Pathfinder Bancorp(PBHC) - 2025 Q2 - Quarterly Report

PART I - FINANCIAL INFORMATION This section presents the Company's unaudited consolidated financial statements and management's discussion and analysis of financial condition and results of operations Item 1 – Consolidated Financial Statements (Unaudited) This section presents the Company's unaudited consolidated financial statements, including the statements of condition, income, comprehensive income (loss), changes in shareholders' equity, and cash flows, along with detailed notes providing context and breakdowns of key financial accounts and accounting policies Consolidated Statements of Condition The Company's total assets increased by 2.05% to $1.51 billion, driven by increases in available-for-sale securities and bank owned life insurance, while total liabilities rose by 2.02% to $1.38 billion, primarily due to higher deposits and short-term borrowings. Shareholders' equity saw a 2.41% increase Consolidated Statements of Condition (in thousands) | Metric | June 30, 2025 (in thousands) | December 31, 2024 (in thousands) | Change (%) | | :----------------------------- | :----------------------------- | :----------------------------- | :--------- | | Total assets | $1,505,119 | $1,474,874 | +2.05% | | Total liabilities | $1,380,706 | $1,353,391 | +2.02% | | Total shareholders' equity | $124,413 | $121,483 | +2.41% | | Available-for-sale securities | $300,951 | $269,331 | +11.74% | | Bank owned life insurance | $31,045 | $24,727 | +25.55% | | Total deposits | $1,221,887 | $1,204,524 | +1.44% | | Short-term borrowings | $75,500 | $61,000 | +23.77% | Consolidated Statements of Income Net income attributable to Pathfinder Bancorp, Inc. significantly decreased for both the three and six months ended June 30, 2025, primarily due to a fair value adjustment to loans held-for-sale. Net interest income, however, increased for both periods Consolidated Statements of Income (in thousands) | Metric (in thousands) | 3 Months Ended June 30, 2025 | 3 Months Ended June 30, 2024 | Change (%) | 6 Months Ended June 30, 2025 | 6 Months Ended June 30, 2024 | Change (%) | | :-------------------- | :--------------------------- | :--------------------------- | :--------- | :--------------------------- | :--------------------------- | :--------- | | Net income | $31 | $2,000 | -98.45% | $3,005 | $4,120 | -27.06% | | Net interest income | $10,814 | $9,480 | +14.07% | $22,225 | $18,880 | +17.72% | | Total noninterest income | $(1,518) | $1,211 | -225.35% | $(321) | $2,948 | -110.89% | | Total noninterest expense | $8,061 | $7,908 | +1.93% | $16,494 | $15,614 | +5.64% | | Basic EPS (Voting) | $0.00 | $0.32 | -100.00% | $0.48 | $0.66 | -27.27% | | Dividends per share | $0.10 | $0.10 | 0.00% | $0.20 | $0.20 | 0.00% | Consolidated Statements of Comprehensive Income (Loss) The Company reported a comprehensive loss for the three months ended June 30, 2025, primarily due to unrealized losses on available-for-sale securities and derivatives, while comprehensive income for the six months ended June 30, 2025, decreased compared to the prior year Consolidated Statements of Comprehensive Income (Loss) (in thousands) | Metric (in thousands) | 3 Months Ended June 30, 2025 | 3 Months Ended June 30, 2024 | Change (%) | 6 Months Ended June 30, 2025 | 6 Months Ended June 30, 2024 | Change (%) | | :-------------------- | :--------------------------- | :--------------------------- | :--------- | :--------------------------- | :--------------------------- | :--------- | | Net income | $31 | $2,012 | -98.46% | $3,005 | $4,185 | -28.20% | | Other comprehensive (loss) income, net of tax | $(426) | $76 | -660.53% | $286 | $819 | -65.08% | | Comprehensive (loss) income attributable to Pathfinder Bancorp, Inc. | $(395) | $2,076 | -119.03% | $3,291 | $4,939 | -33.40% | Consolidated Statements of Changes in Shareholders' Equity Total shareholders' equity increased to $124.4 million at June 30, 2025, from $121.5 million at January 1, 2025, driven by net income and stock option exercises, partially offset by dividends Consolidated Statements of Changes in Shareholders' Equity (in thousands) | Metric (in thousands) | June 30, 2025 | March 31, 2025 | Change (QoQ) | June 30, 2024 | March 31, 2024 | Change (QoQ) | | :-------------------- | :------------ | :------------- | :----------- | :------------ | :------------- | :----------- | | Total Equity (Q2) | $124,413 | $124,896 | -0.39% | $124,174 | $122,632 | +1.26% | | Net income (Q2) | $31 | - | N/A | $2,000 | - | N/A | | Dividends Declared (Q2) | $(630) | - | N/A | $(622) | - | N/A | | | | | | | | | | Total Equity (YTD) | $124,413 | $121,483 (Jan 1, 2025) | +2.41% | $124,174 | $120,256 (Jan 1, 2024) | +3.26% | | Net income (YTD) | $3,005 | - | N/A | $4,120 | - | N/A | | Dividends Declared (YTD) | $(1,257) | - | N/A | $(1,244) | - | N/A | Consolidated Statements of Cash Flows For the six months ended June 30, 2025, the Company experienced net cash inflows from operating and financing activities, offset by significant net cash outflows from investing activities, resulting in a slight decrease in cash and cash equivalents Consolidated Statements of Cash Flows (in thousands) | Metric (in thousands) | 6 Months Ended June 30, 2025 | 6 Months Ended June 30, 2024 | Change (%) | | :-------------------- | :--------------------------- | :--------------------------- | :--------- | | Net cash from operating activities | $1,960 | $2,022 | -3.07% | | Net cash from investing activities | $(27,013) | $3,122 | -964.86% | | Net cash from financing activities | $24,956 | $(22,057) | +213.10% | | Change in cash and cash equivalents | $(97) | $(16,913) | +99.43% | Notes to Consolidated Financial Statements (Unaudited) This section provides detailed disclosures and explanations for the figures presented in the consolidated financial statements, covering accounting policies, new pronouncements, earnings per share, investment securities, loans, allowance for credit losses, fair value measurements, and other financial instruments Note 1: Basis of Presentation The unaudited consolidated financial statements are prepared in accordance with GAAP for interim financial information, relying on management's estimates and assumptions. Operating results for the interim period are not indicative of the full year - Interim financial statements prepared under GAAP, Form 10-Q, and Article 8 of Regulation S-X[23] - Management's estimates, assumptions, and judgments are integral to the financial statements[24] - Interim results are not necessarily indicative of full-year performance[23] Note 2: New Accounting Pronouncements The Company is evaluating ASU 2024-03, which requires disaggregation of certain income statement expenses, but does not expect a material impact on its consolidated financial statements upon adoption in fiscal years beginning after December 15, 2026 New Accounting Pronouncements | Standard | Description | Required Date of Implementation | Effect on Consolidated Financial Statements | | :------- | :---------- | :------------------------------ | :------------------------------------------ | | ASU 2024-03 (Subtopic 220-40): Disaggregation of Income Statement Expenses | Requires new disclosures disaggregating certain expense categories (e.g., compensation, depreciation, amortization of intangible assets) in tabular format for enhanced transparency. | Fiscal years beginning after December 15, 2026, and interim periods within fiscal years beginning after December 15, 2027. | The Company is evaluating adoption but does not expect a material impact. | Note 3: Earnings per Common Share The Company calculates basic and diluted EPS using the two-class method due to participating securities (voting common stock, non-voting common stock, and warrants). Diluted EPS for Q1 2025 was revised to $0.47 from $0.41 Earnings per Common Share (in thousands, except per share data) | Metric (in thousands, except per share data) | 3 Months Ended June 30, 2025 | 3 Months Ended June 30, 2024 | 6 Months Ended June 30, 2025 | 6 Months Ended June 30, 2024 | | :----------------------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | | Net income attributable to Pathfinder Bancorp, Inc. | $31 | $2,000 | $3,005 | $4,120 | | Net income available to common shareholders - Voting | $25 | $1,515 | $2,283 | $3,122 | | Basic earnings per common share - Voting | $0.00 | $0.32 | $0.48 | $0.66 | | Diluted earnings per common share - Voting | $0.00 | $0.32 | $0.47 | $0.66 | - Diluted EPS for Q1 2025 was revised to $0.47 from $0.41[34] Note 4: Investment Securities The Company's investment portfolio consists of available-for-sale (AFS) and held-to-maturity (HTM) securities. AFS securities had an aggregate fair value less than amortized cost by $9.7 million at June 30, 2025, an improvement from December 31, 2024, primarily due to interest rate environment changes. HTM securities also showed an improvement in fair value relative to cost Investment Securities (in thousands) | Metric (in thousands) | June 30, 2025 | December 31, 2024 | Change | | :-------------------- | :------------ | :---------------- | :----- | | AFS Amortized Cost | $310,688 | $279,550 | +11.14% | | AFS Fair Value | $300,951 | $269,331 | +11.74% | | AFS Unrealized Losses | $(11,108) | $(11,185) | -0.70% | | HTM Amortized Cost | $158,154 | $158,940 | -0.49% | | HTM Fair Value | $151,205 | $151,023 | +0.12% | | HTM Unrealized Losses | $(7,153) | $(8,033) | -11.00% | - The $482,000 total improvement in the fair value of the AFS investment portfolio's aggregate fair value, relative to its aggregate amortized historical cost, in the six months ended June 30, 2025, was primarily due to changes in the interest rate environment[43] - The $1.0 million improvement in the aggregate fair value of the HTM investment portfolio, relative to its aggregate amortized historical cost, during the six months ended June 30, 2025, was primarily due to changes in the interest rate environment[44][45] Realized Gains and Losses on Investments (in thousands) | Metric (in thousands) | 2025 | 2024 | | :-------------------- | :--- | :--- | | Realized gains on investments | $3 | $750 | | Realized losses on investments | $(11) | $(882) | | Total | $(8) | $(132) | Note 5: Pension and Postretirement Benefits The Company's noncontributory defined benefit pension plan was frozen in 2012, with no future benefit accruals. Net periodic benefit plan cost for both pension and postretirement benefits remained stable or slightly decreased for the three and six months ended June 30, 2025, compared to 2024 Net Periodic Pension and Postretirement Plan Costs (in thousands) | Metric (in thousands) | 3 Months Ended June 30, 2025 | 3 Months Ended June 30, 2024 | 6 Months Ended June 30, 2025 | 6 Months Ended June 30, 2024 | | :-------------------- | :--------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | | Net periodic pension plan (benefit) cost | $(76) | $(75) | $(153) | $(149) | | Net periodic postretirement plan (benefit) cost | $0 | $0 | $0 | $0 | Note 6: Loans Total loans, net of deferred fees, decreased by 1.0% to $909.7 million at June 30, 2025, primarily due to a decrease in residential and consumer loans, partially offset by an increase in commercial loans. Nonaccrual loans significantly decreased by $10.4 million from December 31, 2024, mainly due to a July 2025 loan sale. Loan modifications for borrowers experiencing financial difficulty increased in 2025 Loans, Net of Deferred Fees (in thousands) | Metric (in thousands) | June 30, 2025 | December 31, 2024 | Change (%) | | :-------------------- | :------------ | :---------------- | :--------- | | Loans, net of deferred fees | $909,723 | $918,986 | -1.01% | | Residential mortgage loans | $244,353 | $256,237 | -4.64% | | Commercial loans | $549,074 | $539,678 | +1.74% | | Consumer loans | $117,778 | $124,658 | -5.52% | Nonaccrual and Collateral Dependent Loans (in thousands) | Metric (in thousands) | June 30, 2025 | December 31, 2024 | Change (%) | | :-------------------- | :------------ | :---------------- | :--------- | | Nonaccrual loans | $11,689 | $22,084 | -47.06% | | Collateral dependent loans | $11,316 | $17,038 | -33.69% | Loan Modifications for Financial Difficulty (in thousands) | Loan Modification Type (in thousands) | 6 Months Ended June 30, 2025 | 6 Months Ended June 30, 2024 | | :------------------------------------ | :--------------------------- | :--------------------------- | | Term Extension | $4,385 | $0 | | Interest Rate Reduction | $11,495 | $0 | Note 7: Allowance for Credit Losses The provision for credit losses (PCL) significantly increased for both the three and six months ended June 30, 2025, primarily driven by $2.6 million in net charge-offs during Q2 2025. The total ACL for loans decreased to $16.0 million at June 30, 2025, from $17.2 million at December 31, 2024 Provision for Credit Losses and Allowance for Credit Losses (in thousands) | Metric (in thousands) | 3 Months Ended June 30, 2025 | 3 Months Ended June 30, 2024 | Change (%) | 6 Months Ended June 30, 2025 | 6 Months Ended June 30, 2024 | Change (%) | | :-------------------- | :--------------------------- | :--------------------------- | :--------- | :--------------------------- | :--------------------------- | :--------- | | PCL - Loans | $1,173 | $304 | +285.86% | $1,677 | $1,014 | +65.38% | | Net Charge-Offs (Q2) | $(2,844) | $(112) | +2439.29% | N/A | N/A | N/A | | Total ACL - Loans | $15,983 (End of Q2) | $16,892 (End of Q2) | -5.49% | $15,983 (End of YTD) | $16,892 (End of YTD) | -5.38% | - The provision for credit losses for the second quarter of 2025 was primarily driven by net charge offs of $2.6 million[78] Note 8: Foreclosed Real Estate The Company held one foreclosed real estate property valued at $83,000 at June 30, 2025, compared to none at December 31, 2024. Real estate loans in foreclosure decreased Foreclosed Real Estate and Loans in Foreclosure (in thousands) | Metric (in thousands) | June 30, 2025 | December 31, 2024 | Change | | :-------------------- | :------------ | :---------------- | :----- | | Foreclosed real estate | $83 | $0 | N/A | | Real estate loans in foreclosure | $599 | $1,200 | -50.08% | Note 9: Guarantees The Company does not issue guarantees requiring liability recognition other than standby letters of credit, which totaled $2.9 million at June 30, 2025, an increase from December 31, 2024 Standby Letters of Credit (in thousands) | Metric (in thousands) | June 30, 2025 | December 31, 2024 | Change (%) | | :-------------------- | :------------ | :---------------- | :--------- | | Standby letters of credit | $2,900 | $2,400 | +20.83% | Note 10: Fair Value Measurements The Company measures various assets and liabilities at fair value using a hierarchy of valuation techniques (Level 1, 2, 3). Total financial assets at fair value increased to $1.29 billion at June 30, 2025, from $1.27 billion at December 31, 2024, while financial liabilities at fair value increased to $1.37 billion from $1.32 billion Financial Assets Measured at Fair Value (in thousands) | Metric (in thousands) | June 30, 2025 | December 31, 2024 | Change (%) | | :-------------------- | :------------ | :---------------- | :--------- | | Total AFS securities (Fair Value) | $300,951 | $269,331 | +11.74% | | Marketable equity securities (Fair Value) | $4,881 | $4,076 | +19.74% | | Individually evaluated loans (Fair Value) | $3,574 | $13,020 | -72.55% | Estimated Fair Values of Financial Instruments (in thousands) | Metric (in thousands) | June 30, 2025 | December 31, 2024 | Change (%) | | :-------------------- | :------------ | :---------------- | :--------- | | Total Financial Assets (Estimated Fair Values) | $1,291,468 | $1,271,606 | +1.56% | | Total Financial Liabilities (Estimated Fair Values) | $1,370,072 | $1,320,338 | +3.77% | Note 11: Interest Rate Derivatives The Company uses interest rate derivatives, primarily swaps, as fair value hedges for investments and loans to manage interest rate risk. Fair value hedges increased investment security interest income by $623,000 and loan interest income by $543,000 for the six months ended June 30, 2025. The Bank settled cash flow hedges in April 2024, realizing a gain Net Cash Received from Derivatives (in thousands) | Metric (in thousands) | 6 Months Ended June 30, 2025 | 6 Months Ended June 30, 2024 | Change (%) | | :-------------------- | :--------------------------- | :--------------------------- | :--------- | | Fair Value Hedges - Investments (Net Cash Received) | $623 | $1,229 | -49.31% | | Fair Value Hedges - Loans (Net Cash Received) | $543 | $1,287 | -57.81% | | Cash Flow Hedges - Borrowed Funds (Net Cash Received) | $162 | $157 | +3.18% | - The fair value of the derivatives (an unrealized gain, receivable from derivative counterparties) recorded in other assets resulted in a net asset position of $1.4 million at June 30, 2025, compared to $3.2 million at December 31, 2024, for AFS investments[126] - At June 30, 2025, the fair value of the derivatives recorded in other assets (an unrealized gain, receivable from derivative counterparties) resulted in a net asset position of $310,000 for loans, compared to $2.9 million at December 31, 2024[127] Note 12: Accumulated Other Comprehensive (Loss) Income AOCI, net of tax, decreased to $(8.86) million at June 30, 2025, from $(9.14) million at December 31, 2024. This change was influenced by unrealized losses on available-for-sale securities and derivatives, partially offset by retirement plan gains Accumulated Other Comprehensive (Loss) Income (in thousands) | Metric (in thousands) | June 30, 2025 | June 30, 2024 | Change (%) | | :-------------------- | :------------ | :------------ | :--------- | | AOCI (3 months ended) | $(8,858) | $(8,786) | +0.82% | | AOCI (6 months ended) | $(8,858) | $(8,786) | +0.82% | - For the six months ended June 30, 2025, other comprehensive income (loss) before reclassifications was $232,000, and amounts reclassified from AOCI were $54,000[135] Note 13: Noninterest Income Total noninterest income for Q2 2025 was negative $1.5 million, a significant decrease from $1.2 million in Q2 2024, primarily due to a $3.1 million fair value adjustment to loans held-for-sale and the absence of insurance agency revenue Noninterest Income (in thousands) | Metric (in thousands) | 3 Months Ended June 30, 2025 | 3 Months Ended June 30, 2024 | Change (%) | 6 Months Ended June 30, 2025 | 6 Months Ended June 30, 2024 | Change (%) | | :-------------------- | :--------------------------- | :--------------------------- | :--------- | :--------------------------- | :--------------------------- | :--------- | | Total noninterest income | $(1,518) | $1,211 | -225.35% | $(321) | $2,948 | -110.89% | | LOCOM HFS adjustment | $(3,064) | $0 | N/M | $(3,064) | $0 | N/M | | Insurance agency revenue | $0 | $260 | -100.00% | $0 | $657 | -100.00% | | Net unrealized gains (losses) on marketable equity securities | $420 | $(139) | +402.16% | $638 | $(31) | +2158.06% | Note 14: Leases The Company has both operating and finance leases for banking offices and land. Operating lease right-of-use assets and liabilities decreased, while finance lease assets and liabilities remained relatively stable at June 30, 2025, compared to December 31, 2024 Lease Assets and Liabilities (in thousands) | Metric (in thousands) | June 30, 2025 | December 31, 2024 | Change (%) | | :-------------------- | :------------ | :---------------- | :--------- | | Operating lease ROU assets | $1,115 | $1,391 | -19.84% | | Operating lease liabilities | $1,313 | $1,591 | -17.47% | | Finance lease ROU assets | $16,280 | $16,676 | -2.37% | | Finance lease liabilities | $16,566 | $16,745 | -1.07% | | Weighted Average Remaining Lease Term (Operating) | 18.58 years | 17.08 years | +8.72% | | Weighted Average Remaining Lease Term (Finance) | 21.52 years | 22.01 years | -2.23% | Note 15: Subsequent Events In July 2025, the Company sold nonperforming and classified loans with a June 30, 2025 principal balance of $6.3 million for $3.2 million. This resulted in a $3.1 million fair value adjustment to loans held-for-sale in Q2 2025 - Sale of nonperforming and classified loans in July 2025[144] - Original principal balance: $9.3 million; June 30, 2025 principal balance: $6.3 million[144] - Sale price: $3.2 million, resulting in a $3.1 million pre-tax loss (LOCOM HFS adjustment) recorded in Q2 2025[144] Item 2 - Management's Discussion and Analysis of Financial Condition and Results of Operations (Unaudited) This section provides management's perspective on the Company's financial condition and results of operations for the three and six months ended June 30, 2025, highlighting key performance drivers, critical accounting estimates, and changes in assets, liabilities, and equity. It also discusses recent events, capital adequacy, and liquidity General Pathfinder Bancorp, Inc. is a Maryland corporation that wholly owns Pathfinder Bank. The Company completed the sale of its majority interest in FitzGibbons Agency in October 2024. At June 30, 2025, consolidated assets were $1.51 billion, liabilities $1.38 billion, and shareholders' equity $124.4 million Consolidated Financial Position (in millions) | Metric (in millions) | June 30, 2025 | | :------------------- | :------------ | | Total consolidated assets | $1.51 | | Total consolidated liabilities | $1.38 | | Total shareholders' equity | $124.4 | - The Company completed the sale of its majority membership interest in the FitzGibbons Agency in October 2024[147] Statement Regarding Forward-Looking Statements This section includes a disclaimer about forward-looking statements, emphasizing that actual future results may differ materially due to various risks and uncertainties, including economic conditions, competitive pressures, interest rate changes, and regulatory actions - Forward-looking statements involve inherent risks and uncertainties, and actual future results may differ materially from expectations[152][154] - Key factors influencing future results include general economic conditions, competitive pressures, interest rate environment changes, loan volumes, and regulatory changes[152] Application of Critical Accounting Estimates Management identifies ACL, deferred income taxes, pension obligations, investment securities credit losses, fair value estimations, and goodwill impairment as critical accounting estimates due to their reliance on significant judgment and assumptions. A sensitivity analysis for commercial loans indicates the ACL could change by approximately $925,000 with a 25% change in qualitative factors - Critical accounting estimates include allowance for credit losses (ACL), deferred income taxes, pension obligations, investment securities credit losses, fair value estimations, and goodwill impairment[156] - The ACL for commercial loans (60.4% of the Bank's loan portfolio) includes $3.7 million derived from qualitative factors[160] - A hypothetical 25% negative or positive change within the qualitative factors used for commercial loans could result in an approximate $925,000 increase or decrease in the ACL[160] Recent Events The Board of Directors declared a cash dividend of $0.10 per share for Q2 2025. In July 2025, the Company completed the sale of nonperforming and classified loans, which had a significant accounting impact in Q2 2025 - A cash dividend of $0.10 per share was declared for the fiscal quarter ended June 30, 2025, payable on August 8, 2025[170] - In July 2025, the Company completed the sale of nonperforming and classified loans, resulting in a $3.1 million pre-tax loss (LOCOM HFS adjustment) recorded in Q2 2025[171][172] Summary of 2025 Second Quarter Results Net income for Q2 2025 plummeted to $31,000 from $2.0 million in Q2 2024, primarily due to a $3.1 million pre-tax fair value adjustment on loans held-for-sale. Net interest income increased by 14.1%, and net interest margin improved to 3.11%. Provision for credit losses rose significantly due to higher net charge-offs. Noninterest income was negative, while noninterest expense saw a modest increase, influenced by the East Syracuse branch acquisition and the absence of insurance agency costs Summary of 2025 Second Quarter Results (in thousands) | Metric (in thousands) | Q2 2025 | Q2 2024 | Change ($) | Change (%) | | :-------------------- | :------ | :------ | :--------- | :--------- | | Net income | $31 | $2,000 | $(1,969) | -98.45% | | Net interest income | $10,814 | $9,480 | $1,334 | +14.07% | | Net interest margin | 3.11% | 2.78% | +0.33% | +11.87% | | Provision for credit losses | $1,197 | $290 | $907 | +312.76% | | Net charge-offs (annualized % of average loans) | 1.14% | 0.03% | +1.11% | +3700.00% | | Noninterest income | $(1,518)| $1,211 | $(2,729) | -225.35% | | Noninterest expense | $8,061 | $7,908 | $153 | +1.93% | - The $3.1 million pre-tax fair value adjustment to loans held-for-sale (LOCOM HFS adjustment) had an after-tax effect of $2.5 million or $0.40 per diluted share[172] - Noninterest expense in Q2 2025 included $595,000 in costs associated with the East Syracuse branch acquisition and excluded insurance agency costs (which were $232,000 in Q2 2024)[179] - No FDIC assessment expense was recorded in Q2 2025 due to prior over-accruals, with normalized quarterly expense expected to be $220,000-$230,000 in H2 2025[182] Results of Operations This section provides a detailed analysis of the Company's operating performance, including net interest income, rate/volume analysis, deposit trends, provision for credit losses, noninterest income and expense, income tax expense, and earnings per share for the three and six months ended June 30, 2025, compared to the prior year Net Interest Income Net interest income increased by 14.1% for Q2 2025 and 17.7% for YTD June 30, 2025, primarily due to a significant decrease in interest expense from lower deposit and borrowing costs. Net interest margin improved by 33 basis points in Q2 and 44 basis points YTD, reflecting these lower funding costs and higher loan yields Net Interest Income and Margin (in thousands) | Metric (in thousands) | 3 Months Ended June 30, 2025 | 3 Months Ended June 30, 2024 | Change ($) | Change (%) | 6 Months Ended June 30, 2025 | 6 Months Ended June 30, 2024 | Change ($) | Change (%) | | :-------------------- | :--------------------------- | :--------------------------- | :--------- | :--------- | :--------------------------- | :--------------------------- | :--------- | :--------- | | Net interest income | $10,814 | $9,480 | $1,334 | +14.07% | $22,225 | $18,880 | $3,345 | +17.72% | | Net interest margin | 3.11% | 2.78% | +0.33% | +11.87% | 3.21% | 2.77% | +0.44% | +15.88% | | Total interest expense | $8,368 | $9,542 | $(1,174) | -12.30% | $16,398 | $18,752 | $(2,354) | -12.55% | | Total interest & dividend income | $19,182 | $19,022 | $160 | +0.84% | $38,623 | $37,632 | $991 | +2.63% | - The decrease in interest expense for Q2 2025 was primarily due to average cost decreases of 40 basis points for interest-bearing deposits and 38 basis points for borrowings[188] - The increase in loan interest income for Q2 2025 was $617,000, reflecting an 11 basis points increase in average yield on loans and a $25.9 million increase in average loan balances[174] Rate/Volume Analysis For Q2 2025, the increase in net interest income was primarily driven by volume changes in interest income and rate changes in interest expense. For YTD June 30, 2025, both volume and rate changes contributed positively to the increase in net interest income Rate/Volume Analysis of Net Interest Income (in thousands) | Metric (in thousands) | 3 Months Ended June 30, 2025 vs 2024 (Volume) | 3 Months Ended June 30, 2025 vs 2024 (Rate) | 3 Months Ended June 30, 2025 vs 2024 (Total Change) | 6 Months Ended June 30, 2025 vs 2024 (Volume) | 6 Months Ended June 30, 2025 vs 2024 (Rate) | 6 Months Ended June 30, 2025 vs 2024 (Total Change) | | :-------------------- | :-------------------------------------------- | :------------------------------------------ | :------------------------------------------------ | :-------------------------------------------- | :------------------------------------------ | :------------------------------------------------ | | Total interest income | $434 | $(274) | $160 | $699 | $292 | $991 | | Total interest expense | $(282) | $(892) | $(1,174) | $(645) | $(1,710) | $(2,355) | | Net change in net interest income | $716 | $618 | $1,334 | $1,344 | $2,002 | $3,346 | Deposits Total deposits increased by 1.4% to $1.22 billion at June 30, 2025, from December 31, 2024, reflecting increased market penetration. Core deposits constituted 78.5% of the total. Brokered deposits decreased by $17.6 million Total Deposits (in thousands) | Metric (in thousands) | June 30, 2025 | December 31, 2024 | Change ($) | Change (%) | | :-------------------- | :------------ | :---------------- | :--------- | :--------- | | Total Deposits | $1,221,887 | $1,204,524 | $17,363 | +1.44% | | Nonbrokered Deposits | $1,103,178 | $1,068,253 | $34,925 | +3.27% | | Brokered Deposits | $118,709 | $136,271 | $(17,562) | -12.89% | - At June 30, 2025, 78.5% of the Company's deposit base consisted of core deposits[199] - The increase in deposits reflected the Bank's increased market penetration among both non-business and business customers[198] Provision for Credit Losses The provision for credit losses (PCL) increased significantly to $1.2 million in Q2 2025 (from $290,000 in Q2 2024) and to $1.7 million YTD (from $1.0 million YTD 2024), primarily due to $2.6 million in net charge-offs during Q2 2025. The ratio of delinquent loans to total loans increased to 4.9% at June 30, 2025 Provision for Credit Losses (in thousands) | Metric (in thousands) | 3 Months Ended June 30, 2025 | 3 Months Ended June 30, 2024 | Change ($) | Change (%) | 6 Months Ended June 30, 2025 | 6 Months Ended June 30, 2024 | Change ($) | Change (%) | | :-------------------- | :--------------------------- | :--------------------------- | :--------- | :--------- | :--------------------------- | :--------------------------- | :--------- | :--------- | | PCL | $1,197 | $290 | $907 | +312.76% | $1,654 | $1,016 | $638 | +62.80% | - The increase in PCL was primarily attributed to net charge-offs of $2.6 million in Q2 2025[204][205] - The ratio of delinquent loans to total loans was 4.9% at June 30, 2025, an increase from 3.8% at December 31, 2024[206] Noninterest Income Total noninterest income was negative $1.5 million in Q2 2025 and negative $321,000 YTD, a substantial decrease from prior periods. This was primarily driven by a $3.1 million LOCOM HFS adjustment and the absence of insurance agency revenue following its sale in October 2024 Noninterest Income (in thousands) | Metric (in thousands) | 3 Months Ended June 30, 2025 | 3 Months Ended June 30, 2024 | Change ($) | Change (%) | 6 Months Ended June 30, 2025 | 6 Months Ended June 30, 2024 | Change ($) | Change (%) | | :-------------------- | :--------------------------- | :--------------------------- | :--------- | :--------- | :--------------------------- | :--------------------------- | :--------- | :--------- | | Total noninterest income | $(1,518) | $1,211 | $(2,729) | -225.35% | $(321) | $2,948 | $(3,269) | -110.89% | | LOCOM HFS adjustment | $(3,064) | $0 | $(3,064) | N/M | $(3,064) | $0 | $(3,064) | N/M | | Insurance agency revenue | $0 | $260 | $(260) | -100.00% | $0 | $657 | $(657) | -100.00% | | Net unrealized gains (losses) on marketable equity securities | $420 | $(139) | $559 | +402.16% | $638 | $(31) | $669 | +2158.06% | - The decline in noninterest income for Q2 2025 primarily reflects the $3.1 million LOCOM HFS adjustment and the absence of contributions from the insurance agency business sold in October 2024[208] Noninterest Expense Total noninterest expense increased by 1.9% in Q2 2025 and 5.6% YTD, primarily due to higher building and occupancy, data processing, and amortization expenses, largely associated with the East Syracuse branch acquisition. These increases were partially offset by the absence of insurance agency expenses and lower FDIC assessments Noninterest Expense (in thousands) | Metric (in thousands) | 3 Months Ended June 30, 2025 | 3 Months Ended June 30, 2024 | Change ($) | Change (%) | 6 Months Ended June 30, 2025 | 6 Months Ended June 30, 2024 | Change ($) | Change (%) | | :-------------------- | :--------------------------- | :--------------------------- | :--------- | :--------- | :--------------------------- | :--------------------------- | :--------- | :--------- | | Total noninterest expenses | $8,061 | $7,908 | $153 | +1.93% | $16,494 | $15,614 | $880 | +5.64% | | Salaries and employee benefits | $4,525 | $4,399 | $126 | +2.86% | $8,975 | $8,728 | $247 | +2.83% | | Building and occupancy | $1,230 | $914 | $316 | +34.57% | $2,577 | $1,730 | $847 | +48.96% | | Data processing | $667 | $550 | $117 | +21.27% | $1,333 | $1,078 | $255 | +23.65% | | Amortization expense | $157 | $5 | $152 | +3040.00% | $314 | $8 | $306 | +3825.00% | | Insurance agency expense | $0 | $232 | $(232) | -100.00% | $0 | $517 | $(517) | -100.00% | | FDIC assessments | $0 | $228 | $(228) | -100.00% | $229 | $457 | $(228) | -49.89% | - The increases in noninterest expense were primarily attributed to additional operating expenses associated with the East Syracuse branch acquisition, totaling $595,000 in Q2 2025 and $1.2 million YTD[179][211] Income Tax Expense Income tax expense decreased significantly in Q2 2025 to $7,000 (from $481,000 in Q2 2024) due to a $2.5 million decrease in pre-tax income. For YTD June 30, 2025, tax expense decreased to $751,000 (from $1.0 million YTD 2024). The effective tax rate for Q2 2025 was 18.4%, down from 19.3% in Q2 2024, while YTD it increased slightly to 20.0% from 19.5% Income Tax Expense and Effective Tax Rate (in thousands) | Metric (in thousands) | 3 Months Ended June 30, 2025 | 3 Months Ended June 30, 2024 | Change ($) | Change (%) | 6 Months Ended June 30, 2025 | 6 Months Ended June 30, 2024 | Change ($) | Change (%) | | :-------------------- | :--------------------------- | :--------------------------- | :--------- | :--------- | :--------------------------- | :--------------------------- | :--------- | :--------- | | Income tax expense | $7 | $481 | $(474) | -98.54% | $751 | $1,013 | $(262) | -25.86% | | Effective tax rate | 18.4% | 19.3% | -0.9% | -4.66% | 20.0% | 19.5% | +0.5% | +2.56% | - The decrease in income tax expense for Q2 2025 was primarily driven by a $2.5 million decrease in income before taxes[213] Earnings per Share Basic and diluted EPS for both voting and non-voting shares were less than $0.01 for Q2 2025, a significant drop from $0.32 in Q2 2024. For YTD June 30, 2025, EPS decreased to $0.48 (basic) and $0.47 (diluted) from $0.66 in YTD 2024. This decline was primarily due to the $0.40 per share impact of the LOCOM HFS adjustment Earnings per Share | Metric | 3 Months Ended June 30, 2025 | 3 Months Ended June 30, 2024 | Change | 6 Months Ended June 30, 2025 | 6 Months Ended June 30, 2024 | Change | | :----- | :--------------------------- | :--------------------------- | :----- | :--------------------------- | :--------------------------- | :----- | | Basic EPS (Voting) | < $0.01 | $0.32 | -100% | $0.48 | $0.66 | -27.27% | | Diluted EPS (Voting) | < $0.01 | $0.32 | -100% | $0.47 | $0.66 | -28.79% | - The decrease in EPS was primarily due to the $0.40 per share effect of the loss on sale of nonperforming and classified loans (LOCOM HFS adjustment)[216][217] Changes in Financial Condition This section details the changes in the Company's balance sheet, including assets, liabilities, and shareholders' equity, and assesses its capital adequacy against regulatory requirements Assets Total assets increased by 2.1% to $1.51 billion at June 30, 2025, compared to December 31, 2024. This growth was mainly driven by increases in investment securities and bank owned life insurance, partially offset by a decrease in total loans due to a reclassification to held-for-sale status Total Assets (in millions) | Metric (in millions) | June 30, 2025 | December 31, 2024 | Change ($) | Change (%) | | :------------------- | :------------ | :---------------- | :--------- | :--------- | | Total assets | $1,505.1 | $1,474.9 | $30.2 | +2.05% | | Total investment securities (incl. FHLB-NY stock) | $469.0 | $436.7 | $32.3 | +7.39% | | Bank owned life insurance | $31.0 | $24.7 | $6.3 | +25.51% | | Loans, net of deferred fees | $909.7 | $919.0 | $(9.3) | -1.01% | - The decrease in loans was after $3.2 million in balances were moved to held-for-sale status for the July 2025 sale of nonperforming and classified loans[222] - Commercial loans increased by $9.4 million (+1.7%), while consumer and residential loans decreased by $18.8 million (-4.9%)[222] Liabilities Total liabilities increased by 2.0% to $1.38 billion at June 30, 2025, from December 31, 2024. This was primarily due to a $17.4 million increase in total deposits and an $8.4 million increase in total borrowings Total Liabilities (in millions) | Metric (in millions) | June 30, 2025 | December 31, 2024 | Change ($) | Change (%) | | :------------------- | :------------ | :---------------- | :--------- | :--------- | | Total liabilities | $1,380.7 | $1,353.4 | $27.3 | +2.02% | | Total deposits | $1,221.9 | $1,204.5 | $17.4 | +1.44% | | Total borrowings | $96.5 | $88.1 | $8.4 | +9.53% | - The increase in deposits was due to a $39.4 million increase in interest-bearing deposits, partially offset by a $22.0 million decrease in noninterest-bearing deposits[224] - The increase in borrowings was due to a $14.5 million increase in short-term borrowed funds, partially offset by a $6.1 million decrease in long-term borrowed funds[225] Shareholders' Equity Shareholders' equity increased by 2.4% to $124.4 million at June 30, 2025, driven by net income, an increase in additional paid-in capital, and a decrease in accumulated other comprehensive loss, partially offset by declared dividends Total Shareholders' Equity (in millions) | Metric (in millions) | June 30, 2025 | December 31, 2024 | Change ($) | Change (%) | | :------------------- | :------------ | :---------------- | :--------- | :--------- | | Total shareholders' equity | $124.4 | $121.5 | $2.9 | +2.39% | - The increase was primarily due to $3.0 million in net income, an $895,000 increase in additional paid-in capital, and a $286,000 decrease in accumulated other comprehensive loss, partially reduced by $1.3 million in declared dividends[226] Capital Pathfinder Bank maintained a "well-capitalized" status at June 30, 2025, exceeding all regulatory minimum capital ratios, including the capital conservation buffer requirements. All key capital ratios showed slight increases or stable performance compared to December 31, 2024 Regulatory Capital Ratios | Regulatory Capital Ratio | June 30, 2025 | December 31, 2024 | Minimum for "Well-Capitalized" | | :----------------------- | :------------ | :---------------- | :----------------------------- | | Total Core Capital (to Risk-Weighted Assets) | 14.87% | 14.65% | 10.00% | | Tier 1 Capital (to Risk-Weighted Assets) | 13.62% | 13.40% | 8.00% | | Tier 1 Common Equity (to Risk-Weighted Assets) | 13.62% | 13.40% | 6.50% | | Tier 1 Capital (to Assets) | 9.68% | 9.64% | 5.00% | - The Bank met the regulatory definition of a "well-capitalized" institution at June 30, 2025[227] - The Bank exceeded all regulatory required minimum capital ratios, including the capital buffer requirements[228] Non-GAAP Financial Measures The Company provides non-GAAP financial measures, including revenue, pre-tax, pre-provision net income, and efficiency ratio, to offer additional insights into its financial performance. Revenue increased, while pre-tax, pre-provision net income and the efficiency ratio improved for Q2 2025 compared to Q2 2024 Non-GAAP Financial Measures (in thousands) | Non-GAAP Metric (in thousands) | June 30, 2025 (Q2) | December 31, 2024 (Q2) | Change ($) | Change (%) | | :----------------------------- | :----------------- | :--------------------- | :--------- | :--------- | | Revenue | $12,277 | $11,826 | $451 | +3.81% | | Pre-tax, pre-provision net income | $4,216 | $3,321 | $895 | +26.95% | | Efficiency ratio | 65.66% | 72.25% | -6.59% | -9.12% | - Non-GAAP measures are provided as supplemental information to GAAP financial measures[230] Loan and Asset Quality and Allowance for Credit Losses Nonperforming assets significantly decreased by $10.3 million to $11.8 million at June 30, 2025, primarily due to the July 2025 sale of nonperforming loans. The allowance for credit losses (ACL) on loans decreased to $16.0 million, and the ratio of ACL to total loans was 1.76%. Potential problem loans increased to $64.2 million Loan and Asset Quality (in thousands) | Metric (in thousands) | June 30, 2025 | December 31, 2024 | Change ($) | Change (%) | | :-------------------- | :------------ | :---------------- | :--------- | :--------- | | Total nonperforming assets | $11,772 | $22,084 | $(10,312) | -46.69% | | Nonperforming loans to total loans | 1.28% | 2.40% | -1.12% | -46.67% | | Allowance for credit losses on loans | $15,983 | $17,243 | $(1,260) | -7.31% | | ACL to total loans | 1.76% | 1.88% | -0.12% | -6.38% | | Individually analyzed loans | $12,100 | $20,000 | $(7,900) | -39.50% | | Potential problem loans | $64,200 | $56,400 | $7,800 | +13.83% | - The decrease in nonperforming loans was driven by the July 2025 sale of loans associated with one large commercial relationship[236] Liquidity For the first six months of 2025, the Company reported net cash inflows from operating ($2.0 million) and financing ($25.0 million) activities, offset by net cash outflows from investing activities ($27.0 million). Uninsured deposits totaled $154.7 million, and the Bank had $170.9 million in available credit lines Net Cash Flow (in millions) | Metric (in millions) | 6 Months Ended June 30, 2025 | | :------------------- | :--------------------------- | | Net cash flow from operating activities | $2.0 | | Net cash flow from investing activities | $(27.0) | | Net cash flow from financing activities | $25.0 | - Uninsured deposits totaled $154.7 million, representing 14.0% of all deposits at June 30, 2025[251] - The Bank had $170.9 million of available credit lines from FHLBNY, the Federal Reserve Bank, and other correspondent banks[252] Off-Balance Sheet Arrangements The Company had $229.9 million in outstanding commitments to extend credit and standby letters of credit at June 30, 2025. An allowance for credit losses of $532,000 was recorded for these off-balance sheet exposures Off-Balance Sheet Arrangements (in thousands) | Metric (in thousands) | June 30, 2025 | | :-------------------- | :------------ | | Outstanding commitments to extend credit and standby letters of credit | $229,900 | | Allowance for credit losses on off-balance sheet exposures | $532 | Item 3 – Quantitative and Qualitative Disclosures About Market Risk As a smaller reporting company, the registrant is not required to provide quantitative and qualitative disclosures about market risk - A smaller reporting company is not required to provide information relating to this item[256] Item 4 – Controls and Procedures Management, including the CEO and CFO, concluded that the Company's disclosure controls and procedures were effective as of June 30, 2025. No material changes in internal control over financial reporting occurred during the quarter - The CEO and CFO concluded that the Company's disclosure controls and procedures were effective as of June 30, 2025[257][258] - No material changes in internal control over financial reporting occurred during the quarter ended June 30, 2025[259] PART II - OTHER INFORMATION This section provides additional information not covered in the financial statements, including legal proceedings, risk factors, equity security sales, defaults, mine safety disclosures, other information, and exhibits Item 1 – Legal Proceedings As of June 30, 2025, the Company is not a named party in any legal proceeding that would have a material and adverse effect on its financial condition or results of operations - The Company is not currently a named party in a legal proceeding with a material adverse effect on financial condition or results of operations[261] Item 1A – Risk Factor As a smaller reporting company, the registrant is not required to provide information relating to risk factors - A smaller reporting company is not required to provide information relating to this item[262] Item 2 – Unregistered Sales of Equity Securities and Use of Proceeds The Company did not repurchase any shares during the second quarter of 2025. As of June 30, 2025, 74,292 shares remained authorized for repurchase under the existing plan Share Repurchase Activity | Metric | April 1, 2025 - June 30, 2025 | | :----- | :---------------------------- | | Total Number of Shares Purchased | 0 | | Maximum Number of Shares That May Yet Be Purchased | 74,292 | Item 3 – Defaults upon Senior Securities The Company reported no defaults upon senior securities during the period - No defaults upon senior securities occurred[264] Item 4 – Mine Safety Disclosures Mine Safety Disclosures are not applicable to the Company - Mine Safety Disclosures are not applicable[264] Item 5 – Other information During the second quarter of 2025, none of the Company's directors or officers adopted or terminated any Rule 10b5-1 trading arrangements - No directors or officers adopted or terminated any Rule 10b5-1 trading arrangements during Q2 2025[264] Item 6 – Exhibits This section lists the exhibits filed with the Form 10-Q, including certifications from the Chief Executive Officer and Chief Financial Officer, and interactive data files in iXBRL format - Exhibits include Rule 13a-14(a)/15d-14(a) certifications, Section 1350 certifications, and Interactive Data Files (iXBRL)[266] SIGNATURES The report is duly signed on behalf of Pathfinder Bancorp, Inc. by its President and Chief Executive Officer, James A. Dowd, and its Senior Vice President and Chief Financial Officer, Justin K. Bigham, as of August 14, 2025 - The report was signed by James A. Dowd, President and Chief Executive Officer, and Justin K. Bigham, Senior Vice President and Chief Financial Officer, on August 14, 2025[268][269][270]