-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, B8dQKWmXaUf+HvebmZUMPwzsL7Em3dfuwRhLhpnX2dSgdSKdqumwI3fqSRTb+R5S o34lgDrSHkuji2i/8sCs8A== 0000943374-00-000308.txt : 20001121 0000943374-00-000308.hdr.sgml : 20001121 ACCESSION NUMBER: 0000943374-00-000308 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20000930 FILED AS OF DATE: 20001110 DATE AS OF CHANGE: 20001120 FILER: COMPANY DATA: COMPANY CONFORMED NAME: PATHFINDER BANCORP INC CENTRAL INDEX KEY: 0001046188 STANDARD INDUSTRIAL CLASSIFICATION: 6036 IRS NUMBER: 161540137 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-23601 FILM NUMBER: 759281 BUSINESS ADDRESS: STREET 1: 214 W FIRST ST CITY: OSWEGO STATE: DE ZIP: 13126 BUSINESS PHONE: 3153430057 MAIL ADDRESS: STREET 1: 214 W FIRST ST CITY: OSWEGO STATE: DE ZIP: 13126 10-Q 1 0001.txt PATHFINDER BANCORP, INC. FORM 10-Q SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q QUARTERLY REPORT UNDER SECTION 13 OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTER ENDED SEPTEMBER 30, 2000 SEC Exchange Act No. 000-23601 Pathfinder Bancorp, Inc. (Exact name of issuer as specified in its charter) Delaware (State or jurisdiction of incorporation or organization) 16-1540137 (I.R.S. Employer Identification Number) 214 W. 1st Street Oswego, New York 13126 ------------------------------------- ------------ (Address of principal executive office) (Zip Code) Company's telephone number, including area code: (315) 343-0057 -------------- Not Applicable --------------------------------------------------- (Former name, former address and former fiscal year, if changed since last report) Indicate by check mark whether the Company (1) has filed all reports required to be filed by Section 13 of the Securities Exchange Act of 1934 during the preceding 12 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 past 90 days. Yes X No --- --- Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date: There were 2,617,245 shares of the Company's common stock outstanding as of November 10, 2000. PATHFINDER BANCORP, INC. INDEX PART 1 FINANCIAL INFORMATION PAGE Item 1. Financial Statements o Consolidated Balance Sheets 1 o Consolidated Statements of Income 2 - 3 o Consolidated Statements of Shareholders' Equity 4 o Consolidated Statements of Cash Flows 5 - 6 o Notes to Consolidated Financial Statements 7 Item 2. Management's Discussion and Analysis of Financial 8 - 13 Condition and Results of Operations Item 3. Quantitative and Qualitative Disclosures about Market Risk 14 - 15 PART II OTHER INFORMATION 16 Item 1. Legal proceedings Item 2. Change in securities Item 3. Default upon senior securities Item 4. Submission of matters to a vote of security holders Item 5. Other information Item 6. Exhibits and reports on Form 8-K SIGNATURES PATHFINDER BANCORP, INC. CONSOLIDATED STATEMENTS OF CONDITION September 30, 2000 (unaudited) and December 31, 1999
September 30, December 31, 2000 1999 ------------ ------------ ASSETS ------ Cash and due from banks $ 3,266,478 $ 4,280,255 Federal funds sold 124,985 - ------------ ------------ Total cash and cash equivalents 3,391,463 4,280,255 Investment securities 64,963,003 66,397,491 Mortgage loans held-for-sale 507,863 697,405 Loans: Real estate 128,983,388 119,167,708 Consumer and other 15,873,270 12,129,363 ------------ ------------ Total loans 144,856,658 131,297,071 Less: Allowance for loan losses 1,245,252 1,149,677 Unearned discounts and origination fees and costs, net 111,408 84,453 ------------ ------------ Loans receivable, net 143,499,998 130,062,941 Premises and equipment, net 4,791,774 4,869,553 Accrued interest receivable 1,697,205 1,431,251 Other real estate 1,064,420 641,384 Intangible assets, net 2,736,548 2,973,365 Other assets 5,362,598 4,969,908 ------------ ------------ Total assets $228,014,872 $216,323,553 LIABILITIES AND SHAREHOLDERS' EQUITY - - - ------------------------------------ Deposits: Interest bearing $150,920,807 $142,690,583 Noninterest bearing 10,871,689 9,745,513 ------------ ------------ Total deposits 161,792,496 152,436,096 Borrowed funds 44,166,500 42,879,500 Other liabilities 1,843,624 933,345 ------------ ------------ Total liabilities 207,802,620 196,248,941 Shareholders' equity: Common stock, par value $.10 per share; authorized 9,000,000 shares; issued 2,884,720 shares; and 2,617,245 and 2,639,245 shares outstanding for 2000 and 1999, respectively 288,472 288,472 Additional paid in capital 6,920,223 6,912,580 Retained earnings 17,582,917 18,121,372 Unearned stock based compensation (496,370) (981,125) Unearned ESOP shares (247,766) (287,609) Accumulated other comprehensive loss (572,290) (895,894) Treasury stock, at cost; 267,475 and 245,475 shares, respectively (3,262,934) (3,083,184) ------------- ------------- Total shareholders' equity 20,212,252 20,074,612 ------------- ------------- Total liabilities and shareholders' equity $ 228,014,872 $ 216,323,553 ============= =============
The accompanying notes are an integral part of the consolidated financial statements -1- PATHFINDER BANCORP, INC. CONSOLIDATED STATEMENTS OF INCOME For the three months ended September 30, 2000 and September 30, 1999 (unaudited)
September 30, September 30, 2000 1999 ------------- ------------- INTEREST INCOME: Loans $ 2,959,114 $ 2,715,917 Interest and dividends on investments: U.S. Treasury and agencies 189,369 147,735 State and political subdivisions 89,826 92,544 Corporate 389,248 400,101 Marketable equity securities 68,916 32,511 Mortgage-backed 355,752 400,021 Federal funds sold and interest-bearing deposits 5,517 2,148 ------------- ------------- Total interest income 4,057,742 3,790,977 INTEREST EXPENSE: Interest on deposits 1,503,557 1,318,538 Interest on borrowed funds 705,557 497,975 ------------- ------------- Total interest expense 2,209,114 1,816,513 ------------- ------------- Net interest income 1,848,628 1,974,464 Provision for loan losses 49,697 151,151 ------------- ------------- Net interest income after provision for loan losses 1,798,931 1,823,313 ------------- ------------- OTHER INCOME: Service charges on deposit accounts 114,223 133,113 Loan servicing fees 32,697 24,002 Cash surrender value 41,322 52,161 Net securities losses (199) (53,541) Other charges, commission and fees 100,175 84,053 ------------- ------------- Total other income 288,218 239,788 ------------- ------------- OTHER EXPENSES: Salaries and employee benefits 717,386 861,315 Building occupancy 188,760 196,945 Data processing expenses 259,183 209,513 Professional and other services 135,835 159,804 Amortization of intangible asset 78,939 78,939 Other expenses 333,770 287,475 ------------- ------------- Total other expenses 1,713,873 1,793,991 ------------- ------------- Income before income taxes 373,276 269,110 Provision for income taxes 115,935 73,691 ------------- ------------- Net income $ 257,341 $ $ 195,419 ============= ============= Net income per share - basic $ .10 $ 0.08 ============= ============= Net income per share - diluted $ .10 $ 0.07 ============= =============
The accompanying notes are an integral part of the consolidated financial statements -2- PATHFINDER BANCORP, INC. CONSOLIDATED STATEMENTS OF INCOME For the nine months ended September 30, 2000 and September 30, 1999 (unaudited)
September 30, September 30, 2000 1999 ------------- ------------ INTEREST INCOME: Loans $ 8,489,387 $ 8,071,110 Interest and dividends on investments: U.S. Treasury and agencies 595,114 200,222 State and political subdivisions 272,958 263,088 Corporate 1,119,452 1,141,047 Marketable equity securities 143,498 76,430 Mortgage-backed 1,125,757 1,047,584 Federal funds sold and interest-bearing deposits 7,078 58,425 ------------- ------------ Total interest income 11,753,244 10,857,906 INTEREST EXPENSE: Interest on deposits 4,218,228 4,035,382 Interest on borrowed funds 1,942,340 1,096,784 ------------- ------------ Total interest expense 6,160,568 5,132,166 ------------- ------------ Net interest income 5,592,676 5,725,740 Provision for loan losses 193,106 311,612 ------------- ------------ Net interest income after provision for loan losses 5,399,570 5,414,128 ------------- ------------ OTHER INCOME: Service charges on deposit accounts 335,569 363,660 Loan servicing fees 94,671 67,310 Cash surrender value 123,966 166,483 Net securities (losses) gains (209,449) 19,834 Other charges, commission and fees 261,409 250,396 ------------- ------------ Total other income 606,166 867,683 ------------- ------------ OTHER EXPENSES: Salaries and employee benefits 2,363,308 2,473,134 Building occupancy 603,341 553,979 Data processing expenses 616,110 580,326 Professional and other services 449,960 569,157 Amortization of intangible asset 236,817 236,817 Other expenses 1,143,735 808,712 Unusual items 578,176 - ------------- ------------ Total other expenses 5,991,447 5,222,125 ------------- ------------ Income before income taxes 14,289 1,059,686 Provision for income taxes 89,592 290,996 ------------- ------------ Net (loss) income $ (75,303) $ 768,690 ============= ============ Net (loss) income per share - basic $ (0.03) $ 0.28 ============= ============ Net (loss) income per share - diluted $ (0.03) $ 0.27 ============= ============
The accompanying notes are an integral part of the consolidated financial statements -3- PATHFINDER BANCORP, INC. STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY NINE MONTHS ENDED SEPTEMBER 30, 2000 (unaudited)
Accum. Common Stock Add't Unearned Unearned Other -------------------- Paid in Retained Stock-Based ESOP Comp. Treasury Shares Amount Capital Earnings Compensation Shares Loss Stock Total - - - ------------------------------------------------------------------------------------------------------------------------------------ Balance, December 31, 1999 2,884,720 $288,472 $6,912,580 $18,121,372 $ (981,125) $(287,609) $(895,894) $(3,083,184) $20,074,612 Comprehensive loss: Net loss (75,303) (75,302) Other comprehensive loss, net of tax: Unrealized depreciation in available-for-sale securities, net of reclassification amount (Note 1) 323,604 323,604 - - - ------------------------------------------------------------------------------------------------------------------------------------ Comprehensive loss (75,303) 323,604 248,302 ESOP shares earned 7,643 39,843 47,486 Treasury stock purchased (179,750) (179,750) Stock based compensation earned 484,755 484,755 Dividends declared (.18 per share) (463,152) (463,153) ------------ --------- ------------ ---------- ---------- --------- ---------- ----------- ----------- Balance, September 30, 2000 2,884,720 $ 288,472 $ 6,920,223 $17,582,917 $(496,370) $(247,766) $(572,290) $(3,262,934) $20,212,252 ============ ========= ============ =========== ========== ========== ========== ============ =========== Note 1 - Disclosure of reclassification amount Unrealized net gains on securities: Unrealized holding gains arising during the period $ 743,474 Less: reclassification adjustment for losses Included in net income 204,134 --------- 539,340 Income tax provision (215,736) --------- $(323,604)
The accompanying notes are an integral part of the consolidated financial statements -4- PATHFINDER BANCORP, INC. STATEMENTS OF CASH FLOWS For the nine months ended September 30, 2000 and September 30, 1999 (unaudited)
September 30, September 30, 2000 1999 ------------- ------------- OPERATING ACTIVITIES: Net (loss) income $ (75,303) $ 768,690 Adjustments to reconcile net income to net cash provided by operating activities: Provision for loan losses 193,106 311,612 ESOP and other stock-based compensation earned 532,241 661,055 Realized loss/(gain) on: Sale of real estate acquired through foreclosure 1,053 -- Sale of loans 5,315 (77,262) Available-for-sale investment securities 204,134 57,428 Depreciation 356,383 311,520 Amortization of intangibles 236,817 236,817 Net accretion of premiums and discounts on investment securities (12,533) 36,270 Increase in interest receivable (265,954) (205,332) Net change in other assets and liabilities 379,422 205,079 ----------- ------------ Net cash provided by operating activities 1,554,681 2,196,766 ----------- ------------ INVESTING ACTIVITIES: Purchase of investment securities available for sale (5,442,232) (25,252,470) Proceeds from maturities and principle reductions of investment securities available for sale 1,923,771 8,168,758 Proceeds from sale of: Real estate acquired through foreclosure 213,544 50,912 Loans 898,610 4,082,918 Available-for-sale investment securities 5,300,685 -- Net increase in loans (14,982,179) (8,754,625) Purchase of premises and equipment (278,604) (368,030) (Increase) decrease in surrender value of life insurance (77,966) 127,476 Other investing activities -- (25,569) ----------- ------------ Net cash used in investing activities (12,444,371) (21,970,630) ----------- ------------ FINANCING ACTIVITIES Netincrease (decrease) in demand deposits, NOW accounts, savings accounts, money market deposit accounts and escrow accounts and escrow deposits 852,416 5,227,471) Net increase (decrease) increase in time deposits 8,503,984 (1,520,470) Net proceeds from borrowings 1,287,000 24,573,500 Proceeds from stock option exercised -- 47,727 Cash dividends (462,752) (455,583) Treasury stock purchased (179,750) (987,353) ----------- ------------ Net cash provided by financing activities 10,000,898 16,430,350 Decrease in cash and cash equivalents (888,792) (3,343,514) Cash and cash equivalents at beginning of period 4,280,255 6,516,238 ----------- ------------ Cash and cash equivalents at end of period $ 3,391,463 $ 3,172,724 =========== ============
-5- PATHFINDER BANCORP, INC. STATEMENTS OF CASH FLOWS For the nine months ended September 30, 2000 and September 30, 1999 (unaudited)
September 30, September 30, 2000 1999 ------------- ------------- CASH PAID DURING THE PERIOD FOR: Interest $ 6,100,781 $ 4,976,031 Income taxes paid 73,000 475,000 NON-CASH INVESTING ACTIVITY: Transfer of loans to other real estate $ 637,633 $ 92,592 (Increase) decrease in unrealized gains and losses on available for sale investment securities (539,340) 2,710,913 Loans securitized and held as investments -- 2,049,818 NON-CASH FINANCING ACTIVITY: Dividends declared and unpaid $ 151,860 $ 159,663
The accompanying notes are an integral part of the consolidated financial statements -6- Pathfinder Bancorp, Inc. Notes to Financial Statements (1) Basis of Presentation The accompanying unaudited financial statements were prepared in accordance with the instructions for Form 10-Q and Regulation S-X and, therefore, do not include information for footnotes necessary for a complete presentation of financial position, results of operations, and cash flows in conformity with generally accepted accounting principles. The following material under the heading "Management's Discussion and Analysis of Financial Condition and Results of Operations" is written with the presumption that the users of the interim financial statements have read, or have access to, the Bank's latest audited financial statements and notes thereto, together with Management's Discussion and Analysis of Financial Condition and Results of Operations as of December 31, 1999 and for the three year period then ended. Therefore, only material changes in financial condition and results of operations are discussed in the remainder of part 1. All adjustments (consisting of only normal recurring accruals) which, in the opinion of management, are necessary for a fair presentation of the financial statements have been included in the results of operations for the three months and nine months ended September 30, 2000 and 1999. Operating results for the three months and nine months ended September 30, 2000 are not necessarily indicative of the results that may be expected for the year ending December 31, 2000. (2) Earnings per Share Basic earnings per share have been computed by dividing net income (loss) for the three months and nine months ended September 30, using 2,557,189 and 2,537,425 weighted average common shares outstanding for 2000 and 2,618,314 and 2,643,531 for 1999. Diluted earnings per share for the three month period ending September 30, 2000 and the three and nine month periods ending September 30, 1999 have been computed using 2,558,596, 2,649,453 and 2,704,652 weighted average common shares outstanding, respectively. Due to the loss incurred by the company during the first nine months of 2000, the impact of outstanding options is anti- dilutive and, therefore, their impact has not been included in the diluted earnings per share disclosure for the nine months ended September 30, 2000. (3) Reclassifications Certain prior period information has been reclassified to conform to the current period's presentation. These reclassifications had no affect on net income as previously reported. -7- Item 2 - Management's Discussion and Analysis of Financial Condition and Results of Operation This Quarterly Report contains certain "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements are subject to certain risks and uncertainties, including, among other things, changes in economic conditions in the Company's market area, changes in policies by regulatory agencies, fluctuations in interest rates, demand for loans in the Company's market areas and competition, that could cause actual results to differ materially from historical earnings and those presently anticipated or projected. The Company wishes to caution readers not to place undue reliance on any such forward-looking statements, which speak only as of the date made. The Company wishes to advise readers that the factors listed above could affect the Company's financial performance and could cause the Company's actual results for future periods to differ materially from any opinions or statements expressed with respect to future periods in any current statements. The Company does not undertake, and specifically declines any obligation, to publicly release the result of any revisions which may be made to any forward-looking statements to reflect events or circumstances after the date of such statements or to reflect the occurrence of anticipated or unanticipated events. General Throughout the Management's Discussion and Analysis the term, "the Company", refers to the consolidated entity of Pathfinder Bancorp, Inc., Pathfinder Bank, Pathfinder REIT Inc., and Whispering Oaks Development Corp. At September 30, 2000, Pathfinder Bancorp, Inc.'s only business was the 100% ownership of Pathfinder Bank. At September 30, 2000, 1,570,298 shares, or 60.0%, of the Company's common stock was held by Pathfinder Bancorp, MHC, the Company's mutual holding company parent and 1,046,947 shares, or 40.0%, was held by the public. The Company's net income is primarily dependent on its net interest income, which is the difference between interest income earned on its loans, investment securities, federal funds sold and interest-bearing deposits, and its cost of funds consisting of interest expense on deposits and borrowed funds. The Company's net income also is affected by its provision for loan losses, non interest income and non interest expense. Noninterest income is comprised of service charges on deposit accounts, loan fees, cash surrender value, other charges, commissions and fees and net securities gain and losses. Noninterest expense includes salaries and employee benefits, building occupancy, data processing expenses, professional and other services, amortization of intangible assets and income taxes. Earnings of the Company are affected significantly by general economic and competitive conditions, particularly changes in market interest rates, government policies and actions of regulatory authorities. These events are beyond the control of the Company. Trust Department During the fourth quarter of 1999, the Company began providing trust and custodial services. The Trust Department generated approximately $3,000 in revenue, while incurring approximately $80,000 in expenses during the first nine months of 2000 associated with trust operations. The following discussion presents material changes to the Company's financial condition and the results of operations for the three and nine months ended September 30, 2000. Financial Condition Assets Total assets increased approximately $11.7 million, or 5.4%, to $228.0 million at September 30, 2000 from $216.3 million at December 31, 1999. The increase in total assets was primarily the result of a $13.4 million increase in net loans receivable, partially offset by a $1.4 million decrease in investment securities. The increase in net loans receivable is due to a $5.1 million increase in residential real estate loans, a $3.9 increase in commercial real estate loans, and a $2.9 million increase in commercial lines of credit. The increases in loan balances are a result of the Company competitively pricing residential and commercial mortgages and continued emphasis on increased commercial customer relationships. Liabilities Total liabilities increased by $11.6 million, to $207.8 million at September 30, 2000 from $196.2 million at December 31, 2000. The increase is primarily attributable to a $9.4 million, or 6.1%, increase in total deposits, combined with an increase in borrowed funds of $1.3 million, or 3.0%. The increase in deposits was primarily comprised of an $8.1 million increase in time deposits, a $1.1 million increase in noninterest bearing deposits and a $200,000 increase in other interest bearing deposits. The increase in deposit balances can be attributed to the Company's competitive pricing of time deposit products, as well as additional deposit relationships garnered through expanding commercial and residential lending relationships. Liquidity and Capital Resources Shareholders' equity increased $138,000, or .7%, to $20.2 million at September 30, 2000 from $20.1 million at December 31, 1999. The increase in shareholders' equity is primarily the result of a $324,000 reduction in accumulated other comprehensive loss, and a $525,000 reduction in unearned ESOP and other stock based compensation. Retained earnings decreased $539,000 as the result of the net loss of $333,000 incurred by the Company during the first six months of 2000 combined with dividends declared during this period. Treasury stock increased approximately $180,000 relating to the acquisition of 22,000 shares as part of the Company's share repurchase program. The Company's primary sources of funds are deposits, amortization and prepayment of loans and maturities of investment securities, federal funds sold, earnings and funds provided from operations and borrowings. While scheduled principal amortization on loans are a relatively predictable source of funds, deposit flows and loan prepayments are greatly influenced by general interest rates, economic conditions and competition. The Company manages the pricing of deposits to maintain a desired deposit balance. In addition, the Company invests excess funds in short-term interest-bearing instruments and other assets which provide liquidity to meet lending requirements. For additional information about cash flows from the Company's operating, financing, and investing activities, see The Statements of Cash Flows included in the Financial Statements. The Company adjusts its liquidity levels in order to meet funding needs of deposit outflows, payment of real estate taxes on mortgage loans and loan commitments. The Company also adjusts liquidity as appropriate to meet its assets and liability management objectives. Results of Operations The Company recorded net income of $257,000 and $195,000 for the three months ended September 30, 2000 and 1999, respectively. The increase in net income of $62,000, or 31.8%, for the three months ended September 30, 2000, resulted primarily from an increase in other income of $48,000, or 20.0%, and a reduction of $80,000, or 4.5%, in operating expenses, partially offset by a decrease of $24,000 in net interest income after provision for loan losses. For the nine months ended September 30, 2000, the Company recorded a net loss of approximately $75,000 as compared to net income of $769,000 for the same period in the prior year. The net loss recorded for the first nine months of 2000 was a direct result of the net loss recorded by the Company during the first quarter of the year. The Company's first quarter earnings were adversely impacted by certain unusual items, totaling approximately $578,000, and non-recurring charges totaling approximately $270,000. Additionally, the Company incurred losses of approximately $195,000 on the sale of investment securities during the first quarter of 2000. The unusual items charge consists primarily of amounts relating to the early retirement of certain employees and officers of $239,000, the acceleration of stock based benefits to retired officers of $314,000, and employee relocation charges of $25,000. The non-recurring charges consist of one time expenses associated with the change in name of the Company's banking subsidiary of approximately $114,000, and loan and ORE write-downs of approximately $156,000. Annualized return on average assets and return on average shareholders equity were .46% and 5.17%, respectively for the three months ended September 30, 2000 as compared to .36% and 3.75% for the third quarter of 1999. For the nine months ended September 30, 2000, the same performance measurements were (.05%) and (.51%), as compared to .49% and 4.76% for the same period in the prior year. Interest Income Interest income, on a tax-equivalent basis, totaled $4.1 million for the quarter ended September 30, 2000, as compared to $3.8 million for the quarter ended September 30, 1999, an increase of $269,000, or 7.0%. The increase resulted primarily from an increase in the average balance of interest-earning assets to $207.6 million for the three months ended September 30, 2000 from $200.4 million in the prior year period, combined with an increase in the yield on average interest-earning assets to 7.91% from 7.66%. The increase in the average balance of interest earning assets was comprised of a $9.4 million increase in the average balance of loans receivable, partially offset by a $2.2 million decrease in investment securities. The yield increase is principally the result of commercial loan originations at rates exceeding the existing weighted average portfolio yield. Interest income, on a tax equivalent basis, totaled $11.9 million for the nine months ended September 30, 2000, as compared to $11.0 million for the same period in 1999, an increase of $871,000, or 7.9%. The increase resulted primarily from an increase in the average balance of interest-earning assets of $12.3 million, or 6.5%, combined with an increase in the tax-equivalent yield on interest-earning assets to 7.76% from 7.66%. Interest income on loans receivable increased $243,000, or 8.9%, to $3.0 million for the three months ended September 30, 2000 as compared to the same period in the prior year. The increase in interest income on loans occurred from an increase in the average balance of loans receivable of $9.4 million, or 7.1%, to $141.3 million at September 30, 2000, from $131.9 million at September 30, 1999, and an increase in average yield on loans receivable to 8.38% from 8.26%. For the nine months ended September 30, 2000 and 1999, interest income on loans receivable increased $418,000, or 5.2%. Average loans receivable increased $5.8 million while the yield on average loans receivable increased to 8.30% from 8.26%. The increase in the average balance of loans receivable is comprised of originations of one-to-four family adjustable rate mortgage loans. The origination of adjustable rate mortgage loans is primarily comprised of "5/1 ARMS" which have interest rates which are fixed for the first five years and are adjustable annually thereafter, and amortized over 30 years. The Company also experienced an increase in the origination of commercial real estate and business loans. The increase in the yield on average loans receivable was attributable to commercial loan originations occurring at rates exceeding the weighted average yield of the existing loan portfolio. Interest income on the mortgage-backed securities portfolio decreased by $44,000, or 11.0%, to $356,000 for the three months ended September 30, 2000, from $400,000 for the three months ended September 30, 1999. The decrease in interest income on mortgage-backed securities resulted generally from a reduction in the average balance on mortgage-backed securities of $2.7 million, partially offset by an increase in the average yield on mortgage-backed securities to 6.71% from 6.68%. For the nine months ended September 30, 2000 and 1999, interest income on mortgage-backed securities was $1,126,000 and $1,048,000, respectively, an increase of $78,000, or 7.4%. The decrease in the average balance of mortgage backed securities reflects the scheduled amortization and prepayments of principle on the underlying mortgage loans. The principle reductions have been utilized to fund existing loan demand, rather than being reinvested into the mortgage-backed security portfolio. Interest income on investment securities, on a tax equivalent basis, increased $77,000, or 10.8%, for the three months ended September 30, 2000 to $788,000 from $711,000 for the same period in 1999. The increase resulted primarily from an increase in the average tax equivalent yield of investment securities to 7.01% from 6.40%, combined with an increase in the average balance of investment securities of $537,000, or 1.2%, to $45.0 million for the three months ended September 30, 2000. The increase in the average tax equivalent yield of investment securities is a result of a restructuring of the securities portfolio during the first quarter of 2000, where lower yielding securities were sold at a loss. In addition to the portfolio restructuring, a general rise in the interest rate environment has contributed to the increase in the average tax equivalent yield of investment securities. For the nine months ended September 30, 2000, tax equivalent interest income on investment securities increased $442,000, or 24.7%, to $2.2 million compared to $1.8 million for the same period in 1999. The increase resulted primarily from an increase in the average balance of investment securities of $6.5 million, combined with an increase in the tax equivalent yield on investment securities to 6.66% from 6.25%. Interest income on interest-earning deposits increased $4,000, to $6,000 from $2,000 for the three months ended September 30, 2000 and 1999, respectively. The increase is primarily the result of a $285,000 increase in the average balance of interest earning deposits. For the nine months ended September 30, 2000, interest income on interest-earning deposits decreased $51,000. This decrease is principally the result of a $1.4 million reduction in the average balance of interest-earning deposits, partially offset by an increase in the average yield on interest earning deposits to 5.45% from 5.02%. Interest Expense Interest expense for the quarter ended September 30, 2000 increased by approximately $393,000, or 21.6%, to $2.2 million from $1.8 million when compared to the same quarter for 1999. The increase in interest expense for the period was principally the result of increases in the average balance of deposits and borrowed funds, as well as increases in the costs of deposits and borrowings. The average balance of borrowed funds increased $8.3 million, or 22.9%, to $44.6 million for the three months ended September 30, 2000 from $36.3 for the three months ended September 30, 1999. The average cost of borrowed funds increased to 6.33% from 5.49% when comparing the same periods. The average balance of interest bearing deposits increased $1.8 million, or 1.4%, when comparing the third quarter of 2000 to the same period during 1999. The average cost of interest bearing deposits increased to 4.08% for the quarter ended September 30, 2000 from 3.64% for the same period during 1999. The increase in the average balance of borrowed funds is a result of the continued implementation of the Company's wholesale growth strategy. The increase in the average cost of borrowed funds and interest-bearing deposits was caused by increases in short term interest rates when comparing the third quarters of 2000 and 1999. For the nine months ended September 30, 2000, interest expense increased $1,028,000, or 20.0%, when compared to the first nine months of 1999. The increase in interest expense for the period was the result of an increase in the average balance of interest bearing liabilities of $15.3 million, combined with an increase in the average cost of interest bearing liabilities to 4.36% from 3.95%. Net Interest Income Net interest income decreased $124,000, or 6.1%, to $1.9 million, on a tax equivalent basis, for the three months ended September 30, 2000 when compared to the same period in the prior year. The decrease in net interest income for the quarter ended September 30, 2000, was primarily the result of the cost of interest-bearing liabilities increasing faster than the yield on interest earning assets. The cost of interest bearing liabilities rises as relatively short term interest bearings deposits and borrowings reprice more rapidly during periods of rising short term interest rates. This trend is evidenced by the compression of the Bank's net interest rate spread to 3.31% for the three months ended September 30, 2000 from 3.65% for the three months ended September 30, 1999. For the nine months ended September 30, 2000, net interest income declined $158,000 when compared to the same period in 1999. Provision for Loan Losses The Company maintains an allowance for loan losses based upon a quarterly evaluation of known and inherent risks in the loan portfolio, which includes a review of the balances and composition of the loan portfolio as well as analyzing the level of delinquencies in each segment of the loan portfolio. Loan loss provisions are based upon management's estimate of the fair value of the collateral and the Company's actual loss experience, as well as standards applied by the FDIC. The Company established a provision for possible loan losses for the three months ended September 30, 2000 of $50,000, as compared to a provision of $151,000 for the three months ended September 30, 1999. For the nine months ended September 30, 2000 and 1999, the provision for loan losses was $193,000 and $312,000, respectively. The decrease in provision for loan losses reflects improved ratios of allowance for loan losses as a percentage of total loans and non-performing loans. The Company's ratios of allowance for loan losses to total loans receivable and to non-performing loans at September 30, 2000 were .86% and 66.86%, respectively, as compared to .85% and 54.33% at September 30, 1999. Noninterest Income Noninterest income consists of servicing income on deposit accounts, loan fee income, cash surrender value from Bank owned life insurance, gain (loss) on sales of loans and investment securities and other operating income. Noninterest income increased approximately $48,000, to $288,000 for the three months ended September 30, 2000 as compared to $240,000 for the prior year quarter. The increase in noninterest income is attributable to a $16,000 increase in commission and fees, a $9,000 increase in loan servicing fees, combined with a reduction in net securities gains and losses of $53,000. This increase was partially offset by a reduction in the income generated from the cash value of bank owned life insurance policies and decreases of service charges associated with deposit accounts. For the nine months ended September 30, 2000, noninterest income decreased $262,000, or 30.1%, compared to the same period in 1999. Noninterest income, exclusive of securities gains and losses, decreased $32,000, or 3.8%, for the nine months ended September 30, 2000 as compared to the same period in the prior year. Net securities gains (losses) decreased $229,000, to a net loss of $209,000 for the period ending September 30, 2000, as compared to a gain of $20,000 in the prior year. These securities losses were incurred in the first quarter of 2000, in conjunction with a reorganization of the Company's securities portfolio in an effort to improve future profitability. Noninterest Expense Noninterest expense decreased $80,000, or 4.5%, to $1.7 million for the three months ended September 30, 2000, as compared to the same period in 1999. The decrease in noninterest expense is primarily the result of a $144,000, or 16.7%, decrease in salaries and employee benefits, a $24,000, or 15.0%, decrease in professional and other services and a $8,000, or 4.2%, decrease in building occupancy expense. These decreases were partially offset by increases in data processing expenses and other operating expenses of approximately $50,000 and $46,000, respectively. The decrease in salary and employee benefits is the result of a workforce reorganization occurring at the end of the first quarter of 2000. The decrease in professional and other services is the result of non-recurring computer consulting expenses incurred in the third quarter of 1999, combined with reductions in legal service expense. Data processing expenses increased as a result of rising hardware maintenance and operating system licensing charges on the Bank's mainframe computer. The majority of the increase in other expenses relates to the expenditure for supplies necessitated by the Bank's name change. For the nine months ended September 30, 2000, noninterest expense increased $769,000, or 14.7%, to $6.0 million as compared to $5.2 million for the same period in 1999. Noninterest expenses for the first quarter of 2000 were adversely impacted by unusual items and non-recurring charges of approximately $789,000. Exclusive of the unusual and non-recurring charges, noninterest expenses decreased $20,000, or .4%, to $5.2 million for the nine months ended September 30, 2000 from $5.2 million when compared to the same period in the prior year. Income Taxes Income taxes increased approximately $42,000, or 57.0%, for the quarter ended September 30, 2000 as compared to the same period in the prior year. The increase is primarily a result of an increase in pretax income for the third quarter of 2000. For the nine months ended September 30, 2000 and 1999, income tax expense was $90,000 and $291,000, respectively. Item 3 - Quantitative and Qualitative Disclosure about Market Risk The Company's most significant form of market risk is interest rate risk, as the majority of the Company's assets and liabilities are sensitive to changes in interest rates. The Company's mortgage loan portfolio, consisting primarily of loans on residential real property located in Oswego County, is subject to risks associated with the local economy. The Company's interest rate risk management program focuses primarily on evaluating and managing the composition of the Company's assets and liabilities in the context of various interest rate scenarios. Factors beyond management's control, such as market interest rates and competition, also have an impact on interest income and interest expense. The extent to which such assets and liabilities are "interest rate sensitive" can be measured by an institution's interest rate sensitivity "gap". An asset or liability is said to be interest rate sensitive within a specific time period if it will mature or reprice within that time period. The interest rate sensitivity gap is defined as the difference between the amount of interest-earning assets maturing or repricing within a specific time period and that amount of interest-bearing liabilities maturing or repricing within that time period. A gap is considered positive when the amount of interest rate sensitive assets exceeds the amount of interest rate sensitive liabilities. A gap is considered negative when the amount of interest rate sensitive liabilities exceeds the amount of interest rate sensitive assets. During a period of rising interest rates, a negative gap would tend to adversely affect net interest income while a positive gap would tend to positively affect net interest income. Conversely, during a period of falling interest rates, a negative gap would tend to positively affect net interest income while a positive gap would tend to adversely affect net interest income. The Company does not generally maintain in its portfolio fixed interest rate loans with terms exceeding 20 years. In addition, ARM loans are originated with terms that provide that the interest rate on such loans cannot adjust below the initial rate. Generally, the Company tends to fund longer-term loans and mortgage-backed securities with shorter-term time deposits, repurchase agreements, and advances. The impact of this asset/liability mix creates an inherent risk to earnings in a rising interest rate environment. In a rising interest rate environment, the Company's cost of shorter-term deposits may rise faster than its earnings on longer-term loans and investments. Additionally, the prepayment of principal on real estate loans and mortgage-backed securities tends to decrease as rates rise, providing less available funds to invest in the higher rate environment. Conversely, as interest rates decrease, the prepayment of principal on real-estate loans and mortgage-backed securities tends to increase, causing the Company to invest funds in a lower rate environment. The potential impact on earnings from this mismatch is mitigated to a large extent by the size and stability of the Company's savings accounts. Savings accounts have traditionally provided a source of relatively low cost funding that have demonstrated historically a low sensitivity to interest rate changes. The Company generally matches a percentage of these, which are deemed core, against longer-term loans and investments. In addition, the Company has sought to extend the terms of its time deposits. In this regard, the Company has, on occasion, offered certificates of deposits with three and four year terms which allow depositors to make a one-time election, at any time during the term of the certificate of deposit, to adjust the rate of the certificate of deposit to the then prevailing rate for a certificate of deposit with the same term. The Company has further sought to reduce the term of a portion of its rate sensitive assets by originating one year ARM loans, five year/one year ARM loans (mortgage loans which are fixed rate for the first five years and adjustable annually thereafter), and by maintaining a relatively short term investment securities (original maturities of three to five years) portfolio with staggered maturities. The Company manages its interest rate sensitivity by monitoring (through simulation and net present value techniques) the impact on its GAP position, net interest income, and the market value of portfolio equity to changes in interest rates on its current and forecast mix of assets and liabilities. The Company has an Asset-Liability Management Committee which is responsible for reviewing the Company's assets and liability policies, setting prices and terms on rate-sensitive products, and monitoring and measuring the impact of interest rate changes on the Company's earnings. The Committee meets monthly on a formal basis and reports to the Board of Directors on interest rate risks and trends, as well as liquidity and capital ratios and requirements. The Company does not have a targeted gap range; rather the Board of Directors has set parameters of percentage change by which net interest margin and the market value of portfolio equity are affected by changing interest rates. The Board and management deem these measures to be a more significant and realistic means of measuring interest rate risk. Gap Analysis. At September 30, 2000, the total interest bearing liabilities maturing or repricing within one year exceeded total interest-earning assets maturing or repricing in the same period by $26.4 million, representing a cumulative one-year gap ratio of a negative 11.56%. Changes in Net Interest Income and Net Portfolio Value. The following table measures the Company's interest rate risk exposure in terms of the percentage change in its net interest income and net portfolio value as a result of hypothetical changes in 50 basis point increments in market interest rates. Net portfolio value (also referred to as market value of portfolio equity) represents the fair value of net assets (determined as the market value of assets minus the market value of liabilities). The table quantifies the changes in net interest income and net portfolio value to parallel shifts in the yield curve. The column "Net Interest Income Percent Change" measures the change to the next twelve months' projected net interest income, due to parallel shifts in the yield curve. The column "Net Portfolio Value Percent Change" measures changes in the current net mark-to-market value of assets and liabilities due to parallel shifts in the yield curve. The base case assumes March 31, 2000 interest rates. The Company uses these percentage changes as a means to measure interest rate risk exposure and quantifies those changes against guidelines set by the Board of Directors as part of the Company's Interest Rate Risk policy. The Company's current interest rate risk exposure is within those guidelines set forth. Change in Interest Rate Increase(Decrease) Basis Points Net Interest Income Net Portfolio Value (Rate Shock) Percentage Change Percentage Change 300 -17.08% -21.79% 200 -11.14% -14.75% 100 - 5.49% - 7.50% Base Case -100 4.28% 5.99% -200 6.76% 7.86% -300 3.75% 4.65% Part II - Other Information Legal Proceedings From time to time, the Company is involved as a plaintiff or defendant in various legal actions incident to its business. None of these actions individually or in the aggregate is believed to be material to the financial condition of the Company. Changes in Securities Not applicable Defaults upon Senior Securities Not applicable Submission of Matter to a Vote of Security Holders Not applicable Other Information On September 19, 2000 the Board of Directors declared a $.06 cash dividend to shareholders of record as of September 30, 2000, payable on October 16, 2000. Exhibits and Reports on Form 8-K None SIGNATURES Under the requirements of the Securities Exchange Act of 1934, the Bank has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. PATHFINDER BANCORP, INC. /s/ Thomas W. Schneider ____________________________________ Date: November 9, 2000 Thomas W. Schneider President, Chief Executive Officer /s/ James A. Dowd ____________________________________ Date: November 9, 2000 James A. Dowd Vice President, Treasurer EX-27 2 0002.txt FDS --
9 0001046188 Pathfinder Bancorp, Inc. Financial Data Schedule 1,000 9-MOS DEC-31-2000 JAN-01-2000 SEP-30-2000 3,266 125 0 0 64,827 136 136 144,857 1,245 228,015 161,792 27,857 1,844 16,310 0 0 288 19,924 228,015 8,489 3,264 0 11,753 4,218 6,161 5,592 193 (209) 5,991 14 0 0 0 (75) (.03) (.03) 7.76 1,862 0 0 0 1,150 107 9 1,245 0 0 0
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