency. Ponce Bank isrequired to file reports with and is subject to periodic examination by the Office of the Comptroller of the Currency. Ponce Bank is required to payassessments to the Office of the Comptroller of the Currency to fund the agency’s operations. PDL Community Bancorp is required to file reportswith and is subject to periodic examination by the Federal Reserve Board. It is also required to pay assessments to the Federal Reserve Board tofund the agency’s operations.Capital Requirements. Federal regulations require FDIC-insured depository institutions, including federal savings associations, to meetseveral minimum capital standards: a common equity Tier 1 capital to risk-based assets ratio, a Tier 1 capital to risk-based assets ratio, a totalcapital to risk-based assets and a Tier 1 capital to total assets leverage ratio. The existing capital requirements were effective January 1, 2015and are the result of a final rule implementing regulatory amendments based on recommendations of the Basel Committee on Banking Supervisionand certain requirements of the Dodd-Frank Act.The capital standards require the maintenance of common equity Tier 1 capital, Tier 1 capital and total capital to risk-weighted assets of atleast 4.5%, 6.0% and 8.0%, respectively. The regulations also establish a minimum required leverage ratio of at least 4% Tier 1 capital. Commonequity Tier 1 capital is generally defined as common stockholders’ equity and retained earnings. Tier 1 capital is generally defined as commonequity Tier 1 and Additional Tier 1 capital. Additional Tier 1 capital generally includes certain noncumulative perpetual preferred stock and relatedsurplus and minority interests in equity accounts of consolidated subsidiaries. Total capital includes Tier 1 capital (common equity Tier 1 capitalplus Additional Tier 1 capital) and Tier 2 capital. Tier 2 capital is comprised of capital instruments and related surplus meeting specifiedrequirements, and may include cumulative preferred stock and long-term perpetual preferred stock, mandatory convertible securities, intermediatepreferred stock and subordinated debt. Also included in Tier 2 capital is the allowance for loan and lease losses limited to a maximum of 1.25% ofrisk-weighted assets and, for institutions that have exercised an opt-out election regarding the treatment of Accumulated Other ComprehensiveIncome (“AOCI”), up to 45% of net unrealized gains on available-for-sale equity securities with readily determinable fair market values. In 2015,Ponce De Leon Federal Bank, the predecessor of Ponce Bank, made a one-time, permanent election to opt-out regarding the treatment of AOCI.Institutions that have not exercised the AOCI opt-out have AOCI incorporated into common equity Tier 1 capital (including unrealized gains andlosses on available-for-sale-securities). Calculation of all types of regulatory capital is subject to deductions and adjustments specified in theregulations.In determining the amount of risk-weighted assets for purposes of calculating risk-based capital ratios, an institution’s assets, includingcertain off-balance sheet assets (e.g., recourse obligations, direct credit substitutes, residual interests), are multiplied by a risk weight factorassigned by the regulations based on the risk deemed inherent in the type of asset. Higher levels of capital are required for asset categoriesbelieved to present greater risk. For example, a risk weight of 0.0% is assigned to cash and U.S. government securities, a risk weight of 50.0% isgenerally assigned to prudently underwritten first lien one-to-four family residential mortgages, a risk weight of 100.0% is assigned to commercialand consumer loans, a risk weight of 150.0% is assigned to certain past due loans and a risk weight of between 0.0% to 600.0% is assigned topermissible equity interests, depending on certain specified factors.In addition to establishing the minimum regulatory capital requirements, the regulations limit capital distributions and certain discretionarybonus payments to management if the institution does not hold a “capital conservation buffer” consisting of 2.5% of common equity Tier 1 capitalto risk-weighted assets above the amount necessary to meet its minimum risk-based capital requirements. The capital conservation bufferrequirement began phasing in starting January 1, 2016 at 0.625% of risk-weighted assets and increasing each year until fully implemented at 2.5%on January 1, 2019.25At December 31, 2017, 2016, and 2015, Ponce Bank’s capital exceeded all applicable requirements. 2017 2016 2015 (In thousands) Amount Ratio Amount Ratio Amount Ratio Tier 1 leverage capital $132,577 14.67% $99,240 13.32% $97,764 13.67%Requirement 45,190 5.00% 37,256 5.00% 35,755 5.00%Excess 87,387 9.67% 61,984 8.32% 62,009 8.67% Tier 1 risk-based 132,577 19.48% 99,240 17.96% 97,764 19.46%Requirement 54,447 8.00% 44,217 8.00% 40,197 8.00%Excess 78,130 11.48% 55,023 9.96% 57,567 11.46% Total Risk Based 141,120 20.73% 106,190 19.21% 104,085 20.72%Requirement 68,059 10.00% 55,271 10.00% 50,246 10.00%Excess 73,061 10.73% 50,919 9.21% 53,839 10.72% Common equity Tier 1 132,577 19.48% 99,240 19.21% 97,764 19.46%Risk-Based Requirement 44,238 6.50% 35,926 6.50% 32,660 6.50%Excess $88,339 12.98% $63,314 12.71% $65,104 12.96% Loans-to-One Borrower. Generally, a federal savings association may not make a loan or extend credit to a single or related group ofborrowers in excess of 15.0% of unimpaired capital and surplus. An additional amount may be lent, equal to 10.0% of unimpaired capital andsurplus, if secured by “readily marketable collateral,” which generally includes certain financial instruments (but not real estate). As ofDecember 31, 2017, Ponce Bank was in compliance with the loans-to-one borrower limitations. Standards for Safety and Soundness. Federal law requires each federal banking agency to prescribe certain standards for all insureddepository institutions. These standards relate to, among other things, internal controls, information systems and audit systems, loandocumentation, credit underwriting, interest rate risk exposure, asset growth, compensation and other operational and managerial standards as theagency deems appropriate. Interagency guidelines set forth the safety and soundness standards that the federal banking agencies use to identifyand address problems at insured depository institutions before capital becomes impaired. If the appropriate federal banking agency determines thatan institution fails to meet any standard prescribed by the guidelines, the agency may require the institution to submit to the agency an acceptableplan to achieve compliance with the standard. Failure to implement such a plan can result in further enforcement action, including the issuance ofa cease and desist order or the imposition of civil money penalties.Prompt Corrective Action Regulations. Under the federal Prompt Corrective Action statute, the Office of the Comptroller of the Currencyis required to take supervisory actions against undercapitalized institutions under its jurisdiction, the severity of which depends upon theinstitution’s level of capital. An institution that has a total risk-based capital ratio of less than 8.0%, a Tier 1 risk-based capital ratio of less than6.0%, a common equity Tier 1 ratio of less than 4.5% or a leverage ratio of less than 4.0% is considered to be “undercapitalized.” A savingsinstitution that has total risk-based capital of less than 6.0%, a Tier 1 risk-based capital ratio of less than 4.0%, a common equity Tier 1 ratio ofless than 3.0% or a leverage ratio that is less than 3.0% is considered to be “significantly undercapitalized.” A savings institution that has atangible capital to assets ratio equal to or less than 2.0% is deemed to be “critically undercapitalized.”Generally, the Office of the Comptroller of the Currency is required to appoint a receiver or conservator for a federal savings association thatbecomes “critically undercapitalized” within specific time frames. The regulations also provide that a capital restoration plan must be filed with theOffice of the Comptroller of the Currency within 45 days of the date that a federal savings association is deemed to have received notice that it is“undercapitalized,” “significantly undercapitalized” or “critically undercapitalized.” Any holding company of a federal savings association that isrequired to submit a capital restoration plan must guarantee performance under the plan in an amount of up to the lesser of 5.0% of the savingsassociation’s assets at the time it was deemed to be undercapitalized by the Office of the Comptroller of the Currency or the amount necessary torestore the savings association to adequately capitalized status. This guarantee remains in place until the Office of the Comptroller of theCurrency notifies the savings association that it has maintained adequately capitalized status for each of four consecutive calendar quarters.Institutions that are undercapitalized become subject to certain mandatory measures such as restrictions on capital distributions and asset growth.The Office of the Comptroller of the Currency may also take any one of a number of discretionary supervisory actions against undercapitalizedfederal savings associations, including the issuance of a capital directive and the replacement of senior executive officers and directors.26At December 31, 2017, Ponce Bank met the criteria for being considered “well capitalized,” which means that its total risk-based capitalratio exceeded 10.0%, its Tier 1 risk-based ratio exceeded 8.0%, its common equity Tier 1 ratio exceeded 6.5% and its leverage ratio exceeded5.0%.Qualified Thrift Lender Test. As a federal savings association, Ponce Bank must satisfy the qualified thrift lender, or “QTL,” test. Underthe QTL test, Ponce Bank must maintain at least 65% of its “portfolio assets” in “qualified thrift investments” (primarily residential mortgages andrelated investments, including mortgage-backed securities) in at least nine months of every 12-month period. “Portfolio assets” generally meanstotal assets of a savings association, less the sum of specified liquid assets up to 20% of total assets, goodwill and other intangible assets, andthe value of property used in the conduct of the savings association’s business.Alternatively, the Bank may satisfy the QTL test by qualifying as a “domestic building and loan association” as defined in the InternalRevenue Code.A savings association that fails the qualified thrift lender test must operate under specified restrictions set forth in the Home Owners’ LoanAct. The Dodd-Frank Act made noncompliance with the QTL test subject to agency enforcement action for a violation of law. At December 31,2017, Ponce Bank satisfied the QTL test.Capital Distributions. Federal regulations govern capital distributions by a federal savings association, which include cash dividends, stockrepurchases and other transactions charged to the savings association’s capital account. A federal savings association must file an applicationwith the Office of the Comptroller of the Currency for approval of a capital distribution if: •the total capital distributions for the applicable calendar year exceed the sum of the savings association’s net income for that year todate plus the savings association’s retained net income for the preceding two years; •the savings association would not be at least adequately capitalized following the distribution; •the distribution would violate any applicable statute, regulation, agreement or regulatory condition; or •the savings association is not eligible for expedited treatment of its filings.Even if an application is not otherwise required, every savings association that is a subsidiary of a savings and loan holding company, suchas Ponce Bank, must file a notice with the Federal Reserve Board at least 30 days before its board of directors declares a dividend.An application or notice related to a capital distribution may be disapproved if: •the federal savings association would be undercapitalized following the distribution; •the proposed capital distribution raises safety and soundness concerns; or •the capital distribution would violate a prohibition contained in any statute, regulation or agreement.In addition, the Federal Deposit Insurance Act provides that an insured depository institution shall not make any capital distribution if, aftermaking such distribution, the institution would fail to meet any applicable regulatory capital requirement. A federal savings association also maynot make a capital distribution that would reduce its regulatory capital below the amount required for the liquidation account established inconnection with its conversion to stock form.Community Reinvestment Act and Fair Lending Laws. All federal savings associations have a responsibility under the CommunityReinvestment Act and related regulations to help meet the credit needs of their communities, including low- and moderate-income borrowers. Inconnection with its examination of a federal savings association, the Office of the Comptroller of the Currency is required to assess the federalsavings association’s record of compliance with the Community Reinvestment Act. A savings association’s failure to comply with the provisions ofthe Community Reinvestment Act could, at a minimum, result in denial of certain corporate applications, such as branches or mergers, or inrestrictions on its activities. In addition, the Equal Credit Opportunity Act and the Fair Housing Act prohibit lenders from discriminating in theirlending practices on the basis of characteristics specified in those statutes. The failure to comply with the Equal Credit Opportunity Act and theFair Housing Act could result in enforcement actions by the Office of the Comptroller of the Currency, as well as other federal regulatory agenciesand the Department of Justice.27The Community Reinvestment Act requires all institutions insured by the FDIC to publicly disclose their rating. Ponce De Leon FederalBank, the predecessor to Ponce Bank, received a “satisfactory” Community Reinvestment Act rating in its most recent federal examination.Transactions with Related Parties. A federal savings association’s authority to engage in transactions with its affiliates is limited bySections 23A and 23B of the Federal Reserve Act and federal regulation. An affiliate is generally a company that controls, or is under commoncontrol with an insured depository institution such as Ponce Bank. PDL Community Bancorp is an affiliate of Ponce Bank because of its control ofthe Bank. In general, transactions between an insured depository institution and its affiliates are subject to certain quantitative limits and collateralrequirements. In addition, federal regulations prohibit a savings association from lending to any of its affiliates that are engaged in activities thatare not permissible for bank holding companies and from purchasing the securities of any affiliate, other than a subsidiary. Finally, transactionswith affiliates must be consistent with safe and sound banking practices, not involve the purchase of low-quality assets and be on terms that areas favorable to the institution as comparable transactions with non-affiliates.The Bank’s authority to extend credit to its directors, executive officers and 10.0% stockholders, as well as to entities controlled by suchpersons, is currently governed by the requirements of Sections 22(g) and 22(h) of the Federal Reserve Act and Regulation O of the FederalReserve Board. Among other things, these provisions generally require that extensions of credit to insiders: •be made on terms that are substantially the same as, and follow credit underwriting procedures that are not less stringent than thoseprevailing for comparable transactions with unaffiliated persons and that do not involve more than the normal risk of repayment or presentother unfavorable features; and •not exceed certain limitations on the amount of credit extended to such persons, individually and in the aggregate, which limits arebased, in part, on the amount of Ponce Bank’s capital.In addition, extensions of credit in excess of certain limits must be approved by the Bank’s Board of Directors. Extensions of credit toexecutive officers are subject to additional limits based on the type of extension involved. Enforcement. The Office of the Comptroller of the Currency has primary enforcement responsibility over federal savings associations andhas authority to bring enforcement action against all “institution-affiliated parties,” including directors, officers, stockholders, attorneys, appraisersand accountants who knowingly or recklessly participate in wrongful action likely to have an adverse effect on a federal savings association.Formal enforcement action by the Office of the Comptroller of the Currency may range from the issuance of a capital directive or cease and desistorder to removal of officers and/or directors of the institution to the appointment of a receiver or conservator. Civil penalties cover a wide range ofviolations and actions, and range up to $25,000 per day, unless a finding of reckless disregard is made, in which case penalties may be as high as$1.0 million per day. The FDIC also has the authority to terminate deposit insurance or recommend to the Office of the Comptroller of the Currencythat enforcement action be taken with respect to a particular savings association. If such action is not taken, the FDIC has authority to take theaction under specified circumstances.Insurance of Deposit Accounts. The Deposit Insurance Fund of the FDIC insures deposits at FDIC insured financial institutions such asPonce Bank. Deposit accounts in the Bank are insured by the FDIC generally up to a maximum of $250,000 per separately insured depositor andup to a maximum of $250,000 for self-directed retirement accounts.The FDIC charges insured depository institutions premiums to maintain the Deposit Insurance Fund. Under the FDIC’s previous risk-basedassessment system, insured institutions were assigned a risk category based on supervisory evaluations, regulatory capital levels and certainother factors. An institution’s rate depended upon the category to which it was assigned, and certain adjustments specified by FDIC regulations.Institutions deemed less risky paid lower FDIC assessments. The Dodd-Frank Act required the FDIC to revise its procedures to base itsassessments upon each insured institution’s total assets less tangible equity instead of deposits. The FDIC has set the assessment range at 2.5to 45 basis points of total assets less tangible equity.Effective July 1, 2016, the FDIC adopted changes that eliminated the risk categories. Assessments for most institutions are now based onfinancial measures and supervisory ratings derived from statistical modeling estimating the probability of failure within three years. In conjunctionwith the Deposit Insurance Fund reserve ratio achieving 1.5%, the assessment range (inclusive of possible adjustments) was reduced for mostbanks and savings associations anywhere from 1.5 basis points to 30 basis points.28In addition to the FDIC assessments, the Financing Corporation (“FICO”) is authorized to impose and collect, with the approval of the FDIC,assessments for anticipated payments, issuance costs and custodial fees on bonds issued by FICO in the 1980s to recapitalize the formerFederal Savings and Loan Insurance Corporation. The bonds issued by FICO are due to mature in 2017 through 2019. For the year endedDecember 31, 2017, the annualized FICO assessment was equal to 0.54 basis points of total assets less tangible capital.The FDIC has authority to increase insurance assessments. Any significant increases would have an adverse effect on the operatingexpenses and results of operations of the Bank. Management cannot predict what assessment rates will be in the future.Insurance of deposits may be terminated by the FDIC upon a finding that an institution has engaged in unsafe or unsound practices, is in anunsafe or unsound condition to continue operations or has violated any applicable law, regulation, rule, order or condition imposed by the FDIC. Wedo not currently know of any practice, condition or violation that may lead to termination of our deposit insurance. OTHER REGULATIONS Federal Reserve System Federal Reserve Board regulations require depository institutions to maintain reserves against their transaction accounts (primarily NOWand regular checking accounts). The regulations generally require that reserves be maintained against aggregate transaction accounts as follows:for that portion of transaction accounts aggregating $115.1 million or less (which may be adjusted by the Federal Reserve Board) the reserverequirement is 3.0% and the amounts greater than $115.1 million require a 10.0% reserve (which may be adjusted annually by the Federal ReserveBoard between 8.0% and 14.0%). The first $15.5 million of otherwise reservable balances (which may be adjusted by the Federal Reserve Board)are exempted from the reserve requirements. Ponce Bank is in compliance with these requirements. Federal Home Loan Bank System Ponce Bank is a member of the Federal Home Loan Bank System, which consists of 11 regional Federal Home Loan Banks. The FederalHome Loan Bank System provides a central credit facility primarily for member institutions as well as other entities involved in home mortgagelending. As a member of the Federal Home Loan Bank of New York, the Bank is required to acquire and hold shares of capital stock in the FederalHome Loan Bank of New York. As of December 31, 2017, Ponce Bank was in compliance with this requirement. Ponce Bank may utilizeadvances from the Federal Home Loan Bank of New York as a supply of investable funds. Other Regulations Interest and other charges collected or contracted for by Ponce Bank are subject to state usury laws and federal laws concerning interestrates. Ponce Bank’s operations are also subject to federal laws applicable to credit transactions, such as the: •Truth-In-Lending Act, governing disclosures of credit terms to consumer borrowers; •Home Mortgage Disclosure Act, requiring financial institutions to provide information to enable the public and public officials to determinewhether a financial institution is fulfilling its obligation to help meet the housing needs of the community it serves; •Equal Credit Opportunity Act, prohibiting discrimination on the basis of race, creed or other prohibited factors in extending credit; •Fair Credit Reporting Act, governing the use and provision of information to credit reporting agencies; •Fair Debt Collection Act, governing the manner in which consumer debts may be collected by collection agencies; •Truth in Savings Act; and29 •Rules and regulations of the various federal agencies charged with the responsibility of implementing such federal laws. The operations of Ponce Bank will be subject to the: •Right to Financial Privacy Act, which imposes a duty to maintain confidentiality of consumer financial records and prescribes proceduresfor complying with administrative subpoenas of financial records; •Electronic Funds Transfer Act and Regulation E promulgated thereunder, which govern automatic deposits to and withdrawals fromdeposit accounts and customers’ rights and liabilities arising from the use of automated teller machines and other electronic bankingservices; •Check Clearing for the 21st Century Act (also known as “Check 21”), which gives “substitute checks,” such as digital check images andcopies made from that image, the same legal standing as the original paper check; •The USA PATRIOT Act, which requires savings associations to, among other things, establish broadened anti-money launderingcompliance programs, and due diligence policies and controls to ensure the detection and reporting of money laundering. Such requiredcompliance programs are intended to supplement existing compliance requirement that also apply to financial institutions under the BankSecrecy Act and the Foreign Assets Control regulations; and •The Gramm-Leach-Bliley Act, which places limitations on the sharing of consumer financial information by financial institutions withunaffiliated third parties. Specifically, the Gramm-Leach-Bliley Act requires all financial institutions offering financial products or servicesto retail customers to provide such customers with the financial institution’s privacy policy and provide such customers the opportunity to“opt out” of the sharing of certain personal financial information with unaffiliated third parties.Holding Company Regulations General. PDL Community Bancorp and Ponce Bank Mutual Holding Company are non-diversified savings and loan holding companieswithin the meaning of the Home Owners’ Loan Act. As such, PDL Community Bancorp and Ponce Bank Mutual Holding Company are registeredwith the Federal Reserve Board and are subject to the regulation, examination, supervision and reporting requirements applicable to savings andloan holding companies. In addition, the Federal Reserve Board has enforcement authority over PDL Community Bancorp, Ponce Bank MutualHolding Company and its non-savings association subsidiaries, if any. Among other things, this authority permits the Federal Reserve Board torestrict or prohibit activities that are determined to be a serious risk to the subsidiary savings institution. Permissible Activities. Under present law, the business activities of PDL Community Bancorp and Ponce Bank Mutual Holding Companyare generally limited to those activities permissible for financial holding companies under Section 4(k) of the Bank Holding Company Act of 1956,as amended, provided certain conditions are met, and financial holding company status is elected, or for multiple savings and loan holdingcompanies. A financial holding company may engage in activities that are financial in nature, including underwriting equity securities and insuranceas well as activities that are incidental to financial activities or complementary to a financial activity. A multiple savings and loan holding companyis generally limited to activities permissible for bank holding companies under Section 4(c)(8) of the Bank Holding Company Act, subject toregulatory approval, and certain additional activities authorized by federal regulations. PDL Community Bancorp and Ponce Bank Mutual HoldingCompany did not elect financial holding company status. Federal law prohibits a savings and loan holding company, including PDL Community Bancorp and Ponce Bank Mutual Holding Company,directly or indirectly, or through one or more subsidiaries, from acquiring more than 5.0% of another savings institution or savings and loan holdingcompany, without prior Federal Reserve Board approval. In evaluating applications by holding companies to acquire savings institutions, theFederal Reserve Board considers factors such as the financial and managerial resources, future prospects of the company and institutioninvolved, the effect of the acquisition on the risk to the Federal Deposit Insurance Fund, the convenience and needs of the community, andcompetitive factors. 30The Federal Reserve Board is prohibited from approving any acquisition that would result in a multiple savings and loan holding companycontrolling savings institutions in more than one state, subject to two exceptions: •the approval of interstate supervisory acquisitions by savings and loan holding companies; and •the acquisition of a savings institution in another state if the laws of the state of the target savings institution specifically permit suchacquisition. Capital. Savings and loan holding companies have historically not been subjected to consolidated regulatory capital requirements. TheDodd-Frank Act required the Federal Reserve Board to establish minimum consolidated capital requirements that are as stringent as those requiredfor the insured depository subsidiaries. However, pursuant to legislation passed in December 2014, the Federal Reserve Board extended tosavings and loan holding companies the applicability of the “Small Bank Holding Company” exception to its consolidated capital requirements andincreased the threshold for the exception from $500 million of assets to $1.0 billion, effective May 15, 2015. As a result, savings and loan holdingcompanies with less than $1.0 billion in consolidated assets are generally not subject to the capital requirements unless otherwise advised by theFederal Reserve Board. Source of Strength. The Dodd-Frank Act extended the “source of strength” doctrine to savings and loan holding companies. The FederalReserve Board has issued regulations requiring that all savings and loan holding companies serve as a source of strength to their subsidiarydepository institutions. Dividends and Stock Repurchases. The Federal Reserve Board has issued a policy statement regarding the payment of dividends byholding companies. In general, the policy provides that dividends should be paid only out of current earnings and only if the prospective rate ofearnings retention by the holding company appears consistent with the organization’s capital needs, asset quality and overall supervisory financialcondition. Separate regulatory guidance provides for prior consultation with Federal Reserve Bank staff concerning dividends in certaincircumstances such as where the company’s net income for the past four quarters, net of dividends previously paid over that period, is insufficientto fully fund the dividend or the company’s overall rate of earnings retention is inconsistent with the company’s capital needs and overall financialcondition. The ability of a savings and loan holding company to pay dividends may be restricted if a subsidiary savings association becomesundercapitalized. The regulatory guidance also states that a savings and loan holding company should inform Federal Reserve Bank supervisorystaff prior to redeeming or repurchasing common stock or perpetual preferred stock if the savings and loan holding company is experiencingfinancial weaknesses or the repurchase or redemption would result in a net reduction, at the end of a quarter, in the amount of such equityinstruments outstanding compared with the beginning of the quarter in which the redemption or repurchase occurred. These regulatory policies mayaffect the ability of PDL Community Bancorp to pay dividends, repurchase shares of common stock or otherwise engage in capital distributions. Waivers of Dividends by Ponce Bank Mutual Holding Company. PDL Community Bancorp may pay dividends on its common stock topublic stockholders. If it does, it is also required to pay dividends to Ponce Bank Mutual Holding Company, unless Ponce Bank Mutual HoldingCompany elects to waive the receipt of dividends. Under the Dodd-Frank Act, Ponce Bank Mutual Holding Company must receive the approval ofthe Federal Reserve Board before it may waive the receipt of any dividends from PDL Community Bancorp. The Federal Reserve Board hasissued an interim final rule providing that it will not object to dividend waivers under certain circumstances, including circumstances where thewaiver is not detrimental to the safe and sound operation of the savings association and a majority of the mutual holding company’s membershave approved the waiver of dividends by the mutual holding company within the previous twelve months. In addition, for a “non-grandfathered”mutual holding company such as Ponce Bank Mutual Holding Company, each officer or director of PDL Community Bancorp and Ponce Bank, andany tax-qualified stock benefit plan or non-tax-qualified stock benefit plan in which such individual participates that holds any shares of stock towhich the waiver would apply, must waive the right to receive any such dividend declared. In addition, any dividends waived by Ponce BankMutual Holding Company must be considered in determining an appropriate exchange ratio in the event of a conversion of the mutual holdingcompany to stock form. 31Acquisition. Under the Federal Change in Bank Control Act, a notice must be submitted to the Federal Reserve Board if any person(including a company), or group acting in concert, seeks to acquire direct or indirect “control” of a savings and loan holding company. Under certaincircumstances, a change of control may occur, and prior notice is required, upon the acquisition of 10% or more of the company’s outstandingvoting stock, unless the Federal Reserve Board has found that the acquisition will not result in control of the company. A change in controldefinitively occurs upon the acquisition of 25% or more of the company’s outstanding voting stock. Under the Change in Bank Control Act, theFederal Reserve Board generally has 60 days from the filing of a complete notice to act, taking into consideration certain factors, including thefinancial and managerial resources of the acquirer and the competitive effects of the acquisition.Federal Securities Laws PDL Community Bancorp’s common stock is registered with the Securities and Exchange Commission under the Securities Exchange Actof 1934, as amended. PDL Community Bancorp is subject to the information, proxy solicitation, insider trading restrictions and other requirementsunder the Securities Exchange Act of 1934. Emerging Growth Company StatusThe Jumpstart Our Business Startups Act (the “JOBS Act”), which was enacted in April 2012, has made numerous changes to the federalsecurities laws to facilitate access to capital markets. Under the JOBS Act, a company with total annual gross revenues of less than $1.0 billionduring its most recently completed fiscal year qualifies as an “emerging growth company.” PDL Community Bancorp qualifies as an emerginggrowth company under the JOBS Act.An “emerging growth company” may choose not to hold stockholder votes to approve annual executive compensation (more frequentlyreferred to as “say-on-pay” votes) or executive compensation payable in connection with a merger (more frequently referred to as “say-on-goldenparachute” votes). An emerging growth company also is not subject to the requirement that its auditors attest to the effectiveness of thecompany’s internal control over financial reporting, and can provide scaled disclosure regarding executive compensation. PDL Community Bancorpwill also not be subject to the auditor attestation requirement or additional executive compensation disclosure so long as it remains a “smallerreporting company” under Securities and Exchange Commission regulations (generally less than $75 million of voting and non-voting equity held bynon-affiliates). Finally, an emerging growth company may elect to comply with new or amended accounting pronouncements in the same manneras a private company, but must make such election when the company is first required to file a registration statement. Such an election isirrevocable during the period a company is an emerging growth company. PDL Community Bancorp has elected to comply with new or amendedaccounting pronouncements in the same manner as a private company.A company loses emerging growth company status on the earlier of: (i) the last day of the fiscal year of the company during which it hadtotal annual gross revenues of $1.0 billion or more; (ii) the last day of the fiscal year of the issuer following the fifth anniversary of the date of thefirst sale of common equity securities of the company pursuant to an effective registration statement under the Securities Act of 1933; (iii) the dateon which such company has, during the previous three-year period, issued more than $1.0 billion in non-convertible debt; or (iv) the date on whichsuch company is deemed to be a “large accelerated filer” under Securities and Exchange Commission regulations (generally, at least $700 millionof voting and non-voting equity held by non-affiliates). TaxationPonce Bank Mutual Holding Company, PDL Community Bancorp and Ponce Bank are subject to federal and state income taxation in thesame general manner as other corporations, with some exceptions discussed below. The following discussion of federal and state taxation isintended only to summarize material income tax matters and is not a comprehensive description of the tax rules applicable to Ponce Bank MutualHolding Company, PDL Community Bancorp, and Ponce Bank.Our federal and state tax returns have not been audited for the past five years.32Federal TaxationMethod of Accounting. For federal income tax purposes, Ponce Bank currently reports its income and expenses on the accrual method ofaccounting and uses a tax year ending December 31 for filing its federal income tax returns. PDL Community Bancorp and Ponce Bank file aconsolidated federal income tax return. The Small Business Protection Act of 1996 eliminated the use of the reserve method of accounting forincome taxes on bad debt reserves by savings institutions. For taxable years beginning after 1995, the Bank has been subject to the same baddebt reserve rules as commercial banks. It currently utilizes the specific charge-off method under Section 582(a) of the Internal Revenue Code.Net Operating Loss Carryovers. Generally, a financial institution may carry back net operating losses to the preceding two taxable yearsand forward to the succeeding 20 taxable years. At December 31, 2017, Ponce Bank had no federal net operating loss carryforwards. Starting in2018, due to Tax Cuts and Jobs Act (“TCJA”), net operating losses incurred after 2017 can be carried forward indefinitely, but can only offset nomore than 80% of taxable income. State TaxationPonce Bank will be treated as a financial institution under New York and New Jersey state income tax law. The states of New York and NewJersey subject financial institutions to all state and local taxes in the same manner and to the same extent as other business corporations in NewYork and New Jersey. Additionally, depository financial institutions are subject to local business license taxes and a special occupation tax.Consolidated Group Return. With tax years beginning after January 1, 2015, New York State and New York City require unitary combinedreporting for all entities engaged in a unitary business that meet certain ownership requirements. All applicable entities meet the ownershiprequirements in the Bank filing group and a combined return is appropriately filed. Furthermore, New Jersey is not a unitary business state.Affiliated corporations that file a consolidated federal income tax return must file separate income tax returns unless they have prior approval orhave been requested to file a consolidated return by the Commissioner of the New Jersey Department of Revenue.Net Operating Loss Carryovers. The state and city of New York allow for a three-year carryback period and carryforward period of twentyyears on net operating losses generated on or after tax year 2015. For tax years prior to 2015, no carryback period is allowed. Ponce De LeonFederal Bank, the predecessor of Ponce Bank, has pre-2015 carryforwards of $1.9 million for New York State purposes and $1.8 million for NewYork City purposes. Furthermore, there are post-2015 carryforwards available of $21.3 million for New York State purposes and $12.3 million forNew York City purposes. Finally, for New Jersey purposes, losses may only be carried forward 20 years, with no allowable carryback period. AtDecember 31, 2017, Ponce Bank had no New Jersey net operating loss carryforwards. Item 1A. Risk Factors. Multifamily, nonresidential and construction and land loans may carry greater credit risk than loans secured by owner-occupied, one-to-four family real estate. Our focus is primarily on prudently growing our multifamily, nonresidential and construction and land loan portfolio. At December 31, 2017,$407.0 million, or 50.3%, of our loan portfolio consisted of multifamily, nonresidential and construction and land loans as compared to $310.0million, or 47.6%, of our loan portfolio at December 31, 2016. Given their larger balances and the complexity of the underlying collateral,multifamily, nonresidential and construction and land loans generally expose a lender to greater credit risk than loans secured by owner-occupiedone-to-four family real estate. Consequently, an adverse development with respect to one loan or one credit relationship can expose us to significantly greater risk of losscompared to an adverse development with respect to an owner-occupied one-to-four family residential real estate loan. In addition, any adversedevelopments with respect to borrowers or groups of borrowers that have more than one of these types of loans outstanding can expose us tosignificantly greater risk of loss compared to borrowers or groups of borrowers that only have one type of these loans. If loans that arecollateralized by real estate or other business assets become troubled and the value of the collateral has been significantly impaired, then we maynot be able to recover the full contractual amount of principal and interest that we anticipated at the time we originated the loan, which could causeus to increase our provision for loan losses which would, in turn, adversely affect our operating results and financial condition. Further, if weforeclose on the collateral, our holding period for the collateral may be longer than for one-to-four family real estate loans because there are fewerpotential purchasers of the collateral, which can result in substantial holding costs. 33Some of our borrowers have more than one of these types of loans outstanding. At December 31, 2017, 383 loans with an aggregatebalance of $317.8 million are to borrowers with only one loan. Another 98 loans are to borrowers with more than one loan with a correspondingaggregate balance of $88.9 million. The 98 loans are held by 35 borrowers of which 23 borrowers account for two loans each with an aggregatebalance of $38.4 million; 6 borrowers account for 3 loans each with an aggregate balance of $19.2 million; 3 borrowers account for 4 loans eachwith an aggregate balance of $16.0 million. One borrower accounts for eleven loans with an aggregate outstanding balance of $1.8 million. The unseasoned nature of our multifamily, nonresidential and construction and land loans portfolio may result in changes to ourestimates of collectability, which may lead to additional provisions or charge-offs, which could hurt our profits. Our multifamily, nonresidential and construction and land loan portfolio has increased approximately $96.9 million, or 31.3%, from $310.0million at December 31, 2016 to $407.0 million at December 31, 2017 and increased approximately $57.8 million, or 22.9%, from $252.2 million atDecember 31, 2015 to $310.0 million at December 31, 2016. A large portion of our multifamily, nonresidential and construction and land loanportfolio is unseasoned and does not provide us with a significant payment or charge-off history pattern from which to judge future collectability.Currently, we estimate potential charge-offs using a rolling 12 quarter average and peer data adjusted for qualitative factors specific to us. As aresult, it may be difficult to predict the future performance of this part of our loan portfolio. These loans may have delinquency or charge-off levelsabove our historical experience or current estimates, which could adversely affect our future performance. Further, these types of loans generallyhave larger balances and involve a greater risk than one-to-four family owner-occupied residential mortgage loans. Accordingly, if we make anyerrors in judgment in the collectability of our multifamily, nonresidential and construction and land loans, any resulting charge-offs may be larger ona per loan basis than those incurred historically with our residential mortgage loans. Our business may be adversely affected by credit risk associated with residential property. At December 31, 2017 and 2016, one-to-four family residential real estate loans amounted to $388.0 million and $325.0 million, or 48.0%and 49.9%, respectively, of our total loan portfolio. Of this, $287.2 million and $227.4 million, or 74.0% and 70.0%, respectively, is comprised ofone-to-four family residential investor properties. One-to-four family residential mortgage lending, whether owner-occupied or non-owner occupied isgenerally sensitive to regional and local economic conditions that significantly impact the ability of borrowers to meet their loan paymentobligations. Declines in real estate values could cause some of our one-to-four family mortgages to be inadequately collateralized, which wouldexpose us to a greater risk of loss if we seek to recover on defaulted loans by selling the real estate collateral. One-to-four family residential mortgage lending, whether owner-occupied or non-owner-occupied, with combined higher loan-to-value ratiosare more sensitive to declining property values than those with lower combined loan-to-value ratios and therefore may experience a higherincidence of default and severity of losses. In addition, if the borrowers sell their properties, they may be unable to repay their loans in full from thesale proceeds. For those home equity loans and lines of credit secured by a second mortgage, it is unlikely that we will be successful inrecovering all or a portion of our loan proceeds in the event of default unless we are prepared to repay the first mortgage loan and such repaymentand the costs associated with a foreclosure are justified by the value of the property. In addition, the current judicial and legal climate makes itdifficult to foreclose on residential properties expeditiously and with reasonable costs. For these reasons, we may experience higher rates ofdelinquencies, default and losses on our one-to-four family loans. The geographic concentration of our loan portfolio and lending activities makes us vulnerable to a downturn in the local economy. Although there is not a single employer or industry in our market area on which a significant number of our customers are dependent, asubstantial portion of our loan portfolio is composed of loans secured by property located in the greater New York metropolitan area. This canmake us vulnerable to a downturn in the local economy and real estate markets. Adverse conditions in the local economy, such as unemployment,recession, a catastrophic event or other factors beyond our control, could impact the ability of our borrowers to repay their loans, which couldadversely impact our net interest income. Decreases in local real estate values caused by economic conditions or other events could adverselyaffect the value of the property used as collateral for our loans, which could cause us to realize a loss in the event of a foreclosure. See“Business - Market Area” and “- Competition.” 34If our allowance for loan losses is not sufficient to cover actual loan losses, our earnings and capital could decrease. At December 31, 2017 and 2016, respectively, our allowance for loan losses totaled $11.1 million and $10.2 million, which represented1.37%, and 1.57% of total loans at such dates. We make various assumptions and judgments about the collectability of our loan portfolio,including the creditworthiness of our borrowers and the value of the real estate and other assets serving as collateral for many of our loans. Indetermining the amount of the allowance for loan losses, we review our loans, loss and delinquency experience, and business and commercial realestate peer data and we evaluate other factors including, but not limited to, current economic conditions. If our assumptions are incorrect, or ifdelinquencies or non-performing loans increase, our allowance for loan losses may not be sufficient to cover losses inherent in our loan portfolio,which would require additions to our allowance, which in turn, could materially decrease our net income. In addition, our regulators, as well as internal and external auditors, as an integral part of their examination process, periodically review theallowance for loan losses and, as a result of such reviews, we may determine that it is appropriate to increase the allowance for loan losses byrecognizing additional provisions for loan losses charged to income, or to charge off loans, which, net of any recoveries, would decrease theallowance for loan losses. Any such additional provisions for loan losses or charge-offs could have a material adverse effect on our financialcondition and results of operations. A worsening of economic conditions in our market area could reduce demand for our products and services and/or result in increases inour level of nonperforming loans, which could adversely affect our operations, financial condition and earnings. Local economic conditions have a significant impact on the ability of our borrowers to repay loans and the value of the collateral securingloans. Any deterioration in economic conditions could have the following consequences, any of which could have a material adverse effect on ourbusiness, financial condition, liquidity and results of operations: •demand for our products and services may decline; •loan delinquencies, problem assets and foreclosures may increase; •collateral for loans, especially real estate, may decline in value, thereby reducing customers’ future borrowing power, and reducing thevalue of assets and collateral associated with existing loans; and •the net worth and liquidity of loan guarantors may decline, impairing their ability to honor commitments to us. Moreover, a significant decline in general economic conditions caused by inflation, recession, acts of terrorism, an outbreak of hostilities orother international or domestic calamities, unemployment or other factors beyond our control could further impact these local economic conditionsand could further negatively affect the financial results of our banking operations. In addition, deflationary pressures, while possibly lowering ouroperating costs, could have a significant negative effect on our borrowers, especially our business borrowers, and the values of underlyingcollateral securing loans, which could negatively affect our financial performance. Our business strategy includes growth, and our financial condition and results of operations could be negatively affected if we fail togrow or fail to manage our growth effectively. Growing our operations could also cause our expenses to increase faster than ourrevenues. Our business strategy includes growth in assets, loans, deposits and the scale of our operations. Achieving such growth will require us toattract customers that currently bank at other financial institutions in our market area. Our ability to successfully grow will depend on a variety offactors, including our ability to attract and retain experienced bankers, the continued availability of desirable business opportunities, competitionfrom other financial institutions in our market area and our ability to manage our growth. Growth opportunities may not be available or we may notbe able to manage our growth successfully. If we do not manage our growth effectively, our financial condition and operating results could benegatively affected. Furthermore, there can be considerable costs involved in expanding deposit and lending capacity that generally require aperiod of time to generate the necessary revenues to offset their costs, especially in areas in which we do not have an established presence andrequire alternative delivery methods. Accordingly, any such business expansion can be expected to negatively impact our earnings for someperiod of time until certain economies of scale are reached. Our expenses could be further increased if we encounter delays in modernizingexisting facilities, opening of new branches or deploying new services.35 We depend on our management team to implement our business strategy and execute successful operations and we could be harmed bythe loss of their services. We are dependent upon the services of the members of our senior management team who direct our strategy and operations. Members ofour senior management team, or lending personnel who possess expertise in our markets and key business relationships, could be difficult toreplace. Our loss of these persons, or our inability to hire additional qualified personnel, could impact our ability to implement our business strategyand could have a material adverse effect on our results of operations and our ability to compete in our markets. See “Directors, ExecutivesOfficers, and Corporate Governance.” Adherence to our internal policies and procedures by management is critical to our performance and how we are perceived by ourregulators. Our internal policies and procedures are a critical component of our corporate governance and, in some cases, compliance with applicableregulations. We adopt internal policies and procedures to guide management and employees regarding the operation and conduct of our business.We may not always achieve absolute compliance with all of our policies and procedures. Any deviation or non-adherence to these internal policiesand procedures, whether intentional or unintentional, could have a detrimental effect on our management, operations or financial condition. Our efficiency ratio is high, and we anticipate that it may remain high, as a result of the ongoing implementation of our businessstrategy. Our non-interest expense totaled $36.6 million and $27.9 million for the years ended December 31, 2017 and 2016 respectively. Although wecontinue to analyze our expenses and pursue efficiencies where available, our efficiency ratio remains high as a result of the implementation of ourbusiness strategy combined with operating in an expensive market. Our efficiency ratio was 103.5% and 92.2% for the years ended December 31,2017 and 2016, respectively. If we are unable to successfully implement our business strategy and increase our revenues, our profitability couldbe adversely affected. A continuation of the historically low interest rate environment and the possibility that we may access higher-cost funds to support ourloan growth and operations may adversely affect our net interest income and profitability. In recent years the Federal Reserve Board’s policy has been to maintain interest rates at historically low levels through its targeted federalfunds rate and the purchase of mortgage-backed securities. Recently, the Federal Reserve Board has indicated that it believes a gradual increasein the targeted federal funds rate is appropriate. To this end, the Federal Reserve Board raised the targeted federal funds rate in December 2016,March 2017, June 2017, December 2017 and March 2018. We cannot make any representation as to whether, or how many times, the FederalReserve will increase the targeted federal funds rate in the future. Notwithstanding the Federal Reserve Board’s expressed intentions, our ability toreduce our interest expense may be limited at current interest rate levels while the average yield on our interest-earning assets may continue todecrease and our interest expense may increase as we access non-core funding sources or increase deposit rates to fund our operations. Acontinuation of a low, or relatively low, interest rate environment or our increasing cost of funds may adversely affect our net interest income,which would have an adverse effect on our profitability. Future changes in interest rates could reduce our profits and asset values. Net income is the amount by which net interest income and non-interest income exceeds non-interest expense and the provision for loanlosses. Net interest income makes up a majority of our income and is based on the difference between: •the interest income we earn on interest-earning assets, such as loans and securities; and •the interest expense we pay on interest-bearing liabilities, such as deposits and borrowings. 36The rates we earn on our assets and the rates we pay on our liabilities are generally fixed for a contractual period of time. Like manysavings institutions, our liabilities generally have shorter contractual maturities than our assets. This imbalance can create significant earningsvolatility because market interest rates change over time. In a period of rising interest rates, the interest income we earn on our assets may notincrease as rapidly as the interest we pay on our liabilities. In a period of declining interest rates, the interest income we earn on our assets maydecrease more rapidly than the interest we pay on our liabilities, as borrowers prepay mortgage loans, and mortgage-backed securities and callableinvestment securities are called, requiring us to reinvest those cash flows at lower interest rates. In addition, changes in interest rates can affect the average life of loans and mortgage-backed and related securities. A decline in interestrates results in increased prepayments of loans and mortgage-backed and related securities as borrowers refinance their debt to reduce theirborrowing costs. This creates reinvestment risk, which is the risk that we may not be able to reinvest prepayments at rates that are comparable tothe rates we earned on the prepaid loans or securities. Furthermore, an inverted interest rate yield curve, where short-term interest rates (which areusually the rates at which financial institutions borrow funds) are higher than long-term interest rates (which are usually the rates at which financialinstitutions lend funds for fixed-rate loans), can reduce a financial institution’s net interest margin and create financial risk for financial institutionswho originate longer-term, fixed rate mortgage loans. Any 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 ourearnings. We monitor interest rate risk through the use of simulation models, including estimates of the amounts by which the fair value of our assetsand liabilities (our net present value or “NPV”) and our net interest income would change in the event of a range of assumed changes in marketinterest rates. At December 31, 2017, in the event of an instantaneous 200 basis point increase in interest rates, we estimate that we wouldexperience a 7.85% decrease in NPV and a 1.51% decrease in net interest income. For further discussion of how changes in interest rates couldimpact us, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Management of Market Risk.” Changes in the valuation of securities held could adversely affect us. At December 31, 2017 and 2016, our securities portfolio totaled $28.9 million and $52.7 million, which represented 3.1% and 7.1% of totalassets, respectively. All of the securities in our portfolio are classified as available-for-sale. Accordingly, a decline in the fair value of our securitiescould cause a material decline in our reported equity and/or net income. At least quarterly, and more frequently when warranted by economic ormarket conditions, management evaluates all securities classified as available-for-sale with a decline in fair value below the amortized cost of theinvestment to determine whether the impairment is deemed to be other-than-temporary (“OTTI”). For impaired debt securities that are intended tobe sold, or more likely than not will be required to be sold, the full amount of market decline is recognized as OTTI through earnings. Credit-relatedOTTI for all other impaired debt securities is recognized through earnings. Non-credit related OTTI for such debt securities is recognized in othercomprehensive income net of applicable taxes. A decline in the market value of our securities portfolio could adversely affect our earnings. Strong competition within our market areas may limit our growth and profitability. Competition in the banking and financial services industry is intense. In our market area, we compete with commercial banks, savingsinstitutions, mortgage brokerage firms, credit unions, finance companies, mutual funds, insurance companies, and brokerage and investmentbanking firms and unregulated or less regulated non-banking entities, operating locally and elsewhere. Many of these competitors havesubstantially greater resources and higher lending limits than we have and offer certain services that we do not or cannot provide. In addition,some of our competitors offer loans with lower interest rates on more attractive terms than loans we offer. Competition also makes it increasinglydifficult and costly to attract and retain qualified employees. Our profitability depends upon our continued ability to successfully compete in ourmarket area. If we must raise interest rates paid on deposits or lower interest rates charged on our loans, our net interest margin and profitabilitycould be adversely affected. 37The financial services industry could become even more competitive as a result of new legislative, regulatory and technological changesand continued consolidation. Banks, securities firms and insurance companies can merge under the umbrella of a financial holding company,which can offer virtually any type of financial service, including banking, securities underwriting, insurance (both agency and underwriting) andmerchant banking. Also, technology has lowered barriers to entry and made it possible for non-banks to offer products and services traditionallyprovided by banks, such as automatic transfer and automatic payment systems. Many of our competitors have fewer regulatory constraints andmay have lower cost structures. Additionally, due to their size, many competitors may be able to achieve economies of scale and, as a result,may offer a broader range of products and services as well as better pricing for those products and services than we can. We expect competitionto increase in the future as a result of legislative, regulatory and technological changes and the continuing trend of consolidation in the financialservices industry. For additional information see “Business —Market Area” and “—Competition.” Our small size makes it more difficult for us to compete. Our small asset size makes it more difficult to compete with other financial institutions that are larger and can more easily afford to invest inthe marketing and technologies needed to attract and retain customers. Because our principal source of income is the net interest income we earnon our loans and investments after deducting interest paid on deposits and other sources of funds, our ability to generate the revenues needed tocover our expenses and finance such investments is limited by the size of our loan and investment portfolios. Accordingly, we are not always ableto offer new products and services as quickly as our competitors. Our lower earnings may also make it more difficult to offer competitive salariesand benefits. In addition, our smaller customer base may make it difficult to generate meaningful non-interest income from such activities assecurities and insurance brokerage. Finally, as a smaller institution, we are disproportionately affected by the continually increasing costs ofcompliance with new banking and other regulations. Changes in laws and regulations and the cost of regulatory compliance with new laws and regulations may adversely affect ouroperations and/or increase our costs of operations. Ponce Bank is subject to extensive regulation, supervision and examination by the Office of the Comptroller of the Currency, and PDLCommunity Bancorp is subject to extensive regulation, supervision and examination by the Federal Reserve Board. Such regulation andsupervision governs the activities in which our institution and its holding company may engage and are intended primarily for the protection of theFederal Deposit Insurance Fund and the depositors and borrowers of Ponce Bank, rather than for our stockholders. Regulatory authorities haveextensive discretion in their supervisory and enforcement activities, including the imposition of restrictions on our operations, the classification ofour assets and determination of the level of our allowance for loan losses. These regulations, along with existing tax, accounting, securities,insurance and monetary laws, rules, standards, policies, and interpretations, control the methods by which financial institutions conduct business,implement strategic initiatives and tax compliance, and govern financial reporting and disclosures. Any change in such regulation and oversight,whether in the form of regulatory policy, regulations, legislation or supervisory action, may have a material impact on our operations. Further,changes in accounting standards can be both difficult to predict and involve judgment and discretion in interpretation by us. These changes couldmaterially impact, potentially even retroactively, how we report our financial condition and results of operations. The Dodd-Frank Act has significantly changed the regulation of banks and savings institutions and affects the lending, deposit, investment,trading and operating activities of financial institutions and their holding companies. The Dodd-Frank Act requires various federal agencies to adopta broad range of new rules and regulations and to prepare numerous studies and reports for Congress. The federal agencies have been givensignificant discretion in drafting the implementing rules and regulations, many of which are not in final form. As a result, we cannot at this timepredict the full extent to which the Dodd-Frank Act will impact our business, operations or financial condition. However, compliance with the Dodd-Frank Act and its regulations and policies has already resulted in changes to our business and operations, as well as additional costs, and hasdiverted management’s time from other business activities, all of which have adversely affected our financial condition and results of operations.However, in February 2017, the President issued an executive order stating that a policy of his administration would be to make regulationsefficient, effective, and appropriately tailored. The executive order directed certain regulatory agencies to review and identify laws and regulationsthat inhibit federal regulation of the U.S. financial system in a manner consistent with the policies stated in the executive order. Any changes inlaws or regulation as a result of this review could result in a repeal, amendment to or delayed implementation of the Dodd-Frank Act. On March13, 2018, the U.S. Senate passed S.2155, a bipartisan regulatory reform bill. Among other provisions, the bill would increase the threshold toqualify for the Federal Reserve Board’s Small Bank Holding Company Policy Statement from $1.0 billion to $3.0 billion and also provide for charterflexibility for federally-chartered savings banks and associations to adopt the powers of a national bank. This bill still must make its way throughthe U.S. House of Representatives and no assurance can be given that these provisions will ultimately be enacted into law.38 Non-compliance with the USA PATRIOT Act, Bank Secrecy Act, or other laws and regulations could result in fines or sanctions. The USA PATRIOT and Bank Secrecy Acts require financial institutions to develop programs to prevent financial institutions from beingused for money laundering and terrorist activities. If such activities are detected, financial institutions are obligated to file suspicious activityreports with the U.S. Treasury’s Office of Financial Crimes Enforcement Network. These rules require financial institutions to establish proceduresfor identifying and verifying the identity of customers seeking to open new financial accounts. Failure to comply with these regulations could resultin fines or sanctions, including restrictions on conducting acquisitions or establishing new branches. The policies and procedures we have adoptedthat are designed to assist in compliance with these laws and regulations may not be effective in preventing violations of these laws andregulations. Our ability to originate loans could be restricted by recently adopted federal regulations. The Consumer Financial Protection Bureau has issued a rule intended to clarify how lenders can avoid legal liability under the Dodd-FrankAct, which holds lenders accountable for ensuring a borrower’s ability to repay a mortgage loan. Under the rule, loans that meet the “qualifiedmortgage” definition will be presumed to have complied with the new ability-to-repay standard. Under the rule, a “qualified mortgage” loan must notcontain certain specified features, including: •excessive upfront points and fees (those exceeding 3% of the total loan amount, less “bona fide discount points” for prime loans); •interest-only payments; •negative amortization; and •terms of longer than 30 years. Also, to qualify as a “qualified mortgage,” a loan must be made to a borrower whose total monthly debt-to-income ratio does not exceed43%. Lenders must also verify and document the income and financial resources relied upon to qualify a borrower for the loan and underwrite theloan based on a fully amortizing payment schedule and maximum interest rate during the first five years, taking into account all applicable taxes,insurance and assessments. In addition, the Dodd-Frank Act requires the Consumer Finance Protection Bureau to adopt rules and publish forms that combine certaindisclosures that consumers receive in connection with applying for and closing on certain mortgage loans under the Truth in Lending Act and theReal Estate Settlement Procedures Act. In October 2015, the Consumer Financial Protection Bureau implemented a final rule related to thisrequirement. We face significant operational risks because the financial services business involves a high volume of transactions and increasedreliance on technology, including risk of loss related to cyber security breaches. We operate in diverse markets and rely on the ability of our employees and systems to process a high number of transactions and tocollect, process, transmit and store significant amounts of confidential information regarding our customers, employees and others and concerningour own business, operations, plans and strategies. Operational risk is the risk of loss resulting from our operations, including but not limited to,the risk of fraud by employees or persons outside our company, the execution of unauthorized transactions by employees, errors relating totransaction processing and technology, systems failures or interruptions, breaches of our internal control systems and compliance requirements,and business continuation and disaster recovery. Insurance coverage may not be available for such losses, or where available, such losses mayexceed insurance limits. This risk of loss also includes the potential legal actions that could arise as a result of operational deficiencies or as aresult of non-compliance with applicable regulatory standards or customer attrition due to potential negative publicity. In addition, we outsourcesome of our data processing to certain third-party providers. If these third-party providers encounter difficulties, including as a result of cyber-attacks or information security breaches, or if we have difficulty communicating with them, our ability to adequately process and account fortransactions could be affected, and our business operations could be adversely affected. 39In the event of a breakdown in our internal control systems, improper operation of systems or improper employee actions, or a breach of oursecurity systems, including if confidential or proprietary information were to be mishandled, misused or lost, we could suffer financial loss, faceregulatory action, civil litigation and/or suffer damage to our reputation. We have become subject to more stringent capital requirements, which may adversely impact our return on equity, require us to raiseadditional capital, or limit our ability to pay dividends or repurchase shares. A capital rule, which became effective on January 1, 2015, affecting Ponce Bank, includes new minimum risk-based capital and leverageratios and refines the definition of what constitutes “capital” for calculating these ratios. The new minimum capital requirements are: (i) a newcommon equity Tier 1 capital ratio of 4.5%; (ii) a Tier 1 to risk-based assets capital ratio of 6.0% (increased from 4.0%); (iii) a total capital ratio of8.0% (unchanged from prior rules); and (iv) a Tier 1 leverage ratio of 4.0%. The final rule also establishes a “capital conservation buffer” of 2.5%,and, when fully phased in, will result in the following minimum ratios: (i) a common equity Tier 1 capital ratio of 7.0%; (ii) a Tier 1 to risk-basedassets capital ratio of 8.5%; and (iii) a total capital ratio of 10.5%. The new capital conservation buffer requirement which began phasing inJanuary of 2016 at 0.625% of risk-weighted assets and which increases each year until fully implemented in January, 2019. An institution will besubject to limitations on paying dividends, engaging in share repurchases and paying discretionary bonuses if its capital level falls below the bufferamount. We have analyzed the effects of these new capital requirements, and we believe that Ponce Bank meets all of these new requirements,including the full 2.5% capital conservation buffer as if it had been fully phased in. The application of more stringent capital requirements could, among other things, result in lower returns on equity, and result in regulatoryactions if we are unable to comply with such requirements. Furthermore, the imposition of liquidity requirements in connection with theimplementation of the requirements of the Basel Committee on Banking Supervision (“Basel III”) could result in our having to lengthen the term ofour funding sources, change our business models or increase our holdings of liquid assets. Ponce Bank’s ability to pay dividends to PDLCommunity Bancorp will be limited if it does not have the capital conservation buffer required by the capital rules, which may further limit PDLCommunity Bancorp’s ability to pay dividends to stockholders. See “Regulation and Supervision—Federal Banking Regulation—CapitalRequirements.” The cost of additional finance and accounting systems, procedures and controls in order to satisfy our new public company reportingrequirements will increase our expenses. We expect that the obligations of being a public company, including the substantial public reporting obligations, will require significantexpenditures and place additional demands on our management team. We have made, and will continue to make, changes to our internal controlsand procedures for financial reporting and accounting systems to meet our reporting obligations as a stand-alone public company. However, themeasures we take may not be sufficient to satisfy our obligations as a public company. Section 404 of the Sarbanes-Oxley Act of 2002 (the“Sarbanes Oxley Act”) requires annual management assessments of the effectiveness of our internal control over financial reporting, starting withthe second annual report that we would expect to file with the Securities and Exchange Commission. Any failure to achieve and maintain aneffective internal control environment could have a material adverse effect on our business and stock price. In addition, we may need to hireadditional compliance, accounting and financial staff with appropriate public company experience and technical knowledge, and we may not beable to do so in a timely fashion. As a result, we may need to rely on outside consultants to provide these services for us until qualified personnelare hired. These obligations will increase our operating expenses and could divert our management’s attention from our operations. Changes in accounting standards could affect reported earnings. The bodies responsible for establishing accounting standards, including the Financial Accounting Standards Board, the Securities andExchange Commission and other regulatory bodies, periodically change the financial accounting and reporting guidance that governs thepreparation of our consolidated financial statements. These changes can be hard to predict and can materially impact how we record and report ourfinancial condition and results of operations. In some cases, we could be required to apply new or revised guidance retroactively. 40Changes in management’s estimates and assumptions may have a material impact on our consolidated financial statements and ourfinancial condition or operating results. Our management is and will be required under applicable rules and regulations to make estimates and assumptions as of a specified date tofile periodic reports under the Securities and Exchange Act of 1934, including our consolidated financial statements. These estimates andassumptions are based on management’s best estimates and experience as of that date and are subject to substantial risk and uncertainty.Materially different results may occur as circumstances change and additional information becomes known. Areas requiring significant estimatesand assumptions by management include our evaluation of the adequacy of our allowance for loan losses and our determinations with respect toamounts owed for income taxes. We intend to terminate our pension plan at some point in the future, although the time of the termination is uncertain, which may reduceour net income in the year of termination. We intend to terminate the Bank’s defined benefit pension plan at some point in the future, although the time of the termination is uncertain.As of December 31, 2017, the Bank estimated that terminating the plan would result in a $1.6 million net charge to operations. Because the cost toterminate the pension plan is primarily dependent on the value of the pension plan’s assets and applicable interest rates at the time of thetermination of the pension plan, we will not know the actual costs associated with the termination of the pension plan until the date of thetermination, and the actual cost could be significantly different from the estimated cost. See “Directors, Executive Officers and CorporateGovernance.” Legal and regulatory proceedings and related matters could adversely affect us. We have been and may in the future become involved in legal and regulatory proceedings. We consider most of the proceedings to be in thenormal course of our business or typical for the industry; however, it is inherently difficult to assess the outcome of these matters, and we may notprevail in any proceedings or litigation. There could be substantial cost and management diversion in such litigation and proceedings, and anyadverse determination could have a materially adverse effect on our business, brand or image, or our financial condition and results of ouroperations. We are subject to environmental liability risk associated with lending activities or properties we own. A significant portion of our loan portfolio is secured by real estate, and we could become subject to environmental liabilities with respect toone or more of these properties, or with respect to properties that we own in operating our business. During the ordinary course of business, wemay foreclose on and take title to properties securing defaulted loans. In doing so, there is a risk that hazardous or toxic substances could befound on these properties. If hazardous conditions or toxic substances are found on these properties, we may be liable for remediation costs, aswell as for personal injury and property damage, civil fines and criminal penalties regardless of when the hazardous conditions or toxic substancesfirst affected any particular property. Environmental laws may require us to incur substantial expenses to address unknown liabilities and maymaterially reduce the affected property’s value or limit our ability to use or sell the affected property. In addition, future laws or more stringentinterpretations or enforcement policies with respect to existing laws may increase our exposure to environmental liability. Our policies, whichrequire us to perform an environmental review before initiating any foreclosure action on non-residential real property, may not be sufficient todetect all potential environmental hazards. The remediation costs and any other financial liabilities associated with an environmental hazard couldhave a material adverse effect on us. We are a community bank and our ability to maintain our reputation is critical to the success of our business and the failure to do somay materially adversely affect our performance. We are a community bank, and our reputation is one of the most valuable components of our business. A key component of our businessstrategy is to rely on our reputation for customer service and knowledge of local markets to expand our presence by capturing new businessopportunities from existing and prospective customers in our market area and contiguous areas. As such, we strive to conduct our business in amanner that enhances our reputation. This is done, in part, by recruiting, hiring and retaining employees who share our core values of being anintegral part of the communities we serve, delivering superior service to our customers and caring about our customers and associates. If ourreputation is negatively affected by the actions of our employees, by our inability to conduct our operations in a manner that is appealing to currentor prospective customers, or otherwise, our business and, therefore, our operating results may be materially adversely affected.41 Our historical markets, minority and immigrant individuals, may be threatened by gentrification and adverse political developments,which could decrease our growth and profitability. We believe that our historical strength has been our focus on the minority and immigrant markets. The continuing displacement of minoritiesdue to gentrification of our communities may adversely affect us unless we are able to adapt and increase the acceptance of our products andservices by non-minority customers. We may also be unfavorably impacted by political developments unfavorable to markets that are dependenton immigrant populations. Item 1B. Unresolved Staff Comments.Not applicable. Item 2. Properties.As of December 31, 2017, the net book value of our office properties was $25.0 million, and the net book value of our furniture, fixtures andother equipment was $2.1 million. The Company’s and Bank’s executive offices are located in an owned facility at 2244 Westchester Avenue,Bronx, New York. 42The following table sets forth information regarding our offices as of December 31, 2017. Location Leased or Owned Year Acquired orLeased Net Book Value of RealProperty (In thousands) Main Office: 2244 Westchester Avenue Owned 1995 $6,611 Bronx, NY 10462 Other Properties: 980 Southern Blvd. Leased 1990 1,178 Bronx, NY 10459 37-60 82nd Street Owned 2006 8,431 Jackson Heights, NY 11372 30 East 170th Street Owned 1987 121 Bronx, NY 10452 169-174 Smith Street Owned 1988 34 Brooklyn, NY 11201 1925 Third Avenue Leased 1996 13 New York, NY 1996 2244 Westchester Avenue Owned 1995 582 Bronx, NY 10462 5560 Broadway Owned 1998 1,099 Bronx, NY 10463 3405-3407 Broadway Leased 2001 59 Astoria, NY 11106 3821 Bergenline Avenue Owned 2001 1,738 Union City, NJ 07087 1900-1960 Ralph Avenue Leased 2007 303 Brooklyn, NY 11234 20-47 86th Street Owned 2010 3,144 Brooklyn, NY 11214 100-20 Queens Blvd Leased 2010 622 Forest Hills, NY 11375 319 First Avenue Leased 2010 1,111 New York, NY 10003 $25,046 Item 3. Legal Proceedings.Periodically, there have been various claims and lawsuits against us, such as claims to enforce liens, condemnation proceedings onproperties in which we hold security interests, claims involving the making and servicing of real property loans and other issues incident to ourbusiness. We are not a party to any pending legal proceedings that we believe would have a material adverse effect on our financial condition,results of operations or cash flows. Item 4. Mine Safety Disclosures.Not applicable.43PART IIItem 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities. (a)The Company’s shares of common stock are traded on the NASDAQ Global Select Market under the symbol “PDLB”. The number of stockholders of record of the Company’s common stock as of March 29, 2018 was 288. The number of record-holders maynot reflect the number of persons or entities holding stock in nominee name through banks, brokerage firms and other nominees. The Company completed its initial public offering on September 29, 2017 and its stock commenced trading October 2, 2017. The followingtable sets forth for the periods indicated the intra-day high and low sales prices per share of common stock as reported by the NASDAQ StockMarket. To date the Company has not paid any dividends to its stockholders. On March 29, 2018, the closing market price of the Company’scommon stock was $14.65. Market Prices Dividends 2017 High Low Declared Fourth quarter $16.95 $14.50 $— Third Quarter $— $— $— Second Quarter N/A N/A N/A First Quarter N/A N/A N/ADividends We have no current plan or intention to pay cash dividends to our stockholders. However, if in the future the Board of Directors considersthe payment of dividends, the amount of any dividend payments will be subject to statutory and regulatory limitations, and will depend upon anumber of factors, including the following: regulatory capital requirements; our financial condition and results of operations; our other uses of fundsfor the long-term value of stockholders; tax considerations; the Federal Reserve Board’s current regulations restricting the waiver of dividends bymutual holding companies; and general economic conditions. No assurance can be given that the Board of Directors will ever consider thepayment of dividends, and shareholders should have no expectation of such.The Federal Reserve Board has issued a policy statement providing that dividends should be paid only out of current earnings and only ifour prospective rate of earnings retention is consistent with our capital needs, asset quality and overall financial condition. Regulatory guidancealso provides for prior regulatory consultation with respect to capital distributions in certain circumstances such as where the holding company’snet income for the past four quarters, net of dividends previously paid over that period, is insufficient to fully fund the dividend or the holdingcompany’s overall rate of earnings retention is inconsistent with its capital needs and overall financial condition. We have no current plan orintention to pay dividends. However, should the Board of Directors determine to consider the payment of dividends in the future, the Board ofDirectors is expected to take into account a number of factors, including regulatory capital requirements, our financial condition and results ofoperations, other uses of funds for the long-term value of stockholders, tax considerations, statutory and regulatory limitations and generaleconomic conditions. In addition, PDL Community Bancorp’s ability to pay dividends will be limited if it does not have the capital conservationbuffer required by the new capital rules, which may limit our ability to pay dividends to its stockholders. See “Regulation and Supervision—FederalBank Regulation—Capital Requirements.” No assurances can be given that any dividends will be paid or that, if paid, will not be reduced oreliminated in the future. We will file a consolidated federal tax return with Ponce Bank. Accordingly, it is anticipated that any cash distributions that we make to ourstockholders would be treated as cash dividends and not as a non-taxable return of capital for federal and state tax purposes. Additionally,pursuant to regulations of the Federal Reserve Board, during the three-year period following the stock offering, we may not take any action todeclare an extraordinary dividend to stockholders that would be treated by recipients as a tax-free return of capital for federal income tax purposes.44Pursuant to our charter, we are authorized to issue preferred stock. If we issue preferred stock, the holders thereof may have a priority overthe holders of our shares of common stock with respect to the payment of dividends. For a further discussion concerning the payment of dividendson our shares of common stock, see “Dividends and Stock Repurchase.” Dividends we can declare and pay will depend, in part, upon receipt ofdividends from Ponce Bank, because initially we will have no source of income other than dividends from Ponce Bank and earnings from theinvestment of the net proceeds from the sale of shares of common stock retained by PDL Community Bancorp and interest payments received inconnection with the loan to the employee stock ownership plan. Regulations of the Federal Reserve Board and the Office of the Comptroller of theCurrency impose limitations on “capital distributions” by savings institutions. See “Regulation and Supervision—Federal Bank Regulation—CapitalRequirements.”Any payment of dividends by Ponce Bank to PDL Community Bancorp that would be deemed to be drawn out of Ponce Bank’s bad debtreserves, if any, would require a payment of taxes at the then-current tax rate by Ponce Bank on the amount of earnings deemed to be removedfrom the reserves for such distribution. Ponce Bank does not intend to make any distribution to PDL Community Bancorp that would create such afederal tax liability. See “Taxation.”If PDL Community Bancorp should ever pay dividends to its stockholders, it will likely pay dividends to Ponce Bank Mutual HoldingCompany. The Federal Reserve Board’s current regulations significantly restrict the ability of newly organized mutual holding companies to waivedividends declared by their subsidiaries. Accordingly, we do not anticipate that, should a dividend ever be paid, Ponce Bank Mutual HoldingCompany will waive dividends paid by PDL Community Bancorp. See “Regulation and Supervision-Other Regulations- Waivers of Dividends byPonce Bank Mutual Holding Company.” Recent Sales of Unregistered Securities; Use of Proceeds from Registered SecuritiesThe Company completed its initial public offering on September 29, 2017 through the sale of shares of its common stock, par value $0.01per share, pursuant to a Registration Statement on Form S-1, as amended (Commission File No. 333-217275), as declared effective on July 31,2017. The offering was completed on September 29, 2017 upon the sale of 8,308,362 shares of common stock at a price of $10.00 pershare. The gross offering proceeds were $83.1 million and the net offering proceeds (after offering expenses) were $78.1 million. Consistent withthe disclosure in the Company’s definitive prospectus dated July 31, 2017, $40.1 million of the net offering proceeds was contributed as capital toPonce Bank, $7.2 million was used to fund a loan to the Ponce Bank Employee Stock Ownership Plan, and $200,000 in cash was contributed tothe Ponce De Leon Foundation, and the remainder was retained by the Company as working capital.There has been no sale of unregistered securities as of December 31, 2017.Securities Authorized for Issuance under Equity Compensation Plans None. Issuer Purchases of Equity Securities None. 45Item 6. Selected Financial Data.The summary information presented below at or for each of the periods presented is derived in part from, and should be read in conjunctionwith, the consolidated financial statements of the Company presented in Item 8. At December 31, 2017 2016 2015 2014 2013 (In thousands) Selected Financial Condition Data: Total assets $925,522 $744,983 $703,157 $706,414 $730,644 Cash and cash equivalents 59,724 11,716 12,694 15,849 12,752 Available-for-sale securities 28,897 52,690 82,034 100,574 102,305 Loans held for sale — 2,143 3,303 2,707 5,667 Loans receivable, net 798,703 642,148 567,662 543,289 561,623 Other real estate owned — — 76 162 1,059 Premises and equipment, net 27,172 26,028 27,177 28,718 29,891 Federal Home Loan Bank stock (FHLB), at cost 1,511 964 1,162 1,267 1,596 Deposits 713,985 643,078 599,506 599,697 627,060 Borrowings 36,400 3,000 8,000 10,000 11,000 Total stockholders' equity 164,785 92,992 91,062 89,600 87,711 For the Years Ended December 31, 2017 2016 2015 2014 2013 (In thousands) Selected Operating Data: Interest and dividend income $38,989 $33,741 $33,590 $35,495 $37,162 Interest expense 6,783 5,936 5,650 5,730 7,701 Net interest income 32,206 27,805 27,940 29,765 29,461 Provision (credit) for loan losses 1,716 (57) 353 1,183 3,426 Net interest income after provision for loan losses 30,490 27,862 27,587 28,582 26,035 Noninterest income 3,104 2,431 2,462 2,749 3,106 Noninterest expense 36,557 27,863 26,216 25,797 24,671 Income (loss) before provision for income taxes (2,963) 2,430 3,833 5,534 4,470 Provision for income taxes 1,424 1,005 1,315 2,998 2,015 Net income (loss) (4,387) 1,425 2,518 2,536 2,45546 At or For the Years Ended December 31, 2017 2016 2015 2014 2013 Performance Ratios: Return on average assets (0.51%) 0.20% 0.35% 0.35% 0.33%Return on average equity (3.52%) 1.53% 2.76% 2.80% 2.79%Net interest rate spread (1) 3.76% 3.82% 3.96% 4.26% 3.99%Net interest margin (2) 4.02% 4.02% 4.14% 4.42% 4.18%Noninterest expense to average assets 4.28% 3.84% 3.67% 3.59% 3.30%Efficiency ratio (3) 103.53% 92.15% 86.23% 79.34% 75.75%Average interest-earning assets to average interest- bearing liabilities 130.35% 123.84% 121.66% 119.27% 117.72%Average equity to average assets 14.58% 12.81% 12.78% 12.58% 11.79% Capital Ratios: Total capital to risk weighted assets (bank only) 20.73% 19.21% 20.72% 20.32% 18.85%Tier 1 capital to risk weighted assets (bank only) 19.48% 17.96% 19.46% 19.06% 17.59%Common equity Tier 1 capital to risk-weighted assets ( bank only) 19.48% 17.96% 19.46% N/A N/A Tier 1 capital to average assets (bank only) 14.67% 13.32% 13.67% 13.46% 12.65%Asset Quality Ratios: Allowance for loan losses as a percentage of total loans 1.37% 1.57% 1.64% 1.71% 1.74%Allowance for loan losses as a percentage of nonperforming loans 97.05% 132.15% 99.78% 58.79% 21.80%Net (charge-offs) recoveries to average outstanding loans during the year (0.12%) 0.13% (0.06%) (0.30%) (0.61%)Non-performing loans as a percentage of total loans 1.41% 1.19% 1.65% 2.91% 7.98%Non-performing loans as a percentage of total assets 1.23% 1.04% 1.35% 2.28% 6.29%Total non-performing assets as a percentage of total assets 1.23% 1.04% 1.36% 2.30% 6.24%Total non-performing assets, accruing loans past due 90 days or more, and accruing troubled debt restructured loans as a percentage of total assets 2.72% 3.50% 4.19% 5.33% 7.50% Other: Number of offices 14 14 14 14 14 Number of full-time equivalent employees 177 174 175 164 168 (1)Net interest rate spread represents the difference between the weighted average yield on average interest-earning assets and the weighted averagerate of average interest-bearing liabilities.(2)Net interest margin represents net interest income divided by average total interest-earning assets.(3)Efficiency ratio represents noninterest expense divided by the sum of net interest income and noninterest income. 47Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.GeneralThis section is intended to help investors understand the consolidated financial performance of PDL Community Bancorp through adiscussion of the factors affecting our financial condition at December 31, 2017 and 2016 and our results of operation for the years endedDecember 31, 2017, 2016 and 2015. This section should be read in conjunction with the consolidated financial statements and notes to theconsolidated financial statements contained in this annual report.OverviewTotal assets increased $180.5 million, or 24.2%, to $925.5 million at December 31, 2017 from $745.0 million at December 31, 2016. Theincrease was mainly due to increases in net loans and cash and cash equivalents, partially offset by a decrease in available-for-sale securities.Net loans receivable (which excludes loans held for sale) increased $156.6 million, or 24.4%, to $798.7 million at December 31, 2017 from $642.1million at December 31, 2016, reflecting increases in all loan categories, except business loans. Cash and cash equivalents increased $48.0million, or 410.0%, to $59.7 million at December 31, 2017 from $11.7 million at December 31, 2016. Available-for-sale securities decreased $23.8million, or 45.2%, to $28.9 million at December 31, 2017 from $52.7 million at December 31, 2016. The decrease in the available-for-sale securitiesportfolio in 2017 was mainly attributed to the sale of $20.4 million of our securities portfolio throughout the year combined with principal pay-downsof mortgage-backed securities.Net income decreased $5.8 million, or 407.9%, to a loss of $4.4 million for the year ended December 31, 2017, compared to a net income of$1.4 million for the year ended December 31, 2016. The decrease was due to an increase in non-interest expenses, of $8.7 million, or 31.2%, to$36.6 million for the year ended December 31, 2017 from $27.9 million for the year ended December 31, 2016. The increase in non-interestexpenses for the year ended December 31, 2017 includes a one-time, pre-tax contribution, by the Company of 609,279 shares of Companycommon stock, valued at $6.1 million, and $200,000 in cash, to establish the Ponce De Leon Foundation. Excluding this non-recurring expense,net income would have been $1.9 million for the year ended December 31, 2017. Compensation and benefit expenses also increased by $2.1million, or 14.2%, to $17.1 million for the year ended December 31, 2017 from $15.0 million for the year ended December 31, 2016. The increase incompensation and benefit expenses is mainly attributed to an increase of $921,000 in compensation expense as we continue to add experiencedsenior level individuals to complement our existing management team including our sales and relationship management personnel and an expensein the amount of $744,000 related to the newly established Employee Stock Ownership Plan. Other operating expenses increased by $816,000,due to marketing outlays to generate organic growth and investments in new products and services. These increases in non-interest expenseswere mitigated by a $288,000, or 53.5%, decrease in federal deposit insurance premium, $195,000, or 42.0%, decrease in insurance and suretybond premiums, direct loan expense decreased $121,000, due primarily to the improvement in the quality of our loan portfolio, and a $147,000, or9.1%, decrease in data processing expenses due to a contract renewal providing cost efficiencies along with increased in-service applications.We have made significant investments over the last several years in adding senior management, experienced senior level individuals, andupgrading technology and facilities. This has had an adverse effect on our net income during those periods. During these same periods, we havebeen able to significantly improve our asset quality.An increase in interest rates will present us with a challenge in managing our interest rate risk. As a general matter, our interest-bearingliabilities reprice or mature more quickly than our interest-earning assets, which can result in interest expense increasing more rapidly thanincreases in interest income as interest rates increase. Therefore, increases in interest rates may adversely affect our net interest income and neteconomic value, which in turn would likely have an adverse effect on our results of operations. As described in “—Management of Market Risk,”we expect that our net interest income and our net economic value would decrease as a result of an instantaneous increase in interest rates. Tohelp manage interest rate risk, we promote core deposit products and we are diversifying our loan portfolio by introducing new lending programs.See “—Business Strategy”, “—Management of Market Risk” and “Risk Factors—Future changes in interest rates could reduce our profits andasset values.”48Business StrategyOur goal is to provide long-term value to our stockholders, customers, employees and the communities we serve by executing a safe andsound business strategy that produces increasing earnings. We believe there is a significant opportunity for a community-focused, minorityoriented bank to provide a full range of financial services to commercial and retail customers in our market area, and the increased capital weobtained as a result of the completion of the offering on September 29, 2017, will enable us to compete more effectively in the financial servicesmarketplace.Our current business strategy consists of the following: • Continue to expand our multifamily and nonresidential loans. The additional capital raised in the stock offering has increased ourcapacity to originate multifamily and nonresidential loans. At December 31, 2017 and December 31, 2016, multifamily andnonresidential loans (not including loans secured by owner-occupied properties), together with construction and land loans, totaled$372.7 million and $291.7 million, or 264.3% and 274.7%, respectively, of total risk-based capital. Under our current board approvedloan concentration policy, such loans, including construction and land loans, shall not exceed 330% of our total risk-based capital.Most multifamily and nonresidential loans are originated with adjustable rates and, as a result, these loans are expected to increaseloan yields with shorter repricing terms than fixed-rate loans. Multifamily and nonresidential loan originations increased during the yearended December 31, 2017 by $87.8 million, or 98.7%, when compared to the same period in 2016. • Introduce new community lending programs. The Bank was recently approved as an authorized direct lender under the SmallBusiness Administration (SBA). The Bank is also currently in the process of becoming a Community Development Financial Institution(CDFI). The addition of both of these programs combined with its existing products will bolster the Bank’s commitment to continue toserve the communities that it has supported over the past almost sixty years. • Continue to increase core deposits, with an emphasis on low cost commercial demand deposits, and add non-core fundingsources. Deposits are the major source of balance sheet funding for lending and other investments. We have made significantinvestments in new products and services, personnel, branch distribution system as well as enhancing our electronic delivery solutionsin an effort to become more competitive in the financial services marketplace and attract more core deposits. Core deposits are ourleast costly source of funds and represent our best opportunity to develop customer relationships that enable us to cross-sell ourenhanced products and services. Total deposits increased by $70.9 million, or 11.0%, to $714.0 million at December 31, 2017compared to $643.1 million at December 31, 2016. The majority of the increase was due to an increase of $41.3 million, or 11.4%, incertificates of deposit accounts, $24.2 million, or 30.7%, in demand deposits and $5.4 million, or 2.7%, in other interest bearingdeposits. Certificates of deposit accounted for 57.4% and 57.3% of total deposits at December 31, 2017 and December 31, 2016,respectively. While we will continue to use certificates of deposit as a funding source, our goal is to continue to reduce our reliance onthis source of funding as we grow our core deposit base. • Manage credit risk to maintain a low level of nonperforming assets. We believe strong asset quality is a key to our long-termfinancial success. Our strategy for credit risk management focuses on having an experienced team of credit professionals, well-definedpolicies and procedures, appropriate loan underwriting criteria and active credit monitoring. Our non-performing assets to total assetsratio was 1.23% at December 31, 2017, 1.04% at December 31, 2016 and 1.36% at December 31, 2015, compared to 6.24% atDecember 31, 2013. The majority of our non-performing assets have been related, largely, to owner-occupied, one-to-four family and, toa lesser extent, multifamily residential real estate loans, as our residential borrowers experienced difficulties repaying their loans duringthe past recession. We have increased our investment in our credit review function, both in personnel as well as ancillary systems, inorder to be able to evaluate more complex loans and better manage credit risk, to further support our intended loan growth. • Expand our employee base to support future growth. We have already made significant investments in our employee base.However, the additional capital recently raised will continue to provide us with additional resources to attract and retain the necessarytalent to support increased lending, deposit activities and enhanced information technology. The potential to offer equity awards in thefuture will also allow us to be more competitive when hiring experienced banking personnel. 49 • Grow organically and through opportunistic bank or branch acquisitions. We expect to focus primarily on gaining organic growthas a lower-risk means of deploying our newly acquired capital. The capital recently raised also will help fund improvements in ouroperating facilities and customer delivery services in order to enhance our competitiveness. Opportunistic acquisition possibilities willbe explored provided that we believe they would enhance the value of our franchise and yield potential financial benefits for ourstockholders. Although we believe opportunities exist to increase our market share in our current locations, we will not be adverse toexpanding into nearby markets, enlarging our current branch network, or adding loan production offices, provided we believe suchefforts would enhance our competitive standing. Critical Accounting PoliciesThe discussion and analysis of the financial condition and results of operations are based on our consolidated financial statements, whichare prepared in conformity with accounting principles generally accepted in the United States and general practices within the banking industry.The preparation of these consolidated financial statements requires management to make estimates and assumptions affecting the reportedamounts of assets and liabilities, disclosure of contingent assets and liabilities, and the reported amounts of income and expenses. We considerthe accounting policies discussed below to be significant accounting policies. The estimates and assumptions that we use are based on historicalexperience and various other factors and are believed to be reasonable under the circumstances. Actual results may differ from these estimatesunder different assumptions or conditions, resulting in a change that could have a material impact on the carrying value of our assets and liabilitiesand our results of operations.On April 5, 2012, the JOBS Act was signed into law. The JOBS Act contains provisions that, among other things, reduce certain reportingrequirements for qualifying public companies. As an “emerging growth company” we have determined to delay adoption of new or revisedaccounting pronouncements applicable to public companies until such pronouncements are made applicable to nonpublic companies. We intend totake advantage of the benefits of this extended transition period. Accordingly, our consolidated financial statements may not be comparable tocompanies that comply with such new or revised accounting standards.The following represent our significant accounting policies:Loans Receivable. Loans receivable that management has the intent and ability to hold for the foreseeable future or until maturity or payoffare stated at current unpaid principal balances, net of the allowance for loan losses and including net deferred loan origination fees and costs.Interest income is accrued based on the unpaid principal balance. Loan origination fees, net of certain direct origination costs, are deferredand recognized in interest income using the interest method without anticipating prepayments.A loan is moved to nonaccrual status in accordance with the Bank’s policy, typically after 90 days of non-payment. The accrual of intereston mortgage and business loans is generally discontinued at the time that the loan becomes 90 days past due, unless the loan is well-secured andin the process of collection. Consumer loans are typically charged off no later than 120 days past due. Past-due status is based on contractualterms of the loan. In all cases, loans are placed on nonaccrual status or charged off if collection of principal or interest is considered doubtful. Allnonaccrual loans are considered impaired loans.All interest accrued but not received for loans placed on nonaccrual are reversed against interest income. Interest received on such loans isaccounted for on the cash-basis or recorded against principal balances only until qualifying for return to accrual. Cash-basis interest recognition isonly applied on nonaccrual loans with a sufficient collateral margin to ensure no doubt with respect to the collectability of principal. Loans arereturned to accrual status when all the principal and interest amounts contractually due are brought current and remain current for a period of time(typically six months) and future payments are reasonably assured.Allowance for Loan Losses. The allowance for loan losses is a valuation allowance for probable incurred credit losses. Loan losses arecharged against the allowance when management believes the uncollectibility of a loan balance, or portion thereof, is confirmed. Subsequentrecoveries, if any, are credited to the allowance. Management estimates the allowance balance required using past loan loss experience, thenature and volume of the portfolio, information about specific borrower situations and estimated collateral values, economic conditions, and otherfactors. Allocations of the allowance may be made for specific loans, but the entire allowance is available for any loan that, in management’sjudgment, should be charged off.50The allowance consists of specific and general components. The specific component relates to loans that are individually classified asimpaired when, based on current information and events, it is probable that the Bank will be unable to collect all amounts due according to thecontractual terms of the loan agreement. Loans for which the terms have been modified resulting in a concession, and for which the borrower isexperiencing financial difficulties, are considered troubled debt restructurings (“TDR”) and classified as impaired.Factors considered by management in determining impairment include payment status, collateral value, and the probability of collectingscheduled principal and interest payments when due. Loans that experience insignificant payment delays and payment shortfalls generally are notclassified as impaired. Management determines the significance of payment delays and payment shortfalls on a case-by-case basis, taking intoconsideration all of the circumstances surrounding the loan and the borrower, including the length of the delay, the reasons for the delay, theborrower’s prior payment record, and the amount of the shortfall in relation to the principal and interest owed.Impaired loans are measured for impairment using the fair value of the collateral, present value of cash flows, or the observable marketprice of the note. Impairment measurement for all collateral dependent loans, excluding accruing TDR’s, is based on the fair value of collateral,less costs to sell, if necessary. A loan is considered collateral dependent if repayment of the loan is expected to be provided solely by the sale orthe operation of the underlying collateral.When the Bank modifies a loan in a TDR, management evaluates for any possible impairment using either the discounted cash flowsmethod, where the value of the modified loan is based on the present value of expected cash flows, discounted at the contractual interest rate ofthe original loan agreement, or by using the fair value of the collateral less selling costs if repayment under the modified terms becomes doubtful.When establishing the allowance for loan losses, management categorizes loans into risk categories reflecting individual borrower earnings,liquidity, leverage and cash flow, as well as the nature of underlying collateral. The general component covers non-impaired loans and is based onhistorical loss experience adjusted for current factors. As of December 31, 2017, the Bank determines the historical loss experience by portfoliosegment and it is based on the actual losses experienced by the Bank using a rolling 12 quarter average. This actual loss experience issupplemented with other economic factors based on the risks present for each portfolio segment. These economic factors include consideration ofthe following: levels of and trends in delinquencies and impaired loans; levels of and trends in charge-offs and recoveries; trends in volume andterms of loans; effects of any changes in risk selection and underwriting standards; other changes in lending policies, procedures, and practices;experience, ability, and depth of lending management and other relevant staff; national and local economic trends and conditions; industryconditions; and, effects of changes in credit concentrations.Management believes that the allowance for loan losses is adequate at December 31, 2017. The allowance for loan losses is reviewed bythe Board of Directors on a quarterly basis in compliance with regulatory requirements. In addition, various regulatory agencies periodically reviewthe allowance for loan losses.Securities. Management determines the appropriate classification of securities at the date individual investment securities are acquired,and the appropriateness of such classification is reassessed at each statement of financial condition date.Debt securities that management has the positive intent and ability to hold to maturity, if any, are classified as “held to maturity” andrecorded at amortized cost. Trading securities, if any, are carried at fair value, with unrealized gains and losses recognized in earnings. Securitiesnot classified as held to maturity or trading, are classified as “available-for-sale” and recorded at fair value, with unrealized gains and lossesexcluded from earnings and reported in other comprehensive income (loss), net of taxes. Purchase premiums and discounts are recognized ininterest income using the interest method over the terms of the securities. Management evaluates securities for other-than-temporary impairment (“OTTI”) on at least a quarterly basis, and more frequently wheneconomic or market conditions warrant such an evaluation. For securities in an unrealized loss position, management considers the extent andduration of the unrealized loss, and the financial condition and near-term prospects of the issuer. Management also assesses whether it intends tosell, or it is more likely than not that it will be required to sell, a security in an unrealized loss position before recovery of its amortized cost basis.If either of the criteria regarding intent or requirement to sell is met, the entire difference between amortized cost and fair value is recognized asimpairment through earnings. For debt securities that do not meet the aforementioned criteria, the amount of impairment is split into twocomponents as follows: 1) OTTI related to credit loss, which must be recognized in the consolidated statements of income (loss) and 2) OTTIrelated to other factors, which is recognized in other comprehensive income. The credit loss is defined as the difference between the discountedpresent value of the cash flows expected to be collected and the amortized cost basis. For equity securities, the entire amount of impairment isrecognized through earnings.51Gains and losses on the sale of securities are recorded on the trade date and are determined using the specific-identification method. Thesale of a held-to-maturity security within three months of its maturity date or after collection of at least 85% of the principal outstanding at the timethe security was acquired is considered a maturity for purposes of classification and disclosure.Income Taxes. The Bank recognizes income taxes under the asset and liability method. Under this method, deferred tax assets andliabilities are recognized for the future tax consequences attributable to differences between the consolidated financial statement carrying amountsof existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expectedto apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred taxassets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. Deferred tax assets arereduced by a valuation allowance when, in the opinion of management, it is more likely than not that all or some portion of the deferred tax assetswill not be realized.When tax returns are filed, it is highly certain that some positions taken would be sustained upon examination by the taxing authorities,while others are subject to uncertainty about the merits of the position taken or the amount of the position that would be ultimately sustained. Thebenefit of a tax position is recognized in the consolidated financial statements in the period during which, based on all available evidence,management believes it is more likely than not that the position will be sustained upon examination, including the resolution of appeals or litigationprocesses, if any. Tax positions taken are not offset or aggregated with other positions. Tax positions that meet the more-likely-than-notrecognition threshold are measured as the largest amount of tax benefit that is more than 50% likely of being realized upon settlement with theapplicable taxing authority. The portion of the benefits associated with tax positions taken that exceeds the amount measured as described aboveis reflected as a liability for unrecognized tax benefits along with any associated interest and penalties that would be payable to the taxingauthorities upon examination.At December 31, 2017 and 2016, there were no liabilities recorded related to uncertain tax positions. The Bank is no longer subject toincome tax examinations by U.S. federal, state or local tax authorities for years before 2014.Interest and penalties associated with unrecognized tax benefits, if any, would be classified as additional provision for income taxes in theconsolidated statements of income (loss).Refer to Note 1 to the Consolidated Financial Statements for management’s assessment of recently issued accounting pronouncements.Comparison of Financial Condition at December 31, 2017 and December 31, 2016Total Assets. Total assets increased $180.5 million, or 24.2%, to $925.5 million at December 31, 2017, from $745.0 million atDecember 31, 2016. The increase was due to increases in net loans and cash and cash equivalents, partially offset by a decrease in available-for-sale securities, as discussed in more detail below.Available-for-Sale Securities. Available-for-sale securities, consisting primarily of U.S. Government agency sponsored securities, as wellas mortgage-backed securities, decreased $23.8 million, or 45.2%, to $28.9 million at December 31, 2017, from $52.7 million at December 31,2016. The decrease resulted primarily from the sale of $20.4 million of securities throughout the year and principal pay downs of mortgage-backedsecurities.Net Loans Receivable. Net loans receivable increased $156.6 million, or 24.4%, to $798.7 million at December 31, 2017 from $642.1 millionat December 31, 2016, reflecting increases in all loan categories, except business loans. One-to four-family residential loans increased$63.0 million, or 29.6%, to $388.0 million at December 31, 2017 from $325.0 million at December 31, 2016. Multifamily residential, non-residential properties and construction and land loans increased $30.4 million, $29.7 million and $36.9 million, respectively, at December 31, 2017compared to December 31, 2016 and these represented increases of 19.2%, 24.4% and 121.6%, respectively. Consumer loans also increased by$43,000 or 5.1% and business loans decreased $2.8 million, or 18.1%, respectively, at December 31, 2017 compared to December 31, 2016. Thisgrowth also incorporates our strategy to grow the portfolio with adjustable-rate loans to mitigate interest rate risk and increase our efficiency ofoperations.52Deposits. Total deposits increased $70.9 million, or 11.0%, to $714.0 million at December 31, 2017 from $643.1 million at December 31,2016. The increase was primarily due to increases in certificates of deposit of $41.3 million to $410.1 million at December 31, 2017 from $368.7million from December 31, 2016. Demand accounts increased $24.2 million, or 30.7%, to $103.0 million at December 31, 2017 from $78.8 millionat December 31, 2016 and money market accounts increased $3.7 million, or 8.7%, to $46.5 million at December 31, 2017 from $42.8 million atDecember 31, 2016. The increase in demand accounts was primarily due to the increase in the balance of commercial checking accounts by$12.7 million. Borrowings. We had outstanding borrowings at December 31, 2017 and 2016 of $36.4 million and $3.0 million, respectively. Theseborrowings are in the form of advances from the Federal Home Loan Bank of New York and borrowings from our correspondent bankingrelationships. Historically, we have had limited reliance on borrowings to fund our operations. However, we may utilize advances from the FederalHome Loan Bank of New York and borrowings from our correspondent bank relationships to supplement the supply of investable funds and furtherour organic loan growth.Stockholders’ Equity. Total stockholders’ equity increased $71.8 million, or 77.2%, to $164.8 million at December 31, 2017, from$93.0 million at December 31, 2016. The increase was substantially due to additional paid-in capital of $84.4 million for the year endedDecember 31, 2017 as a result of the capital raise. This increase was partially offset by a net loss of $4.4 million, an increase of $1.5 million inunrealized losses related to the defined benefit pension plan, and an increase of $55,000 in unrealized losses on available-for-sale securities forthe year ended December 31, 2017. Comparison of Operating Results for the Years Ended December 31, 2017 and 2016General. Consolidated net loss for the year ended December 31, 2017, was $4.4 million compared to net income of $1.4 million for the yearended December 31, 2016. The 2017 results include a one-time, pre-tax contribution of 609,279 shares of Company common stock, valued at$6.1 million, and $200,000 in cash, to establish the Ponce De Leon Foundation. Excluding this non-recurring expense, net income would havebeen $1.9 million for the year ended December 31, 2017. Interest Income. Interest and dividend income increased $5.3 million, or 15.7%, to $39.0 million for the year ended December 31, 2017,from $33.7 million for the year ended December 31, 2016. The increase was primarily due to a $5.5 million, or 16.9%, increase in interest incomeon loans, which is our primary source of interest income. Average loan balances increased $129.7 million, or 21.4%, to $735.6 million for the yearended December 31, 2017 from $605.9 million for the year ended December 31, 2016. The increase in average loan balances was mainly driven byincreases in the one-to-four family, construction and land, multifamily mortgage and nonresidential mortgage loan portfolios. The average yield onloans decreased 20 basis points to 5.19% for the year ended December 31, 2017 from 5.39% for the year ended December 31, 2016, as higher-yielding loans have been repaid or refinanced and replaced with lower-yielding loans in the current interest rate environment.Interest and dividend income on investment securities and Federal Home Loan Bank of New York stock decreased $283,000, or 19.6%, to$817,000 for the year ended December 31, 2017 from $1.1 million for the year ended December 31, 2016. The yield on investment securities andFederal Home Loan Bank of New York stock increased 7 basis points to 1.33% for the year ended December 31, 2017, from 1.26% for the yearended December 31, 2016. The average balance of investment securities and Federal Home Loan Bank of New York stock decreased$20.0 million, or 42.3%, to $65.5 million for the year ended December 31, 2017, from $85.5 million for the year ended December 31, 2016, mainlydue to $20.4 million of securities, with an average yield of 1.47%, being soldInterest Expense. Interest expense increased $847,000, or 14.4%, to $6.8 million for the year ended December 31, 2017, from $5.9 millionfor the year ended December 31, 2016. The increase was the result of an overall increase in interest expense on certificates of deposit, otherdeposits, and interest expense on borrowings. Specifically, interest expense on certificates of deposit increased $415,000, or 7.5%, to $5.9 millionfor the year ended December 31, 2017, from $5.5 million for the year ended December 31, 2016. This increase resulted from increases in both theaverage balance of certificates of deposit in excess of $100,000 and the average rate we paid on certificates of deposit. The average balance ofcertificates of deposit increased $15.9 million, or 4.3%, to $387.2 million for the year ended December 31, 2017 from $371.3 million for the yearended December 31, 2016, and the average rate we paid on certificates of deposit increased 5 basis points to 1.53% for the year endedDecember 31, 2017, from 1.48% for the year ended December 31, 2016.53Interest expense on other deposits and borrowings increased $432,000 to $866,000 for the year ended December 31, 2017 from $434,000for the year ended December 31, 2016. This increase resulted from an increase in the average rate we paid on other deposits and borrowings. Theaverage balance of other deposits and borrowings increased $40.7 million, or 21.8%, to $227.7 million for the year ended December 31, 2017, from$187.0 million for the year ended December 31, 2016, and the average rate we paid on other deposits and borrowings increased 17 basis points to0.40% for the year ended December 31, 2017, from 0.23% for the year ended December 31, 2016, reflecting higher market interest rates.Net Interest Income. Net interest income increased $4.4 million, or 15.8%, to $32.2 million for the year ended December 31, 2017 from$27.8 million for the year ended December 31, 2016, primarily as a result of lower cost of funds and higher market yields on earning assets. Ouraverage net interest-earning assets increased by $53.0 million, or 39.9%, to $186.1 million for the year ended December 31, 2017, from$133.1 million for the year ended December 31, 2016, due primarily to our loan growth, described above. Our net interest rate spread decreased by6 basis points, to 3.76%, for the year ended December 31, 2017, from 3.82% for the year ended December 31, 2016, and our net interest marginwas 4.02% for the years ended December 31, 2017 and 2016, reflecting primarily a lower cost of funds and higher market yields on earning assets. An increase in interest rates will present us with a challenge in managing our interest rate risk. As a general matter, our interest-bearingliabilities reprice or mature more quickly than our interest-earning assets, which can result in interest expense increasing more rapidly thanincreases in interest income as interest rates increase. Therefore, increases in interest rates may adversely affect our net interest income and neteconomic value, which in turn would likely have an adverse effect on our results of operations. We expect that our net interest income and our neteconomic value would decrease as a result of an instantaneous increase in interest rates. To help manage interest rate risk, we are promoting coredeposit products while concurrently diversifying our loan portfolio by introducing new lending programs.Provision for Loan Losses. Provision for loan losses are charged to operations to establish an allowance for loan losses at a levelnecessary to absorb known and inherent losses that are both probable and reasonably estimable at the date of the consolidated financialstatements. In evaluating the level of the allowance for loan losses, 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 anddelinquency experience, trends in past due and non-accrual loans, existing risk characteristics of specific loans or loan pools, the fair value ofunderlying collateral, current economic conditions and other qualitative and quantitative factors which could affect potential credit losses. See “—Summary of Significant Accounting Policies” and “Business—Allowance for Loan Losses” for additional information.After an evaluation of these factors, we increased our provision for loan losses for the year ended December 31, 2017 by $1.8 million anddecreased our provision for loan losses for the year ended December 31, 2016 to a recovery of $57,000. Our allowance for loan losses was$11.1 million at December 31, 2017 compared to $10.2 million at December 31, 2016. The allowance for loan losses to total loans decreased to1.37% at December 31, 2017 from 1.57% at December 31, 2016, and the allowance for loan losses to non-performing loans decreased to 97.05%at December 31, 2017 from 132.15% at December 31, 2016. We decreased the portion of the allowance for loan losses attributable to one- to-fourfamily residential real estate loans due to a continued decrease in loss history related to this portion of the portfolio, as well as recoveries relatedto this portion of the portfolio exceeding charge-offs.To the best of our knowledge, we have recorded all loan losses that are both probable and reasonable to estimate at December 31, 2017.However, future changes in the factors described above, including, but not limited to, actual loss experience with respect to our loan portfolio,could result in material increases in our provision for loan losses. In addition, the Office of the Comptroller of the Currency, as an integral part of itsexamination process periodically reviews our allowance for loan losses and as a result of such reviews, we may determine to adjust our allowancefor loan losses. However, regulatory agencies are not directly involved in establishing the allowance for loan losses as the process is ourresponsibility and any increase or decrease in the allowance is the responsibility of management.54Non-interest Income. Total non-interest income increased $673,000, or 27.7%, to $3.1 million for the year ended December 31, 2017 from$2.4 million for the same period in the prior year. The increase in non-interest income for the year ended December 31, 2017 compared to thesame period in 2016 was primarily due to increases of $508,000 in late charges and prepayment fees. For the Years EndedDecember 31, Change 2017 2016 Amount Percent (In thousands) Service charges and fees $909 $938 $(29) (3.1%)Brokerage commissions 547 515 32 6.2%Late charges and prepayment fees 810 302 508 168.2%Other 838 676 162 24.0%Total noninterest income $3,104 $2,431 $673 27.7%Non-interest Expense. Total non-interest expense increased $8.7 million, or 31.2%, to $36.6 million for the year ended December 31, 2017from $27.9 million for the same period in 2016. For the year ended December 31, 2017 compared to the same period in 2016, compensation andemployee benefits expense increased by $2.1 million mainly due to our investment in our employee base, including the senior management teamand our sales and relationship management personnel, to help support our continued growth strategy. Other operating expenses increased by$816,000, due to marketing outlays to generate organic growth and investments in new products and services, as well as a $236,000 increase inthe provision for unfunded commitments and contingencies. As part of the recent reorganization, a contribution of 609,279 shares of Companycommon stock, valued at $6.1 million, and $200,000 in cash was made to the newly formed Ponce De Leon Foundation. These increases werepartially offset by decreases of $288,000 in FDIC insurance assessments and $195,000 in insurance and surety bond expenses for the year endedDecember 31, 2017. In addition, data processing expenses, decreased by $147,000 mainly due to contractual provisions and the level of newproducts and services that were introduced during 2017. Direct loan expense decreased $121,000, due primarily to the improvement in the qualityof our loan portfolio. For the Years EndedDecember 31, Change 2017 2016 Amount Percent (In thousands) Compensation and benefits $17,109 $14,979 $2,130 14.2%Occupancy 5,825 5,651 174 3.1%Data processing 1,470 1,617 (147) (9.1%)Direct loan expense 739 860 (121) (14.1%)Insurance and surety bond premiums 269 464 (195) (42.0%)Office supplies, telephone and postage 1,103 1,071 32 3.0%Federal deposit insurance premiums 250 538 (288) (53.5%)Charitable foundation contributions 6,293 — 6,293 100.0%Other operating expenses 3,499 2,683 816 30.4%Total noninterest expense $36,557 $27,863 $8,694 31.2%Income Tax Expense. We incurred income tax expense of $1.4 million and $1.0 million for the years ended December 31, 2017 and 2016,respectively, resulting in effective rates of 48.1% and 41.4%, respectively. At December 31, 2017 and 2016, net deferred tax asset amounted to$3.9 million and $3.4 million, respectively. The increase in tax expense was mainly due to the enactment of the “Tax Cuts and Jobs Act”, whichresulted in a $2.1 million income tax expense for the year ended December 31, 2017. Comparison of Operating Results for the Years Ended December 31, 2016 and 2015 General. Net income decreased $1.1 million, or 43.4%, to $1.4 million for the year ended December 31, 2016, compared to $2.5 million forthe year ended December 31, 2015. The decrease was primarily due to an increase in non-interest expenses as described below. 55Interest Income. Interest and dividend income increased $151,000, or 0.4%, to $33.7 million for the year ended December 31, 2016 from$33.6 million for the year ended December 31, 2015. The increase was primarily due to a $560,000, or 1.7%, increase in interest income on loans,which is our primary source of interest income. Our average balance of loans increased $36.9 million, or 6.5%, to $605.9 million for the year endedDecember 31, 2016 from $569.0 million for the year ended December 31, 2015. The increase in average balance resulted primarily from increasesin the one-to-four family and multifamily residential mortgage loan portfolios. Our average yield on loans decreased 25 basis points to 5.39% forthe year ended December 31, 2016 from 5.64% for the year ended December 31, 2015, as higher-yielding loans have been repaid or refinancedand replaced with lower-yielding loans in the then current interest rate environment. Interest income and interest and dividends on investment securities and Federal Home Loan Bank of New York stock decreased $409,000,or 27.3%, to $1.1 million for the year ended December 31, 2016 from $1.5 million for the year ended December 31, 2015. The average rate weearned on investment securities and Federal Home Loan Bank of New York stock decreased 14 basis points to 1.26% for the year endedDecember 31, 2016 from 1.40% for the year ended December 31, 2015, due to $52.9 million of securities, with an average yield of 1.44%, beingcalled, and $25.9 million of securities, with an average yield of 1.21%, being purchased. Our average balance of investment securities and FederalHome Loan Bank of New York stock decreased $20.7 million, or 19.4%, to $85.5 million for the year ended December 31, 2016 from $106.2 millionfor the year ended December 31, 2015. Interest Expense. Interest expense increased $286,000 or 5.1%, to $5.9 million for the year ended December 31, 2016 from $5.7 million forthe year ended December 31, 2015. The increase was the result of an increase in interest expense on certificates of deposit and other deposits,offset by a decrease in interest expense on borrowings. Specifically, interest expense on certificates of deposit increased $234,000, or 4.4%, to$5.5 million for the year ended December 31, 2016 from $5.3 million for the year ended December 31, 2015. This increase resulted from increasesin both the average balance of certificates of deposit in excess of $100,000 and the average rate we paid on certificates of deposit. The averagebalance of certificates of deposit increased $4.3 million, or 1.2%, to $371.3 million for the year ended December 31, 2016 from $367.0 million forthe year ended December 31, 2015, and the average rate we paid on certificates of deposit increased 4 basis points to 1.48% for the year endedDecember 31, 2016 from 1.44% for the year ended December 31, 2015. Interest expense on other deposits and borrowings increased $52,000 to $434,000 for the year ended December 31, 2016 from $382,000 forthe year ended December 31, 2015. This increase resulted from an increase in the average rate we paid on other deposits and borrowings. Theaverage balance of other deposits and borrowings decreased $1.1 million, or 0.6%, to $187.0 million for the year ended December 31, 2016 from$188.1 million for the year ended December 31, 2015, and the average rate we paid on other deposits and borrowings increased 3 basis points to0.23% for the year ended December 31, 2016 from 0.20% for the year ended December 31, 2015, reflecting higher market interest rates. Net Interest Income. Net interest income decreased $135,000, or 0.5%, to $27.8 million for the year ended December 31, 2016 from $27.9million for the year ended December 31, 2015, primarily as a result of higher cost of funds and lower market yields on earning assets. Our averagenet interest-earning assets increased by $16.1 million, or 2.4%, to $691.4 million for the year ended December 31, 2016 from $675.3 million for theyear ended December 31, 2015, due primarily to our loan growth, described above. Our net interest rate spread decreased by 14 basis points to3.82% for the year ended December 31, 2016 from 3.96% for the year ended December 31, 2015, and our net interest margin decreased by 12basis points to 4.02% for the year ended December 31, 2016 from 4.14% for the year ended December 31, 2015, primarily reflecting a higher costof funds and lower market yields on earning assets. An increase in interest rates will present us with a challenge in managing our interest rate risk. As a general matter, our interest-bearingliabilities reprice or mature more quickly than our interest-earning assets, which can result in interest expense increasing more rapidly thanincreases in interest income as interest rates increase. Therefore, increases in interest rates may adversely affect our net interest income and neteconomic value, which in turn would likely have an adverse effect on our results of operations. We expect that our net interest income and our neteconomic value would decrease as a result of an instantaneous increase in interest rates. To help manage interest rate risk, we are promoting coredeposit products while concurrently diversifying our loan portfolio by introducing new lending programs. See “Management of Market Risk” and“Risk Factors - Future changes in interest rates could reduce our profits and asset values.” 56Provision for Loan Losses. After an evaluation of applicable factors, we decreased our provision for loan losses for the year endedDecember 31, 2016 to a recovery of $57,000 and increased our provision for loan losses for the year ended December 31, 2015 by $353,000. Ourallowance for loan losses was $10.2 million at December 31, 2016 compared to $9.5 million at December 31, 2015. The allowance for loan lossesto total loans decreased to 1.57% at December 31, 2016 from 1.64% at December 31, 2015, and the allowance for loan losses to non-performingloans increased to 132.12% at December 31, 2016 from 99.78% at December 31, 2015. We decreased the portion of the allowance for loan lossesattributable to one-to-four family residential real estate loans due to a continued decrease in loss history related to this portion of the portfolio, aswell as recoveries related to this portion of the portfolio exceeding charge-offs. See “Summary of Significant Accounting Policies” and “Business –Allowance for Loan Losses” for additional information. To the best of our knowledge, we have recorded all loan losses that are both probable and reasonable to estimate at December 31, 2016.However, future changes in the factors described above, including, but not limited to, actual loss experience with respect to our loan portfolio,could result in material increases in our provision for loan losses. In addition, the Office of the Comptroller of the Currency, as an integral part of itsexamination process, periodically reviews our allowance for loan losses and as a result of such reviews we may determine to adjust our allowancefor loan losses. However, regulatory agencies are not directly involved in establishing the allowance for loan losses as the process is ourresponsibility, and any increase or decrease in the allowance is the responsibility of management. Non-interest Income. The decrease in non-interest income for the year ended December 31, 2016 compared to the same period in 2015was primarily due to decreases of $135,000 and $246,000 in service charges and fees and late charges and prepayment fees, respectively. Non-interest Expense. For the year ended December 31, 2016 compared to the same period in 2015, compensation and employee benefitsexpense increased by $1.5 million mainly due to our investment in our employee base, including the senior management team and our sales andrelationship management personnel, to help support our organic growth strategy. Other operating expenses increased by $303,000, due tomarketing outlays to generate organic growth and investments in new products and services, as well as a $128,000 increase in the provision forunfunded commitments and contingencies. Data processing expenses also increased by $318,000 mainly due to the level of new products andservices that were introduced during 2016 combined with an increase in transactional volume. These increases were partially offset by decreasesof $361,000 in FDIC insurance assessments and $235,000 in insurance and surety bond expenses for the year ended December 31, 2016. Income Tax Expense. We incurred income tax expense of $1.0 million and $1.3 million for the years ended December 31, 2016 and 2015,respectively, resulting in effective rates of 41.4% and 34.3%, respectively. At December 31, 2016 and 2015, net deferred tax assets amounted to$3.4 million and $3.8 million, respectively. The decrease in tax expense resulted from a $1.4 million, or 36.8%, decrease in pre-tax income to $2.4million for the year ended December 31, 2016 from $3.8 million for the year ended December 31, 2015. 57Average Balance SheetThe following table sets forth average balance sheets, average yields and costs, and certain other information at the date and for theperiods indicated. No tax-equivalent yield adjustments have been made, as the effects would be immaterial. All average balances are monthlyaverage balances. Non-accrual loans were included in the computation of average balances. The yields set forth below include the effect ofdeferred fees, discounts, and premiums that are amortized or accreted to interest income or interest expense. Loan balances exclude loans heldfor sale. AtDecember 31, For the Years Ended December 31, 2017 2017 2016 2015 Average Average Average Outstanding Average Outstanding Average Outstanding Average Yield/Rate Balance Interest Yield/Rate Balance Interest Yield/Rate Balance Interest Yield/Rate (In thousands) Interest-earning assets: Loans 5.12% $735,566 $38,172 5.19% $605,878 $32,660 5.39% $569,032 $32,100 5.64%Available-for-sale securities 1.45% 36,240 480 1.32% 70,142 1,012 1.44% 96,777 1,429 1.48%Other (1) 2.14% 29,289 389 1.33% 15,365 69 0.45% 9,465 61 0.64%Total interest- earning assets 801,095 39,041 4.87% 691,385 33,741 4.88% 675,274 33,590 4.97%Non-interest-earning assets 53,809 33,759 38,769 Total assets $854,904 $725,144 $714,043 Interest-bearing liabilities: Savings accounts 0.42% $128,282 $506 0.39% $126,573 $327 0.26% $122,538 $240 0.20%Interest-bearing demand 0.21% 74,824 146 0.19% 54,493 96 0.18% 46,692 77 0.16%Certificates of deposit 1.66% 387,232 5,917 1.53% 371,313 5,502 1.48% 366,958 5,268 1.44%Total deposits 590,338 6,569 1.11% 552,379 5,925 1.07% 536,188 5,585 1.04%Advance payments by borrowers 0.06% 6,292 4 0.06% 4,770 4 0.09% 3,815 4 0.10%Borrowings 1.88% 17,955 262 1.46% 1,145 7 0.61% 15,050 61 0.41%Total interest- bearing liabilities 614,585 6,835 1.11% 558,294 5,936 1.06% 555,053 5,650 1.02%Non-interest-bearing liabilities: Non-interest-bearing demand 112,113 — 70,407 — 61,524 — Other non-interest- bearing liabilities 3,578 — 3,519 — 6,195 — Total non-interest- bearing liabilities 115,691 — 73,926 — 67,719 — Total liabilities 730,276 6,835 632,220 5,936 622,773 5,650 Total equity 124,628 92,924 91,270 Total liabilities and total equity $854,904 1.11% $725,144 1.06% $714,043 1.02%Net interest income $32,206 $27,805 $27,940 Net interest rate spread (2) 3.76% 3.82% 3.96%Net interest-earning assets (3) $186,510 $133,091 $120,221 Net interest margin (4) 4.02% 4.02% 4.14%Average interest-earning assets to interest-bearing liabilities 130.35% 123.84% 121.66% (1)Includes FHLB demand accounts and FHLB stock dividends. (2)Net interest rate spread represents the difference between the weighted average yield on interest-earning assets and the weightedaverage rate of interest-bearing liabilities.58 (3)Net interest-earning assets represent total interest-earning assets less total interest-bearing liabilities. (4)Net interest margin represents net interest income divided by average total interest-earning assets. Rate/Volume AnalysisThe following table presents the effects of changing rates and volumes on our net interest income for the periods indicated. The volumecolumn shows the effects attributable to changes in volume (changes in volume multiplied by prior rate). The rate column shows the effectsattributable to changes in rate (changes in rate multiplied by prior volume). The total column represents the sum of the prior columns. For purposesof this table, changes attributable to both rate and volume, which cannot be segregated, have been allocated proportionately based on the changesdue to rate and the changes due to volume. For the Years Ended December 31, For the Years Ended December 31, 2017 vs. 2016 2016 vs. 2015 Increase (Decrease) Due to Total Increase Increase (Decrease) Due to Total Increase Volume Rate (Decrease) Volume Rate (Decrease) (In thousands) Interest-earning assets: Loans $6,991 $(1,479) $5,512 $2,029 $(1,469) $560 Securities (489) (43) (532) (386) (31) (417)Other 63 257 320 (21) 29 8 Total interest-earning assets 6,564 (1,264) 5,300 1,622 (1,471) 151 Interest-bearing liabilities: Savings accounts 6 173 179 8 79 87 Interest-bearing demand 43 7 50 14 4 18 Certificates of deposit 236 179 415 63 171 234 Total deposits 285 359 644 85 254 339 Advance payment by borrowers 1 (1) — 1 (1) — Borrowings 103 152 255 (77) 24 (53)Total interest-bearing liabilities 389 510 899 9 277 286 Change in net interest income $6,175 $(1,774) $4,401 $1,613 $(1,748) $(135)Management of Market RiskGeneral. Our most significant form of market risk is interest rate risk because, as a financial institution, the majority of our assets andliabilities are sensitive to changes in interest rates. Therefore, a principal part of our operations is to manage interest rate risk and limit theexposure of our financial condition and results of operations to changes in market interest rates. Our Asset/Liability Management Committee isresponsible for evaluating the interest rate risk inherent in our assets and liabilities, for determining the level of risk that is appropriate, given ourbusiness strategy, operating environment, capital, liquidity and performance objectives, and for managing this risk consistent with the policy andguidelines approved by our Board of Directors. We currently utilize a third-party modeling solution that is prepared on a quarterly basis, to evaluateour sensitivity to changing interest rates, given the aforementioned considerations.We do not engage in hedging activities, such as engaging in futures, options or swap transactions, or investing in high-risk mortgagederivatives, such as collateralized mortgage obligation residual interests, real estate mortgage investment conduit residual interests or strippedmortgage backed securitiesNet Interest Income. We analyze our sensitivity to changes in interest rates through a net interest income model. Net interest income is thedifference between the interest income we earn on our interest-earning assets, such as loans and securities, and the interest we pay on ourinterest-bearing liabilities, such as deposits and borrowings. We estimate what our net interest income would be for a 12-month period. We thencalculate what the net interest income would be for the same period under the assumptions that the United States Treasury yield curve increasesor decreases instantaneously by 100 basis point increments, with changes in interest rates representing immediate and permanent shifts in theyield curve. A basis point equals one-hundredth of one percent, and 100 basis points equals one percent. An increase in interest rates from 3% to4% would mean, for example, a 100 basis point increase in the "Change in Interest Rates" column below.59The table below sets forth, as of December 31, 2017, the calculation of the estimated changes in our net interest income that would resultfrom the designated immediate changes in the United States Treasury yield curve. Net Interest Income Year 1 Change Rate Shift (basis points) (1) Year 1 Forecast from Level (In thousands) +400 $30,784 -6.23%+300 31,670 -3.53%+200 32,336 -1.51%+100 32,751 -0.24%Level 32,830 0.00%-100 32,574 -0.78% The table above indicates that at December 31, 2017, in the event of an instantaneous 200 basis point increase in interest rates, we wouldexperience a 1.51% decrease in net interest income, and in the event of an instantaneous 100 basis point decrease in interest rates, we wouldexperience a 0.78% decrease in net interest income.Net Present Value. We also compute amounts by which the net present value of our assets and liabilities ("NPV") would change in theevent of a range of assumed changes in market interest rates. This model uses a discounted cash flow analysis and an option-based pricingapproach to measure the interest rate sensitivity of net portfolio value. The model estimates the economic value of each type of asset, liability andoff-balance sheet contract under the assumptions that the United States Treasury yield curve increases or decreases instantaneously by 100basis point increments, with changes in interest rates representing immediate and permanent shifts in the yield curve.The table below sets forth, as of December 31, 2017, the calculation of the estimated changes in our NPV that would result from thedesignated immediate changes in the United States Treasury yield curve. NPV as a Percentage of Present Value of Assets (3) Estimated Increase (Decrease)in Increase Change in Interest Estimated NPV NPV (Decrease) Rates (basis points) (1) NPV (2) Amount Percent Ratio (4) (basis points) (In thousands) +400 $132,851 $(30,224) -18.53% 15.27% (189)+300 141,931 (21,144) -12.97% 15.94% (122)+200 150,267 (12,807) -7.85% 16.50% (66)+100 157,777 (5,298) -3.25% 16.95% (21)Level 163,075 — 0.00% 17.16% — -100 167,507 4,432 2.75% 17.29% 13 (1)Assumes an immediate uniform change in interest rates at all maturities. (2)NPV is the discounted net 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)NPV Ratio represents NPV divided by the present value of assets.The table above indicates that at December 31, 2017, in the event of an instantaneous 200 basis point increase in interest rates, we wouldexperience a 7.85% decrease in net economic value, and in the event of an instantaneous 100 basis point decrease in interest rates, we wouldexperience a 2.75% increase in net economic value.GAP Analysis. In addition, we analyze our interest rate sensitivity by monitoring our interest rate sensitivity "gap." Our interest ratesensitivity gap is the difference between the amount of our interest-earning assets maturing or repricing within a specific time period and theamount of our interest bearing-liabilities maturing or repricing within that same time period. A gap is considered positive when the amount ofinterest rate sensitive assets maturing or repricing during a period exceeds the amount of interest rate sensitive liabilities maturing or repricingduring the same period, and a gap is60considered negative when the amount of interest rate sensitive liabilities maturing or repricing during a period exceeds the amount of interest ratesensitive assets maturing or repricing during the same period.The following table sets forth our interest-earning assets and our interest-bearing liabilities at December 31, 2017, which are anticipated toreprice or mature in each of the future time periods shown based upon certain assumptions. The amounts of assets and liabilities shown whichreprice or mature during a particular period were determined in accordance with the earlier of term to repricing or the contractual maturity of theasset or liability. The table sets forth an approximation of the projected repricing of assets and liabilities at December 31, 2017, on the basis ofcontractual maturities, anticipated prepayments and scheduled rate adjustments. The loan amounts in the table reflect principal balances expectedto 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, 2017 Time to Repricing Zero to90 Days Zero to180 Days Zero Daysto OneYear Zero Daysto TwoYears Zero Daysto FiveYears FiveYearsPlus TotalEarningAssets &CostingLiabilities NonEarningAssets &NonCostingLiabilities Total (In thousands) Assets: Interest-bearingdeposits in banks $34,979 $34,979 $34,979 $34,979 $34,979 $34,979 $34,979 $24,745 $59,724 Securities 4,124 7,714 14,876 25,407 29,234 29,234 29,234 (337) 28,897 Net loans (includes LHFS) 56,623 108,029 191,573 321,571 738,534 798,834 798,834 (131) 798,703 FHLB Stock — — — — 1,511 1,511 1,511 — 1,511 Other assets — — — — 3 3 3 36,684 36,687 Total $95,726 $150,722 $241,428 $381,957 $804,261 $864,561 $864,561 $60,961 $925,522 Liabilities: Non-maturity deposits $207,452 $207,452 $207,452 $207,452 $207,452 $207,452 $207,452 $96,472 $303,924 Certificates of deposit 40,874 80,015 158,836 241,656 407,800 410,061 410,061 — 410,061 Other liabilities 20,000 20,000 20,000 20,000 20,000 29,400 36,400 10,352 46,752 Total liabilities 268,326 307,467 386,288 469,108 635,252 646,913 653,913 106,824 760,737 Stockholders' equity — — — — — — — 164,785 164,785 Total liabilities and stockholders'equity $268,326 $307,467 $386,288 $469,108 $635,252 $646,913 $653,913 $271,609 $925,522 Asset/liability gap $(172,600) $(156,745) $(144,860) $(87,151) $169,009 $217,648 $210,648 Gap/assets ratio 35.68% 49.02% 62.50% 81.42% 126.61% 133.64% 132.21% At December 31, 2017, our asset/liability gap from zero days to one year was ($144.9) million, resulting in a gap/assets ratio of 62.50%.61The following table sets forth our interest-earning assets and our interest-bearing liabilities at December 31, 2016, which are anticipated toreprice or mature in each of the future time periods shown based upon certain assumptions. The amounts of assets and liabilities shown whichreprice or mature during a particular period were determined in accordance with the earlier of term to repricing or the contractual maturity of theasset or liability. The table sets forth an approximation of the projected repricing of assets and liabilities at December 31, 2016, on the basis ofcontractual maturities, anticipated prepayments and scheduled rate adjustments. The loan amounts in the table reflect principal balances expectedto 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, 2016 Time to Repricing Zero to90 Days Zero to180 Days Zero Daysto OneYear Zero Daysto TwoYears Zero Daysto FiveYears FiveYearsPlus TotalEarningAssets &CostingLiabilities NonEarningAssets &NonCostingLiabilities Total (In thousands) Assets: Interest-bearing deposits in banks $6,920 $6,920 $6,920 $6,920 $6,920 $6,920 $6,920 $4,796 $11,716 Securities 596 3,268 9,368 40,612 52,243 52,942 52,942 (252) 52,690 Net loans (includes LHFS) 46,325 86,334 163,005 283,027 579,173 645,082 645,082 (763) 644,319 FHLB Stock — — — — 964 964 964 — 964 Other assets — — — — 7 7 7 35,287 35,294 Total $53,841 $96,522 $179,293 $330,559 $639,307 $705,915 $705,915 $39,068 $744,983 Liabilities: Non-maturity deposits $197,285 $197,285 $197,285 $197,285 $197,285 $197,285 $197,285 $74,529 $271,814 Certificates of deposit 52,597 98,133 166,781 236,755 366,562 368,721 368,721 — 368,721 Other liabilities 3,000 3,000 3,000 3,000 3,000 3,000 3,000 8,456 11,456 Total liabilities 252,882 298,418 367,066 437,040 566,847 569,006 569,006 82,985 651,991 Stockholders' equity — — — — — — — 92,992 92,992 Total liabilities and stockholders' equity $252,882 $298,418 $367,066 $437,040 $566,847 $569,006 $569,006 $175,977 $744,983 Asset/liability gap $(199,041) $(201,896) $(187,773) $(106,481) $72,460 $136,909 $136,909 Gap/assets ratio 21.29% 32.34% 48.84% 75.64% 112.78% 124.06% 124.06% At December 31, 2016, our asset/liability gap from zero days to one year was ($187.8) million, resulting in a gap/assets ratio of 48.84%.Certain shortcomings are inherent in the methodologies used in the above interest rate risk measurements. Modeling changes requiremaking 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 net economic value tables presented assume that the composition of our interest-sensitive assets andliabilities existing at the beginning of a period remains constant over the period being measured and assumes that a particular change in interestrates is reflected uniformly across the yield curve regardless of the duration or repricing of specific assets and liabilities. Accordingly, although thenet interest income and NPV tables provide an indication of our interest rate risk exposure at a particular point in time, such measurements are notintended to and do not provide a precise forecast of the effect of changes in market interest rates on net interest income and NPV and will differfrom actual results. Furthermore, although certain assets and liabilities may have similar maturities or periods to repricing, they may react indifferent degrees to changes in market interest rates. Additionally, certain assets, such as adjustable-rate loans, have features that restrictchanges 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 earlywithdrawal 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 ratescan increase the fair values of our loans, deposits and borrowings.62Liquidity and Capital ResourcesLiquidity describes our ability to meet the financial obligations that arise in the ordinary course of business. Liquidity is primarily needed tomeet the borrowing and deposit withdrawal requirements of our customers and to fund current and planned expenditures. Our primary sources offunds are deposits, principal and interest payments on loans and securities and proceeds from the sale of loans. We also have the ability to borrowfrom the Federal Home Loan Bank of New York. At December 31, 2017 and 2016, we had $16.4 million and $3.0 million, respectively, of term andovernight outstanding advances from the Federal Home Loan Bank of New York, and also had a guarantee from the Federal Home Loan Bank ofNew York through a standby letter of credit of $6.6 million. At December 31, 2017, we had eligible collateral of approximately $66.3 million inmortgage loans available to secure advances from the Federal Home Loan Bank of New York. We also have an unsecured line of credit of $22.0million outstanding with Zions Banks, of which $20.0 million was outstanding at December 31, 2017. We did not have any outstanding securitiessold under repurchase agreements with brokers as of December 31, 2017 and 2016.Although maturities and scheduled amortization of loans and securities are predictable sources of funds, deposit flows and loanprepayments are greatly influenced by general interest rates, economic conditions, and competition. Our most liquid assets are cash and interest-bearing deposits in banks. The levels of these assets are dependent on our operating, financing, lending, and investing activities during any givenperiod.Net cash provided by operating activities was $8.6 million and $4.3 million for the years ended December 31, 2017 and 2016, respectively.Net cash (used in) investing activities, which consists primarily of disbursements for loan originations and the purchases of securities, offset byprincipal collections on loans, proceeds from maturing securities and pay downs on mortgage-backed securities, was $(135.9) million and $(43.9)million for the years ended December 31, 2017 and 2016, respectively. Net cash provided by financing activities, consisting of activities in depositaccounts and proceeds from the stock offering, was $175.3 million and $38.6 million for the years ended December 31, 2017 and 2016,respectively.We are committed to maintaining an adequate liquidity position. We monitor our liquidity position on a daily basis. We anticipate that we willhave sufficient funds to meet our current funding commitments. Based on our deposit retention experience and current pricing strategy, weanticipate that a significant portion of maturing time deposits will be retained.At December 31, 2017 and 2016, we exceeded all of our regulatory capital requirements, and we were categorized as well capitalized atDecember 31, 2017 and 2016. Management is not aware of any conditions or events since the most recent notification that would change ourcategory.Off-Balance Sheet Arrangements and Aggregate Contractual ObligationsCommitments. As a financial services provider, we routinely are a party to various financial instruments with off-balance-sheet risks, suchas commitments to extend credit and unused lines of credit. While these contractual obligations represent our future cash requirements, asignificant portion of commitments to extend credit may expire without being drawn upon. Such commitments are subject to the same creditpolicies and approval process accorded to loans we make. At December 31, 2017 and 2016, we had outstanding commitments to originate loansof $94.8 million and $63.7 million, respectively. We anticipate that we will have sufficient funds available to meet our current lending commitments.Certificates of deposit that are scheduled to mature in less than one year from December 31, 2017 totaled $161.1 million. Management expectsthat a substantial portion of the maturing time deposits will be renewed. However, if a substantial portion of these deposits is not retained, we mayutilize Federal Home Loan Bank advances, unsecured credit lines with correspondent banks, or raise interest rates on deposits to attract newaccounts, which may result in higher levels of interest expense.Contractual Obligations. In the ordinary course of our operations, we enter into certain contractual obligations. Such obligations includedata processing services, operating leases for premises and equipment, agreements with respect to borrowed funds and deposit liabilities. Item 7A. Quantitative and Qualitative Disclosures About Market Risk.Information regarding quantitative and qualitative disclosures about market risk appears under Item 7, “Management’s Discussion andAnalysis of Financial Condition and Results of Operations – Management of Market Risk.” 63Item 8. Financial Statements and Supplementary Data.INDEX TO CONSOLIDATED FINANCIAL STATEMENTS Report of Independent Registered Public Accounting Firm65 Consolidated Statements of Financial Condition as of December 31, 2017 and 201666 Consolidated Statements of Income (Loss) for the Years ended December 31, 2017, 2016, and 201567 Consolidated Statements of Comprehensive Income (Loss) for the Years ended December 31, 2017, 2016 and 201568 Consolidated Statements of Stockholders’ Equity for the Years ended December 31, 2017, 2016 and 201569 Consolidated Statements of Cash Flows for the Years ended December 31, 2017, 2016, and 201570 Notes to the Consolidated Financial Statements72 64Report of Independent Registered Public Accounting FirmTo the Stockholders and the Board of Directors of PDL Community BancorpOpinion on the Financial StatementsWe have audited the accompanying consolidated statements of financial condition of PDL Community Bancorp and Subsidiaries (the "Company")as of December 31, 2017 and 2016, the related consolidated statements of income (loss), comprehensive income (loss), stockholders’ equity, andcash flows, for each of the three years in the period ended December 31, 2017, and the related notes (collectively referred to as the "consolidatedfinancial statements"). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of theCompany as of December 31, 2017 and 2016, and the results of its operations and its cash flows for each of the three years in the period endedDecember 31, 2017, in conformity with accounting principles generally accepted in the United States of America.Basis for OpinionThese consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on theCompany's consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company AccountingOversight Board (United States) ("PCAOB") and are required to be independent with respect to the Company in accordance with the U.S. federalsecurities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtainreasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. TheCompany is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits weare required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on theeffectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due toerror or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding theamounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used andsignificant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believethat our audits provide a reasonable basis for our opinion. /s/ Mazars USA LLPWe have served as the Company’s auditor since 2013. New York, New YorkMarch 28, 2018 65PDL Community Bancorp and Subsidiaries Consolidated Statements of Financial ConditionDecember 31, 2017 and 2016(Dollars in thousands, except share data) December 31, 2017 2016 ASSETS Cash and due from banks (Note 2): Cash $24,746 $4,796 Interest-bearing deposits in banks 34,978 6,920 Total cash and cash equivalents 59,724 11,716 Available-for-sale securities, at fair value (Note 3) 28,897 52,690 Loans held for sale — 2,143 Loans receivable, net of allowance for loan losses - 2017 $11,071; 2016 $10,205 (Note 4) 798,703 642,148 Accrued interest receivable 3,335 2,707 Premises and equipment, net (Note 5) 27,172 26,028 Federal Home Loan Bank Stock (FHLB), at cost 1,511 964 Deferred tax assets (Note 8) 3,909 3,379 Other assets 2,271 3,208 Total assets $925,522 $744,983 LIABILITIES AND STOCKHOLDERS' EQUITY Liabilities: Deposits (Note 6) $713,985 $643,078 Accrued interest payable 42 28 Advance payments by borrowers for taxes and insurance 5,025 3,882 Advances from the Federal Home Loan Bank and others (Note 7) 36,400 3,000 Other liabilities 5,285 2,003 Total liabilities 760,737 651,991 Commitments and contingencies (Note 11) — — Stockholders' Equity: Preferred stock, $0.01 par value; 10,000,000 shares authorized, none issued — — Common stock, $0.01 par value; 50,000,000 shares authorized; 18,463,028 shares issued and outstanding at December 31, 2017 185 — Additional paid-in-capital 84,351 — Retained earnings 94,855 99,242 Accumulated other comprehensive loss (Note 14) (7,851) (6,250)Unearned Employee Stock Ownership Plan (ESOP) shares; 675,501 shares (Note 9) (6,755) — Total stockholders' equity 164,785 92,992 Total liabilities and stockholders' equity $925,522 $744,983 The accompanying notes are an integral part of the consolidated financial statements. 66PDL Community Bancorp and Subsidiaries Consolidated Statements of Income (Loss)For the Years Ended December 31, 2017, 2016 and 2015(Dollars in thousands, except share data) For the Years Ended December 31, 2017 2016 2015 Interest and dividend income: Interest on loans receivable $38,172 $32,660 $32,100 Interest and dividends on investment securities and FHLB stock 817 1,081 1,490 Total interest and dividend income 38,989 33,741 33,590 Interest expense: Interest on certificates of deposit 5,917 5,502 5,268 Interest on other deposits 656 427 321 Interest on borrowings 210 7 61 Total interest expense 6,783 5,936 5,650 Net interest income 32,206 27,805 27,940 Provision for loan losses (recovery) (Note 4) 1,716 (57) 353 Net interest income after provision for loan losses (recovery) 30,490 27,862 27,587 Noninterest income: Service charges and fees 909 938 1,073 Brokerage commissions 547 515 421 Late and prepayment charges 810 302 548 Other 838 676 420 Total noninterest income 3,104 2,431 2,462 Noninterest expense: Compensation and benefits 17,109 14,979 13,463 Occupancy expense 5,825 5,651 5,754 Data processing expenses 1,470 1,617 1,299 Direct loan expenses 739 860 725 Insurance and surety bond premiums 269 464 699 Office supplies, telephone and postage 1,103 1,071 997 FDIC deposit insurance assessment 250 538 899 Charitable foundation contributions 6,293 — — Other operating expenses 3,499 2,683 2,380 Total noninterest expense 36,557 27,863 26,216 Income (loss) before income taxes (2,963) 2,430 3,833 Provision for income taxes (Note 8) 1,424 1,005 1,315 Net income (loss) $(4,387) $1,425 $2,518 Earnings per share for the period September 29, 2017 to December 31, 2017: (Note 10) Basic $(0.16) N/A N/A Diluted $(0.16) N/A N/A The accompanying notes are an integral part of the consolidated financial statements. 67PDL Community Bancorp and Subsidiaries Consolidated Statements of Comprehensive Income (Loss)For the Years Ended December 31, 2017, 2016 and 2015(In thousands) For the Years Ended December 31, 2017 2016 2015 Net income (loss) $(4,387) $1,425 $2,518 Net change in unrealized gains (losses) on securities available-for-sale: Unrealized gain (losses) (85) 309 847 Expense (benefit) due to enactment of federal tax reform 44 — — Income tax effect (14) (105) (372)Unrealized gains on securities, net (55) 204 475 Pension benefit liability adjustment: Net gain (loss) during the period (2,006) 456 (1,829)Reclassification adjustments for amortization of prior service cost and net gain included in net periodic pension cost — — 245 Expense (benefit) due to enactment of federal tax reform 1,192 — — Income tax effect (732) (155) 53 Pension liability adjustment, net of tax (1,546) 301 (1,531)Total other comprehensive income (loss), net of tax (1,601) 505 (1,056)Total comprehensive income (loss) $(5,988) $1,930 $1,462 The accompanying notes are an integral part of the consolidated financial statements. 68PDL Community Bancorp and Subsidiaries Consolidated Statements of Stockholders’ EquityFor the Years Ended December 31, 2017, 2016 and 2015(Dollars in thousands, except share data) Accumulated Unallocated Additional Other Common Common Stock Paid-in Retained Comprehensive Stock Shares Amount Capital Earnings Loss of ESOP Total Balance, December 31, 2014 — $— $— $95,299 $(5,699) $— $89,600 Net income — — — 2,518 — — 2,518 Other comprehensive loss, net of tax — — — — (1,056) — (1,056)Balance, December 31, 2015 — — — 97,817 (6,755) — 91,062 Net income — — — 1,425 — — 1,425 Other comprehensive income, net of tax — — — — 505 — 505 Balance, December 31, 2016 — $— $— $99,242 $(6,250) $— $92,992 Net income (loss) — — — (4,387) — — (4,387)Other comprehensive loss, net of tax — — — — (1,601) — (1,601)Issuance of common stock, $0.01 par value; tothe mutual holding company 9,545,387 96 — — — — 96 Issuance of common stock, $0.01 par value; forinitial public offering, net of costs of $4,988 8,308,362 83 78,012 — — 78,095 Issuance of common stock, $0.01 par value; toThe Ponce De Leon Foundation 609,279 6 6,087 — — 6,093 Unallocated ESOP- 723,751 shares , $0.01 parvalue — — — — (7,238) (7,238)ESOP shares committed to be released (48,250shares) — — 252 — — 483 735 Balance, December 31, 2017 18,463,028 $185 $84,351 $94,855 $(7,851) $(6,755) $164,785 The accompanying notes are an integral part of the consolidated financial statements. 69PDL Community Bancorp and Subsidiaries Consolidated Statements of Cash FlowsFor the Years Ended December 31, 2017, 2016 and 2015(In thousands) For the Years Ended December 31, 2017 2016 2015 Cash Flows From Operating Activities: Net income (loss) $(4,387) $1,425 $2,518 Adjustments to reconcile net income (loss) to net cash provided by operating activities: Amortization of premiums on securities, net 52 11 6 Loss on sale of loans 106 13 73 Loss on sale of available-for-sale securities 6 — — Write-down of loans held for sale — — 9 Write-down on other real estate owned — — 86 Gain on sale of other real estate owned — (4) — Provision for (recovery from) loan losses 1,716 (57) 353 Depreciation and amortization 1,625 1,679 1,817 Amortization of core deposit intangible assets 3 129 144 ESOP compensation expense 735 — — Charitable foundation contribution expense 6,093 — — Deferred income taxes (40) 126 1,086 Changes in assets and liabilities: (Increase) decrease in accrued interest receivable (628) (39) 81 Decrease in other assets 38 175 3,168 Increase (decrease) in accrued interest payable 14 (8) (10)Net increase (decrease) in other liabilities 3,313 893 (4,101)Net cash provided by operating activities 8,646 4,343 5,230 Cash Flows From Investing Activities: Proceeds from redemption of FHLB Stock 9,364 1,890 10,199 Purchases of FHLB Stock (9,909) (1,692) (10,094)Purchases of available-for-sale securities — (25,914) — Proceeds from sale of available-for-sale securities 20,374 — — Proceeds from maturities, calls and principal repayments on available-for-sale securities 3,276 55,556 19,381 Proceeds from sales of loans 2,967 4,386 3,981 Net increase in loans (159,201) (77,669) (29,385)Proceeds from sale of other real estate owned — 80 — Purchases of premises and equipment (2,769) (530) (276)Net cash used in investing activities (135,898) (43,893) (6,194) 70PDL Community Bancorp and Subsidiaries Consolidated Statements of Cash FlowsFor the Years Ended December 31, 2017, 2016 and 2015(In thousands) For the Years Ended December 31, 2017 2016 2015 Cash Flows From Financing Activities: Net increase in deposits $70,907 $43,572 $(191)Proceeds from issuance of common stock 78,191 — — Funds loaned to the ESOP (7,238) — — Proceeds from advances 646,400 280,000 1,989,305 Repayments of advances (613,000) (285,000) (1,991,305)Net cash provided by (used in) financing activities 175,260 38,572 (2,191)Net increase (decrease) in cash and cash equivalents 48,008 (978) (3,155)Cash and Cash Equivalents: Beginning 11,716 12,694 15,849 Ending $59,724 $11,716 $12,694 Supplemental Disclosures: Cash paid during the year: Interest $6,821 $5,944 $5,660 Income taxes $1,474 $1,280 $1,598 Supplemental Disclosures of Noncash Investing Activities: Transfer of loans to loans held for sale $— $3,239 $6,526 Transfer of loans held for sale to loans $2,143 $— $1,867 Supplemental Disclosure of Noncash Financing Activities: Issuance of common stock to the Ponce De Leon Foundation $6,093 $— $— The accompanying notes are an integral part of the consolidated financial statements. 71 PDL Community Bancorp and SubsidiariesNotes to the Consolidated Financial StatementsYears Ended December 31, 2017 and 2016(Dollars in thousands, unless otherwise stated) Note 1. Nature of Business and Summary of Significant Accounting Policies Basis of Financial Statement Presentation: The consolidated financial statements of PDL Community Bancorp (the “Company”) presented herein have been prepared in conformity withaccounting principles generally accepted in the United States of America and include the accounts of the Company, its wholly owned subsidiaryPonce Bank (the “Bank”), and the Bank’s wholly-owned subsidiaries. The Bank’s subsidiaries consist of PFS Service Corp., which owns some ofthe Bank’s real property, and Ponce De Leon Mortgage Corp., which is a mortgage banking entity. All significant intercompany transactions andbalances have been eliminated in consolidation.Reorganization and Stock Issuance:On September 29, 2017, Ponce De Leon Federal Bank reorganized into a two-tier mutual holding company structure with a mid-tier stock holdingcompany. The Company sold 8,308,362 shares of common stock at $10.00 per share, including 723,751 shares purchased by the Company’sEmployee Stock Ownership Plan (“ESOP”). In addition, the Company issued 9,545,387 shares to Ponce Bank Mutual Holding Company, theCompany’s mutual holding company parent (the “MHC”) and 609,279 shares to The Ponce De Leon Foundation (“Foundation”), a charitablefoundation that was formed in connection with the stock offering and is dedicated to supporting charitable organizations operating in the Bank’slocal community. A total of 18,463,028 shares of common stock were outstanding following the completion of the stock offering. As a result of thereorganization, the reporting entity changed from Ponce De Leon Federal Bank to PDL Community Bancorp.The direct costs of the Company’s stock offering of $4,988 were deferred and deducted from the proceeds of the offering. Nature of Operations: The Bank is a federally chartered savings association headquartered in the Bronx, New York. Ponce De Leon Federal Bank was originallychartered in 1960 as a federally chartered mutual savings and loan association under the name Ponce De Leon Federal Savings and LoanAssociation. In 1985, it changed its name to “Ponce De Leon Federal Savings Bank.” In 1997, it changed its name again to “Ponce De LeonFederal Bank.” Upon the completion of its reorganization into the MHC, the assets and liabilities of Ponce De Leon Federal Bank were transferredto and assumed by the Bank, a federally chartered stock savings association, owned 100% by PDL Community Bancorp and known as andconducting business under the name “Ponce Bank.” The Bank will continue to be subject to comprehensive regulation and examination by theOffice of Comptroller of the Currency (the “OCC”). The Bank’s business is conducted through the administrative office and 13 branch offices. The banking offices are located in the Bronx,Manhattan, Queens and Brooklyn, New York and Union City, New Jersey. The primary market area currently consists of the New York Citymetropolitan area. The Bank’s business primarily consists of taking deposits from the general public and investing those deposits, together with funds generated fromoperations and borrowings, in mortgage loans, consisting of one-to-four family residential (both investor-owned and owner-occupied), multifamilyresidential, nonresidential properties and construction and land, and, to a lesser extent, in business and consumer loans. The Bank also invests insecurities, which have historically consisted of U.S. government and federal agency securities and securities issued by government-sponsored orowned enterprises, as well as, mortgage-backed securities and Federal Home Loan Bank stock. The Bank offers a variety of deposit accounts,including demand, savings, money markets and certificates of deposit accounts. The following is a summary of the Bank's significant accounting policies: Use of Estimates: In preparing the consolidated financial statements, management is required to make estimates and assumptions that affect thereported amounts of assets and liabilities and disclosure of contingent assets and liabilities, as of the date of the consolidated statement offinancial condition, and revenues and expenses for the reporting period.72PDL Community Bancorp and SubsidiariesNotes to the Consolidated Financial StatementsYears Ended December 31, 2017 and 2016(Dollars in thousands, unless otherwise stated) Note 1. Nature of Business and Summary of Significant Accounting Policies (Continued) Actual results could differ from those estimates. Material estimates that are particularly susceptible to significant change in the near term relate tothe determination of the allowance for loan losses, the valuation of real estate acquired in connection with foreclosures or in satisfaction of loans,the valuation of loans held for sale, the valuation of deferred tax assets and investment securities, and the determination of pension benefitobligations. Significant Group Concentrations of Credit Risk: Most of the Bank's activities are with customers located within New York City. Accordingly, theultimate collectability of a substantial portion of the Bank's loan portfolio is susceptible to changes in the local market conditions. Note 3discusses the types of securities that the Bank invests in. Notes 4 and 11 discuss the types of lending that the Bank engages in, and otherconcentrations. Cash and Cash Equivalents: Cash and cash equivalents include cash on hand and amounts due from banks (including items in process ofclearing). For purposes of reporting cash flows, the Bank considers all highly liquid debt instruments purchased with a maturity of three months orless to be cash equivalents. Cash flows from loans originated by the Bank, interest-bearing deposits in financial institutions, and deposits arereported net. Securities: Management determines the appropriate classification of securities at the date individual investment securities are acquired, and theappropriateness of such classification is reassessed at each statement of financial condition date. Debt securities that management has the positive intent and ability to hold to maturity, if any, are classified as "held to maturity" and recorded atamortized cost. Trading securities, if any, are carried at fair value, with unrealized gains and losses recognized in earnings. Securities notclassified as held to maturity or trading, are classified as "available for sale" and recorded at fair value, with unrealized gains and losses excludedfrom earnings and reported in other comprehensive income (loss), net of tax. Purchase premiums and discounts are recognized in interest incomeusing the interest method over the terms of the securities. Management evaluates securities for other-than-temporary impairment (“OTTI”) on at least a quarterly basis, and more frequently when economicor market conditions warrant such an evaluation. For securities in an unrealized loss position, management considers the extent and duration ofthe unrealized loss, and the financial condition and near-term prospects of the issuer. Management also assesses whether it intends to sell, or itis more likely than not that it will be required to sell, a security in an unrealized loss position before recovery of its amortized cost basis. If either ofthe criteria regarding intent or requirement to sell is met, the entire difference between amortized cost and fair value is recognized as impairmentthrough earnings. For debt securities that do not meet the aforementioned criteria, the amount of impairment is split into two components asfollows: 1) OTTI related to credit loss, which must be recognized in the consolidated statement of income (loss) and 2) OTTI related to otherfactors, which is recognized in other comprehensive income (loss). The credit loss is defined as the difference between the discounted present value of the cash flows expected to be collected and the amortizedcost basis. For equity securities, the entire amount of impairment is recognized through earnings. Gains and losses on the sale of securities are recorded on the trade date and are determined using the specific-identification method. The sale ofa held-to-maturity security within three months of its maturity date or after collection of at least 85% of the principal outstanding at the time thesecurity was acquired is considered a maturity for purposes of classification and disclosure. Federal Home Loan Bank Stock: The Bank is a member of the Federal Home Loan Bank of New York (the “FHLB”). Members are required to owna certain amount of stock based on the level of borrowings and other factors, and may invest in additional amounts. FHLB stock is carried atcost, classified as a restricted security, and periodically evaluated for impairment based on ultimate recovery of par value. Both cash and stockdividends are reported as income. 73PDL Community Bancorp and SubsidiariesNotes to the Consolidated Financial StatementsYears Ended December 31, 2017 and 2016(Dollars in thousands, unless otherwise stated) Note 1. Nature of Business and Summary of Significant Accounting Policies (Continued) Loans Receivable: Loans receivable that management has the intent and ability to hold for the foreseeable future or until maturity or payoff arestated at current unpaid principal balances, net of the allowance for loan losses and including net deferred loan origination fees and costs. Interest income is accrued based on the unpaid principal balance. Loan origination fees, net of certain direct origination costs, are deferred andrecognized in interest income using the interest method without anticipating prepayments. A loan is moved to nonaccrual status in accordance with the Bank’s policy, typically after 90 days of non-payment. The accrual of interest onmortgage and commercial loans is generally discontinued at the time the loan becomes 90 days past due unless the loan is well-secured and inprocess of collection. Consumer loans are typically charged off no later than 120 days past due. Past-due status is based on contractual terms ofthe loan. In all cases, loans are placed on nonaccrual status or charged off if collection of principal or interest is considered doubtful. Allnonaccrual loans are considered impaired loans. All interest accrued but not received for loans placed on nonaccrual are reversed against interest income. Interest received on such loans isaccounted for on the cash-basis or recorded against principal balances only, until qualifying for return to accrual. Cash-basis interest recognition isonly applied on nonaccrual loans with a sufficient collateral margin to ensure no doubt with respect to the collectability of principal. Loans arereturned to accrual status when all the principal and interest amounts contractually due are brought current and remain current for a period of time(typically six months) and future payments are reasonably assured. Allowance for Loan Losses: The allowance for loan losses is a valuation allowance for probable incurred credit losses. Loan losses are chargedagainst the allowance when management believes the uncollectibility of a loan balance is confirmed. Subsequent recoveries, if any, are creditedto the allowance. Management estimates the allowance balance required using past loan loss experience, the nature and volume of the portfolio,information about specific borrower situations and estimated collateral values, economic conditions, and other factors. Allocations of theallowance may be made for specific loans, but the entire allowance is available for any loan that, in management’s judgment, should be chargedoff. The allowance consists of specific and general components. The specific component relates to loans that are individually classified as impairedwhen, based on current information and events, it is probable that the Bank will be unable to collect all amounts due according to the contractualterms of the loan agreement. Loans for which the terms have been modified resulting in a concession, and for which the borrower is experiencingfinancial difficulties, are considered troubled debt restructurings (“TDR”) and classified as impaired. Factors considered by management in determining impairment include payment status, collateral value, and the probability of collecting scheduledprincipal and interest payments when due. Loans that experience insignificant payment delays and payment shortfalls generally are not classifiedas impaired. Management determines the significance of payment delays and payment shortfalls on a case-by-case basis, taking intoconsideration all of the circumstances surrounding the loan and the borrower, including the length of the delay, the reasons for the delay, theborrower’s prior payment record, and the amount of the shortfall in relation to the principal and interest owed. Impaired loans are measured for impairment using the fair value of the collateral, present value of cash flows, or the observable market price of thenote. Impairment measurement for all collateral dependent loans, excluding accruing TDR’s, is based on the fair value of collateral, less costs tosell, if necessary. A loan is considered collateral dependent if repayment of the loan is expected to be provided solely by the sale or the operationof the underlying collateral. When the Bank modifies a loan in a TDR, management evaluates for any possible impairment using either the discounted cash flows method,where the value of the modified loan is based on the present value of expected cash flows, discounted at the contractual interest rate of theoriginal loan agreement, or by using the fair value of the collateral less selling costs, if repayment under the modified terms becomes doubtful.74PDL Community Bancorp and SubsidiariesNotes to the Consolidated Financial StatementsYears Ended December 31, 2017 and 2016(Dollars in thousands, unless otherwise stated) Note 1. Nature of Business and Summary of Significant Accounting Policies (Continued) The general component covers non‑impaired loans and is based on historical loss experience adjusted for current factors. The historical lossexperience is determined by portfolio segment and is based on the actual loss history experienced over a rolling 12 quarter average period. Thisactual loss experience is supplemented with other economic factors based on the risks present for each portfolio segment. These economicfactors include consideration of the following: levels of and trends in delinquencies and impaired loans; levels of and trends in charge-offs andrecoveries; trends in volume and termsof loans; effects of any changes in risk selection and underwriting standards; other changes in lending policies, procedures, and practices;experience, ability, and depth of lending management and other relevant staff; national and local economic trends and conditions; industryconditions; and, effects of changes in credit concentrations. When establishing the allowance for loan losses, management categorizes loans into risk categories reflecting individual borrower earnings,liquidity, leverage and cash flow, as well as the nature of underlying collateral. These risk categories and relevant risk characteristics are asfollows:Residential and Multifamily Mortgage Loans: The majority of loans at the Bank are secured by first mortgages. Residential and multifamilymortgage loans are typically underwritten at a loan-to-value ratio ranging from 65% to 90%. The primary risks involved in residential mortgages arethe borrower’s loss of employment, or other significant event, that negatively impacts the source of repayment. Additionally, a serious decline inhome values could jeopardize repayment in the event that the underlying collateral needs to be liquidated to pay off the loan. Nonresidential Mortgage Loans: Nonresidential mortgage loans are primarily secured by commercial buildings, office and industrial buildings,warehouses, small retail shopping centers and various special purpose properties, including hotels, restaurants and nursing homes. These loansare typically underwritten at no more than 75% loan-to-value ratio. Although terms vary, commercial real estate loans generally have amortizationperiods of 15 to 30 years, as well as balloon payments of 10 to 15 years, and terms which provide that the interest rates is adjusted on a 5 yearschedule, Construction and Land Loans: Construction real estate loans consist of vacant land and property that is in the process of improvement.Repayment of these loans can be dependent on the sale of the property to third parties or the successful completion of the improvements by thebuilder for the end user. In the event a loan is made on property that is not yet improved for the planned development, there is the risk thatgovernment approvals will not be granted or will be delayed. Construction loans also run the risk that improvements will not be completed on timeor in accordance with specifications and projected costs. Construction real estate loans generally have terms of six months to two years during theconstruction period with fixed rates and interest rates based on a designated index. Business Loans: Business loans are loans for commercial, corporate and business purposes, including issuing letters of credit. These loans aresecured by business assets or may be unsecured and repayment is directly dependent on the successful operation of the borrower’s business andthe borrower’s ability to convert the assets to operating revenue. They possess greater risk than most other types of loans because therepayment capacity of the borrower may become inadequate. Business loans generally have terms of five years to seven years or less andinterest rates that float in accordance with a designated published index. Substantially all such loans are backed by the personal guarantees of theowners of the business. Consumer Loans: Consumer loans generally have higher interest rates than mortgage loans. The risk involved in consumer loans is the type andnature of the collateral and, in certain cases, the absence of collateral. Consumer loans include passbook loans and other secured and unsecuredloans that have been made for a variety of consumer purposes. Loans Held for Sale: Loan sales occur from time to time as part of strategic business or regulatory compliance initiatives. Loans held for sale,including deferred fees and costs, are reported at the lower of cost or fair value as determined by expected bid prices from potential investors.Loans are sold without recourse and servicing released. When a loan is transferred from portfolio to held for sale and the fair value is less thancost, a charge off is recorded against the allowance for loan loss. Subsequent declines in fair value, if any, are charged against earnings. 75PDL Community Bancorp and SubsidiariesNotes to the Consolidated Financial StatementsYears Ended December 31, 2017 and 2016(Dollars in thousands, unless otherwise stated) Note 1. Nature of Business and Summary of Significant Accounting Policies (Continued) Transfers of Financial Assets: Transfers of financial assets are accounted for as sales when all of the components meet the definition of aparticipating interest and when control over the assets has been surrendered. A participating interest generally represents (1) a proportionate (prorata) ownership interest in an entire financial asset, (2) a relationship where from the date of transfer all cash flows received from the entirefinancial asset are divided proportionately among the participating interest holders in an amount equal to their share of ownership, (3) the priority ofcash flows has certain characteristics, including no reduction in priority, subordination of interest, or recourse to the transferor other than standardrepresentation or warranties, and (4) no party has the right to pledge or exchange the entire financial asset unless all participating interest holdersagree to pledge or exchange the entire financial asset. Control over transferred assets is deemed to be surrendered when (1) the assets have beenisolated from the Bank, (2) the transferee obtains the right (free of conditions that constrain it from taking advantage of that right) to pledge orexchange the transferred assets, and (3) the Bank does not maintain effective control over the transferred assets through either (a) an agreementto repurchase them before their maturity or (b) the ability to unilaterally cause the holder to return specific assets, other than through a clean-upcall. Premises and Equipment: Premises and equipment are stated at cost, less accumulated depreciation. Depreciation is computed and charged to operations using the straight-line method over the estimated useful lives of the respective assets asfollows: YearsBuilding 39Building improvements 15 - 39Furniture, fixtures, and equipment 3 - 10 Leasehold improvements are amortized over the shorter of the improvements’ estimated economic lives or the related lease terms, includingextensions expected to be exercised. Gains and losses on dispositions are recognized upon realization. Maintenance and repairs are expensed asincurred and improvements are capitalized. Leasehold improvements in process are not amortized until the assets are placed in operation. Impairment of Long-Lived Assets: Long-lived assets, including premises and leasehold improvements are reviewed for impairment wheneverevents or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. If impairment is indicated by thatreview, the asset is written down to its estimated fair value through a charge to noninterest expense. Other Real Estate Owned: Other Real Estate Owned ("OREO") represents properties acquired through, or in lieu of, loan foreclosure or otherproceedings. OREO is initially recorded at fair value, less estimated disposal costs, at the date of foreclosure, which establishes a new costbasis. After foreclosure, the properties are held for sale and are carried at the lower of cost or fair value, less estimated costs of disposal. Anywrite-down to fair value, at the time of transfer to OREO, is charged to the allowance for loan losses. Properties are evaluated regularly to ensurethat the recorded amounts are supported by current fair values and charges against earnings are recorded as necessary to reduce the carryingamount to fair value, less estimated costs to dispose. Costs relating to the development and improvement of the property are capitalized, subjectto the limit of fair value of the OREO, while costs relating to holding the property are expensed. Gains or losses are included in operations upondisposal.76PDL Community Bancorp and SubsidiariesNotes to the Consolidated Financial StatementsYears Ended December 31, 2017 and 2016(Dollars in thousands, unless otherwise stated) Note 1. Nature of Business and Summary of Significant Accounting Policies (Continued)Income Taxes: The Company recognizes income taxes under the asset and liability method. Under this method, deferred tax assets and liabilitiesare recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets andliabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxableincome in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilitiesof a change in tax rates is recognized in income in the period that includes the enactment date. Deferred tax assets are reduced by a valuationallowance when, in the opinion of management, it is more likely than not that all or some portion of the deferred tax assets will not be realized. When tax returns are filed, it is highly certain that some positions taken would be sustained upon examination by the taxing authorities, whileothers are subject to uncertainty about the merits of the position taken or the amount of the position that would be ultimately sustained. Thebenefit of a tax position is recognized in the consolidated financial statements in the period during which, based on all available evidence,management believes it is more likely than not that the position will be sustained upon examination, including the resolution of appeals or litigationprocesses, if any. Tax positions taken are not offset or aggregated with other positions. Tax positions that meet the more-likely-than-notrecognition threshold are measured as the largest amount of tax benefit that is more than 50% likely of being realized upon settlement with theapplicable taxing authority. The portion of the benefits associated with tax positions taken that exceeds the amount measured as described aboveis reflected as a liability for unrecognized tax benefits along with any associated interest and penalties that would be payable to the taxingauthorities upon examination. At December 31, 2017 and 2016, there are no liabilities recorded related to uncertain tax positions. Income tax returns filed for years before 2014are no longer subject to income tax examinations by U.S. federal, state or local tax authorities.Interest and penalties associated with unrecognized tax benefits, if any, would be classified as additional provision for income taxes in theconsolidated statements of income (loss). Related Party Transactions: Directors and officers of the Company and their affiliates have been customers of and have had transactions with theCompany, and it is expected that such persons will continue to have such transactions in the future. Management believes that all depositaccounts, loans, services and commitments comprising such transactions were made in the ordinary course of business, on substantially thesame terms, including interest rates and collateral, as those prevailing at the time for comparable transactions with other customers who are notdirectors or officers. In the opinion of management, the transactions with related parties did not involve more than normal risk of collectability, norfavored treatment or terms, nor present other unfavorable features. Note 15 contains details regarding related party transactions.Defined Benefit Plan: The noncontributory defined benefit pension plan was effectively frozen on May 31, 2007. The funding policy is to contributeannually the amounts sufficient to meet the minimum funding standards established by the Employee Retirement Income Security Act (“ERISA”)and such additional amounts as determined by management based on actuary recommendations.Employee Stock Ownership Plan: Compensation expense is recorded as shares are committed to be released with a corresponding credit tounearned ESOP shares at the average fair market value of the shares during the year. Compensation expense is recognized ratably over theservice period based upon management’s estimate of the number of shares expected to be allocated by the ESOP. The difference between theaverage fair market value and the cost of the shares allocated by the ESOP is recorded as an adjustment to additional paid-in-capital.Comprehensive Income (Loss): Comprehensive income (loss) consists of net income and other comprehensive income (loss) which are bothrecognized as separate components of equity. Other comprehensive income (loss) includes unrealized gains and losses on securities availablefor sale and unrecognized gains and losses on actuarial loss and prior service cost of the defined benefit plan. 77PDL Community Bancorp and SubsidiariesNotes to the Consolidated Financial StatementsYears Ended December 31, 2017 and 2016(Dollars in thousands, unless otherwise stated) Note 1. Nature of Business and Summary of Significant Accounting Policies (Continued)Loss Contingencies: Loss contingencies, including claims and legal actions arising in the ordinary course of business, are recorded as liabilitieswhen the likelihood of loss is probable and an amount or range of loss can be reasonably estimated. Management does not believe there are nowsuch matters that will have a material effect on the operations and financial position of the Company. Fair Value of Financial Instruments: Fair value is the exchange price that would be received for an asset or paid to transfer a liability (exit price) inthe principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date.Fair values of financial instruments are estimated using relevant market information and other assumptions, as more fully disclosed in Note12. Fair value estimates involve uncertainties and matters of significant judgment regarding interest rates, credit risk, prepayments, and otherfactors, especially in the absence of broad markets for particular items. Changes in assumptions or in market conditions could significantly affectthese estimates. Segment Reporting: While management monitors the revenue streams of the various products and services, the identifiable segments andoperations are managed and financial performance is evaluated on a Company-wide basis. Accordingly, all of the financial service operations areconsidered by management to be aggregate in one reportable operating segment. Loan Commitments and Related Financial Instruments: Financial instruments include off‑balance sheet credit instruments, such as commitmentsto make loans and commercial letters of credit, issued to meet customer financing needs. The face amount for these items represents theexposure to loss, before considering customer collateral or ability to repay. Such financial instruments are recorded when they are funded. Earnings per Share (EPS): Basic EPS represents net income attributable to common shareholders divided by the weighted-average number ofcommon shares outstanding during the period. Diluted EPS is computed by dividing net income attributable to common shareholders by theweighted-average number of common shares outstanding, plus the effect of potential dilutive common stock equivalents outstanding during theperiod. Recent Accounting Pronouncements: As an emerging growth company (“EGC”) as defined in Rule 12b-2 of the Exchange Act, the Company has elected to use the extended transitionperiod to delay the adoption of new or reissued accounting pronouncements applicable to public companies until such pronouncements are madeapplicable to nonpublic companies. As of December 31, 2017, there is no significant difference in the comparability of the consolidated financialstatements as a result of this extended transition period.In May 2014, the FASB issued ASU 2014-09, “Revenue from Contracts with Customers (Topic 606)”, that amended guidance on revenuerecognition from contracts with customers. The standard outlines a single comprehensive model for entities to use in accounting for revenuearising from contracts with customers and supersedes most contract revenue recognition guidance, including industry-specific guidance. The coreprinciple of the amended guidance reportedly is that an entity should recognize revenue to depict the transfer of promised goods or services tocustomers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. Theamended guidance is effective for annual reporting periods beginning after December 15, 2017, including interim periods within that reportingperiod, for public business entities. As the Company is taking advantage of extended transition period for complying with new or revisedaccounting standards assuming it remains an EGC, it will adopt the amendments in this update beginning after December 15, 2018, and interimperiods within annual periods beginning after December 15, 2019. The Company expects to apply the amendments in this update by means of acumulative-effect adjustment as of the beginning of the period in which the guidance is adopted. The Company is evaluating the impact of theseamendments on its accounting procedures and processes over the recognition of certain revenue sources, including, but not limited to, non-interest income. The adoption of this update is not expected to have a material impact on the Company’s consolidated financial statements.78PDL Community Bancorp and SubsidiariesNotes to the Consolidated Financial StatementsYears Ended December 31, 2017 and 2016(Dollars in thousands, unless otherwise stated) Note 1. Nature of Business and Summary of Significant Accounting Policies (Continued)In January 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2016-01, “FinancialInstruments – Overall (Subtopic 825-10) Recognition and Measurement of Financial Assets and Financial Liabilities.” The FASB reported that themain objective in developing this new ASU was to enhance the reporting model for financial instruments, to provide users of financial statementswith more useful information. The update requires equity investments (except those accounted for under the equity method of accounting or thosethat result in consolidation of the investee) to be measured at fair value with changes in fair value recognized in net income. It addresses theimpairment assessment of equity investments without readily determinable fair values by requiring a qualitative assessment to identify impairment.The amendment eliminates the requirement for public business entities to disclose the methods and significant assumptions used to estimate thefair value that is required to be disclosed for financial instruments measured at amortized cost on the balance sheet. It requires public businessentities to use the exit price notion when measuring the fair value of financial instruments for disclosure purposes. Financial assets and financialliabilities are to be presented separately by measurement category and form of financial asset and the need for a valuation allowance on a deferredtax asset related to available-for-sale securities should be evaluated with the entity’s other deferred tax assets. The amendments in this updateare effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years, for public business entities. Asthe Company is taking advantage of extended transition period for complying with new or revised accounting standards assuming it remains anEGC, it will adopt the amendments in this update beginning after December 15, 2018, and interim periods within fiscal years beginning afterDecember 15, 2019.The Company expects to apply the amendments by means of a cumulative-effect adjustment to the balance sheet as of the beginning of the yearof adoption through retained earnings. The adoption of this update is not expected to have a material impact on the Company’s consolidatedfinancial statements.In February 2016, the FASB issued ASU 2016-02, “Leases (Topic 842).” This ASU requires all lessees to recognize a lease liability and a right-of-use asset, measured at the present value of the future minimum lease payments, at the lease commencement date. Lessor accounting remainslargely unchanged under the new guidance. The guidance is effective for fiscal years beginning after December 15, 2018, including interimreporting periods within that reporting period, for public business entities. As the Company is taking advantage of extended transition period forcomplying with new or revised accounting standards assuming it remains an EGC, it will adopt the amendments in this update beginning afterDecember 15, 2019, and interim periods within fiscal years beginning after December 15, 2020. A modified retrospective approach must be appliedfor leases existing at, or entered into after, the beginning of the earliest comparative period presented in the consolidated financial statements.The Company has begun its evaluation of the amended guidance including the potential impact on its consolidated financial statements. To date,the Company has identified its leased office spaces as within the scope of the guidance. The Company continues to evaluate the impact of theguidance, including determining whether other contracts exist that are deemed to be in scope. As such, no conclusions have yet been reachedregarding the potential impact of adoption on the Company’s consolidated financial statements.79PDL Community Bancorp and SubsidiariesNotes to the Consolidated Financial StatementsYears Ended December 31, 2017 and 2016(Dollars in thousands, unless otherwise stated) Note 1. Nature of Business and Summary of Significant Accounting Policies (Continued)In March 2016, the FASB issued ASU 2016-09, “Compensation - Stock Compensation (Topic 718).” The reported objective of this ASU is tosimplify accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity orliabilities, and classification on the statement of cash flows. Under the update, all excess tax benefits and tax deficiencies (including tax benefitsof dividends on share-based payment awards) should be recognized as income tax expense or benefit in the income statement. The tax effects ofexercised or vested awards should be treated as discrete items in the reporting period in which they occur. An entity also should recognize excesstax benefits regardless of whether the benefit reduces taxes payable in the current period. An entity can make an entity-wide accounting policyelection to either estimate the number of awards that are expected to vest (current accounting) or account for forfeitures when they occur. Withinthe statement of cash flows, excess tax benefits should be classified along with other income tax cash flows as an operating activity, and cashpaid by an employer when directly withholding shares for tax-withholding purposes should be classified as a financing activity. The amendments inthis ASU are effective for annual periods beginning after December 15, 2016, and interim periods within those annual periods, for public businessentities. As the Company is taking advantage of extended transition period for complying with new or revised accounting standards assuming itremains an EGC, it will adopt the amendments in this update beginning after December 15, 2017, and interim periods within annual periodsbeginning after December 15, 2018. The Company expects to apply the amendments in this update by means of a cumulative-effect adjustment toequity as of the beginning of the period in which the guidance is adopted, or prospectively, as applicable. The adoption of this update is notexpected to have a material impact on the Company’s consolidated financial statements.In June 2016, the FASB issued ASU 2016-13, “Measurement of Credit Losses on Financial Instruments.” This ASU reportedly significantlychanges how entities will measure credit losses for most financial assets and certain other instruments that are not measured at fair value throughnet income. The standard is to replace today’s “incurred loss” approach with an “expected loss” model. The new model, referred to as the currentexpected credit loss (“CECL”) model, is to apply to: (1) financial assets subject to credit losses and measured at amortized cost, and (2) certainoff-balance sheet credit exposures. This includes, but is not limited to, loans, leases, held-to-maturity securities, loan commitments and financialguarantees. The CECL model does not apply to available-for-sale (“AFS”) debt securities. For AFS debt securities with unrealized losses, entitieswill measure credit losses in a manner similar to what they do today, except that the losses will be recognized as allowances rather thanreductions in the amortized cost of the securities. As a result, entities will recognize improvements to estimated credit losses immediately inearnings rather than as interest income over time, as they do today. The ASU also reportedly simplifies the accounting model for purchasedcredit-impaired debt, securities and loans. ASU 2016-13 also expands the disclosure requirements regarding an entity’s assumptions, models andmethods for estimating the allowance for loan and lease losses. In addition, entities will need to disclose the amortized cost balance for eachclass of financial asset by credit quality indicator, disaggregated by the year of origination. ASU No. 2016-13 is effective for annual reportingperiods beginning after December 15, 2019, including interim periods within those fiscal years, for public business entities. As the Company istaking advantage of extended transition period for complying with new or revised accounting standards assuming it remains an EGC, we will adoptthe amendments in this update beginning after December 15, 2020, including interim periods within those fiscal years. Entities have to apply thestandard’s provisions as a cumulative-effect adjustment to retained earnings as of the beginning of the first reporting period in which the guidanceis effective (i.e., modified retrospective approach).Although early adoption is permitted, the Company does not expect to elect that option. The Company has begun its evaluation of the amendedguidance including the potential impact on its consolidated financial statements. As a result of the required change in approach toward determiningestimated credit losses from the current “incurred loss” model to one based on estimated cash flows over a loan’s contractual life, adjusted forprepayments (a “life of loan” model), the Company expects that the new guidance will result in an increase in the allowance for loan losses,particularly for longer duration loan portfolios. The Company also expects that the new guidance may result in an allowance for debt securities. Inboth cases, the extent of the change is indeterminable at this time as it will be dependent upon portfolio composition and credit quality at theadoption date, as well as economic conditions and forecasts at that time.80PDL Community Bancorp and SubsidiariesNotes to the Consolidated Financial StatementsYears Ended December 31, 2017 and 2016(Dollars in thousands, unless otherwise stated) Note 1. Nature of Business and Summary of Significant Accounting Policies (Continued)In August 2016, the FASB issued ASU 2016-15, “Statement of Cash Flows (Topic 230) - Classification of Certain Cash Receipts and CashPayments.” This ASU reportedly is intended to reduce diversity in how certain cash receipts and cash payments are presented and classified inthe statements of cash flows. The guidance is effective for fiscal years beginning after December 15, 2017, and interim periods within those fiscalyears, for public business entities. As the Company is taking advantage of extended transition period for complying with new or revised accountingstandards assuming it remains an EGC, it will adopt the amendments in this update beginning after December 15, 2018, and interim periods withinfiscal years beginning after December 15, 2019. A retrospective transition method should be applied to each period presented, unless it isimpracticable to apply the amendments retrospectively for some of the issues, then the amendments for those issues would be appliedprospectively as of the earliest date practicable. The adoption of this update is not expected to have a material impact on the Company’sconsolidated financial statements.In March 2017, the FASB issued ASU 2017-07 “Compensation-Retirement Benefits (Topic 715): Improving the Presentation of Net PeriodicPension Cost and Net Periodic Postretirement Benefit Cost.” The ASU requires that an employer report the service cost component with othercompensation cost arising from services rendered by the pertinent employees during the period. The amendment also requires the components ofnet benefit cost to be presented separately in the income statement from the service cost component and not within income from operations. ASU2017-07 is effective for interim and annual reporting for public business entities beginning after December 15, 2017. As the Company is takingadvantage of extended transition period for complying with new or revised accounting standards assuming it remains an EGC, it will adopt theamendments in this update beginning after December 15, 2018, and interim periods within annual periods beginning after December 15, 2019. Theadoption of this update is not expected to have a material impact on the Company’s consolidated financial statements.In March 2017, the FASB issued ASU 2017-08 “Receivables – Non-Refundable Fees and Other Costs (Subtopic 310-20): Premium Amortizationon Purchased Callable Debt Securities.” The ASU requires premiums on callable debt securities to be amortized to the earliest call date. Theamendments do not require an accounting change for securities held at a discount; the discount continues to be amortized to maturity. ASU 2017-08 is effective for interim and annual reporting periods beginning after December 15, 2018 for public business entities. Early adoption is permittedbeginning after December 15, 2018, including interim periods within those fiscal years. As the Company is taking advantage of extended transitionperiod for complying with new or revised accounting standards assuming it remains an EGC, it will adopt the amendments in this update beginningafter December 15, 2019, and interim periods within annual periods beginning after December 15, 2020. ASU 2017-08 will not have a materialimpact on the Company’s consolidated financial position, results of operations or disclosures.In February 2018, the Financial Accounting Standards Board issued Accounting Standards Update 2018-02, Income Statement – ReportingComprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income. This amendmentallows a reclassification from accumulated other comprehensive income to retained earnings for stranded tax effects resulting from the Tax Cutsand Jobs Act of 2017. This amendment is effective for years beginning after December 15, 2018. Early adoption is permitted. The Company hasnot elected to adopt this standard on December 31, 2017.Note 2.Restrictions on Cash and Due From Banks The Bank is required to maintain reserve balances in cash or on deposit with the Federal Reserve Bank, based on a percentage of deposits. TheBank had $24,334 and $4,516 in cash to cover its minimum reserve requirements of $23,870 and $2,349 at December 31, 2017 and 2016,respectively. 81PDL Community Bancorp and SubsidiariesNotes to the Consolidated Financial StatementsYears Ended December 31, 2017 and 2016(Dollars in thousands, unless otherwise stated) Note 3. Available-for-Sale Securities The amortized cost, gross unrealized gains and losses, and fair value of available-for-sale securities at December 31, 2017 and 2016 aresummarized as follows: December 31, 2017 Gross Gross Amortized Unrealized Unrealized Cost Gains Losses Fair Value U.S. Government and Federal Agencies $24,911 $— $(359) $24,552 Mortgage-Backed Securities: FNMA Certificates 1,118 — (15) 1,103 GNMA Certificates 3,205 38 (1) 3,242 $29,234 $38 $(375) $28,897 December 31, 2016 Gross Gross Amortized Unrealized Unrealized Cost Gains Losses Fair Value U.S. Government and Federal Agencies $41,906 $— $(347) $41,559 Certificates of Deposit 500 — — 500 Mortgage-Backed Securities: FHLMC Certificates 192 24 — 216 FNMA Certificates 3,600 11 (5) 3,606 GNMA Certificates 6,744 97 (32) 6,809 $52,942 $132 $(384) $52,690 There were no investments that were classified as held to maturity as of December 31, 2017 and 2016. There were $20,411 in sales of investmentsecurities during the year ended December 31, 2017 and no sales of investment securities in 2016. The following tables present the Company's securities' gross unrealized losses and fair values, aggregated by the length of time the individualsecurities have been in a continuous unrealized loss position, at December 31, 2017 and 2016: December 31, 2017 Securities With Gross Unrealized Losses Less Than 12 Months 12 Months or More Total Total Fair Unrealized Fair Unrealized Fair Unrealized Value Loss Value Loss Value Loss U.S. Government and Federal Agencies $— $— $24,552 $(359) $24,552 $(359)Mortgage-Backed FNMA Certificates 1,094 (15) — — 1,094 (15)GNMA Certificates 1,205 (1) — — 1,205 (1) $2,299 $(16) $24,552 $(359) $26,851 $(375) December 31, 2016 Securities With Gross Unrealized Losses Less Than 12 Months 12 Months or More Total Total Fair Unrealized Fair Unrealized Fair Unrealized Value Loss Value Loss Value Loss U.S. Government and Federal Agencies $41,559 $(347) $— $— $41,559 $(347)Mortgage-Backed FNMA Certificates 3,489 (5) — — 3,489 (5)GNMA Certificates 2,645 (32) — — 2,645 (32) $47,693 $(384) $— $— $47,693 $(384) 82PDL Community Bancorp and SubsidiariesNotes to the Consolidated Financial StatementsYears Ended December 31, 2017 and 2016(Dollars in thousands, unless otherwise stated) Note 3. Available-for-Sale-Securities (Continued)The Company’s investment portfolio had 33 and 52 investment securities at December 31, 2017 and 2016, respectively. At December 31, 2017and 2016, the Company had 14 and 25 securities, respectively, with a gross unrealized loss position. Management reviewed the financialcondition of the entities underlying the securities at both December 31, 2017 and 2016 and determined that they are not other than temporarybecause the unrealized losses in those securities relate to market interest rate changes the Company has the ability to hold them and does nothave the intent to sell these securities, and it is not more likely than not that the Company will be required to sell these securities, before recoveryof the cost basis. In addition, management also considers the issuers of the securities to be financially sound and believes the Company willreceive all contractual principal and interest related to these investments. The following is a summary of maturities of securities at December 31, 2017 and 2016. Amounts are shown by contractual maturity. Becauseborrowers of the underlying collateral for mortgage-backed securities have the right to prepay obligations with or without prepayment penalties, atany time, these securities are included as a total within the table. December 31, 2017 Available-for-Sale Amortized Fair Cost Value U.S. Government and Federal Agency Securities: Amounts maturing: Three months or less $— $— After three months through one year 1,990 1,977 After one year through five years 22,921 22,575 24,911 24,552 Mortgage-Backed Securities 4,323 4,345 Total $29,234 $28,897 December 31, 2016 Available-for-Sale Amortized Fair Cost Value U.S. Government and Federal Agency Securities: Amounts maturing: After three months through one year $2,000 $1,998 After one year through five years 39,906 39,561 41,906 41,559 Certificates of Deposit After three months through one year 500 500 Mortgage-Backed Securities 10,536 10,631 Total $52,942 $52,690 There were no securities pledged at December 31, 2017 and December 31, 2016. 83PDL Community Bancorp and SubsidiariesNotes to the Consolidated Financial StatementsYears Ended December 31, 2017 and 2016(Dollars in thousands, unless otherwise stated) Note 4. Loans Receivable and Allowance for Loan Losses Loans at December 31, 2017 and 2016 are summarized as follows: December 31, December 31, 2017 2016 Mortgage loans: 1-4 family residential Investor-Owned $287,158 $227,409 Owner-Occupied 100,854 97,631 Multifamily residential 188,550 158,200 Nonresidential properties 151,193 121,500 Construction and land 67,240 30,340 Nonmortgage loans: Business loans 12,873 15,719 Consumer loans 886 843 808,754 651,642 Net deferred loan origination costs 1,020 711 Allowance for losses on loans (11,071) (10,205)Loans, net $798,703 $642,148 The Company's lending activities are conducted principally in New York City. The Company primarily grants loans secured by real estate toindividuals and businesses. While collateral provides assurance as a secondary source of repayment, the Bank ordinarily requires the primarysource of repayment to be based on the borrowers' ability to generate continuing cash flows.. The Company has established credit policiesapplicable to each type of lending activity in which it engages. The Company evaluates the creditworthiness of each customer and, in most cases,extends credit up to 75% of the market value of the collateral at the date of the credit extension, depending on the borrowers' creditworthiness andthe type of collateral. The market value of collateral is monitored on an ongoing basis and additional collateral is obtained when warranted. Realestate is the primary form of collateral. Other important forms of collateral are time deposits and marketable securities. For disclosures related to the allowance for loan losses and credit quality, the Company does not have any disaggregated classes of loans belowthe segment level. Credit-Quality Indicators: The Company utilizes internally assigned risk ratings as its credit-quality indicators, which are reviewed by managementon a quarterly basis. The objectives of the Company’s risk-rating system are to provide the Board of Directors and senior management with an objective assessment ofthe overall quality of the loan portfolio, to promptly and accurately identify loans with well-defined credit weaknesses so that timely action can betaken to minimize credit loss, to identify relevant trends affecting the collectability of the loan portfolio, to isolate potential problem areas and toprovide essential information for determining the adequacy of the allowance for loan losses. Below are the definitions of the Company's internally assigned risk ratings: Strong Pass – Loans to new or existing borrowers collateralized at least 90 percent by an unimpaired deposit account at the Company. Good Pass – A loan to a well-established, new or existing borrower in excellent financial condition with strong liquidity and a history ofconsistently high level of earnings, cash flow and debt service capacity. 84PDL Community Bancorp and SubsidiariesNotes to the Consolidated Financial StatementsYears Ended December 31, 2017 and 2016(Dollars in thousands, unless otherwise stated) Note 4. Loans Receivable and Allowance for Loan Losses (Continued) Satisfactory Pass – Loan to a new or existing borrower of average strength with acceptable financial condition, satisfactory record of earningsand sufficient historical and projected cash flow to service the debt. Performance Pass – New or existing loans evidencing less than average strength, financial condition, record of earnings, or projected cash flows with which to service debt. Special Mention – Loans in this category are currently protected but show one or more potential weakness and risks which may inadequatelyprotect the Company’s credit position or borrower’s ability to meet repayment terms at some future date if the weakness is not checked orcorrected. Substandard – Loans that are inadequately protected by the repayment capacity of the borrower or the current sound net worth of the collateralpledged, if any. Loans in this category have well defined weaknesses and risks that jeopardize the repayment. They are characterized by thedistinct possibility that the Company will sustain some loss if the deficiencies are not corrected. Doubtful – Loans that have all the weaknesses of loans classified as “Substandard” with the added characteristic that the weaknesses makecollection or liquidation in full, on the basis of current existing facts, conditions, and values, highly questionable and improbable. Loans within the top four categories above are considered pass rated, as commonly defined. Risk ratings are assigned as necessary todifferentiate risk within the portfolio. They are reviewed on an ongoing basis and revised to reflect changes in the borrowers’ financial condition andoutlook, debt service coverage capability, repayment performance, collateral value and coverage as well as other considerations. The following tables present credit risk ratings by loan segment as of December 31, 2017 and 2016: December 31, 2017 Mortgage Loans Nonmortgage Loans Construction Total 1-4 Family Multifamily Nonresidential and Land Business Consumer Loans Risk Rating: Pass $370,629 $188,030 $148,253 $59,914 $12,726 $886 $780,438 Special mention 4,667 — — 650 — — 5,317 Substandard 12,716 520 2,940 6,676 147 — 22,999 Doubtful — — — — — — — Total $388,012 $188,550 $151,193 $67,240 $12,873 $886 $808,754 December 31, 2016 Mortgage Loans Nonmortgage Loans Construction Total 1-4 Family Multifamily Nonresidential and Land Business Consumer Loans Risk Rating: Pass $313,345 $158,200 $117,467 $24,316 $15,697 $843 $629,868 Special mention 2,549 — — — — 2,549 Substandard 9,146 — 4,033 6,024 22 — 19,225 Doubtful — — — — — — — Total $325,040 $158,200 $121,500 $30,340 $15,719 $843 $651,642 85PDL Community Bancorp and SubsidiariesNotes to the Consolidated Financial StatementsYears Ended December 31, 2017 and 2016(Dollars in thousands, unless otherwise stated) Note 4. Loans Receivable and Allowance for Loan Losses (Continued)An aging analysis of loans, as of December 31, 2017 and 2016, is as follows: December 31, 2017 30-59 60-89 Over Over Days Days 90 Days Nonaccrual 90 Days Current Past Due Past Due Past Due Total Loans Accruing Mortgages: 1-4 Family Investor-Owned $285,485 $1,201 $— $472 $287,158 $2,178 $7 Owner-Occupied 96,878 585 — 3,391 100,854 5,317 — Multifamily 188,504 46 — — 188,550 521 — Nonresidential properties 149,300 11 — 1,882 151,193 2,170 — Construction and land 67,240 — — — 67,240 1,075 — Nonmortgage Loans: Business 12,583 239 — 51 12,873 147 — Consumer 886 — — — 886 — — Total $800,876 $2,082 $— $5,796 $808,754 $11,408 $7 December 31, 2016 30-59 60-89 Over Over Days Days 90 Days Nonaccrual 90 Days Current Past Due Past Due Past Due Total Loans Accruing Mortgages: 1-4 Family Investor-Owned $224,368 $2,716 $— $325 $227,409 $2,049 $— Owner-Occupied 92,778 2,562 557 1,734 97,631 2,109 — Multifamily 157,381 819 — — 158,200 — — Nonresidential properties 119,465 41 — 1,994 121,500 2,397 — Construction and land 30,340 — — — 30,340 1,145 — Nonmortgage Loans: Business 15,672 25 — 22 15,719 22 — Consumer 843 — — — 843 — — Total $640,847 $6,163 $557 $4,075 $651,642 $7,722 $— 86PDL Community Bancorp and SubsidiariesNotes to the Consolidated Financial StatementsYears Ended December 31, 2017 and 2016(Dollars in thousands, unless otherwise stated) Note 4. Loans Receivable and Allowance for Loan Losses (Continued)The following schedules detail the composition of the allowance for loan losses and the related investment in loans as of December 31, 2017 and2016, respectively. For the Year Ended December 31, 2017 Mortgage Loans Nonmortgage Loans Total 1-4FamilyInvestorOwned 1-4FamilyOwnerOccupied Multifamily Nonresidential Constructionand Land Business Consumer Unallocated For thePeriod Allowances for loan losses: Balance, beginning of period $3,147 $1,804 $2,705 $1,320 $615 $597 $17 $— $10,205 Provision charged to expense 544 (578) 402 95 588 676 (11) — 1,716 Losses charged-off — — — — — (1,423) (6) — (1,429)Recoveries 25 176 2 9 2 359 6 — 579 Balance, end of period $3,716 $1,402 $3,109 $1,424 $1,205 $209 $6 $— $11,071 Ending balance: individually evaluated for impairment $506 $375 $— $39 $— $2 $— $— $922 Ending balance: collectively evaluated for impairment 3,210 1,027 3,109 1,385 1,205 207 6 — 10,149 Unallocated — — — — — — — — — Total $3,716 $1,402 $3,109 $1,424 $1,205 $209 $6 $— $11,071 Loans: Ending balance: individually evaluated for impairment $8,738 $10,074 $520 $4,128 $1,075 $625 $— $— $25,160 Ending balance: collectively evaluated for impairment 278,420 90,780 188,030 147,065 66,165 12,248 886 — 783,594 Total $287,158 $100,854 $188,550 $151,193 $67,240 $12,873 $886 $— $808,754 For the Year Ended December 31, 2016 Mortgage Loans Nonmortgage Loans Total 1-4FamilyInvestorOwned 1-4FamilyOwnerOccupied Multifamily Nonresidential Constructionand Land Business Consumer Unallocated For thePeriod Allowances for loan losses: Balance, beginning of period $2,842 $2,127 $1,994 $1,298 $502 $709 $12 $— $9,484 Provision charged to expense 325 (465) 713 13 193 (845) 9 — (57)Losses charged-off (38) — (3) — (85) — (13) — (139)Recoveries 18 142 1 9 5 733 9 — 917 Balance, end of period $3,147 $1,804 $2,705 $1,320 $615 $597 $17 $— $10,205 Ending balance: individually evaluated for impairment $383 $719 $— $261 $— $10 $— $— $1,373 Ending balance: collectively evaluated for impairment 2,764 1,085 2,705 1,059 615 587 17 — 8,832 Unallocated — — — — — — — — — Total $3,147 $1,804 $2,705 $1,320 $615 $597 $17 $— $10,205 Loans: Ending balance: individually evaluated for impairment $8,471 $9,385 $— $6,459 $1,145 $615 $— $— $26,075 Ending balance: collectively evaluated for impairment 218,938 88,246 158,200 115,041 29,195 15,104 843 — 625,567 Total $227,409 $97,631 $158,200 $121,500 $30,340 $15,719 $843 $— $651,642 87PDL Community Bancorp and SubsidiariesNotes to the Consolidated Financial StatementsYears Ended December 31, 2017 and 2016(Dollars in thousands, unless otherwise stated) Note 4. Loans Receivable and Allowance for Loan Losses (Continued) For the Year Ended December 31, 2015 Mortgage Loans Nonmortgage Loans Total 1-4FamilyInvestorOwned 1-4FamilyOwnerOccupied Multifamily Nonresidential Constructionand Land Business Consumer Unallocated For thePeriod Allowances for loan losses: Balance, beginning of year $2,727 $2,277 $1,669 $1,529 $504 $732 $11 $— $9,449 Provision charged to expense 204 (20) 582 (243) 75 (247) 2 — 353 Losses charged-off (142) (140) (257) (19) (77) — (8) — (643)Recoveries 53 10 - 31 - 224 7 — 325 Balance, end of year $2,842 $2,127 $1,994 $1,298 $502 $709 $12 $— $9,484 Ending balance: individually evaluated for impairment $386 $782 $— $277 $— $1 $— $— $1,446 Ending balance: collectively evaluated for impairment 2,456 1,345 1,994 1,021 502 708 12 — 8,038 Unallocated — — — — — — — — — Total $2,842 $2,127 $1,994 $1,298 $502 $709 $12 $— $9,484 Loans: Ending balance: individually evaluated for impairment $10,797 $10,463 $— $6,671 $637 $826 $— $— $29,394 Ending balance: collectively evaluated for impairment 193,134 95,743 122,836 99,791 22,246 13,524 788 — 548,062 Total $203,931 $106,206 $122,836 $106,462 $22,883 $14,350 $788 $— $577,456 Loans are considered impaired when current information and events indicate all amounts due may not be collectable according to the contractualterms of the related loan agreements. Impaired loans, including TDR’s, are identified by applying normal loan review procedures in accordance withthe Allowance for Loan Loss methodology. Management periodically assesses loans to determine whether impairment exists. Any loan that is, orwill potentially be, no longer performing in accordance with the terms of the original loan contract is evaluated to determine impairment. The following information relates to impaired loans as of and for the years ended December 31, 2017, 2016 and 2015: UnpaidContractual RecordedInvestment RecordedInvestment Total Average InterestIncome Principal With No With Recorded Related Recorded Recognized December 31, 2017 Balance Allowance Allowance Investment Allowance Investment on Cash Basis Mortgages: 1-4 Family $20,036 $10,651 $8,161 $18,812 $506 $18,512 $890 Multifamily 533 520 — 520 375 166 — Nonresidential properties 4,729 3,633 495 4,128 — 5,231 166 Construction and land 1,233 1,075 — 1,075 39 1,042 — Nonmortgage Loans: Business 667 529 96 625 2 594 24 Consumer — — — — — — — Total $27,198 $16,408 $8,752 $25,160 $922 $25,545 $1,080 88PDL Community Bancorp and SubsidiariesNotes to the Consolidated Financial StatementsYears Ended December 31, 2017 and 2016(Dollars in thousands, unless otherwise stated) Note 4. Loans Receivable and Allowance for Loan Losses (Continued) UnpaidContractual RecordedInvestment RecordedInvestment Total Average InterestIncome Principal With No With Recorded Related Recorded Recognized December 31, 2016 Balance Allowance Allowance Investment Allowance Investment on Cash Basis Mortgages: 1-4 Family $19,367 $7,507 $10,349 $17,856 $1,102 $20,131 $722 Multifamily — — — — — 309 — Nonresidential properties 7,096 3,897 2,562 6,459 261 6,541 235 Construction and land 1,241 1,145 — 1,145 — 912 — Nonmortgage Loans: Business 672 605 10 615 10 748 24 Consumer — — — — — — — Total $28,376 $13,154 $12,921 $26,075 $1,373 $28,641 $981 UnpaidContractual RecordedInvestment RecordedInvestment Total Average InterestIncome Principal With No With Recorded Related Recorded Recognized December 31, 2015 Balance Allowance Allowance Investment Allowance Investment on Cash Basis Mortgages: 1-4 Family $23,060 $11,025 $10,235 $21,260 $1,169 $24,797 $993 Multifamily — — — — — 1,544 2 Nonresidential properties 7,264 4,028 2,643 6,671 277 6,595 302 Construction and land 662 637 — 637 — 931 45 Nonmortgage Loans: Business 891 755 71 826 1 993 44 Consumer — — — — — 2 3 Total $31,877 $16,445 $12,949 $29,394 $1,447 $34,862 $1,389 The loan portfolio also includes certain loans that have been modified in a TDR. Under applicable standards, TDRs occur when a creditor, foreconomic or legal reasons related to a debtor’s financial condition, grants a concession to the debtor that it would not otherwise consider, unless itresults in a delay in payment that is insignificant. These concessions could include a reduction of interest rate on the loan, payment and maturityextensions, forbearance, or other actions intended to maximize collections. When a loan is modified in a TDR, management evaluates for anypossible impairment using either the discounted cash flows method, where the value of the modified loan is based on the present value ofexpected cash flows, discounted at the contractual interest rate of the original loan agreement, or by using the fair value of the collateral lessselling costs if repayment under the modified terms becomes doubtful. If management determines that the value of the modified loan in a TDR isless than the recorded investment in the loan, impairment is recognized through a specific allowance estimate or charge-off to the allowance forloan losses.89PDL Community Bancorp and SubsidiariesNotes to the Consolidated Financial StatementsYears Ended December 31, 2017 and 2016(Dollars in thousands, unless otherwise stated) Note 4. Loans Receivable and Allowance for Loan Losses (Continued)As of and for the year ended December 31, 2017, there was one loan that was restructured as a TDR. As of and for the year ended December 31,2016, there were no loans restructured as TDRs. For the years ended December 31, 2017 and 2016, there were no outstanding TDR loans thathad a payment default within 12 months following its modification. Loans Restructured During All TDRs with a paymentdefault within 12 monthsfollowing the Year Ended December 31, 2017 modification Pre- Post- Balance Modification Modification of Loans Number Recorded Recorded Number at the Time of Loans Balance Balance of Loans of Default Mortgages: 1-4 Family 1 $176 $176 — $— Total 1 $176 $176 — $— Combination of rate, maturity, other 1 $176 $176 — $— Total 1 $176 $176 — $— At December 31, 2017, there were 49 troubled debt restructured loans, included in impaired loans, of $18,371. At December 31, 2016, there were58 troubled debt restructured loans, included in impaired loans, of $21,021. There were no commitments to lend additional funds to borrowerswhose loans have been modified in a troubled debt restructuring. The financial impact from the concessions made represents specific impairmentreserves on these loans which aggregated $921 and $1,373 at December 31, 2017 and December 31, 2016, respectively. Note 5. Premises and EquipmentA summary of premises and equipment at December 31, 2017 and 2016 is as follows: December 31, 2017 2016 Land $3,979 $3,979 Buildings and improvements 15,972 15,972 Leasehold improvements 20,973 19,280 Furniture, fixtures and equipment 4,875 3,799 45,799 43,030 Less accumulated depreciation and amortization (18,627) (17,002) $27,172 $26,028 Depreciation and amortization expense amounted to $1,625, $1,679 and $1,817 for the years ended December 31, 2017 2016, and 2015,respectively, and are included in occupancy expense in the accompanying consolidated statements of income (loss). 90PDL Community Bancorp and SubsidiariesNotes to the Consolidated Financial StatementsYears Ended December 31, 2017 and 2016(Dollars in thousands, unless otherwise stated) Note 6. Deposits Deposits at December 31, 2017 and 2016 are summarized as follows: December 31, 2017 2016 Demand $103,001 $78,792 Interest-bearing deposits: NOW/IOLA accounts 27,758 25,692 Money market accounts 46,497 42,788 Savings accounts 126,668 127,085 Total NOW, money market, and savings 200,923 195,565 Certificates of deposit of $250K or more 80,300 90,267 All other certificates of deposit 329,761 278,454 Total certificates of deposit 410,061 368,721 Total interest-bearing deposits 610,984 564,286 Total deposits $713,985 $643,078 At December 31, 2017, scheduled maturities of certificates of deposit were as follows: December 31, 2018 $161,098 2019 82,820 2020 52,173 2021 73,084 2022 40,886 $410,061 Overdrawn deposit accounts that have been reclassified to loans amounted to $174 and $149 as of December 31, 2017 and 2016, respectively. Note 7. BorrowingsFHLB Advances: The Bank is a member of the Federal Home Loan Bank of New York. At December 31, 2017, the Bank had the ability to borrowfrom the FHLB based on a certain percentage of the value of the Bank's qualified collateral, as defined in the FHLB Statement of Credit Policy, atthe time of the borrowing. In accordance with an agreement with the FHLB, the qualified collateral must be free and clear of liens, pledges andencumbrances.The Bank had $16,400 and $3,000 of outstanding advances from the FHLB on term basis and an overnight line of credit basis at December 31,2017 and 2016, respectively. The Bank also had a guarantee from the FHLB through a standby letter of credit of $6,614 and $3,583 atDecember 31, 2017 and 2016, respectively. Additionally, the Bank had an unsecured fed funds line in the amount of $22,000 with a correspondentbank, of which $20,000 was outstanding at December 31, 2017.Borrowed funds at December 31, 2017 and 2016 consist of FHLB and correspondent bank advances and are summarized by maturity and call datebelow: 91PDL Community Bancorp and SubsidiariesNotes to the Consolidated Financial StatementsYears Ended December 31, 2017 and 2016(Dollars in thousands, unless otherwise stated) Note 7. Borrowings (Continued) December 31, December 31, 2017 2016 ScheduledMaturity Redeemableat CallDate WeightedAverageRate ScheduledMaturity Redeemableat CallDate WeightedAverageRate FHLB Overnight line of credit advance$— $— —% $3,000 $3,000 0.78% Correspondent Bank Overnight line of credit advance 20,000 20,000 1.64 — — — FHLB Term advances ending December 31: 2020 1,400 1,400 2.11 — — — 2021 3,000 3,000 1.84 — — — 2022 5,000 5,000 1.97 — — — 2023 7,000 7,000 2.12 — — — $36,400 $36,400 1.81% $3,000 $3,000 —% Interest expense on advances totaled $210, $8, and $44 for the years ended December 31, 2017, 2016 and 2015, respectively. As of December 31, 2017 and 2016, the Bank has eligible collateral of approximately $66,254 and $164,843, respectively, in mortgage loansavailable to secure advances from the FHLB.Securities Sold under Agreement to Repurchase: At December 31, 2017 and 2016, the Bank had the ability to borrow up to $25,000 underrepurchase agreements with three brokers. The Bank had no securities sold under repurchase agreements with brokers as of December 31, 2017and 2016, respectively. Interest expense on securities sold under repurchase agreements totaled $0, $0 and $0 for the years ended December 31,2017, 2016, and 2015, respectively. Note 8. Income TaxesThe provision (benefit) for income taxes for the years ended December 31, 2017, 2016, and 2015 consists of the following: For the Years Ended December 31, 2017 2016 2015 Federal: Current $1,062 $642 $91 Deferred 24 387 1,090 1,086 1,029 1,181 State and local: Current 402 237 122 Deferred (1,670) (754) (722) (1,268) (517) (600)Changes in valuation allowance 1,606 493 734 Provision (benefit) for income taxes $1,424 $1,005 $1,315 Total income tax expense differed from the amounts computed by applying the U.S. federal income tax rate of 34% for 2017, 2016, and2015 to income before income taxes as a result of the following:92PDL Community Bancorp and SubsidiariesNotes to the Consolidated Financial StatementsYears Ended December 31, 2017 and 2016(Dollars in thousands, unless otherwise stated) Note 8. Income Taxes (Continued) For the Years Ended December 31, 2017 2016 2015 Income tax, at federal rate $(1,007) $826 $1,303 State and local tax, net of federal taxes (1,340) (341) (395)Valuation allowance, net of the federal benefit 1,606 493 734 Expense (benefit) due to enactment of federal tax reform 2,113 — — Other 52 27 (327) $1,424 $1,005 $1,315 On December 22, 2017, the U.S. Government signed into law the “Tax Cuts and Jobs Act” which, starting in 2018, reduced the Company’scorporate income tax rate from 34% to 21%, but eliminates or increases certain permanent differences. As of the date of enactment, theCompany has adjusted its deferred tax assets and liabilities for the new statutory rate, which resulted in a $2,113 income tax expense for the yearended December 31, 2017. On December 22, 2017, the U.S. Securities and Exchange Commission (“SEC”) released Staff Accounting Bulletin No. 118 (“SAB 118”) to addressany uncertainty or diversity of views in practice in accounting for the income tax effects of the Act in situations where a registrant does not havethe necessary information available, prepared, or analyzed in reasonable detail to complete this accounting in the reporting period that includes theenactment date. SAB 118 allows for a measurement period, not to extend beyond one year from the Act’s enactment date, to complete thenecessary accounting. We recorded provisional amounts of deferred income taxes using reasonable estimates in two areas where the information necessary to completethe accounting was not available, prepared, or analyzed: 1) Our deferred tax liability for temporary differences between the tax and financialreporting bases of fixed assets principally due to the accelerated depreciation under the Act which allows for full expensing of qualified propertypurchased and placed into service after September 27, 2017; and 2) Our deferred tax asset for temporary differences associated with accruedcompensation is awaiting final determinations of amounts that will be paid and deducted on the 2017 income tax returns. In a third area, we made no adjustments to deferred tax assets representing future deductions for accrued compensation that may be subject tonew limitations under Internal Revenue Code Section 162(m) which, generally, limits the annual deduction for certain compensation paid to certainemployees to $1 million. As of the report filing date, there is uncertainty regarding how the newly-enacted rules in this area apply to existingcontracts. Consequently, we are seeking further clarification of these matters before completing our analysis. We will complete and record the income tax effects of these provisional items during the period the necessary information becomes available. Thismeasurement period will not extend beyond December 22, 2018. Management maintains a valuation allowance against its net New York State and New York City deferred tax as it is unlikely these deferred taxassets will impact the Company's tax liability in future years. Management has determined that it is not required to establish a valuation allowance against any other deferred tax asset in accordance withGAAP since it is more likely than not that the deferred tax assets will be fully utilized in future periods. In assessing the need for a valuationallowance, management considers the scheduled reversal of the deferred tax liabilities, the level of historical taxable income, and the projectedfuture taxable income over the periods that the temporary differences comprising the deferred tax assets will be deductible. At December 31, 2017 and 2016, the Company had no unrecognized tax benefits recorded. The Company does not expect the total amount ofunrecognized tax benefits to significantly increase in the next twelve months. The Company recognizes interest and penalties on unrecognized taxbenefits as a component of income tax expense. 93PDL Community Bancorp and SubsidiariesNotes to the Consolidated Financial StatementsYears Ended December 31, 2017 and 2016(Dollars in thousands, unless otherwise stated) Note 8. Income Taxes (Continued) The Company is subject to U.S. federal income tax, New York State income tax, New Jersey income tax, and New York City income tax. TheCompany is no longer subject to examination by taxing authorities for years before 2014. The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities at December 31,2017 and 2016 are presented below: At December 31, 2017 2016 Deferred tax assets: Allowance for losses on loans $3,444 $4,352 Pension obligations 2,402 3,134 Interest on nonaccrual loans 415 525 Unrealized loss on available-for-sale securities 72 86 Amortization of intangible assets 120 219 Deferred rent payable 194 212 Net Operating Losses 2,444 1,340 Charitable contribution carryforward 1,840 — Other 162 20 Total gross deferred tax assets 11,093 9,888 Deferred tax liabilities: Cumulative contribution in excess of net periodic benefit costs, net 3,134 4,313 Depreciation and amortization of premises and equipment 601 426 Deferred loan fees 317 303 Other 18 17 Total gross deferred tax liabilities 4,070 5,059 Valuation allowance 3,114 1,450 Net deferred tax assets $3,909 $3,379 The deferred tax expense (benefit) has been allocated between operations and equity as follows: For the Years Ended December 31, 2017 2016 2015 Equity $746 $260 $320 Operations (1,276) 126 1,086 $(530) $386 $1,406 Note 9. Compensation and Benefit PlansDefined Benefit Plan:Effective January 1, 2007, the noncontributory defined benefit pension plan (the “Old Pension Plan”) of the Company was frozen and replaced witha qualified defined contribution plan (the “401(k) Plan”) as noted in more detail below. The Old Pension Plan covered substantially all employees.Employees were eligible to participate after one year of service. Normal retirement age was 65, with an early retirement provided for at age 55. TheOld Pension Plan was effectively frozen on May 31, 2007 (the curtailment date) and this resulted in an actuarial reassessment of the Old PensionPlan’s future estimated obligations. All participants that are presently vested with the Old Pension Plan will remain in the Old Pension Plan and willreceive the full accrued benefit, as defined, upon retirement, in accordance with the plan document. 94PDL Community Bancorp and SubsidiariesNotes to the Consolidated Financial StatementsYears Ended December 31, 2017 and 2016(Dollars in thousands, unless otherwise stated) Note 9. Compensation and Benefit Plans (Continued)In May of 2015, the Old Pension Plan was amended to provide an early retirement window from February 19, 2015 to July 1, 2015, for individualswho met certain criteria with regards to age and years of service. Participants who met the criteria were essentially able to receive their expectedretirement benefits three years earlier if they chose to exercise the early retirement option. The amendment also gave participants the option ofreceiving their vested pension benefits via a lump sum payment upon retirement. The following table sets forth the Old Pension Plan’s funded status and amounts recognized in the consolidated statements of financial conditionas of December 31, 2017 and 2016 using a measurement date as of December 31, 2017 and 2016, respectively: December 31, 2017 2016 Projected benefit obligation $(15,883) $(14,142)Fair value of plan assets 14,732 15,038 Funded status $(1,151) $896 Accumulated benefit obligation $(15,883) $(14,142) December 31, 2017 2016 Changes in benefit obligation: Beginning of period $14,142 $14,903 Service cost 39 39 Interest cost 581 615 2017 interest rate change 1,338 — 2017 mortality change 1,906 — (Gain)/ Loss (1,345) (523)Administrative cost (39) (39)Benefits paid (739) (853)End of period $15,883 $14,142 December 31, 2017 2016 Changes in plan assets: Fair value of plan assets, beginning of year $15,038 $14,553 Actual return on plan assets 472 507 Employer contributions — 870 Plan participant contributions — — Benefits paid (739) (853)Administrative expenses paid (39) (39)Fair value of plan assets, end of year $14,732 $15,038 Pretax amounts recognized in accumulated other comprehensive loss, which will be amortized into net periodic benefit cost over the comingyears, consisted of the following components at December 31, 2017 and 2016: December 31, 2017 2016 Net loss $(11,224) $(9,217) 95PDL Community Bancorp and SubsidiariesNotes to the Consolidated Financial StatementsYears Ended December 31, 2017 and 2016(Dollars in thousands, unless otherwise stated) Note 9. Compensation and Benefit Plans (Continued) The components of net periodic benefit cost are as follows for the years ended December 31, 2017, 2016, and 2015: For the Years Ended December 31, 2017 2016 2015 Service cost $39 $39 $35 Interest cost 581 615 584 Expected return on plan assets (839) (848) (818)Amortization of prior service cost 25 25 25 Amortization of (gain)/loss 234 248 238 Net periodic benefit cost $40 $79 $64 Weighted-average assumptions used to determine the net benefit obligations consisted of the following as of December 31, 2017 and 2016: December 31, 2017 2016 Discount rate 3.50% 4.25% Rate of compensation increase 0.00% 0.00% Weighted-average assumptions used to determine the net benefit cost consisted of the following for the years ended December 31, 2017 and2016: December 31, 2017 2016 Discount rate 4.25% 4.25% Rate of compensation increase 0.00% 0.00% Expected long-term rate of return on assets 6.00% 6.00% The expected rate of return on plan assets is estimated based on the plan’s historical performance of return on assets.The investment policy for plan assets is to manage the portfolio to preserve principal and liquidity while maximizing the return on the plan’sinvestment portfolio through the full investment of available funds. Plan assets are currently maintained in a guaranteed deposit account withPrudential Retirement Insurance and Annuity Company, earning interest at rates that are determined at the beginning of each year.Pension assets consist solely of funds on deposit in a guaranteed deposit account. The fair value of the pension plan assets at December 31,2017 and 2016 was $14,696 and $15,296, respectively.The guaranteed deposit account is valued at fair value by discounting the related cash flows based on current yields of similar instruments withcomparable durations considering the creditworthiness of the issuer. Such fair value measurement is considered a Level 3 measurement.Employer contributions and benefit payments for the years ended December 31, 2017 and 2016 are as follows: December 31, 2017 2016 Employer contribution $— $870 Benefits paid $739 $853 96PDL Community Bancorp and SubsidiariesNotes to the Consolidated Financial StatementsYears Ended December 31, 2017 and 2016(Dollars in thousands, unless otherwise stated) Note 9. Compensation and Benefit Plans (Continued) Employee benefit payments expected to be paid in the future are as follows: Year ending December 31, 2018 $735 2019 736 2020 714 2021 695 2022 700 Thereafter 3,307 $6,887 401(k) Plan:Following is a summary of the provisions of the 401(k) Plan:On January 1, 2007, a qualified defined contribution retirement plan under Section 401(k) of the Internal Revenue Code was adopted. The 401(k)Plan also qualifies under the Internal Revenue Service safe harbor provisions, as defined. Employees are eligible to participate in the 401(k) Planafter completing one year of service. The 401(k) Plan provides for elective employee/participant deferrals of income. Discretionary matching, profit-sharing, and safe harbor contributions, not to exceed 4% of employee compensation and profit-sharing contributions may be provided.Contributions were approximately $317 and $339 for the years ended December 31, 2017 and 2016.Employee Stock Ownership Plan:In connection with the reorganization, the Company established an Employee Stock Ownership Plan (ESOP) for the exclusive benefit of eligibleemployees. The ESOP borrowed $7,238 from the Company sufficient to purchase 723,751 shares (approximately 3.92% of the common stocksold in the stock offering). The loan is secured by the shares purchased and will be repaid by the ESOP with funds from contributions made bythe Company and dividends received by the ESOP. Contributions will be applied to repay interest on the loan first, and then the remainder will beapplied to principal. The loan is expected to be repaid over a period of 15 years. Shares purchased with the loan proceeds are held by the trusteein a suspense account for allocation among participants as the loan is repaid. Contributions to the ESOP and shares released from the suspenseaccount are allocated among participants in proportion to their compensation, relative to total compensation of all active participants, subject toapplicable regulations.Contributions to the ESOP are to be sufficient to pay principal and interest currently due under the loan agreement. As shares are committed tobe released from collateral, compensation expense equal to the average market price of the shares for the respective period are recognized, andthe shares become outstanding for earnings per share computations. Shares Amount Balance, beginning of year — $— New shares purchased 723,751 7,238 Shares released to participants 48,250 483 Shares allocated to participants — — Balance, end of year 675,501 $6,755 At December 31, 2017, we had $6,712 outstanding of funds borrowed for the ESOP. We recognized $526 in compensation expense and $52 ininterest expense, for the year ended December 31, 2017. 97PDL Community Bancorp and SubsidiariesNotes to the Consolidated Financial StatementsYears Ended December 31, 2017 and 2016(Dollars in thousands, unless otherwise stated) Note 10. Earnings Per Share The following table presents a reconciliation of the number of shares used in the calculation of basic and diluted earnings per common share: For the Period September 29,through December 31,2017 Net Income (loss) for the period September 29 through December 31, 2017$(2,864) Shares Outstanding for basic EPS: Weighted Average shares outstanding: 18,463,028 Less: Weighted Average Unallocated Employee Stock Ownership Plan (ESOP) shares: 723,232 Basic weighted shares outstanding 17,739,796 Basic earnings per share (0.16)Dilutive potential common shares: — Diluted weighted average shares outstanding 17,739,796 Diluted earnings per share$(0.16) Note 11. Commitments, Contingencies and Credit Risk Financial Instruments With Off-Balance-Sheet Risk: In the normal course of business, financial instruments with off-balance-sheet risk may beused to meet the financing needs of customers. These financial instruments include commitments to extend credit and standby letters of credit.These instruments involve, to varying degrees, elements of credit risk and interest rate risk in excess of the amounts recognized on theconsolidated statements of financial condition. The contractual amounts of these instruments reflect the extent of involvement in particularclasses of financial instruments.The contractual amounts of commitments to extend credit represent the amounts of potential accounting loss should the contract be fully drawnupon, the customer default, and the value of any existing collateral become worthless. The same credit policies are used in making commitmentsand contractual obligations as for on-balance-sheet instruments. Financial instruments whose contractual amounts represent credit risk atDecember 31, 2017 and December 31, 2016 are as follows: December 31, 2017 2016 Commitments to grant mortgage loans $54,423 $33,813 Unfunded commitments under lines of credit 33,641 27,404 Standby letters of credit 6,734 2,487 $94,798 $63,704 Commitments to Grant Mortgage Loans: Commitments to grant mortgage loans are agreements to lend to a customer as long as all terms andconditions are met as established in the contract. Commitments generally have fixed expiration dates or other termination clauses, and mayrequire payment of a fee by the borrower. Since some of the commitments are expected to expire without being drawn upon, the total commitmentamounts do not necessarily represent future cash requirements. Each customer's creditworthiness is evaluated on a case-by-case basis. Theamount of collateral obtained, if deemed necessary upon extension of credit, is based on management's credit evaluation of the counterparty.Collateral held varies, but may include accounts receivable, inventory, property and equipment, residential real estate and income-producingcommercial properties. Material losses are not anticipated as a result of these transactions.98PDL Community Bancorp and SubsidiariesNotes to the Consolidated Financial StatementsYears Ended December 31, 2017 and 2016(Dollars in thousands, unless otherwise stated) Note 11. Commitments, Contingencies and Credit Risk (Continued)Unfunded Commitments Under Lines of Credit: Unfunded commitments under commercial lines of credit, revolving credit lines and overdraftprotection agreements are commitments for possible future extension of credit to existing customers. These lines of credit are bothuncollateralized and usually contain a specified maturity date and, ultimately, may not be drawn upon to the total extent to which the Company iscommitted.Standby Letters of Credit: Standby letters of credit are conditional commitments issued to guarantee the performance of a customer to a thirdparty. These guarantees are primarily issued to support public and private borrowing arrangements. The credit risk involved in issuing letters ofcredit is essentially the same as that involved in extending loan facilities to customers. Standby letters of credit are largely cash secured.Concentration by Geographic Location: Loans, commitments to extend credit and standby letters of credit have been granted to customers whoare located primarily in New York City. The majority of such loans most often are secured by one-to-four family residential. The loans are expectedto be repaid from the borrowers' cash flows.Lease Commitments: At December 31, 2017, there are noncancelable operating leases for office space that expire on various dates through 2033.One such lease contains an escalation clause providing for increased rental based primarily on increases in real estate taxes. Net rentalexpenses under operating leases, included in occupancy expense, totaled $1,488 , $1,393, and $1,334 for the years ended December 31,2017, 2016, and 2015, respectively.The projected minimum rental payments under the terms of the leases at December 31, 2017 is as follows: Year Ending December 31, 2018 $1,200 2019 1,170 2020 1,204 2021 1,240 2022 1,145 Thereafter 7,785 $13,744Legal Matters: The Company is involved in various legal proceedings which have arisen in the normal course of business. Management believesthat resolution of these matters will not have a material effect on the Company’s financial condition or results of operations.Regulatory Agreement: In July 2013, Ponce De Leon Federal Bank, predecessor to Ponce Bank and a subsidiary of the Company, entered into aformal written agreement (the “Supervisory Agreement”) with the OCC which required Ponce De Leon Federal Bank to take certain actions relatedto its management and operations, including internal controls. Ponce De Leon Federal Bank achieved full compliance with all articles of the formalwritten agreement. As a result, the OCC terminated its enforcement action with Ponce De Leon Federal Bank as of May 25, 2016. Note 12. Fair Value The following fair value hierarchy is used based on the lowest level of input significant to the fair value measurement. There are three levels ofinputs that may be used to measure fair values:99PDL Community Bancorp and SubsidiariesNotes to the Consolidated Financial StatementsYears Ended December 31, 2017 and 2016(Dollars in thousands, unless otherwise stated) Note 12. Fair Value (Continued)Level 1 – Quoted prices (unadjusted) for identical assets or liabilities in active markets that the entity has the ability to access as of themeasurement date.Level 2 – Significant other observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices inmarkets that are not active; or other inputs that are observable or can be corroborated by observable market data.Level 3 – Significant unobservable inputs that reflect a company’s own assumptions about the assumptions that market participants woulduse in pricing an asset or liability.The Company used the following methods and significant assumptions to estimate fair value: Cash and Cash Equivalents, Accrued Interest Receivable, Advance Payments by Borrowers for Taxes and Insurance, Short-Term BorrowingsUnder Repurchase Agreements and Accrued Interest Payable: The carrying amount is a reasonable estimate of fair value. These assets andliabilities were not recorded at fair value on a recurring basis. Available-for-Sale Securities: These financial instruments are recorded at fair value in the consolidated financial statements on a recurring basis.Where quoted prices are available in an active market, securities are classified within Level 1 of the valuation hierarchy. If quoted prices are notavailable, then fair values are estimated by using pricing models (e.g., matrix pricing) or quoted prices of securities with similar characteristics andare classified within Level 2 of the valuation hierarchy. Examples of such instruments include government agency bonds and mortgage-backedsecurities. There were no changes in valuation techniques used to measure similar assets 2017 and 2016.FHLB Stock: The carrying value of FHLB stock approximates fair value since the Company can redeem such stock with FHLB at carryingamount. As a member of the FHLB, we are required to purchase this stock, which we carry at cost and classify as restricted equity securities. Loans: For variable rate loans, which reprice frequently and have no significant change in credit risk, carrying values are a reasonable estimate offair values, adjusted for credit losses inherent in the portfolios. The fair value of fixed rate loans is estimated by discounting the future cash flowsusing estimated market rates at which similar loans would be made to borrowers with similar credit ratings and for the same remaining maturities,adjusted for credit losses inherent in the portfolios. Impaired loans are valued using a present value discounted cash flow method, or the fair valueof the collateral. Loans are not recorded at fair value on a recurring basis. Loans Held for Sale: Loans held for sale are carried at the lower of cost or fair value. The fair value of loans held for sale is determined fromactual bids from bona fide investors. These assets are classified as Level 2. Other Real Estate Owned: Other real estate owned represents real estate acquired through foreclosure, and is recorded at fair value less estimateddisposal costs on a nonrecurring basis. Fair value is based upon independent market prices, appraised values of the collateral or management'sestimation of the value of the collateral. When the fair value of the collateral is based on an observable market price or a current appraised value,the asset is classified as Level 2. When an appraised value is not available or management determines the fair value of the collateral is furtherimpaired below the appraised value and there is no observable market price, the asset is classified as Level 3. Deposits: The fair values of demand deposits, savings, NOW and money market accounts equal their carrying amounts, which represent theamounts payable on demand at the reporting date. Fair values for fixed-term, fixed-rate certificates of deposit are estimated using a discountedcash flow calculation that applies market interest rates on certificates of deposit to a schedule of aggregated expected monthly maturities on suchdeposits. Deposits are not recorded at fair value on a recurring basis. Advances From the Federal Home Loan Bank: The fair value of the advances is estimated using a discounted cash flow calculation that appliescurrent market-based FHLB interest rates for advances of similar maturity to a schedule of maturities of such advances. These borrowings are notrecorded at fair value on a recurring basis.100PDL Community Bancorp and SubsidiariesNotes to the Consolidated Financial StatementsYears Ended December 31, 2017 and 2016(Dollars in thousands, unless otherwise stated) Note 12. Fair Value (Continued) Off-Balance-Sheet Instruments: Fair values for off-balance-sheet instruments (lending commitments and standby letters of credit) are based onfees currently charged to enter into similar agreements, taking into account the remaining terms of the agreements and the counterparties' creditstanding. Off-balance-sheet instruments are not recorded at fair value on a recurring basis. The following tables detail the assets that are carried at fair value and measured at fair value on a recurring basis as of December 31, 2017 andDecember 31, 2016, and indicate the level within the fair value hierarchy utilized to determine the fair value: December 31, 2017 Description Total Level 1 Level 2 Level 3 Available-for-Sale Securities: U.S. government and federal agencies $24,552 $— $24,552 $— Mortgage-Backed Securities: FNMA Certificates 1,103 — 1,103 — GNMA Certificates 3,242 — 3,242 — $28,897 $— $28,897 $— December 31, 2016 Description Total Level 1 Level 2 Level 3 Available-for-Sale Securities: U.S. government and federal agencies $41,559 $— $41,559 $— Certificates of Deposit 500 — 500 — Mortgage-Backed Securities: FHLMC Certificates 216 — 216 — FNMA Certificates 3,606 — 3,606 — GNMA Certificates 6,809 — 6,809 — $52,690 $— $52,690 $— Our assessment and classification of an investment within a level can change over time based upon maturity or liquidity of the investment andwould be reflected at the beginning of the quarter in which the change occurred. The following tables detail the assets carried at fair value and measured at fair value on a nonrecurring basis as of December 31, 2017 andDecember 31, 2016 and indicate the fair value hierarchy utilized to determine the fair value: December 31, 2017 Total Level 1 Level 2 Level 3 Impaired loans $25,160 $— $— $25,160 Loans held for sale $— $— $— $— Other real estate owned $— $— $— $— December 31, 2016 Total Level 1 Level 2 Level 3 Impaired loans $26,075 $— $— $26,075 Loans held for sale $2,143 $— $2,143 $— Other real estate owned $— $— $— $— Losses on assets carried at fair value on a nonrecurring basis were de minimis for the years ended December 31, 2017 and 2016, respectively. 101PDL Community Bancorp and SubsidiariesNotes to the Consolidated Financial StatementsYears Ended December 31, 2017 and 2016(Dollars in thousands, unless otherwise stated) Note 12. Fair Value (Continued) The fair value information about financial instruments are disclosed, whether or not recognized in the consolidated statements of financialcondition, for which it is practicable to estimate that value. Accordingly, the aggregate fair value amounts presented do not represent theunderlying value of the Company. The estimated fair value amounts for 2017 and 2016 have been measured as of their respective period-ends andhave not been reevaluated or updated for purposes of these consolidated financial statements subsequent to those respective dates. As such, theestimated fair values of these financial instruments subsequent to the respective reporting dates may be different than amounts reported at eachperiod. The information presented should not be interpreted as an estimate of the fair value of the entire Company since a fair value calculation is onlyrequired for a limited portion of the Company's assets and liabilities. Due to the wide range of valuation techniques and the degree of subjectivityused in making the estimates, comparisons between the Company's disclosures and those of other savings association holding companies maynot be meaningful.As of the years ended December 31, 2017 and 2016, the book balances and estimated fair values of the Company's financial instruments were asfollows: Carrying Fair Value Measurements December 31, 2017 Amount Level 1 Level 2 Level 3 Total Financial assets: Cash and cash equivalents $59,724 $59,724 $— $— $59,724 Investment securities 28,897 — 28,897 — 28,897 Loans receivable, net 798,703 — — 813,160 813,160 Accrued interest receivable 3,335 — 3,335 — 3,335 FHLB stock 1,511 1,511 — — 1,511 Pension plan asset 14,735 — — 14,696 14,696 Financial liabilities: Deposits: Demand deposits 103,001 103,001 — — 103,001 Interest-bearing deposits 200,923 200,923 — — 200,923 Certificates of deposit 410,061 — 414,902 — 414,902 Advance payments by borrowers for taxes and insurance 5,025 — 5,025 — 5,025 Advances 36,400 36,400 — — 36,400 Accrued interest payable 42 — 42 — 42 December 31, 2016 Financial assets: Cash and cash equivalents $11,716 $11,716 $— $— $11,716 Investment securities 52,690 — 52,690 — 52,690 Loans held for sale 2,143 — 2,143 — 2,143 Loans receivable, net 642,148 — — 660,706 660,706 Accrued interest receivable 2,707 — 2,707 — 2,707 FHLB stock 964 964 — — 964 Pension plan asset 15,038 — — 15,296 15,296 Financial liabilities: Deposits: Demand deposits 78,792 78,792 — — 78,792 Interest-bearing deposits 195,565 195,565 — — 195,565 Certificates of deposit 368,721 — 368,721 — 368,721 Advance payments by borrowers for taxes and insurance 3,882 — 3,882 — 3,882 Advances 3,000 3,000 — — 3,000 Accrued interest payable 28 — 28 — 28 Off-Balance-Sheet Instruments: Loan commitments on which the committed interest rate is less than the current market rate are insignificant atDecember 31, 2017 and 2016.102PDL Community Bancorp and SubsidiariesNotes to the Consolidated Financial StatementsYears Ended December 31, 2017 and 2016(Dollars in thousands, unless otherwise stated) Note 12. Fair Value (Continued) Pension Plan Asset: The pension plan asset included above represents the guaranteed deposit account on the Old Pension Plan. The guaranteeddeposit account is valued at fair value by discounting the related cash flows based on current yields of similar instruments with comparabledurations considering the creditworthiness of the issuer. Such fair value measurement is considered a Level 3 measurement. Note 13. Regulatory Capital Requirements The Company and the Bank are subject to various regulatory capital requirements administered by the Federal Reserve Board and the OCC,respectively. Failure to meet minimum capital requirements can initiate certain mandatory and possibly additional discretionary actions byregulators that, if undertaken, could have a direct material effect on the Company’s operations and consolidated financial statements. Under theregulatory capital adequacy guidelines and the regulatory framework for prompt corrective action, the Company must meet specific capitalguidelines that involve quantitative measures of the Company's assets, liabilities and certain off-balance-sheet items as calculated underregulatory accounting practices. The Company's capital amounts and classification are also subject to qualitative judgments by the regulatorsabout components, risk weightings and other factors.Quantitative measures established by regulation require the maintenance of minimum amounts and ratios (set forth in the table below) of total risk-based and Tier 1 capital to risk-weighted assets (as defined), common equity Tier 1 capital (as defined), and Tier 1 capital to adjusted total assets(as defined). Management believes that, as of December 31, 2017 and December 31, 2016, all applicable capital adequacy requirements havebeen met.The below minimum capital requirements exclude the capital conservation buffer required to avoid limitations on capital distributions, includingdividend payments and certain discretionary bonus payments to executive officers. The capital conservation buffer is being phased in from 0% for2015 to 2.5% by 2019. The applicable capital buffer was 12.7% at December 31, 2017 and 11.2% at December 31, 2016.The most recent notification from the OCC categorized the Bank as well capitalized under the regulatory framework for prompt corrective action.To be categorized as well capitalized, the Company and the Bank must maintain minimum total risk-based, Tier 1 risk-based and Tier 1 leverageratios as set forth in the table below. There were no conditions or events since then that management believes have changed the Bank's category. The Company's and the Bank’s actual capital amounts and ratios as of December 31, 2017 and December 31, 2016 as compared to regulatoryrequirements are as follows: 103PDL Community Bancorp and SubsidiariesNotes to the Consolidated Financial StatementsYears Ended December 31, 2017 and 2016(Dollars in thousands, unless otherwise stated) Note 13. Regulatory Capital Requirements (Continued) To Be Well Capitalized Under For Capital PromptCorrective Actual AdequacyPurposes ActionProvisions Amount Ratio Amount Ratio Amount Ratio December 31, 2017 PDL Community Bancorp Total Capital to Risk-Weighted Assets $181,196 26.57% $54,557 8.00% $68,196 10.00%Tier 1 Capital to Risk-Weighted Assets 172,603 25.31% 40,917 6.00% 54,557 8.00%Common Equity Tier 1 Capital Ratio 172,603 25.31% 30,688 4.50% 44,327 6.50%Tier 1 Capital to Total Assets 172,603 20.02% 34,486 4.00% 43,108 5.00% Ponce Bank Total Capital to Risk-Weighted Assets $141,120 20.73% $54,447 8.00% $68,059 10.00%Tier 1 Capital to Risk-Weighted Assets 132,577 19.48% 40,835 6.00% 54,447 8.00%Common Equity Tier 1 Capital Ratio 132,577 19.48% 30,626 4.50% 44,238 6.50%Tier 1 Capital to Total Assets 132,577 14.67% 36,152 4.00% 45,190 5.00% December 31, 2016 Ponce Bank Total Capital to Risk-Weighted Assets $106,190 19.21% $44,217 8.00% $55,271 10.00%Tier 1 Capital to Risk-Weighted Assets 99,240 17.96% 33,163 6.00% 44,217 8.00%Common Equity Tier 1 Capital Ratio 99,240 17.96% 24,872 4.50% 35,926 6.50%Tier 1 Capital to Total Assets 99,240 13.32% 29,805 4.00% 37,256 5.00% Note 14. Accumulated Other Comprehensive Income (Loss)The components of accumulated other comprehensive income (loss) are as follows: December 31, 2017 December 31,2016 CurrentYear Change December 31,2017 Unrealized losses on securities available for sale, net $(166) $(55) $(221)Unrealized losses on pension benefits, net (6,084) (1,546) (7,630)Total $(6,250) $(1,601) $(7,851) December 31, 2016 December 31,2015 CurrentYear Change December 31,2016 Unrealized gains (losses) on securities available for sale, net $(370) $204 $(166)Unrealized gains (losses) on pension benefits, net (6,385) 301 (6,084)Total $(6,755) $505 $(6,250) 104PDL Community Bancorp and SubsidiariesNotes to the Consolidated Financial StatementsYears Ended December 31, 2017 and 2016(Dollars in thousands, unless otherwise stated) Note 15. Transactions with Related PartiesDirectors and officers of the Company have been customers of and have had transactions with the Company, and it is expected that such personswill continue to have such transactions in the future. Aggregate loan transactions with related parties for the years ended December 31, 2017,2016, and 2015 were as follows: For the Years Ended December 31, 2017 2016 2015 Beginning balance $1,573 $1,728 $397 Originations — — 1,494 Payments (222) (155) (163)Ending balance $1,351 $1,573 $1,728 The Company held deposits in the amount of $5,959 and $6,856 from officers and directors at December 31, 2017 and December 31, 2016,respectively. Note 16. Parent Company Only Financial StatementsThe following are the financial statements of the Parent as of and for the year ended December 31, 2017. The Parent was established as ofSeptember 29, 2017, therefore prior period financial information is not available. ASSETS December 31, 2017 Cash and cash equivalents $32,060 Investment in Ponce Bank 39,272 Loan receivable - ESOP 6,712 Other assets 1,349 Total assets $79,393 LIABILITIES AND STOCKHOLDERS' EQUITY Other liabilities and accrued expenses 62 Stockholders' Equity 79,331 Total liabilities and stockholders' equity $79,393 For the Year Ended December 31, 2017 Interest on ESOP loan $53 Contribution to Ponce De Leon Foundation 6,293 Income before income tax (benefit) (6,240)Income tax (benefit) (1,287)Equity in undistributed earnings of Ponce Bank 1,523 Net income (loss) $(3,430) 105PDL Community Bancorp and SubsidiariesNotes to the Consolidated Financial StatementsYears Ended December 31, 2017 and 2016(Dollars in thousands, unless otherwise stated) Note 16. Parent Company Only Financial Statements (Continued) For the Year Ended December 31, 2017 Cash Flows from Operating Activities: Net income (loss) $(3,430)Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Equity in undistributed earnings of subsidiaries (1,523)Contribution to Ponce De Leon Foundation 6,093 Deferred tax expense (1,261)Net decrease (increase) in accrued interest receivable — Increase in other assets (88)Net increase in other liabilities 62 Net cash used in operating activities (147)Cash Flows from Investing Activities: Investment in Ponce Bank (39,272)Repayment of ESOP Loan 526 Net cash used in investing activities (38,746)Cash Flows from Financing Activities: Issuance of common stock 78,191 Purchase of shares by ESOP (7,238)Net cash provided by financing activities 70,953 Net increase in cash and cash equivalents 32,060 Cash and cash equivalents at beginning of year — Cash and cash equivalents at end of year $32,060 Note 17. Quarterly Financial Information (unaudited) In thousands of dollars except per share amounts 2017 2016 Fourth Third Second First Fourth Third Second First Net interest income $8,477 $8,348 $8,083 $7,298 $7,016 $6,879 $6,742 $7,168 Provision for loan losses 1,219 238 207 52 139 115 235 (546)Net interest income after provision for loan losses 7,258 8,110 7,876 7,246 6,877 6,764 6,507 7,714 Non-interest income 694 768 884 758 582 637 671 541 Non-interest expense 8,736 13,730 6,995 7,096 7,061 6,880 6,965 6,957 Income (loss) before taxes (784) (4,852) 1,765 908 398 521 213 1,298 Income tax expense 2,081 (1,643) 641 345 159 239 117 490 Net Income (Loss) $(2,865) $(3,209) $1,124 $563 $239 $282 $96 $808 Basic earnings per share $(0.16) N/A N/A N/A N/A N/A N/A N/A Diluted earnings per share $(0.16) N/A N/A N/A N/A N/A N/A N/A Weighted average common shares (basic and diluted) 17,739,796 N/A N/A N/A N/A N/A N/A N/A 106 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.None. Item 9A. Controls and Procedures.Evaluation of Disclosure a)Controls and ProceduresAn evaluation was performed under the supervision and with the participation of the Company’s management, including the President andChief Executive Officer and Executive Vice President and Chief Financial Officer, of the effectiveness of the design and operation of theCompany’s disclosure controls and procedures (as defined in Rule 13a-15(e) promulgated under the Securities and Exchange Act of 1934,as amended) as of December 31, 2017. Based on that evaluation, the Company’s management, including the President and ChiefExecutive Officer and the Executive Vice President and Chief Financial Officer, concluded that the Company’s disclosure controls andprocedures were effective. b)Management’s Annual Report on Internal Control over Financial ReportingThis annual report does not include a management’s report regarding internal control over financial reporting due to a transition periodestablished by rules of the Securities and Exchange Commission for newly public companies. c)Attestation Report of the Registered Public Accounting FirmNot applicable because the Company is an emerging growth company. d)Changes in Internal Control Over Financial ReportingThere were no significant changes made in the Company’s internal control over financial reporting during the fourth quarter of the year endedDecember 31, 2017 that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financialreporting. Item 9B. Other Information.None. PART IIIItem 10. Directors, Executive Officers and Corporate Governance.The “Proposal I - Election of Directors” section of the Company’s definitive proxy statement for the Company’s 2018 Annual Meeting ofStockholders (the “2018 Proxy Statement”) is incorporated herein by reference. Item 11. Executive Compensation.The “Proposal I - Executive Compensation” section of the 2018 Proxy Statement is incorporated herein by reference. Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.The “Voting Securities of Principal Holders” section of the 2018 Proxy Statement is incorporated herein by reference. Item 13. Certain Relationships and Related Transactions, and Director Independence.The “Proposal I – Election of Directors - Transactions with Certain Related Persons”, “- Board Independence” and “-Meetings andCommittees of the Board of Directors” sections of the Company’s 2018 Proxy statement is incorporated herein by reference.107 Item 14. Principal Accounting Fees and Services.The “Proposal II - Ratification of Appointment of Independent Registered Public Accounting Firm” section of the 2018 Proxy Statement isincorporated herein by reference. PART IVItem 15. Exhibits, Financial Statement Schedules. (a)(1)Financial StatementsThe following are filed as a part of this Form 10-K under Item 8:(A)Report of Independent Registered Public Accounting Firm(B)Consolidated Statements of Financial Condition as of December 31, 2017 and 2016(C)Consolidated Statements of Income (Loss) for the Years ended December 31, 2017, 2016, and 2015(D)Consolidated Statements of Comprehensive Income (Loss) for the Years ended December 31, 2017, 2016, and 2015(E)Consolidated Statements Stockholders’ Equity for the Years ended December 31, 2017, 2016, and 2015(F)Consolidated Statements of Cash Flows for the Years ended December 31, 2017, 2016, and 2015(G)Notes to the Consolidated Financial Statements.(a)(2)Financial Statement SchedulesNone.(a)(3)Exhibits Exhibit Index ExhibitNumber Description3.1 Charter of PDL Community Bancorp (attached as Exhibit 3.1 to the Registrant’s amendment No. 1 to the Form S-1 (File No.333-217275) filed with the Commission on May 22, 2017). 3.2 Bylaws of PDL Community Bancorp (attached as Exhibit 3.2 to the Registrant’s amendment No. 2 to the Form S-1 (File No.333-217275) filed with the Commission on July 27, 2017). 4.1 Form of Common Stock Certificate of PDL Community Bancorp (attached as Exhibit 4.1 to the Registrant’s amendment No. 2to the Form S-1 (File No, 333-217275) filed with the Commission on July 27, 2017). 10.1 Ponce Bank Employee Stock Ownership Plan (attached as Exhibit 10.1 to the Registrant’s Form S-1 (File No. 333-217275)filed with the Commission on April 12, 2017). 10.2 Ponce Bank ESOP Equalization Plan (attached as Exhibit 10.2 to the Registrant’s Form S-1 (File No. 333-217275) filed withthe Commission on April 12, 2017). 10.3 Ponce De Leon Federal Deferred Compensation Plan (attached as Exhibit 10.3 to the Registrant’s Form S-1 (File No. 333-217275) filed with the Commission on April 12, 2017). 10.4 Employment Agreement, dated as of March 23, 2017, by and between Ponce de Leon Federal Bank and Carlos P. Naudon(attached as Exhibit 10.4 to the Registrant’s Form S-1 (File No. 333-217275) filed with the Commission on April 12, 2017). 10.5 Form of Employment Agreement to be entered into by and among Ponce Bank Mutual Holding Company, PDL CommunityBancorp and Carlos P. Naudon (attached as Exhibit 10.5 to the Registrant’s Form S-1 (File No. 333-217275) filed with theCommission on April 12, 2017). 10.6 Employment Agreement, dated March 23, 2017, by and between Ponce De Leon Federal Bank and Steven Tsavaris (attachedas Exhibit 10.6 to the Registrant’s Form S-1 (File No. 333-217275) filed with the Commission on April 12, 2017). 108 10.7 Form of Employment Agreement to be entered into by and among Ponce Bank Mutual Holding Company, PDL CommunityBancorp and Steven Tsavaris (attached as Exhibit 10.7 to the Registrant’s Form S-1 (File No. 333-217275) filed with theCommission on April 12, 2017). 10.8 Employment Agreement, dated March 31, 2017, by and between Ponce De Leon Federal Bank and Frank Perez (attached asExhibit 10.8 to the Registrant’s Form S-1 (File No. 333-217275) filed with the Commission on April 12, 2017). 10.9 Form of Employment Agreement to be entered into by and among Ponce Bank Mutual Holding Company, PDL CommunityBancorp and Frank Perez (attached as Exhibit 10.9 to the Registrant’s Form S-1 (File No. 333-217275) filed with theCommission on April 12, 2017). 21.1 Subsidiaries of the Registrant (attached as Exhibit 21.1 to the Registrant’s Form S-1 (File No. 333-217275) filed with theCommission on April 12, 2017). 31.1* Certification of Principal Executive Officer Pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. 31.2* Certification of Principal Financial Officer Pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. 32.1* Certification of Principal Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of theSarbanes-Oxley Act of 2002. 32.2* Certification of Principal Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of theSarbanes-Oxley Act of 2002. 101.INS XBRL Instance Document101.SCH XBRL Taxonomy Extension Schema Document101.CAL XBRL Taxonomy Extension Calculation Linkbase Document101.DEF XBRL Taxonomy Extension Definition Linkbase Document101.LAB XBRL Taxonomy Extension Label Linkbase Document101.PRE XBRL Taxonomy Extension Presentation Linkbase Document*Filed herewith. 109 SIGNATURESPursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the Registrant has duly causedthis Report to be signed on its behalf by the undersigned, thereunto duly authorized. Company Name Date: April 2, 2018 By:/s/ Carlos P. Naudon Carlos P. Naudon President, Chief Executive Officer and DirectorPursuant to the requirements of the Securities Exchange Act of 1934, as amended, this Report has been signed below by the followingpersons on behalf of the Registrant in the capacities and on the dates indicated. Name Title Date /s/ Carlos P. Naudon President, Chief Executive Officer and Director April 2, 2018Carlos P. Naudon /s/ Frank Perez Executive Vice President and Chief Financial Officer April 2, 2018Frank Perez /s/ Steven A. Tsavaris Director April 2, 2018Steven A. Tsavaris /s/ James Demetriou Director April 2, 2018James Demetriou /s/ William Feldman Director April 2, 2018William Feldman /s/ Julio Gurman Director April 2, 2018Julio Gurman /s/ Manuel Romero Director April 2, 2018Manuel Romero /s/ Nick Lugo Director April 2, 2018Nick Lugo 110 Exhibit 31.1CERTIFICATION PURSUANT TORULES 13a-14(a) AND 15d-14(a) UNDER THE SECURITIES EXCHANGE ACT OF 1934,AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002I, Carlos P. Naudon, certify that:1.I have reviewed this annual report on Form 10-K of PDL Community Bancorp;2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary tomake the statements made, in light of the circumstances under which such statements were made, not misleading with respect to theperiod covered by this report;3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all materialrespects the financial condition, results of operations and cash flows of the small business issuer as of, and for, the periods presented inthis report;4.The small business issuer's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls andprocedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined inExchange Act Rules 13a-15(f) and 15d-15(f)) for the small business issuer and have: (a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under oursupervision, to ensure that material information relating to the small business issuer, including its consolidated subsidiaries, ismade known to us by others within those entities, particularly during the period in which this report is being prepared; (b)Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed underour supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financialstatements for external purposes in accordance with generally accepted accounting principles; (c)Evaluated the effectiveness of the small business issuer's disclosure controls and procedures and presented in this report ourconclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this reportbased on such evaluation; and (d)Disclosed in this report any change in the small business issuer's internal control over financial reporting that occurred during thesmall business issuer's most recent fiscal quarter (the small business issuer's fourth fiscal quarter in the case of an annual report)that has materially affected, or is reasonably likely to materially affect, the small business issuer's internal control over financialreporting; and5.The small business issuer's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control overfinancial reporting, to the small business issuer's auditors and the audit committee of the small business issuer's board of directors (orpersons performing the equivalent functions): (a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which arereasonably likely to adversely affect the small business issuer's ability to record, process, summarize and report financialinformation; and (b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the small businessissuer's internal control over financial reporting. Date: April 2, 2018 By:/s/ Carlos P. Naudon Carlos P. Naudon President, Chief Executive Officer & Director  Exhibit 31.2CERTIFICATION PURSUANT TORULES 13a-14(a) AND 15d-14(a) UNDER THE SECURITIES EXCHANGE ACT OF 1934,AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002I, Frank Perez, certify that:1.I have reviewed this annual report on Form 10-K of PDL Community Bancorp;2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary tomake the statements made, in light of the circumstances under which such statements were made, not misleading with respect to theperiod covered by this report;3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all materialrespects the financial condition, results of operations and cash flows of the small business issuer as of, and for, the periods presented inthis report;4.The small business issuer's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls andprocedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined inExchange Act Rules 13a-15(f) and 15d-15(f)) for the small business issuer and have: (a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under oursupervision, to ensure that material information relating to the small business issuer, including its consolidated subsidiaries, ismade known to us by others within those entities, particularly during the period in which this report is being prepared; (b)Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed underour supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financialstatements for external purposes in accordance with generally accepted accounting principles; (c)Evaluated the effectiveness of the small business issuer's disclosure controls and procedures and presented in this report ourconclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this reportbased on such evaluation; and (d)Disclosed in this report any change in the small business issuer's internal control over financial reporting that occurred during thesmall business issuer's most recent fiscal quarter (the small business issuer's fourth fiscal quarter in the case of an annual report)that has materially affected, or is reasonably likely to materially affect, the small business issuer's internal control over financialreporting; and5.The small business issuer's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control overfinancial reporting, to the small business issuer's auditors and the audit committee of the small business issuer's board of directors (orpersons performing the equivalent functions): (a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which arereasonably likely to adversely affect the small business issuer's ability to record, process, summarize and report financialinformation; and (b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the small businessissuer's internal control over financial reporting. Date: April 2, 2018 By:/s/ Frank Perez Frank Perez Executive Vice President and Chief Financial Officer  Exhibit 32.1CERTIFICATION PURSUANT TO18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TOSECTION 906 OF THE SARBANES-OXLEY ACT OF 2002In connection with the annual report of PDL Community Bancorp (the “Company”) on Form 10-K for the period ending December 31, 2017as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I certify, pursuant to 18 U.S.C. § 1350, as adoptedpursuant to § 906 of the Sarbanes-Oxley Act of 2002, that: (1)The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2)The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations ofthe Company. Date: April 2, 2018 By:/s/ Carlos P. Naudon Carlos P. Naudon President, Chief Executive Officer and Director  Exhibit 32.2CERTIFICATION PURSUANT TO18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TOSECTION 906 OF THE SARBANES-OXLEY ACT OF 2002In connection with the annual report of PDL Community Bancorp (the “Company”) on Form 10-K for the period ending December 31, 2017as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I certify, pursuant to 18 U.S.C. § 1350, as adoptedpursuant to § 906 of the Sarbanes-Oxley Act of 2002, that: (1)The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2)The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations ofthe Company. Date: April 2, 2018 By:/s/ Frank Perez Frank Perez Executive Vice President and Chief Financial Officer 

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