OSWEGO, NY -- 11/04/08 --
Pathfinder Bancorp, Inc., the mid-tier holding
company of Pathfinder Bank, (NASDAQ: PBHC) (listing: PathBcp) has announced
third quarter operating results. Third quarter results were adversely
impacted by investment security portfolio impairment charges. The Company
reported a net loss of $838,000, or $0.34 per diluted share, for the three
months ended September 30, 2008 as compared to net income of $306,000, or
$0.12 per diluted share for the same period in 2007. For the nine months
ended September 30, 2008, the Company reported a net loss of $206,000, or
$0.08 per share, compared to net income of $637,000, or $0.26 per share,
for the same period in 2007.
Core earnings, which represent earnings exclusive of impairment charges in
the investment securities portfolio, resulted in net income of $1.3
million, or $.53 per diluted share for the nine months ended September 30,
2008. These earnings resulted in a return on average assets and return on
average equity of .51% and 7.95% respectively. Management believes that
the presentation of core earnings is more representative of the results of
operations and the ongoing earnings potential of the company.
The Company recorded impairment charges on investment security holdings
totaling $1.3 million, net of the related tax benefits, during the 3rd
quarter of 2008. These charges relate to Company holdings in a senior
unsecured note issued by Lehman Brothers Holdings, Inc., a position in the
AMF Large Cap Equity Fund, and holdings in the AMF Ultra Short Mortgage
Fund. In addition, during the second quarter of 2008, the Company recorded
an investment security impairment charge of $205,000, net of taxes, on the
AMF Ultra Short Mortgage Fund.
"The financial crisis that deepened in the third quarter, including the
bankruptcy filing of Lehman Brothers Holdings, has resulted in impairment
charges on three security holdings that have significantly impacted what
otherwise are solid results for the first nine months of this year,"
according to Thomas W. Schneider, President and CEO. "Security positions
in a $1 million Lehman Brothers Bond, a large cap equity mutual fund, and a
mortgage-backed security mutual fund, have been marked to market at
September 30, 2008 to values that have resulted in unrealized losses of
approximately $1.5 million, net of tax, year-to-date," Schneider stated.
"Exclusive of these securities charges," Schneider continued, "the
Company's core earnings show significant improvement over prior periods.
Core earnings for the quarter ended September 30, 2008 were $474,000
compared to $306,000 in the prior year. Year-to-date core earnings for
2008 were $1.3 million compared to $637,000. Exclusive of the securities
impairment charges, year to date return on equity is 7.95% compared to
4.03% in the prior year and basic core earnings per share of $.53 year to
date compared to $.26 in the prior year."
"While the impaired securities losses are extremely disappointing, our core
business continues to grow successfully," Schneider said. "We have had
strong loan growth over the last twelve months with total loans increasing
$27 million, or 12.7%, with good portfolio diversification between
residential, commercial and consumer loans. The Central New York region
remains resilient through this current economic cycle and we continue to
provide loans to creditworthy individuals and businesses. The Bank's net
interest margin continues to expand and operating expenses have remained
stable. We have been increasing our provision for loan losses commensurate
with our loan portfolio growth and the risk environment inherent in a
weakened national economy."
"We are a well capitalized bank," Schneider continued, "and we remain ready
to serve the loan and deposit needs of our community. We are cautiously
optimistic, despite the current economic down cycle, for three primary
reasons: 1) we believe our business model of prudent lending and
management into a well-known local market has been validated by the events
that led to the current crisis; 2) the Central New York market has not been
subject to over valued real estate assets and will suffer less than other
regions of the country during this economic downturn; and 3) we are
experiencing decreased competitive forces and believe opportunities will be
present as other banks consolidate."
Net interest income for the quarter ended September 30, 2008, increased 29%
when compared to the same period during 2007. Interest income increased
$359,000, or 8%, combined with a decrease in interest expense of $269,000,
or 13%. Net interest rate spread increased to 3.29% for the third quarter
of 2008 from 2.85% for the same period in 2007. Average interest-earning
assets increased 14% to $321.4 million for the quarter ended September 30,
2008 as compared to $282.5 million for the same quarter of 2007. The yield
on interest-earning assets decreased 29 basis points to 5.84% compared to
6.13% for the same period in 2007. The increase in average earning assets
is primarily attributable to a $26.4 million increase in the average
balance of the loan portfolio, an $11.5 million increase in the average
balance of the investment securities portfolio, and an increase in the
average balance of interest earning deposits of $887,000. Average
interest-bearing liabilities increased $33.9 million and the cost of funds
decreased 73 basis points to 2.55% from 3.28% for the same period in 2007.
The increase in average interest-bearing liabilities resulted primarily
from a $26.8 million and a $7.1 million increase in the average balance of
borrowed funds and deposits, respectively. The borrowed funds are
primarily short and mid-term advances from the Federal Home Loan Bank of
New York.
The provision for loan losses for the quarter ended September 30, 2008
increased to $270,000 from $155,000 for the same period in 2007. The
increased provision is reflective of a growing loan portfolio and one more
heavily weighted to commercial term and commercial real estate, which have
higher inherent risk characteristics than a traditional consumer real
estate portfolio, as well as a general weakening in economic conditions.
The Company's ratio of the allowance for loan losses to period-end loans
increased to 0.92% at September 30, 2008 as compared to 0.76% at December
31, 2007. Nonperforming loans to period-end loans increased to 1.10% at
September 30, 2008 from 0.71% at December 31, 2007. Generally
delinquencies have risen above the lows experienced in recent history.
While these current levels are not outside of the bank's historic
delinquency trends, the generally weak economic conditions nationally and
the strain on consumer discretionary income have caused management to
carefully monitor and quickly react to these trends. In this regard, the
company has expanded its levels of loan loss provisioning and formed an
asset quality committee whose purpose is to identify and react to negative
portfolio trends. Management believes the financial strength of the
individual borrowers, combined with the related value of any underlying
collateral, will not result in any recorded loss beyond currently
established reserves.
Non-interest income, exclusive of gains and losses from the sale of
securities, loans and foreclosed real estate, increased to $718,000 for the
quarter ended September 30, 2008 compared to $670,000 for the same quarter
in the prior year. The increase in non-interest income is primarily
attributable to an increase in service charges on deposit accounts and
increased debit card and ATM usage fees.
The increase in net securities losses, during the 3rd quarter of 2008 as
compared to the same period in 2007, is a result of recording an
other-than-temporary impairment charge of $875,000 relating to the
Company's $1,000,000 holdings in a senior unsecured note issued by Lehman
Brothers Holdings Inc., which filed a Chapter 11 Bankruptcy petition on
September 15, 2008. In addition to this charge, the Company also recorded
an
other-than-temporary impairment charge of $690,000 relating to holdings in
the AMF Large Cap Equity Fund and $269,000 relating to holdings in the AMF
Ultra Short Mortgage Fund. At September 30, 2008, the total carrying value
of the Company's remaining investment in the AMF Large Cap Equity Fund is
approximately $2,192,000. The carrying value of the AMF Ultra Short
Mortgage Fund at September 30, 2008 is $2,804,000.
Non-interest expenses increased $50,000, or 2%, for the quarter ended
September 30, 2008, when compared to the same period in the prior year. An
increase in salaries and employee benefits of $21,000 was primarily due to
merit based wage adjustments. Building occupancy expenses were $26,000
higher than the comparable quarter of 2007 as a result of increases in both
depreciation and equipment maintenance. Professional and other services
expense increased $28,000 primarily from advertising campaigns and
investment management fees. Other operating expenses increased $34,000 due
to expenses related to other real estate owned and office supplies. These
increases were offset by decreases in information technology and
amortization expenses. Amortization expense decreased $55,000 as core
deposit intangibles, from a 2002 branch acquisition, became fully amortized
in October 2007. Information technology expenses were $4,000 lower than
the comparable quarter of 2007 as a result of decreased depreciation.
Troubled Asset Relief Program - Capital Purchase Program
The board of directors and management are presently analyzing the potential
merits of participating in the Capital Purchase Program (CPP) of the
Treasury Department's Troubled Asset Relief Program (TARP). It is the
general view of the board and management that in the present national
economic risk environment, enhancing the Company's capital ratios is both
prudent, given the current climate, and potentially opportunistic as we
move into the next business cycle. Additionally, any increase to capital
will continue to support the bank's lending activities to individuals,
families, and businesses in our community.
Statement Regarding Non-GAAP Financial Measures
This release contains supplemental financial information determined by
methods other than in accordance with Accounting Principles Generally
Accepted in the United States of America ("GAAP"). The Company's
management believes that such non-GAAP financial measures are useful to
management and investors as it enhances their ability to evaluate and
compare the Company's operating results from period to period in a
meaningful manner, as operating results excluding other than temporary
impairment charges on its investment security holdings are essential in
understanding the financial performance of the Company, and is more
representative of the basis that management utilizes to monitor financial
performance. Readers are cautioned that non-GAAP measures should not be
considered as an alternative to any measure of performance as promulgated
under GAAP, and should consider the impairment charges recorded during
2008 in assessing the Company's performance. Non-GAAP measures have
limitations as analytical tools, and investors should not consider them in
isolation or as a substitute for analyzing the Company's performance under
GAAP, nor are they necessarily comparable to non-GAAP measures presented by
other companies.
About Pathfinder Bancorp, Inc.
Pathfinder Bancorp, Inc. is the mid-tier holding company of Pathfinder
Bank, a New York chartered savings bank headquartered in Oswego, New York.
The Bank has seven full service offices located in its market area
consisting of Oswego County. Financial highlights for Pathfinder Bancorp,
Inc. are attached. Presently, the only business conducted by Pathfinder
Bancorp, Inc. is the 100% ownership of Pathfinder Bank and Pathfinder
Statutory Trust I.
This release may contain certain forward-looking statements, which are
based on management's current expectations regarding economic, legislative,
and regulatory issues that may impact the Company's earnings in future
periods. Factors that could cause future results to vary materially from
current management expectations include, but are not limited to, general
economic conditions, changes in interest rates, deposit flows, loan demand,
real estate values, and competition; changes in accounting principles,
policies, or guidelines; changes in legislation or regulation; and
economic, competitive, governmental, regulatory, and technological factors
affecting the Company's operations, pricing, products, and services.
PATHFINDER BANCORP, INC.
FINANCIAL HIGHLIGHTS
(dollars in thousands except per share amounts)
For the three months For the nine months
ended September 30, ended September 30,
(Unaudited) (Unaudited)
-------------------- --------------------
2008 2007 2008 2007
--------- --------- --------- ---------
Condensed Income Statement
Interest and dividend income $ 4,659 $ 4,300 $ 13,665 $ 12,906
Interest expense 1,878 2,147 5,835 6,504
--------- --------- --------- ---------
Net interest income 2,781 2,153 7,830 6,402
Provision for loan losses 270 155 550 280
--------- --------- --------- ---------
Net interest income after
provision for loan losses 2,511 1,998 7,280 6,122
Noninterest income 718 670 2,069 1,910
Net (losses) gains on
securities, loans and
foreclosed real estate (1,893) 122 (2,229) 150
Noninterest expense 2,462 2,412 7,408 7,397
--------- --------- --------- ---------
Income before taxes (1,126) 378 (288) 785
(Benefit)/provision for
income taxes (288) 72 (82) 148
--------- --------- --------- ---------
Net (loss)/income $ (838) $ 306 $ (206) $ 637
========= ========= ========= =========
Key Earnings Ratios
Return on average assets -0.97% 0.39% -0.08% 0.27%
Return on average equity -15.65% 5.80% -1.25% 4.03%
Net interest margin (tax
equivalent) 3.50% 3.10% 3.38% 3.04%
Share and Per Share Data
Basic weighted average shares
outstanding 2,484,832 2,483,532 2,483,944 2,482,886
ab $ (0.34) $ 0.12 $ (0.08) $ 0.26
Diluted earnings per share (0.34) 0.12 (0.08) 0.26
Cash dividends per share 0.1025 0.1025 0.308 0.308
Book value per share - - 8.33 8.48
Reconciliation Table for Non-GAAP Financial Measures
For the three For the nine
months ended months ended
September 30, 2008 September 30, 2008
------------------ ------------------
Net Loss $ (838,000) $ (206,000)
Other than temporary
impairment charge -
investments 1,834,000 2,176,000
Related tax benefit (522,000) * (659,000) *
------------------ ------------------
Core earnings $ 474,000 $ 1,311,000
================== ==================
Return on average assets -0.97% -0.08%
Other-than-temporary
impairment, net of tax 1.53% 0.59%
------------------ ------------------
Core earnings return on
average assets 0.56% 0.51%
================== ==================
Return on average equity -15.65% -1.25%
Other than temporary
impairment, net of tax 24.50% 9.20%
------------------ ------------------
Core earnings return on
average equity 8.85% 7.95%
================== ==================
Diluted earnings per share ($ 0.34) ($ 0.08)
Other than temporary
impairment, net of tax 0.53 0.61
------------------ ------------------
Core earnings, diluted
earnings per share $ 0.19 $ 0.53
================== ==================
* Net of a deferred tax asset valuation reserve of $212,000 for the three
month and nine month period, respectively.
(Unaudited) (Unaudited)
September 30, December 31, September 30,
2008 2007 2007
------------- ------------- -------------
Selected Balance Sheet Data
Assets $ 352,895 $ 320,691 $ 313,841
Earning assets 321,397 290,192 283,444
Total loans 243,223 222,749 215,855
Deposits 264,753 251,085 255,919
Borrowed Funds 57,155 38,410 28,010
Trust Preferred Debt 5,155 5,155 5,155
Shareholders' equity 20,698 21,704 21,056
Asset Quality Ratios
Net loan charge-offs
(annualized) to average
loans -0.01% 0.08% 0.08%
Allowance for loan losses to
period end loans 0.92% 0.76% 0.76%
Allowance for loan losses to
nonperforming loans 83.71% 107.04% 80.72%
Nonperforming loans to
period end loans 1.10% 0.71% 0.94%
Nonperforming assets to
total assets 0.85% 0.77% 0.75%
CONTACT:
Thomas W. Schneider
President, CEO
James A. Dowd
Vice President, CFO
Telephone: (315) 343-0057
