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Pathfinder Bancorp, Inc. Announces First Quarter 2021 Net Income of $2.2 Million, an Increase of 27.5% over 2020

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Strong Loan and Deposit Growth in the Quarter Quarterly Cash Dividend Increased 16.7% 

OSWEGO, N.Y., May 03, 2021 (GLOBE NEWSWIRE) -- Pathfinder Bancorp, Inc. (“Company”) (NASDAQ: PBHC), the holding company for Pathfinder Bank (“Bank”), announced first quarter 2021 net income of $2.2 million compared to $1.6 million for the same three month period in 2020. First quarter net income available to common shareholders was $1.6 million, or $0.36 per basic and diluted share, compared to $1.3 million, or $0.29 per basic and diluted share for the first quarter of 2020. First quarter 2021 total revenue (net interest income and total noninterest income) of $10.4 million increased $878,000, or 9.2%, compared to $9.5 million for the first quarter of 2020.

2021 First Quarter Performance Highlights

  • Total interest-earning assets at March 31, 2021 were $1.2 billion, an increase of $231.2 million, or 23.0%, compared to $1.0 billion at March 31, 2020 and an increase of $77.9 million, or 6.7%, compared to $1.2 billion at December 31, 2020.
  • Total loans at March 31, 2021 were $865.3 million, an increase of $114.8 million, or 15.3%, compared to $750.5 million at March 31, 2020 and an increase of $39.8 million, or 4.8%, compared to $825.5 million at December 31, 2020.
  • Total deposits at March 31, 2021 were $1.07 billion, an increase of $169.0 million, or 18.8%, compared to $899.9 million at March 31, 2020 and an increase of $73.0 million, or 7.3%, compared to $995.9 million at December 31, 2020.
  • Total net interest income, before the provision for loan losses, for first quarter 2021 increased by $781,000, or 10.0%, to $8.6 million from $7.8 million for the prior year period.
  • Funding costs declined to 0.97%, a reduction of 52 basis points from 1.49% in the first quarter of 2020.

“At the 12-month mark of the COVID-19 pandemic, our team continues to perform above and beyond expectations, going the extra mile to help our customers weather the pandemic’s economic challenges,” said Thomas W. Schneider, President and Chief Executive Officer. “Along with helping our customers navigate this difficult time, our team’s efforts are providing strong top- and bottom-line results that benefit our shareholders. First quarter total revenue improved by more than 9%, reflecting double-digit improvement to net interest income compared to the first quarter 2020. The bottom-line result was record net income of $2.2 million, an increase of 27.5% over the first quarter of 2020, and an annualized quarterly return on equity of 8.62%.” 

“This was another in a series of solid quarterly performances in an economic environment that remains challenging.  We continue to closely monitor credit quality and respond appropriately to evolving customer circumstances on a case-by-case basis. Net loan charge-offs remained minimal at an annualized rate of 0.05% of average loans. While nonperforming loans to period end loans remained higher than we would like at 2.47%, we believe this is more a reflection of technical factors related to the requirements of GAAP and regulatory accounting triggered by the pandemic’s restrictions on certain business sectors, than a reflection of a significant deterioration in credit quality. We remain comfortable with our current level of loan loss reserves, but will continue to make prudent provisions in this still uncertain credit environment.”

“Loan and deposit growth remained a significant strength in the first quarter, much as it has during the last 12 months. We added more than $39 million in loans in the first quarter, a significant portion of which came from our continued participation in the Paycheck Protection Program (“PPP”). We are very proud of our team’s continued focus on serving the needs of our customer base, and the effort involved in guiding them through the PPP process is an excellent example of that high level of support. Along with helping to drive loan growth, PPP was a catalyst for continued strong deposit growth throughout 2020, as well as during the first quarter of 2021. Year-over-year deposit growth of nearly $170 million has helped to moderate our funding costs and substantially increased liquidity. At current funding levels, we’re very well positioned to continue to respond to future organic growth opportunities within our service area.”

“During March, our Board of Directors determined that it was appropriate to raise our quarterly cash dividend to $0.07 per share, based on the Bank’s continued solid performance and improved profitability. We’re pleased to be able to enhance our shareholder’s total return through appropriate dividend increases, while we remain focused on building additional tangible equity for the Company.”

Income Statement for the Quarter Ended March 31, 2021

Net Interest Income

First quarter 2021 net interest income was $8.6 million, an increase of $781,000, or 10.0%, compared to $7.8 million for the same quarter in 2020, primarily a result of an $882,000, or 27.0%, decrease in total interest expense. Interest and dividend income in the first quarter was $10.9 million, compared to $11.0 million in the first quarter of 2020. The decrease in interest and dividend income was a result of a 70 basis point decrease in the average yield earned on loans in the first quarter of 2021 compared to the same quarter in 2020, partially offset by an increase of $176.7 million in the average balance of interest-earning assets. This decrease in the average rate earned on loans was consistent with the general decline in the interest rate environment following the onset of the COVID-19 pandemic, as well as the effect that relatively lower-yielding PPP loan balances had on overall loan portfolio yields. The decrease in the first quarter of 2021 interest expense was primarily a result of a 90 basis point decrease in the average interest rate paid on time deposits. As a result of the factors noted above, the net interest margin for the first quarter of 2021 was 2.85%, an 18 basis point decline compared to 3.03% for the first quarter of 2020. The following table details the components of interest income and interest expense for the quarters ended March 31, 2021 and 2020:

(Unaudited) For the three months ended        
(In thousands, except per share data) March 31, 2021  March 31, 2020  Change 
Interest and dividend income:               
Loans, including fees $8,847  $9,242  $(395) -4.3%
Debt securities:               
Taxable  1,976   1,692   284  16.8%
Tax-exempt  29   7   22  314.3%
Dividends  87   70   17  24.3%
Federal funds sold and interest earning deposits  3   32   (29) -90.6%
Total interest and dividend income  10,942   11,043   (101) -0.9%
Interest expense:               
Interest on deposits  1,527   2,556   (1,029) -40.3%
Interest on short-term borrowings  3   57   (54) -94.7%
Interest on long-term borrowings  295   445   (150) -33.7%
Interest on subordinated loans  557   206   351  170.4%
Total interest expense  2,382   3,264   (882) -27.0%
Net interest income  8,560   7,779   781  10.0%
Provision for loan losses  1,028   1,067   (39) -3.7%
Net interest income after provision for loan losses  7,532   6,712   820  12.2%

Provision for Loan Losses

The first quarter 2021 provision for loan losses was $1.0 million, compared to $1.1 million for the prior year quarter. The first quarter provision for loan losses reflects a prudent addition to reserves considering loan growth, asset quality metrics, and continued COVID-19 economic uncertainty. The credit-sensitive portfolios continue to be carefully monitored, and the Bank will consistently apply its proven conservative loan classification and reserve building methodologies to the analysis of these portfolios. Please refer to the asset quality section below for a further discussion of asset quality as it relates to the allowance for loan loss.

Noninterest Income

First quarter 2021 noninterest income was $1.8 million, an increase of $97,000, or 5.5%, compared to $1.7 million for the same three-month period in 2020. Recurring noninterest income for the first quarter of 2021 was $1.3 million, reflecting a $46,000, or 3.7%, improvement over the first quarter of the prior year. Recurring noninterest income in the first quarters of 2021 and 2020 excludes unrealized gains (losses) on equity securities, and gains on sales of loans, investment securities, foreclosed real estate and fixed assets.

The following table details the components of noninterest income for the quarters ended March 31, 2021 and 2020:

(Unaudited) For the three months ended        
(Dollars in thousands) March 31, 2021  March 31, 2020  Change 
Service charges on deposit accounts $331  $356  $(25) -7.0%
Earnings and gain on bank owned life insurance  125   116   9  7.8%
Loan servicing fees  90   49   41  83.7%
Debit card interchange fees  221   163   58  35.6%
Insurance agency revenue  280   337   (57) -16.9%
Other charges, commissions and fees  243   223   20  9.0%
Noninterest income before gains (losses)  1,290   1,244   46  3.7%
Net gains on sales and redemptions of investment securities  -   26   (26) -100.0%
Gains/(losses) on marketable equity securities  234   (194)  428  220.6%
Net gains on sales of loans and foreclosed real estate  120   672   (552) -82.1%
Gains on sale of fixed assets  201   -   201  100.0%
Total noninterest income $1,845  $1,748  $97  5.5%

Noninterest Expense

Total noninterest expense for the first quarter of 2021 was $6.6 million, an increase of $391,000, or 6.3%, in comparison to $6.2 million for the same three-month period in 2020. The increase was primarily a result of higher professional and other services fees, salaries and employee benefit expense and audits and exams expense. Management believes that the increases in professional and other services fees and audits and exams expense are primarily related to the Bank’s first year of increased internal controls testing under FDICIA requirements for institutions with assets greater than $1 billion and additional requirements placed on the Company as a result of the COVID-19 pandemic. Accordingly, the increases within these two categories of expenses are not expected to be representative of the levels of expenses in the remaining quarters of 2021.

The following table details the components of noninterest expense for the quarters ended March 31, 2021 and 2020:

(Unaudited) For the three months ended        
(Dollars in thousands) March 31, 2021  March 31, 2020  Change 
Salaries and employee benefits $3,341  $3,247  $94  2.9%
Building and occupancy  793   754   39  5.2%
Data processing  676   600   76  12.7%
Professional and other services  417   316   101  32.0%
Advertising  246   176   70  39.8%
FDIC assessments  198   189   9  4.8%
Audits and exams  202   125   77  61.6%
Insurance agency expense  202   192   10  5.2%
Community service activities  48   107   (59) -55.1%
Foreclosed real estate expenses  6   30   (24) -80.0%
Other expenses  507   509   (2) -0.4%
Total noninterest expenses $6,636  $6,245  $391  6.3%

Balance Sheet at March 31, 2021

The Company’s total assets at quarter end were $1.3 billion, an increase of $79.7 million, or 6.5%, from $1.2 billion at December 31, 2020. This increase was primarily driven by increase in total loans and investment securities balances. Total loans of $865.3 million grew by $39.8 million, or 4.8%, compared with $825.5 million at December 31, 2020, primarily due to the Bank’s participation in the second round of the PPP. Investment securities totaled $326.8 million, an increase of $25.4 million compared to $301.3 million at December 31, 2020.

Total deposits at March 31, 2021 were $1.1 billion, an increase of $73.0 million, or 7.3%, from $995.9 million at December 31, 2020. Noninterest-bearing deposits totaled $197.5 million at March 31, 2021, an increase of $35.4 million, or 21.9%, from the 2020 year end. Interest-bearing deposit growth was a result of municipal deposit inflows related to seasonal tax collections, as well as increases in retail and commercial deposits.  The increase in noninterest-bearing deposits was primarily a result of the Bank’s participation in the PPP, as well as ongoing growth in business banking relationships.

Subordinated loans were $39.4 million at both March 31, 2021 and December 31, 2020. The Company exercised its option to redeem $10.0 million of subordinated loans that were outstanding at March 31, 2021 on April 1, 2021. The redemption of this $10.0 million component of the Company’s outstanding subordinated debt will prospectively reduce interest expense after April 1, 2021 by $625,000 annually.

Shareholders’ equity was $99.9 million at March 31, 2021, compared with $97.5 million on December 31, 2020. The increase was primarily a result of a $1.7 million increase in retained earnings, a $468,000 decrease in the accumulated other comprehensive loss, a $234,000 increase in additional paid in capital, and a $45,000 increase due to ESOP shares earned.

Asset Quality

The Bank’s asset quality metrics, as measured by net loan charge-offs to average loans, remained stable for the first quarter of 2021. Annualized net loan charge-offs to average loans were 0.05% for the first quarter 2021, compared with 0.07% for the first quarter of 2020 and 0.08% for the full year 2020. Nonperforming loans to total loans were 2.47% at March 31, 2021, a decrease of 11 basis points compared to 2.58% at December 31, 2020.

Nonaccrual loans represented 2.47% of the total loan portfolio at March 31, 2021 as compared to 2.58% at December 31, 2020. The nonperforming loan portfolio was relatively unchanged at March 31, 2021, as compared to December 31, 2020. The decrease in the nonperforming loans to totals loans was due to the increase in overall loans, with nonperforming loans remaining relatively consistent. Management is monitoring these entities closely and has incorporated our current estimate of the ultimate collectability of these loans into the reported allowance for loan losses at March 31, 2021.

The following table summarizes nonaccrual loans by category and status at March 31, 2021:

(Unaudited)        

Loan TypeCollateral TypeNumber of Loans  Loan Balance  Average Loan Balance  Weighted LTV at Origination/ Modification  StatusLoan Balance In Deferral 
Secured residential mortgage:                    
 Real Estate 33  $2,899  $88   85% Under active resolution management by the Bank.$107 
                      
Secured commercial real estate:                    
 Hotel 1   7,202   7,202   73% Currently making principal and interest payments. The borrower has substantial deposits with the Bank. - 
 Private Museum 1   1,385   1,385   79% The Bank is working on a modification with the borrower. The borrower has substantial deposits with the Bank. - 
 Recreational 1   1,234   1,234   50% The loan is currently classified as a Troubled Debt Restructuring (TDR). Next payment is due June 1, 2021. 1,234 
 All other 11   1,629   148   86% Under active resolution management by the Bank. 259 
                      
Commercial lines of credit 5   196   39  N/A  Under active resolution management by the Bank. - 
                      
Commercial and industrial:                
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About PBHC

pathfinder bank has been serving the central new york community since 1859 and it is our customer focused approach to providing financial services that has made us who we are today. we are local decision makers serving communities we live and work in. our company mission is to foster relationships with individuals and businesses within our communities to be the financial provider of choice. our goal is to continually enhance the value of the bank for the benefit of our shareholders, customers, employees and communities. experience pathfinder bank yourself, come visit one of our nine conveniently located branches, including our newest location on west fayette street in downtown syracuse. or, visit us online at www.pathfinderbank.com. we are pathfinder bank. local. community. trust. equal housing lender | member fdic