Pathfinder Bancorp reported third-quarter net income of $2.1 million, or 32 cents per diluted share, as the Oswego, N.Y.-based bank continued working through problem commercial loans and reduced higher-cost deposits. Net interest income rose slightly from the previous quarter, while credit costs, higher expenses and lower revenue than a year earlier weighed on results.
The quarter showed continued resolution of previously identified commercial credits, alongside a smaller loan and deposit base. Pathfinder also said recent commercial-banking hires are building a pipeline of commercial real estate loans that it expects to begin funding in the fourth quarter.
Earnings and credit
- Net income was $2.1 million, or 32 cents per diluted share, down from $2.7 million, or 42 cents, in the second quarter. A year earlier, Pathfinder earned $626,000, or 10 cents per share.
- The bank recorded $231,000 in provision expense for credit losses, compared with a $155,000 provision benefit in the second quarter and $3.5 million of expense in the year-ago quarter.
- The allowance for credit losses stood at $22.7 million, equal to 2.60% of loans, at September 30. That was down from $26.9 million, or 3.03%, at June 30, but above $18.7 million, or 2.08%, a year earlier. Specific reserves for identified exposures accounted for 57.4% of the allowance.
- Net charge-offs were $4.3 million, up from $1.9 million in the prior quarter and $670,000 a year earlier. Pathfinder said the charge-offs were driven mainly by individually analyzed commercial loans and were fully covered by specific reserves established previously.
Loans, deposits and interest income
- Total loans were $873.0 million at quarter-end, down from $889.0 million at June 30 and $898.5 million a year earlier. Commercial loans were $531.6 million, or 60.9% of the portfolio.
- Deposits totaled $1.16 billion, compared with $1.17 billion at the end of the second quarter and $1.23 billion a year earlier. The decline reflected planned runoff of higher-cost time and brokered deposits as well as seasonal municipal deposit movements.
- Core deposits were $957.1 million, or 82.6% of deposits. Pathfinder said it is prioritizing relationship-based deposits and maintained its leading deposit market share among local banks in Oswego and Onondaga counties combined.
- Net interest income was $10.7 million, up from $10.5 million in the second quarter but below $11.6 million a year earlier. Net interest margin was 3.07%, compared with 3.08% in the prior quarter and 3.34% a year earlier. The year-ago quarter included $260,000 of prepayment-penalty income, which added 7 basis points to margin.
- The average cost of total deposits fell to 2.04%, down 3 basis points from the prior quarter and 24 basis points from a year earlier. The average cost of interest-bearing deposits was 2.48%, unchanged sequentially and down 23 basis points year over year. Pathfinder said its average total deposit cost has declined for six consecutive quarters.
Expenses and capital return
- Noninterest expense was $9.4 million, up from $8.7 million in the second quarter and $8.9 million a year earlier. The efficiency ratio—the share of revenue consumed by expenses—rose to 78.13%, from 74.26% and 68.78%, respectively.
- Pre-tax, pre-provision income was $2.6 million, compared with $3.0 million in the second quarter and $4.1 million a year earlier. This measure excludes credit-loss provision expense and income taxes.
- Pathfinder declared a quarterly cash dividend of 10 cents per common share, payable November 6.
Business outlook and local developments
- Chief Executive James Dowd said recent commercial-banking hires have brought the company new borrower and sponsor relationships and a growing commercial real estate loan pipeline, with funding expected to begin in the fourth quarter.
- Dowd pointed to construction of a large semiconductor manufacturing facility near two Pathfinder branches and a New York State–Micron initiative to direct $500 million toward housing, education, workforce development and other community investments in Central New York. These are regional developments cited by management, not company investments announced by Pathfinder.
The results reflect two different forces: credit losses remained elevated, but Pathfinder said they were covered by reserves set aside earlier; at the same time, lower-cost deposit funding supported a small sequential increase in net interest income. The company is deliberately shrinking some higher-cost deposits while maintaining a substantial core-deposit base, and reported lower net interest margin and higher expenses than a year ago.