Pathfinder Bancorp(PBHC) - 2022 Q3 - Quarterly Report

PART I - FINANCIAL INFORMATION Item 1. Consolidated Financial Statements (Unaudited) This section presents Pathfinder Bancorp's unaudited consolidated financial statements, highlighting asset growth to $1.40 billion and a Q3 2022 net income decrease to $3.2 million Consolidated Statements of Condition Total assets increased to $1.40 billion driven by loan and securities growth, while shareholders' equity decreased to $107.3 million due to unrealized losses on available-for-sale securities Consolidated Balance Sheet Highlights (in thousands) | Account | September 30, 2022 | December 31, 2021 | | :--- | :--- | :--- | | Total Assets | $1,396,946 | $1,285,177 | | Total cash and cash equivalents | $44,454 | $37,149 | | Total securities | $392,354 | $355,427 | | Loans receivable, net | $872,574 | $819,524 | | Total Liabilities | $1,289,151 | $1,174,544 | | Total deposits | $1,180,583 | $1,055,346 | | Total borrowings | $95,310 | $106,661 | | Total Shareholders' Equity | $107,301 | $110,287 | | Accumulated other comprehensive loss | $(12,565) | $(1,268) | Consolidated Statements of Income Q3 2022 net income decreased to $3.2 million due to higher loan loss provisions, while nine-month net income increased to $9.4 million driven by higher net interest income Key Income Statement Data (in thousands, except per share data) | Metric | Q3 2022 | Q3 2021 | Nine Months 2022 | Nine Months 2021 | | :--- | :--- | :--- | :--- | :--- | | Net Interest Income | $10,780 | $9,791 | $30,224 | $28,566 | | Provision for loan losses | $710 | $104 | $871 | $2,061 | | Noninterest Income | $1,161 | $1,546 | $4,060 | $4,825 | | Noninterest Expense | $7,267 | $6,823 | $21,665 | $20,304 | | Net Income Attributable to Pathfinder | $3,180 | $3,365 | $9,402 | $8,528 | | Basic and Diluted EPS | $0.52 | $0.56 | $1.55 | $1.43 | Consolidated Statements of Comprehensive Income (Loss) The company reported a comprehensive income of $26,000 for Q3 2022 and a comprehensive loss of $1.8 million for the nine months, primarily due to significant unrealized losses on available-for-sale securities Comprehensive Income (Loss) Summary (in thousands) | Metric | Q3 2022 | Q3 2021 | Nine Months 2022 | Nine Months 2021 | | :--- | :--- | :--- | :--- | :--- | | Net Income | $3,192 | $3,405 | $9,475 | $8,621 | | Other Comprehensive (Loss) Income, net of tax | $(3,166) | $(156) | $(11,297) | $845 | | Unrealized (losses) gains on AFS securities | $(4,402) | $(504) | $(16,382) | $459 | | Comprehensive Income (Loss) | $26 | $3,249 | $(1,822) | $9,466 | Consolidated Statements of Changes in Shareholders' Equity Shareholders' equity decreased by $2.8 million to $107.8 million for the nine months, primarily due to an $11.3 million other comprehensive loss, partially offset by net income - Shareholders' equity decreased by $2.8 million in the first nine months of 2022, from $110.6 million to $107.8 million[21] - The primary driver of the equity decrease was an $11.3 million other comprehensive loss, net of tax, which was partially offset by $9.4 million in net income[21] - The company declared dividends of $0.27 per share on both voting and non-voting common stock during the nine-month period[21] Consolidated Statements of Cash Flows Cash and cash equivalents increased by $7.3 million for the nine months, with operating cash inflows offset by significant investing outflows funded by financing activities, primarily brokered deposits Cash Flow Summary (Nine Months Ended Sep 30, in thousands) | Activity | 2022 | 2021 | | :--- | :--- | :--- | | Net cash from operating activities | $12,152 | $15,707 | | Net cash from investing activities | $(117,358) | $(8,409) | | Net cash from financing activities | $112,511 | $24,479 | | Net change in cash and cash equivalents | $7,305 | $31,777 | - Investing activities included net purchases of available-for-sale and held-to-maturity securities totaling $73.0 million and a net increase in loans of $54.6 million[24] - Financing activities were dominated by a $145.1 million net increase in brokered deposits, which funded investment activities and repayments of other liabilities[24] Notes to Consolidated Financial Statements The notes provide detailed explanations of the company's accounting policies and financial items, including CECL adoption, securities valuation, loan portfolio, nonperforming loans, and the allowance for loan losses - The company will adopt the new Current Expected Credit Loss (CECL) standard on January 1, 2023, which is expected to increase the allowance for credit losses[32][33] - The available-for-sale securities portfolio had gross unrealized losses of $16.6 million as of September 30, 2022, primarily due to rising interest rates[60][65][67] - Nonaccrual loans increased to $10.6 million at September 30, 2022, from $8.3 million at year-end 2021, largely due to the downgrade of a single large commercial borrower relationship[91][92] - The allowance for loan losses stood at $13.6 million, or 1.54% of total loans, as of September 30, 2022[108][260] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (Unaudited) Management discusses the company's financial performance and condition, highlighting Q3 net income decrease due to higher loan loss provision, asset growth to $1.40 billion, and adequate capital levels Overview and Results of Operations Q3 2022 net income decreased by 5.5% to $3.2 million due to a higher loan loss provision, while nine-month net income increased 10.2% to $9.4 million Q3 2022 vs Q3 2021 Performance Highlights | Metric | Q3 2022 | Change from Q3 2021 | | :--- | :--- | :--- | | Net Income | $3.2 million | ▼ 5.50% | | Basic & Diluted EPS | $0.52 | ▼ $0.04 | | Net Interest Income (after provision) | $10.1 million | ▲ 4.0% | | Provision for Loan Losses | $710,000 | ▲ $606,000 | Nine Months 2022 vs 2021 Performance Highlights | Metric | Nine Months 2022 | Change from 2021 | | :--- | :--- | :--- | | Net Income | $9.4 million | ▲ 10.2% | | Basic & Diluted EPS | $1.55 | ▲ $0.12 | | Net Interest Income (after provision) | $29.4 million | ▲ 10.8% | Net Interest Income Net interest income for Q3 2022 increased 10.1% to $10.8 million due to higher asset volumes and yields, while the nine-month period saw a $1.7 million increase to $30.2 million Net Interest Margin Analysis | Period | Net Interest Margin | Net Interest Rate Spread | Change in Net Interest Income (YoY) | | :--- | :--- | :--- | :--- | | Q3 2022 | 3.32% | 3.14% | +$989,000 | | Q3 2021 | 3.31% | 3.15% | N/A | | Nine Months 2022 | 3.18% | 3.02% | +$1,658,000 | | Nine Months 2021 | 3.19% | 3.03% | N/A | - The increase in Q3 net interest income was primarily driven by higher volume of interest-earning assets (+$2.1 million impact), partially offset by rate compression (-$0.8 million impact)[221] Changes in Financial Condition Total assets grew by $111.8 million to $1.40 billion, primarily from loan and securities growth funded by deposits, while shareholders' equity decreased due to unrealized losses on AFS securities - Total assets increased by $111.8 million (8.7%) to $1.40 billion since year-end 2021[241] - Deposits increased by $125.2 million (11.9%), with interest-bearing deposits, particularly brokered time deposits, driving the growth[244] - Shareholders' equity declined by $3.0 million, primarily due to a $15.2 million pre-tax decline in the fair value of the available-for-sale investment portfolio, resulting in an $11.3 million after-tax increase in accumulated other comprehensive loss[246][247] Capital Pathfinder Bank remains a 'well-capitalized' institution as of September 30, 2022, with all capital ratios significantly exceeding minimum regulatory requirements Pathfinder Bank Capital Ratios (September 30, 2022) | Ratio | Actual | Minimum to be "Well-Capitalized" | | :--- | :--- | :--- | | Total Core Capital (to Risk-Weighted Assets) | 14.69% | 10.00% | | Tier 1 Capital (to Risk-Weighted Assets) | 13.44% | 8.00% | | Tier 1 Common Equity (to Risk-Weighted Assets) | 13.44% | 6.50% | | Tier 1 Capital (to Assets) | 9.48% | 5.00% | Loan and Asset Quality and Allowance for Loan Losses Nonperforming assets increased to $10.8 million due to a single commercial relationship, but the allowance for loan losses at $13.6 million is deemed adequate Nonperforming Assets (in thousands) | Metric | Sep 30, 2022 | Dec 31, 2021 | | :--- | :--- | :--- | | Total nonaccrual loans | $10,625 | $8,292 | | Foreclosed real estate | $221 | $0 | | Total nonperforming assets | $10,846 | $8,292 | | Nonperforming loans to total loans | 1.22% | 1.00% | | Nonperforming assets to total assets | 0.78% | 0.65% | - The increase in nonperforming loans was primarily due to one large commercial real estate and commercial loan relationship with a total outstanding amount of $7.2 million, of which $1.8 million was placed on nonaccrual[258] - The allowance for loan losses was $13.6 million, or 1.54% of total loans, at September 30, 2022[260] Item 3. Quantitative and Qualitative Disclosures About Market Risk As a smaller reporting company, Pathfinder Bancorp, Inc. is not required to provide market risk disclosures - As a smaller reporting company, Pathfinder Bancorp, Inc. is not required to provide quantitative and qualitative disclosures about market risk[275] Item 4. Controls and Procedures Management concluded that the company's disclosure controls and procedures were effective as of September 30, 2022, with no material changes to internal controls - The CEO and CFO concluded that the company's disclosure controls and procedures were effective as of September 30, 2022[277] - No changes were made during the quarter that materially affected, or are reasonably likely to materially affect, the company's internal control over financial reporting[278] PART II - OTHER INFORMATION Item 1. Legal Proceedings As of September 30, 2022, the company is not a party to any material legal proceedings that would adversely affect its financial condition - The Company is not currently a named party in any material legal proceedings[280] Item 1A. Risk Factor As a smaller reporting company, Pathfinder Bancorp, Inc. is not required to provide risk factor disclosures - Disclosure for this item is not required as the company is a smaller reporting company[281] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds The company did not repurchase any shares during Q3 2022, with 74,292 shares remaining available for purchase under an existing plan - No shares were repurchased in the three months ended September 30, 2022[282] - The maximum number of shares that may yet be purchased under the existing plan is 74,292[282] Item 3. Defaults upon Senior Securities There were no defaults upon senior securities during the reporting period - None[283] Item 6. Exhibits This section lists the exhibits filed with the Form 10-Q, including CEO/CFO certifications and Interactive Data Files in iXBRL format - Filed exhibits include Rule 13a-14(a)/15d-14(a) certifications for the CEO and CFO, Section 1350 certifications, and iXBRL data files[283]