Pathfinder Bancorp, Inc. — Q3 2022 Form 10-Q
Business context and reporting period. The filing covers the three and nine months ended September 30, 2022. Pathfinder Bancorp is a bank holding company whose primary business is Pathfinder Bank, serving customers largely in Oswego and Onondaga counties, New York. Financial figures below are in millions of dollars unless otherwise noted; statements are unaudited.
Financial performance and position
| Metric | Q3 2022 | Q3 2021 | Nine months 2022 | Nine months 2021 |
|---|---|---|---|---|
| Interest and dividend income | $13.38 | $11.63 | $36.07 | $34.64 |
| Net interest income | $10.78 | $9.79 | $30.22 | $28.57 |
| Provision for loan losses | $0.71 | $0.10 | $0.87 | $2.06 |
| Noninterest income | $1.16 | $1.55 | $4.06 | $4.83 |
| Noninterest expense | $7.27 | $6.82 | $21.67 | $20.30 |
| Net income attributable to Pathfinder | $3.18 | $3.37 | $9.40 | $8.53 |
| Basic and diluted EPS | $0.52 | $0.56 | $1.55 | $1.43 |
| Net interest margin | 3.32% | 3.31% | 3.18% | 3.19% |
Third-quarter net income fell 5.5%, while nine-month net income rose 10.2%. The nine-month operating cash flow was $12.2 million; investing activities used $117.4 million and financing activities provided $112.5 million. Cash and cash equivalents ended the period at $44.5 million, up from $37.1 million at year-end 2021.
At September 30, 2022, total assets were $1.397 billion, up 8.7% from December 31, 2021. Net loans were $872.6 million and deposits were $1.181 billion. Interest-bearing deposits were $993.4 million; noninterest-bearing deposits were $187.2 million. Short-term borrowings were $11.5 million, long-term borrowings $54.1 million, and subordinated debt $29.7 million. Shareholders’ equity was $107.3 million, down from $110.3 million at year-end.
The allowance for loan losses was $13.6 million, or 1.54% of loans. The Bank reported $10.6 million in nonaccrual loans and $0.2 million in foreclosed real estate. The filing reports nonperforming loans at 1.20% in its MD&A narrative and 1.22% in a table.
Material changes versus comparable periods
- Q3 net interest income increased 10.1%, reflecting higher average earning-asset balances and yields; interest expense rose 41.4% as deposit costs increased.
- Q3 loan-loss provision increased by $606,000, primarily after downgrades in one commercial real estate and commercial borrower relationship with $7.2 million of related credit exposure. For the first nine months, provision declined from $2.06 million to $0.87 million.
- Q3 noninterest income decreased 24.9%, including lower securities gains, no marketable-equity gains, and lower deposit service charges. Nine-month noninterest income fell 15.9%.
- Noninterest expense increased 6.5% in Q3 and 6.7% year to date, driven mainly by salaries and benefits, including compensation increases and staffing. Management also cited inflationary and competitive pressures on recruitment and retention.
- Loans grew about $53.5 million and deposits grew $125.2 million from year-end. Deposit growth included brokered deposits; cash flow disclosures show a $145.1 million increase in brokered deposits for the first nine months.
- Higher market interest rates drove substantial unrealized securities losses. Available-for-sale securities had net unrealized losses of approximately $15.8 million at quarter-end; accumulated other comprehensive loss was $12.6 million, versus $1.3 million at year-end 2021. Management attributed the securities decline primarily to interest rates and said it did not identify other-than-temporary impairment.
Outlook, risks, contingencies, and unusual items
- The filing provides no specific earnings or financial guidance. Management cautions that interim results are not necessarily indicative of full-year results.
- Management said the Bank was well capitalized and exceeded regulatory minimums, including capital conservation buffer requirements. Its September 30, 2022 Tier 1 leverage ratio was 9.48%; Tier 1 risk-based and total core capital ratios were 13.44% and 14.69%, respectively.
- Available credit lines totaled approximately $141.6 million; $65.6 million was utilized and $76.0 million remained available. Management reported compliance with its liquidity policy.
- Outstanding commitments to extend credit and standby letters of credit totaled $234.5 million. Standby letters of credit alone were $2.8 million. Management said collateral and guarantees were generally held for the latter.
- Potential problem loans totaled $42.6 million, internally classified as special mention, substandard, or doubtful but not then considered impaired. Impaired loans were $17.7 million, with $3.4 million of related allowance. A $7.2 million commercial relationship was under active resolution management.
- The Company was preparing to adopt CECL on January 1, 2023. Management was evaluating model outputs and did not provide a clear estimate of the adoption impact; it noted that adoption could increase credit-loss allowances depending on portfolio quality and economic forecasts.
- There were no pandemic-related borrower forbearances remaining at quarter-end. The Company was not a named party in a legal proceeding expected to have a material adverse effect, and management concluded disclosure controls were effective.
Important facts for investors to verify
- Track deposit mix and funding costs, particularly brokered and time deposits, as higher rates may increase interest expense and pressure margins.
- Monitor the $7.2 million commercial borrower relationship, nonaccrual and past-due loans, potential problem loans, and reserve coverage.
- Review the securities portfolio’s rate sensitivity, unrealized losses, and liquidity implications if securities must be sold before recovery.
- Confirm the eventual CECL allowance and retained-earnings impact after adoption; the filing does not provide a clear quantified estimate.
- Reconcile the filing’s differing nonperforming-loan ratios (1.20% and 1.22%) and its inconsistent comparative effective-tax-rate descriptions before relying on those figures.