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 JUNE 30, 2005
SEC Exchange Act No. 000-23601
Pathfinder Bancorp, Inc.
(Exact name of Company as specified in its charter)
Federal
(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 by check mark whether the Registrant is an accelerated filer (as
defined in Rule 12b-2 of the Act). Yes No X
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date: There were 2,463,132 shares
of the Company's common stock outstanding as of August 5, 2005.
PATHFINDER BANCORP, INC.
INDEX
PART 1 FINANCIAL INFORMATION PAGE
Item 1. Financial Statements
Consolidated Statements of Condition 1
Consolidated Statements of Income 2-3
Consolidated Statements Changes in
of Shareholders' Equity 4
Consolidated Statements of Cash Flows 5
Notes to Consolidated Financial
Statements 6-8
Item 2. Management's Discussion and Analysis
of Financial Condition and Results
of Operations 9-17
Item 3. Quantitative and Qualitative Disclosure
about Market Risk 18-19
Item 4. Control and Procedures 20
PART II OTHER INFORMATION 21
Item 1. Legal proceedings
Item 2. Unregistered Sales of Equity Securities and
Use of Proceeds
Item 3. Defaults upon senior securities
Item 4. Submission of matters to a vote of security
holders
Item 5. Other information
Item 6. Exhibits
SIGNATURES
PATHFINDER BANCORP, INC.
CONSOLIDATED STATEMENTS OF CONDITION
JUNE 30, 2005 (UNAUDITED) AND DECEMBER 31, 2004
2005 2004
ASSETS
-------------------------------------------------------------------------------------------------------
(Dollars in thousands)
Cash and due from banks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 9,915 $ 6,741
Interest earning deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . 374 7,584
-------------------------------------------------------------------------------------------------------
Total cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . 10,289 14,325
Investment securities, at fair value. . . . . . . . . . . . . . . . . . . . . . . 87,447 75,069
Federal Home Loan Bank stock, at cost . . . . . . . . . . . . . . . . . . . . . . 2,163 1,768
Mortgage loans held-for-sale. . . . . . . . . . . . . . . . . . . . . . . . . . . 0 2,159
Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 187,943 186,952
Less: Allowance for loan losses. . . . . . . . . . . . . . . . . . . . . . . . 1,879 1,827
-------------------------------------------------------------------------------------------------------
Loans receivable, net. . . . . . . . . . . . . . . . . . . . . . . . . . . . 186,064 185,125
Premises and equipment, net . . . . . . . . . . . . . . . . . . . . . . . . . . . 8,025 7,580
Accrued interest receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,683 1,505
Foreclosed real estate. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 878 798
Goodwill. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,840 3,840
Intangible asset, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 516 627
Bank owned life insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,857 5,768
Other assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,709 3,473
-------------------------------------------------------------------------------------------------------
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $310,471 $302,037
=======================================================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
-------------------------------------------------------------------------------------------------------
Deposits:
Interest-bearing. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $218,262 $217,513
Noninterest-bearing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18,977 19,159
-------------------------------------------------------------------------------------------------------
Total deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 237,239 236,672
Short-term borrowings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10,900 1,000
Long-term borrowings. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32,360 34,360
Junior subordinated debentures. . . . . . . . . . . . . . . . . . . . . . . . . . 5,155 5,155
Other liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,139 3,024
-------------------------------------------------------------------------------------------------------
Total liabilities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 288,793 280,211
Shareholders' equity:
Preferred stock, authorized shares 1,000,000; no shares issued or outstanding
Common stock, par value $.01; authorized 10,000,000 shares;
2,950,419 and 2,937,419 shares issued; and 2,463,132 and 2,450,132
shares outstanding, respectively. . . . . . . . . . . . . . . . . . . . . . . 29 29
Additional paid in capital . . . . . . . . . . . . . . . . . . . . . . . . . . 7,579 7,453
Retained earnings. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21,228 21,186
Accumulated other comprehensive loss . . . . . . . . . . . . . . . . . . . . . (645) (307)
Unearned ESOP shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (11) (33)
Treasury Stock, at cost; 487,287 shares. . . . . . . . . . . . . . . . . . . . (6,502) (6,502)
-------------------------------------------------------------------------------------------------------
Total shareholders' equity . . . . . . . . . . . . . . . . . . . . . . . . . 21,678 21,826
-------------------------------------------------------------------------------------------------------
Total liabilities and shareholders' equity . . . . . . . . . . . . . . . . . $310,471 $302,037
=======================================================================================================
The accompanying notes are an integral part of the consolidated financial
statements.
-1-
PATHFINDER BANCORP, INC.
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
For the three For the three
months ended months ended
June 30, 2005 June 30, 2004
-----------------------------------------------------------------------------------------------
(Dollars in thousands, except per share data)
INTEREST INCOME:
Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 2,929 $ 2,981
Debt securities:
Taxable. . . . . . . . . . . . . . . . . . . . . . . . . . . . 659 585
Tax-exempt . . . . . . . . . . . . . . . . . . . . . . . . . . 135 59
Dividends . . . . . . . . . . . . . . . . . . . . . . . . . . 56 35
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 22
-----------------------------------------------------------------------------------------------
Total interest income . . . . . . . . . . . . . . . . . 3,787 3,682
INTEREST EXPENSE:
Interest on deposits . . . . . . . . . . . . . . . . . . . . 1,031 915
Interest on short-term borrowings. . . . . . . . . . . . . . 39 7
Interest on long-term borrowings . . . . . . . . . . . . . . 456 474
-----------------------------------------------------------------------------------------------
Total interest expense. . . . . . . . . . . . . . . . . 1,526 1,396
-----------------------------------------------------------------------------------------------
Net interest income. . . . . . . . . . . . . . . . . 2,261 2,286
Provision for loan losses. . . . . . . . . . . . . . . . . . 66 107
-----------------------------------------------------------------------------------------------
Net interest income after provision for loan losses. 2,195 2,179
-----------------------------------------------------------------------------------------------
OTHER INCOME:
Service charges on deposit accounts. . . . . . . . . . . . . 319 227
Loan servicing fees. . . . . . . . . . . . . . . . . . . . . 44 77
Increase in value of bank owned life insurance . . . . . . . 45 48
Net gain on sales of securities. . . . . . . . . . . . . . . - 330
Net gain on sales of loans/real estate . . . . . . . . . . . - 41
Other charges, commissions & fees. . . . . . . . . . . . . . 138 129
-----------------------------------------------------------------------------------------------
Total other income . . . . . . . . . . . . . . . . . 546 852
-----------------------------------------------------------------------------------------------
OTHER EXPENSES:
Salaries and employee benefits . . . . . . . . . . . . . . . 1,253 1,180
Building occupancy . . . . . . . . . . . . . . . . . . . . . 259 257
Data processing expenses . . . . . . . . . . . . . . . . . . 306 229
Professional and other services. . . . . . . . . . . . . . . 235 182
Amortization of intangible asset . . . . . . . . . . . . . . 55 56
Other expenses . . . . . . . . . . . . . . . . . . . . . . . 402 423
-----------------------------------------------------------------------------------------------
Total other expenses . . . . . . . . . . . . . . . . 2,510 2,327
-----------------------------------------------------------------------------------------------
Income before income taxes . . . . . . . . . . . . . . . . . . 231 704
(Benefit) provision for income taxes . . . . . . . . . . . . . (3) 182
-----------------------------------------------------------------------------------------------
NET INCOME . . . . . . . . . . . . . . . . . . . . . . . . . . $ 234 $ 522
===============================================================================================
NET INCOME PER SHARE - BASIC. . . . . . . . . . . . . . . $ 0.10 $ 0.21
===============================================================================================
NET INCOME PER SHARE - DILUTED. . . . . . . . . . . . . . $ 0.09 $ 0.21
===============================================================================================
DIVIDENDS PER SHARE . . . . . . . . . . . . . . . . . . . $ 0.1025 $ 0.10
===============================================================================================
The accompanying notes are an integral part of the consolidated financial
statements.
-2-
PATHFINDER BANCORP, INC.
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
For the six For the six
months ended months ended
June 30, 2005 June 30, 2004
-----------------------------------------------------------------------------------------------
(Dollars in thousands, except per share data)
INTEREST INCOME:
Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 5,818 $ 5,971
Debt securities:
Taxable. . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,263 1,057
Tax-exempt . . . . . . . . . . . . . . . . . . . . . . . . . . 238 107
Dividends . . . . . . . . . . . . . . . . . . . . . . . . . . 107 71
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59 37
-----------------------------------------------------------------------------------------------
Total interest income . . . . . . . . . . . . . . . . . 7,485 7,243
INTEREST EXPENSE:
Interest on deposits . . . . . . . . . . . . . . . . . . . . 2,061 1,767
Interest on short-term borrowings. . . . . . . . . . . . . . 49 16
Interest on long-term borrowings . . . . . . . . . . . . . . 915 970
-----------------------------------------------------------------------------------------------
Total interest expense. . . . . . . . . . . . . . . . . 3,025 2,753
-----------------------------------------------------------------------------------------------
Net interest income. . . . . . . . . . . . . . . . . 4,460 4,490
Provision for loan losses. . . . . . . . . . . . . . . . . . 138 295
-----------------------------------------------------------------------------------------------
Net interest income after provision for loan losses. 4,322 4,195
-----------------------------------------------------------------------------------------------
OTHER INCOME:
Service charges on deposit accounts. . . . . . . . . . . . . 593 462
Loan servicing fees. . . . . . . . . . . . . . . . . . . . . 85 118
Increase in value of bank owned life insurance . . . . . . . 89 96
Net gain on sales of securities. . . . . . . . . . . . . . . - 484
Net gain on sales of loans/real estate . . . . . . . . . . . (12) 121
Other charges, commissions & fees. . . . . . . . . . . . . . 280 249
-----------------------------------------------------------------------------------------------
Total other income . . . . . . . . . . . . . . . . . 1,035 1,530
-----------------------------------------------------------------------------------------------
OTHER EXPENSES:
Salaries and employee benefits . . . . . . . . . . . . . . . 2,517 2,383
Building occupancy . . . . . . . . . . . . . . . . . . . . . 502 534
Data processing expenses . . . . . . . . . . . . . . . . . . 613 454
Professional and other services. . . . . . . . . . . . . . . 424 328
Amortization of intangible asset . . . . . . . . . . . . . . 111 112
Other expenses . . . . . . . . . . . . . . . . . . . . . . . 763 766
-----------------------------------------------------------------------------------------------
Total other expenses . . . . . . . . . . . . . . . . 4,930 4,577
-----------------------------------------------------------------------------------------------
Income before income taxes . . . . . . . . . . . . . . . . . . 427 1,148
Provision for income taxes . . . . . . . . . . . . . . . . . . 44 303
-----------------------------------------------------------------------------------------------
NET INCOME . . . . . . . . . . . . . . . . . . . . . . . . . . $ 383 $ 845
===============================================================================================
NET INCOME PER SHARE - BASIC. . . . . . . . . . . . . . . $ 0.16 $ 0.35
=============== ==============
NET INCOME PER SHARE - DILUTED. . . . . . . . . . . . . . $ 0.15 $ 0.34
=============== ==============
DIVIDENDS PER SHARE . . . . . . . . . . . . . . . . . . . $ 0.205 $ 0.20
=============== ==============
The accompanying notes are an integral part of the consolidated financial
statements.
-3-
PATHFINDER BANCORP, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
SIX MONTHS ENDED JUNE 30, 2005 AND JUNE 30, 2004
(unaudited)
Accumulated
Additional Other Com- Unearned
Paid in Retained prehensive ESOP
Shares Amount Capital Earnings Income (Loss) Shares
-----------------------------------------------------------------------------------------------------------------------------
(Dollars in thousands, except per share data)
BALANCE, DECEMBER 31, 2004. . . . . . . . . . 2,937,419 $ 29 $ 7,453 $ 21,186 $ (307) $ (33)
Comprehensive income
Net income. . . . . . . . . . . . . . . . . . 383
Other comprehensive loss, net of tax
Unrealized net losses on securities . . . . . (338)
Total Comprehensive loss. . . . . . . . . . .
ESOP shares earned. . . . . . . . . . . . . . 40 22
Stock option exercised. . . . . . . . . . . . 13,000 - 86
Dividends declared ($.205 per share). . . . . (341)
-----------------------------------------------------------------------------------------------------------------------------
BALANCE, JUNE 30, 2005. . . . . . . . . . . . 2,950,419 $ 29 $ 7,579 $ 21,228 $ (645) $ (11)
=============================================================================================================================
BALANCE, DECEMBER 31, 2003. . . . . . . . . . 2,919,386 $ 29 $ 7,225 $ 20,747 $ 364 $ (78)
Comprehensive income
Net income. . . . . . . . . . . . . . . . . . 845
Other comprehensive loss, net of tax
Unrealized net losses on securities . . . . . (1,420)
Total Comprehensive loss. . . . . . . . . . .
ESOP shares earned. . . . . . . . . . . . . . 47 23
Stock option exercised. . . . . . . . . . . . 16,033 - 125
Dividends declared ($.20 per share) . . . . . (330)
-----------------------------------------------------------------------------------------------------------------------------
BALANCE, JUNE 30, 2004. . . . . . . . . . . . $ 2,935,419 $ 29 $ 7,397 $ 21,262 $ (1,056) $ (55)
=============================================================================================================================
Treasury
Stock Total
-------------------------------------------------------------------
(Dollars in thousands, except per share data)
BALANCE, DECEMBER 31, 2004. . . . . . . . . . $(6,502) $21,826
Comprehensive income
Net income 383
Other comprehensive loss, net of tax
Unrealized net losses on securities (338)
-------
Total Comprehensive loss 45
ESOP shares earned 62
Stock option exercised 86
Dividends declared ($.205 per share) (341)
--------------------------------------------------------------------
BALANCE, JUNE 30, 2005. . . . . . . . . . . . $(6,502) $21,678
====================================================================
BALANCE, DECEMBER 31, 2003. . . . . . . . . . $(6,502) $21,785
Comprehensive income
Net income 845
Other comprehensive loss, net of tax
Unrealized net losses on securities (1,420)
-------
Total Comprehensive loss (575)
ESOP shares earned 70
Stock option exercised 125
Dividends declared ($.20 per share) (330)
--------------------------------------------------------------------
BALANCE, JUNE 30, 2004. . . . . . . . . . . . $(6,502) $21,075
====================================================================
The accompanying notes are an integral part of the consolidated financial
statements
-4-
PATHFINDER BANCORP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
June 30, June 30,
2005 2004
------------------------------------------------------------------------------------
(Dollars in thousands)
OPERATING ACTIVITIES:
Net income. . . . . . . . . . . . . . . . . . . . . . . . $ 383 $ 845
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for loan losses . . . . . . . . . . . . . . . . 138 295
ESOP and other stock-based compensation earned. . . . . . 62 70
Deferred income tax expense . . . . . . . . . . . . . . . 177 32
Proceeds from sale of loans . . . . . . . . . . . . . . . 2,443 7,263
Originations of loans held-for-sale . . . . . . . . . . . - (4,317)
Realized loss/(gain) on:
Sale of real estate loans through foreclosure . . . . . 19 (30)
Loans . . . . . . . . . . . . . . . . . . . . . . . . . (7) (91)
Available-for-sale investment securities. . . . . . . . - (484)
Depreciation. . . . . . . . . . . . . . . . . . . . . . . 332 282
Amortization of intangible. . . . . . . . . . . . . . . . 111 112
Amortization of deferred financing costs. . . . . . . . . 15 15
Amortization of mortgage servicing rights . . . . . . . . 65 81
Increase in surrender value of life insurance . . . . . . (89) (96)
Net amortization of premiums on investment securities . . 182 158
Increase in interest receivable . . . . . . . . . . . . . (178) (218)
Net change in other assets and liabilities. . . . . . . . (153) (981)
------------------------------------------------------------------------------------
NET CASH PROVIDED BY OPERATING ACTIVITIES . . . . . . . . . 3,500 2,936
------------------------------------------------------------------------------------
INVESTING ACTIVITIES
Purchase of investment securities available-for-sale. . . (20,624) (28,842)
Proceeds from maturities and principal reductions of
investment securities available-for-sale. . . . . . . . 7,105 4,906
Proceeds from sale:
Real estate acquired through foreclosure. . . . . . . . 169 100
Available-for-sale investment securities. . . . . . . . - 4,350
Purchase of life insurance. . . . . . . . . . . . . . . . - (1,100)
Net (increase) decrease in loans. . . . . . . . . . . . . (1,622) 2,159
Purchase of premises and equipment. . . . . . . . . . . . (777) (870)
------------------------------------------------------------------------------------
NET CASH USED IN INVESTING ACTIVITIES . . . . . . . . . . . (15,749) (19,297)
------------------------------------------------------------------------------------
FINANCING ACTIVITIES
Net (decrease) increase in demand deposits, NOW accounts
savings accounts, money market deposit accounts
and escrow deposits . . . . . . . . . . . . . . . . . . (6,717) 26,595
Net increase in time deposits . . . . . . . . . . . . . . 7,284 364
Net proceeds from short term borrowings . . . . . . . . . 9,900 (4,600)
Payments on long-term borrowings. . . . . . . . . . . . . (2,000) -
Proceeds from exercise of stock options . . . . . . . . . 86 125
Cash dividends paid . . . . . . . . . . . . . . . . . . . (340) (328)
------------------------------------------------------------------------------------
NET CASH PROVIDED BY FINANCING ACTIVITIES . . . . . . . . . 8,213 22,156
------------------------------------------------------------------------------------
(DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS. . . . . (4,036) 5,795
Cash and cash equivalents at beginning of period . . . . . 14,325 8,714
------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD. . . . . . . . $ 10,289 $ 14,509
===================================================================================
The accompanying notes are an integral part of the consolidated financial
statements.
-5-
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 Company'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,
2004 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.
Operating results for the three and six months ended June 30, 2005 are not
necessarily indicative of the results that may be expected for the year ending
December 31, 2005.
(2) EARNINGS PER SHARE
Basic earnings per share has been computed by dividing net income by the
weighted average number of common shares outstanding throughout the three months
and six months ended June 30, 2005 and 2004, using 2,452,357 and 2,436,878
weighted average common shares outstanding for the three months ended, and
2,449,889 and 2,430,468 for the six months ended, respectively. Diluted
earnings per share for the three months and six months ended June 30, 2005 and
2004 have been computed using 2,487,229 and 2,478,570 for the three months ended
and 2,486,999 and 2,477,102 for the six months ended, respectively. Diluted
earnings per share gives effect to weighted average shares that would be
outstanding assuming the exercise of issued stock options using the treasury
stock method.
(3) PENSION BENEFITS
The composition of net periodic benefit plan cost for the three months and six
months ended June 30, is as follows:
FOR THE THREE FOR THE SIX
MONTHS ENDED MONTHS ENDED
JUNE 30, JUNE 30,
2005 2004 2005 2004
-----------------------------------------------------------------------
(In thousands)
Service cost. . . . . . . . . . $ 38 $ 43 $ 76 $ 86
Interest cost . . . . . . . . . 57 52 114 104
Expected return on plan assets. (71) (63) (142) (126)
Amortization of net losses. . . 24 24 48 48
-----------------------------------------------------------------------
Net periodic benefit cost . . . $ 48 $ 56 $ 96 $ 112
=======================================================================
The Company previously disclosed in its financial statements for the year ended
December 31, 2004, that it expected to contribute $190,000 to its pension plan
in 2005. As of June 30, 2005, $609,000 had been contributed to the pension
plan. The Company contributed more than expected to avoid a PGBC (Pension
Benefit Guaranty Corporation) variable rate premium.
-6-
(4) DIVIDEND RESTRICTIONS
The Company maintains a restricted capital account with a $1.4 million balance,
representing Pathfinder Bancorp, MHC's portion of dividends waived as of
June 30, 2005.
(5) COMPREHENSIVE INCOME
The components of other comprehensive (loss) income and related tax effects for
the three month and six month periods ended June 30, 2005 and 2004 are as
follows:
For the For the
three months six months
ended June 30, ended June 30,
2005 2004 2005 2004
----------------------------------------------------------------------------
(In thousands)
Gross change in unrealized gains on
securities available for sale. . . . $ 807 $(2,388) $(565) $(1,882)
Reclassification adjustment for gains
included in net income . . . . . . . - (330) - (484)
----------------------------------------------------------------------------
807 (2,718) (565) (2,366)
Tax effect . . . . . . . . . . . . . . (322) 1,087 227 946
----------------------------------------------------------------------------
Net of tax amount. . . . . . . . . . . $ 485 $(1,631) $(338) $(1,420)
============================================================================
(6) GUARANTEES
The Company does not issue any guarantees that would require liability
recognition or disclosure, other than its standby letters of credit. Standby
letters of credit written are conditional commitments issued by the Company to
guarantee the performance of a customer to a third party. Generally, all
letters of credit, when issued have expiration dates within one year. The
credit risk involved in issuing letters of credit is essentially the same as
those that are involved in extending loan facilities to customers. The Company,
generally, holds collateral and/or personal guarantees supporting these
commitments. The Company had $865,000 of standby letters of credit as of June
30, 2005. Management believes that the proceeds obtained through a liquidation
of collateral and the enforcement of guarantees would be sufficient to cover the
potential amount of future payment required under the corresponding guarantees.
The current amount of the liability as of June 30, 2005 for guarantees under
standby letters of credit issued is not material.
(7) NEW ACCOUNTING PRONOUNCEMENTS
In December 2004, the Financial Accounting Standards Board (FASB) issued
Statement No. 123(R), "Share-Based Payment." Statement No. 123(R) revised
Statement No. 123, "Accounting for Stock-Based Compensation," and supersedes APB
Opinion No. 25, "Accounting for Stock Issued to Employees," and its related
implementation guidance. Statement No. 123(R) will require compensation costs
related to share-based payment transactions to be recognized in the financial
statements (with limited exceptions). The amount of compensation cost will be
measured based on the grant-date fair value of the equity or liability
instruments issued. Compensation cost will be recognized over the period that
an employee provides service in exchange for the award.
On April 14, 2005, the Securities and Exchange Commission ("SEC") adopted a new
rule that amends the compliance dates for Financial Accounting Standards Board's
Statement of Financial Accounting Standards No. 123 (revised 2004), "Share-Based
Payment" ("SFAS No. 123R"). Under the new rule, the Company is required to adopt
SFAS No. 123R in the first annual period beginning after June 15, 2005. Since
-7-
the Company's options are fully granted and vested, the Company does not
anticipate the adoption will have any impact on the consolidated financial
statements.
In March 2005, the SEC issued Staff Accounting Bulletin No. 107 ("SAB No. 107"),
"Share-Based Payment", providing guidance on option valuation methods, the
accounting for income tax effects of share-based payment arrangements upon
adoption of SFAS No. 123(R), and the disclosures in MD&A subsequent to the
adoption. The Company will provide SAB No. 107 required disclosures upon
adoption of SFAS No. 123(R).
-8-
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
GENERAL
Throughout the Management's Discussion and Analysis ("MD&A") the term, "the
Company", refers to the consolidated entity of Pathfinder Bancorp, Inc.
Pathfinder Bank and Pathfinder Statutory Trust I are wholly owned subsidiaries
of Pathfinder Bancorp, Inc. Pathfinder Commercial Bank, Pathfinder REIT, Inc.
and Whispering Oaks Development Corp. represent wholly owned subsidiaries of
Pathfinder Bank. At June 30, 2005, Pathfinder Bancorp, M.H.C., the Company's
mutual holding company parent, whose activities are not included in the MD& A
held 64.3% of the Company's common stock and the public held 35.7%.
The following discussion reviews the Company's financial condition at June 30,
2005 and the results of operations for the three and six months ended June 30,
2005 and June 30, 2004.
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 that 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.
The Company's net income is primarily dependent on its net interest income,
which is the difference between interest income earned on its investments in
mortgage loans, investment securities and other loans, and its cost of funds
consisting of interest paid on deposits and borrowed funds. The Company's net
income is also affected by its provision for loan losses, as well as by the
amount of other income, including income from fees and service charges on
deposit accounts, net gains and losses on sales of securities, loans and
foreclosed real estate, and other expenses such as salaries and employee
benefits, building occupancy and equipment costs, data processing and income
taxes. Earnings of the Company also are affected significantly by general
economic and competitive conditions, particularly changes in market interest
rates, government policies and actions of regulatory authorities, which events
are beyond the control of the Company. In particular, the general level of
market rates tends to be highly cyclical.
-9-
APPLICATION OF CRITICAL ACCOUNTING POLICIES
The Company's consolidated financial statements are prepared in accordance with
accounting principles generally accepted in the United States and follow
practices within the banking industry. Application of these principles requires
management to make estimates, assumptions and judgments that affect the amounts
reported in the financial statements and accompanying notes. These estimates,
assumptions and judgments are based on information available as of the date of
the financial statements; accordingly, as this information changes, the
financial statements could reflect different estimates, assumptions and
judgments. Certain policies inherently have a greater reliance on the use of
estimates, assumptions and judgments and as such have a greater possibility of
producing results that could be materially different than originally reported.
Estimates, assumptions and judgments are necessary when assets and liabilities
are required to be recorded at fair value or when an asset or liability needs to
be recorded contingent upon a future event. Carrying assets and liabilities at
fair value inherently results in more financial statement volatility. The fair
values and information used to record valuation adjustments for certain assets
and liabilities are based on quoted market prices or are provided by other
third-party sources, when available. When third party information is not
available, valuation adjustments are estimated in good faith by management.
The most significant accounting policies followed by the Company are presented
in Note 1 to the consolidated financial statements included in the 2004 Annual
Report on Form 10-K ("the Consolidated Financial Statements"). These policies,
along with the disclosures presented in the other financial statement notes and
in this discussion, provide information on how significant assets and
liabilities are valued in the financial statements and how those values are
determined. Based on the valuation techniques used and the sensitivity of
financial statement amounts to the methods, assumptions and estimates underlying
those amounts, management has identified the determination of the allowance for
loan losses to be the accounting area that requires the most subjective and
complex judgments, and as such could be the most subject to revision as new
information becomes available.
The allowance for loan losses represents management's estimate of probable loan
losses inherent in the loan portfolio. Determining the amount of the allowance
for loan losses is considered a critical accounting estimate because it requires
significant judgment and the use of estimates related to the amount and timing
of expected future cash flows on impaired loans, estimated losses on pools of
homogeneous loans based on historical loss experience, and consideration of
current economic trends and conditions, all of which may be susceptible to
significant change. The loan portfolio also represents the largest asset type
on the consolidated balance sheet. Note 1 to the Consolidated Financial
Statements describes the methodology used to determine the allowance for loan
losses, and a discussion of the factors driving changes in the amount of the
allowance for loan losses is included in this report.
The Company carries all of its investments at fair value with any unrealized
gains or losses reported net of tax as an adjustment to shareholders' equity.
Based on management's assessment, at June 30, 2005, the Company did not hold any
security that had a fair value decline that is currently expected to be other
than temporary. Consequently, any declines in a specific security's fair value
below amortized cost have not been provided for in the income statement. The
Company's ability to fully realize the value of its investment in various
securities, including corporate debt securities, is dependent on the underlying
creditworthiness of the issuing organization.
EXECUTIVE SUMMARY
Net income was $234,000, or $0.10 per share, for the three months ended June 30,
2005 as compared to $522,000, or $0.21 per share, for the same period in 2004.
-10-
For the six months ended June 30, 2005, the Company reported net income of
$383,000, or $0.16 per share, compared to $845,000, or $0.35 per share, for the
same period in 2004. The opening of a new branch in Central Square, New York
was the highlight of the Company's second quarter. The reduction in earnings
reflects a reduction in gains on sales of securities and loans and foreclosed
real estate combined with higher operating expenses, primarily related to the
new branch operations, and the addition of a Business Development Officer in the
first quarter of 2005 to stimulate commercial loan growth. Earnings are being
challenged by a flattening yield curve, an expanding delivery system, and
increased regulatory burden cost. Over the past year, the Company has focused
on enhancing fee income sources and improving asset quality in anticipation of
these challenges. The Company is developing strategies to streamline operations
and reduce our administrative costs while not impacting our service standards.
RESULTS OF OPERATIONS
The return on average assets and return on shareholders' equity were 0.30% and
4.38%, respectively, for the three months ended June 30, 2005, compared with
0.69% and 9.85%, respectively, for the three months ended June 30, 2004. During
the second quarter of 2005 when compared to the first quarter of 2004, net
interest income remained relatively consistent while net gains on the sale of
securities and loans/real estate decreased by $371,000 and other expenses
increased $183,000, or 8%, partially offset by a decrease in the provision for
loan losses by 38%, or $41,000 and an increase in other income, exclusive of net
gains on sales of securities and loans/real estate, by $64,0000, or 13%.
For the six months ended June 30, 2005, net income was $383,000, a decrease of
$462,000, or 55%, as compared to net income of $845,000 in 2004. The decrease
in net income was primarily a result of a decrease in net gains on the sale of
securities and loans/real estate of $616,000 and an increase in other expenses
of $353,000, partially offset by declines in provisions for loan losses and
income taxes and an increase in other income, exclusive of net gains on sales of
securities and loans/real estate, by $121,000, or 13%. Basic earnings per share
decreased to $0.16 per share for the six months ended June 30, 2005 from $0.35
for the same period in 2004. The return on average assets and return on
shareholders' equity were 0.25% and 3.57%, respectively for the six months ended
June 30, 2005, compared with 0.57% and 7.79% for the same period in 2004.
NET INTEREST INCOME
Net interest income is the Company's primary source of operating income for
payment of operating expenses and providing for loan losses. It is the amount
by which interest earned on interest-earning deposits, loans and investment
securities, exceeds the interest paid on deposits and other interest-bearing
liabilities. Changes in net interest income and net interest margin ratio
result from the interaction between the volume and composition of interest
earning assets, interest-bearing liabilities, related yields and associated
funding costs.
Net interest income, on a tax-equivalent basis, remained relatively constant at
$2.3 million for the three months ended June 30, 2005 when compared to the same
period of 2004. The Company's net interest margin ratio for the first quarter
of 2005 decreased to 3.30% from 3.34% when compared to the same quarter in 2004.
Management expects continued margin compression to adversely impact earnings
over the near term. The flattening of the yield curve continues to have a
negative impact on net interest margin as longer-term assets reprice at static
or lower rates and shorter-term deposits and borrowings reprice at higher rates.
Average interest-earning assets increased 2% to $281.2 million at June 30, 2005
as compared to $276.7 million at June 30, 2004. The increase in average
earning assets is primarily attributable to a $13.8 million increase in
investment securities, partially offset by a $9.3 million decrease in
interest-earning deposits. Average interest-bearing liabilities increased
$5.7 million, and the cost of funds increased 14 basis points to 2.29% from
2.15% for the same period in 2004. The increase in the average
balance of interest-bearing liabilities resulted primarily from a $7.2
-11-
million growth in average deposits, partially offset by a $1.5 million decrease
in borrowed funds. The growth in deposits primarily resulted from the growth in
municipal deposits as the Company continues to add municipal customers combined
with a growth in retail deposits.
For the six months ended June 30, 2005, net interest income, on a tax-equivalent
basis, remained relatively consistent at $4.6 million as compared to the same
period during 2004. Net interest margin decreased 14 basis points, to 3.25% at
June 30, 2005 from 3.39% at June 30, 2004. Average interest-earning assets
increased 5% to $280.7 million at June 30, 2005 as compared to $268.0 million
at June 30, 2004, while the yield on interest earning assets declined 4 basis
points to 5.40% from 5.44% for the comparable periods. The increase in
average earning assets is primarily attributable to a $17.6 million increase in
investment securities, partially offset by a $3.5 million decrease in
interest-earning deposits and a $1.4 million decrease in loans receivable.
Average interest-bearing liabilities increased $13.4 million and the cost
of funds increased 9 basis points to 2.28% from 2.19% for the same period in
2004. The increase in the average balance of interest-bearing
liabilities resulted primarily from a $17.4 million growth in average
deposits, partially offset by a $3.9 million decrease in borrowed funds.
INTEREST INCOME
Total interest income, on a tax-equivalent basis, for the quarter ended June 30,
2005 increased $134,000, or 4%, to $3.8 million from $3.7 million at the quarter
ended June 30, 2004. Average loans remained consistent at $187.4 million, with
yields declining 11 basis points to 6.27% for the second quarter of 2005.
Average consumer loans increased $2.0 million, or 12%, and experienced an
increase in yield of 54 basis points. The increase in the yield on consumer
loans resulted primarily from the effect of the 225 basis point increase in the
bank's prime rate on the adjustable rate home equity products. Average
commercial loans increased $1.9 million, and experienced a decrease in the
average yield of 19 basis points, to 6.94% from 7.13%, in 2004. Increases in
the average balance of consumer and commercial loan portfolios were offset by
decreases in the average balance of residential and commercial real estate loan
portfolios. The average balance of the commercial real estate portfolio
decreased $2.5 million, or 8%, while the yield remained consistent at 7.62%.
The Company's residential mortgage loan portfolio decreased $1.4 million, or 1%,
when comparing the second quarter of 2005 to the same period in 2004. The
average yield on the residential mortgage loan portfolio increased 27 basis
points to 6.07% in 2005 from 5.80% in 2004.
Average investment securities for the quarter ended June 30, 2005 increased by
$13.8 million, compared to the same period a year ago, with an increase in
tax-equivalent interest income from investments of $197,000, or 28%, compared to
the second quarter of 2004. The average tax-equivalent yield of the portfolio
increased 33 basis points, to 3.88% from 3.55%. The increase in the average
balance of investment securities is a result of the investment of excess
liquidity into the securities portfolio in light of the slower loan portfolio
growth.
Total interest income, on a tax-equivalent basis, for the six months ended June
30, 2005 increased $291,000, or 4%, when compared to the six months ended June
30, 2004. Average loans decreased $1.4 million, with yields declining 11 basis
points to 6.22% from 6.33%. Average consumer and commercial loans increased
$2.0 million and $1.3 million, respectively. These increases were offset by
decreases in the average balance of residential and commercial real estate loans
of $2.7 million and $2.3 million, respectively.
For the six months ended June 30, 2005, tax-equivalent interest income from
investment securities increased $422,000, or 33%, compared to the same period in
2004. The average tax-equivalent yield of the portfolio increased 24 basis
points, to 3.86% from 3.62% combined by a $17.6 million increase in the average
balance of investment securities.
-12-
INTEREST EXPENSE
Total interest expense increased $130,000 for the three months ended June 30,
2005, when compared to the same quarter in 2004. Deposit expense for the
comparable periods increased $116,000, or 13%, as the average rate paid on
higher earning money management accounts increased 56 basis points to 1.93% in
2005 from 1.37% in 2004. The cost of time deposits increased 20 basis points as
existing time deposits matured and repriced into higher rates, combined with an
18% increase in the average balance of time deposit accounts to $91.8 million in
2005 from $82.9 million in 2004. The cost of other interest-bearing deposits
decreased 24 basis points, to 0.41% from 0.65% combined with a 1%, or $1.1
million, decrease in the average balance of these deposits resulted in a $55,000
decrease in the cost of funds on NOW and savings accounts. Interest expense on
borrowings increased by $14,000, or 2%, from the prior period, resulting from
and increase in the cost of borrowed funds to 4.66% to 4.39%, partially offset
by a decrease in the average balance of borrowed funds of $1.5 million. The
increase in the cost of borrowings primarily resulted from an increase in the
cost of the LIBOR (London Interbank Offered Rate) based junior subordinated
debentures to 6.36% from 4.60%.
For the six months ended June 30, 2005, interest expense increased $272,000, or
10%, to $3.0 million from $2.8 million for the same period in 2004. The average
deposit balance increased $17.4 million combined with a 13 basis point increase
in the cost of deposits to 1.84% from 1.71%. The cost of borrowed funds
increased 31 basis points to 4.69% from 4.38%, partially offset by a decrease in
the average balance of borrowed funds by $3.9 million, or 10%.
PROVISION FOR LOAN LOSSES
Provision for loan losses for the quarter ended June 30, 2005 decreased to
$66,000 from $107,000 for the same period in 2004, primarily as a result of
improved asset quality and stable loan balances. The Company's ratio of
allowance for loan losses to period end loans has increased to 1.00% at June 30,
2005 from 0.98% at December 31, 2004. Nonperforming loans to period end loans
increased to 1.08% at June 30, 2005 from 0.99% at December 31, 2004. Increased
delinquencies in residential real estate loans have negatively impacted the
ratio of nonperforming loans to period end loans when compared to December 31,
2004. Collection efforts have reduced the level of residential delinquencies
since June 30, 2005 resulting in a decrease in the ratio of nonperforming loans
to period end loans to 0.90% as of July 31, 2005.
For the six months ended June 30, 2005, the provision for loan losses was
$138,000 as compared to $295,000 for the same period in 2004 primarily resulting
from a decrease in the level of charge-offs to $86,000 for the six months ended
June 30, 2005 compared to $175,000 in 2004.
OTHER INCOME
The Company's other income is primarily comprised of fees on deposit account
balances and transactions, loan servicing, commissions, and net gains on
securities, loans and foreclosed real estate.
-13-
The following table sets forth certain information on other income for the
periods indicated:
Three Months Ended June 30, Six Months Ended June 30,
2005 2004 Change 2005 2004 Change
-----------------------------------------------------------------------------------------------------------------------
(Dollars in thousands)
Service charges on deposit accounts. . . . . . . . $ 319 $ 227 $ 92 40.5% $ 593 $ 462 $ 131 28.4%
Loan servicing fees. . . . . . . . . . . . . . . . 44 77 (33) -42.9% 85 118 (33) -28.0%
Increase in value of bank owned life insurance . . 45 48 (3) -6.3% 89 96 (7) -7.3%
Net gains on sale of loans/foreclosed real estate. - 41 (41) -100.0% (12) 121 (133) -109.9%
Other operating income . . . . . . . . . . . . . . 138 129 9 7.0% 280 249 31 12.4%
-----------------------------------------------------------------------------------------------------------------------
Core noninterest income. . . . . . . . . . . . . . 546 522 24 4.6% 1,035 1,046 (11) -1.1%
Net gain on sales of securities. . . . . . . . . . - 330 (330) -7.1% - 484 (484) -100.0%
-----------------------------------------------------------------------------------------------------------------------
Total other income . . . . . . . . . . . . . . . . $ 546 $ 852 $ (306) -35.9% $1,035 $ 1,530 $(495) -32.4%
=======================================================================================================================
For the three months ended June 30, 2005, core other income increased $23,000,
or 4%, when compared with the three months ended June 30, 2004. Income from
service charges on deposit accounts increased as the number of deposit accounts
increased, combined with an increase in fees associated with deposit accounts.
The increase in other operating income primarily resulted from fees associated
with ATM and debit cards usage, the recording of a New York State Grant income
associated with a Leadership Training program, and a pre-payment penalty fee
received from the early call of an investment security, offset by a decrease in
fees generated by investment services. The decrease in loan servicing fees is
primarily due to a reduction in internal mortgage legal fees associated with
reduced mortgage and home equity loan origination volumes. The decrease in the
net gain on sale of loans/foreclosed real estate is primarily due to fewer gains
recognized on loan sales due to the decrease in the volume of loans sold into
the secondary market.
For the six months ended June 30, 2005, core other income decreased $12,000 or
1%, when compared with the six months ended June 30, 2004. The decrease in core
income for the six months ended June 30 2005, was primarily due to fewer gains
recognized on loan sales due to the decrease in the volume of loans sold into
the secondary market and the $30,000 gain recognized on a Whispering Oaks
Development Inc. lot sale in February of 2004, which did not recur in 2005.
These decreases were offset by an increase in fees associated with deposit
accounts, which began in the second quarter of 2005, and the recording of New
York State Grant income associated with the Leadership Training Program.
The decrease in the net gains on sales of investment securities for the three
and six month period was the result of gains associated with the sale of
corporate stock and mortgage-backed securities in 2004. There were no
investment security sales during the first two quarters of 2005.
OTHER EXPENSES
The following table sets forth certain information on other expense for the
quarters indicated:
Three Months Ended June 30, Six Months Ended June 30,
2005 2004 Change 2005 2004 Change
----------------------------------------------------------------------------------------------------
(Dollars in thousands)
Salaries and employee benefits . . $1,253 $1,180 $ 73 6.19% $2,517 $ 2,383 $134 5.62%
Building occupancy . . . . . . . . 259 257 2 0.78% 502 534 (32) -5.99%
Data processing. . . . . . . . . . 306 229 77 33.62% 613 454 159 35.02%
Professional and other services. . 235 182 53 29.12% 424 328 96 29.27%
Amortization of intangible assets. 55 56 (1) -1.79% 111 112 (1) -0.89%
Other operating. . . . . . . . . . 402 423 (21) -4.96% 763 766 (3) -0.39%
----------------------------------------------------------------------------------------------------
Total noninterest expense. . . . . $2,510 $2,327 $ 183 7.86% $4,930 $ 4,577 $353 7.71%
====================================================================================================
-14-
For the three months and six months ended June 30, 2005, salaries and employee
benefits increased as a result of increases associated with an expanding
commercial lending sales force, the opening of a new branch in June 2005,
increased supplemental retirement plan costs and a decrease in deferred payroll
expense as a result of fewer loan originations. The Company had 113 full time
equivalent employees at June 30, 2005 compared to 110 at June 30, 2004. The
increase in data processing charges was due to depreciation and maintenance
expense resulting from system hardware and software acquisitions, increased
internet banking usage and increased check processing charges due to an increase
in customer volume. The increase in professional and other services was
primarily due to consulting expenses associated with a fee enhancement program,
a leadership training program, strategic planning and a capital market analysis.
A portion of the expenses associated with the leadership training program was
offset by corresponding grant income recorded in other income. The reduction in
other operating expenses for the three month period ending June 30, 2005, was
primarily due to a reduction in the volume of no cost home equity loans
originated.
The decrease in building occupancy expenses for the six month period primarily
resulted from reduced depreciation and machine maintenance expenses, combined
with a significant reduction in snow removal costs when compared to the first
quarter of 2004. These decreases were offset slightly by increased property
taxes for all branch locations.
INCOME TAX EXPENSE
Income taxes decreased $185,000 for the quarter ended June 30, 2005 as compared
to the same period in 2004, which was attributable to a decrease in the
Company's pre-tax income combined with an increase in tax-exempt interest
income. The effective tax rate was 10.3% for the six months ended June 30,
2005, compared to 26.4% for the year ended December 31, 2004. The decrease in
the effective tax rate resulted primarily from an increase in tax-exempt
interest income. The Company has reduced its tax rate from the statutory rate
primarily through the ownership of tax-exempt investment securities, bank owned
life insurance and other tax savings strategies.
CHANGES IN FINANCIAL CONDITION
ASSETS
Total assets increased approximately $8.5 million, or 3%, to $310.5 million at
June 30, 2005, from $302.0 million at December 31, 2004. The increase in total
assets was primarily the result of an increase in investment securities of $12.4
million, or 17%, offset by a $4.0 million, or 28%, decrease in cash and cash
equivalents and a $2.2 million decrease in mortgage loans held for sale. The
growth in investment securities was primarily funded with liquidity resulting
from deposit growth outpacing net loan originations.
At June 30, 2005, the securities balance included a net unrealized loss on
available for sale securities of $1.1 million, net of taxes, versus a net
unrealized loss of $306,000, net of taxes at December 31, 2004. The increase in
interest rates during 2004 and 2005 led to the decline in the fair value of
securities during 2005. Management has determined that the declines in fair
value are not other than temporary.
LIABILITIES
Total liabilities increased $8.6 million, or 3%, to $288.8 million at June 30,
2005 from $280.2 million at December 31, 2004. The increase in liabilities is
primarily due to a $9.9 million increase in short-term borrowings. The increase
in short-term borrowings is a result of cyclical declines in the deposit
balances of certain large municipal customers during the second quarter. These
-15-
deposit outflows caused the organization to rely on short-term wholesale
borrowings for liquidity needs.
LOAN AND ASSET QUALITY AND ALLOWANCE FOR LOAN LOSSES
The following table represents information concerning the aggregate amount of
nonperforming assets:
For the Period Ending
(In thousands) June 30, December 30, June 30,
2005 2004 2004
------------------------------------------------------------------------------------
Nonaccrual loans:
Commercial. . . . . . . . . . . . . . . . . . . . $ 633 $ 776 $1,876
Consumer. . . . . . . . . . . . . . . . . . . . . 106 122 152
Real estate - Construction . . . . . . . . . . . 0 0 0
Mortgage . . . . . . . . . . 1,290 953 986
------------------------------------------------------------------------------------
Total nonaccrual loans. . . . . . . . . . . . . . 2,029 1,851 3,014
Loans past due 90 days or more and still accruing 0 0 0
------------------------------------------------------------------------------------
Total non-performing loans. . . . . . . . . . . . 2,029 1,851 3,014
Foreclosed real estate. . . . . . . . . . . . . . 878 798 305
------------------------------------------------------------------------------------
Total non-performing assets . . . . . . . . . . . 2,907 2,649 3,319
------------------------------------------------------------------------------------
Non-performing loans to total loans . . . . . . . 1.08% 0.98% 1.61%
Non-performing assets to total assets . . . . . . 0.94% 0.88% 1.11%
------------------------------------------------------------------------------------
Total nonperforming loans and foreclosed real estate at June 30, 2005 increased
10% when compared to December 31, 2004. Nonperforming loans continue to be
addressed primarily through increased collection efforts and foreclosure
proceedings. Management believes that adequate reserves exist for any potential
losses that may occur from the remediation process.
The allowance for loan losses at June 30, 2005 was $1.9 million, or 1.00% of
period end loans, compared to $1.8 million, or 0.98% of period end loans, at
December 31, 2004.
CAPITAL
Shareholders' equity decreased $148,000, or 1%, to $21.7 million at June 30,
2005. The decrease in shareholders' equity primarily resulted from a $338,000
increase in accumulated other comprehensive loss, partially offset by a $126,000
increase in additional paid in capital and a $42,000 increase in retained
earnings. The Company added $383,000 to retained earnings through net income
and returned $330,000 to its shareholders in the form of cash dividends. The
Company's mutual holding company parent, Pathfinder Bancorp, M.H.C, waived the
dividend for the quarter ended June 30, 2005. (See Footnote 4).
Risk-based capital provides the basis for which all banks are evaluated in terms
of capital adequacy. Capital adequacy is evaluated primarily by the use of
ratios which measure capital against total assets, as well as against total
assets that are weighted based on defined risk characteristics. The Company's
goal is to maintain a strong capital position, consistent with the risk profile
of its subsidiary banks that supports growth and expansion activities while at
the same time exceeding regulatory standards. At June 30, 2005, Pathfinder Bank
exceeded all regulatory required minimum capital ratios and met the regulatory
definition of a "well-capitalized" institution, i.e. a leverage capital ratio
exceeding 5%, a Tier 1 risk-based capital ratio exceeding 6% and a total
risk-based capital ratio exceeding 10%.
-16-
LIQUIDITY
Liquidity management involves the Company's ability to generate cash or
otherwise obtain funds at reasonable rates to support asset growth and reduce
assets to meet deposit withdrawals, to maintain reserve requirements, and to
otherwise operate the Company on an ongoing basis. The Company's primary
sources of funds are deposits, borrowed funds, amortization and prepayment of
loans and mortgage backed securities and maturities of investment securities and
other short-term investments, and earnings and funds provided from operations.
While scheduled principal repayments 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-earning and
other assets, which provide liquidity to meet lending requirements, and utilizes
short-term borrowings as a source of liquidity when necessary.
The Company's liquidity has been enhanced by its membership in the Federal Home
Loan Bank of New York, whose competitive advance programs and lines of credit
provide the Company with a safe, reliable and convenient source of funds. A
significant decrease in deposits in the future could result in the Company
having to seek other sources of funds for liquidity purposes. Such sources
could include, but are not limited to, additional borrowings, trust preferred
security offerings, brokered deposits, negotiated time deposits, the sale of
"available-for-sale" investment securities, the sale of securitized loans, or
the sale of whole loans. Such actions could result in higher interest expense
costs and/or losses on the sale of securities or loans.
The Asset Liability Management Committee (ALCO) of the Company is responsible
for implementing the policies and guidelines for the maintenance of prudent
levels of liquidity. As of June 30, 2005, management reported to the Board of
Directors that the Company is in compliance with its liquidity policy
guidelines.
-17-
ITEM 3 - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company continues to aggressively pursue delinquent loan relationships.
While this aggressive pursuit, combined with conservative provisioning, has
improved the overall quality of the loan portfolio, it has resulted in a
temporary increase in other real estate. The Company's risk of loss arising
from adverse changes in the fair value of financial instruments, or market risk,
is composed primarily of interest rate risk. The management of interest rate
sensitivity seeks to avoid fluctuating net interest margins and to provide
consistent net interest income through periods of changing interest rates. The
primary objective of the Company's asset-liability management activities is to
maximize net interest income while maintaining acceptable levels of interest
rate risk. The Company has an Asset-Liability Management Committee (ALCO) which
is responsible for establishing policies to limit exposure to interest rate
risk, and to ensure procedures are established to monitor compliance with those
policies. Those procedures include 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 and
capital. The Company's Board of Directors reviews the guidelines established by
ALCO.
During the past three years, until June 2004, the Federal Reserve lowered
interest rates thirteen times by a total of 550 basis points. These interest
rate reductions have caused significant repricing of the bank's interest-earning
assets and interest-bearing liabilities. Efforts have been made to shorten the
repricing duration of its rate sensitive assets by purchasing investment
securities with maturities within the next 3 to 5 years and promoting portfolio
ARM (adjustable rate mortgage) and hybrid ARM products. In addition, the
Company has extended the duration of its rate sensitive liabilities by
lengthening the maturities of its existing borrowings and offering certificates
of deposit 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 instrument to the then prevailing rate for the
certificate of deposit with the same term.
Prior to June of 2004, the Federal Reserve has raised its key short-term
interest rate 250 basis points. Management anticipates that the Federal Reserve
will continue to raise its target interest rate over the foreseeable future. Net
interest margin compression has resulted as the yield curve flattens from sharp
increases in short-term interest rate while longer-term rates have remained
relatively stable. Management will continue to seek to minimize any reduction in
net interest income in a period of rising short-term interest rates to the
extent that it can resist raising its cost of funds during this period. The
Company is continuing to explore transactions and strategies to both increase
its net interest income and minimize its interest rate risk.
GAP ANALYSIS. At June 30, 2005, the total interest bearing liabilities maturing
or repricing within one year exceeded total interest-earning assets maturing or
repricing in the same period by $34.0 million, representing a cumulative
one-year gap ratio of a negative 10.94%.
EARNINGS AT RISK AND VALUE AT RISK. Management believes the simulation of net
interest income (Earnings at Risk) and net portfolio value (Value at Risk) in
different interest rate environments provides a more meaningful measure of
interest rate risk. Income simulation analysis captures both the potential of
all assets and liabilities to mature or reprice and the probability that they
will do so. Income simulation also attends to the relative interest rate
sensitivities of these items, and projects their behavior over an extended
period of time. Finally, income simulation permits management to assess the
probable effects on the balance sheet not only of changes in interest rates, but
also of proposed strategies for responding to them. Net portfolio value
represents the fair value of net assets (determined as the market value of
assets minus the market value of liabilities using a discounted cash flow
technique).
-18-
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 100 basis point increments in market interest
rates. The table quantifies the changes in net interest income and net
portfolio value to parallel shifts in the yield curve. The column "Percentage
Change in Net Interest Income" measures the change to the next twelve month's
projected net interest income, due to parallel shifts in the yield curve. The
column "Percentage Change in Net Portfolio Value" measures changes in the
current fair value of assets and liabilities to parallel shifts in the yield
curve. The column "NPV Capital Ratio" measures the ratio of the fair value of
net assets to the fair value of total assets at the base case and in 100 basis
point incremental interest rate shocks. Currently, the Company's model projects
a 300 basis point increase and a 200 basis point decrease during the next year.
Given the current interest rate environment, the Company's ALCO believed it was
a better measure of current risk assuming a minus 200 point scenario, as a minus
300 basis point reduction would be unlikely given that current short-term market
interest rates remain at low levels since the beginning of 2003. 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.
Change in NPV
Interest Capital Earnings Value
Rates Ratio at Risk as Risk
--------- -------- --------- --------
300 . . . 8.15% -19.83% -33.66%
200 . . . 9.33% -13.01% -21.96%
100 . . . 10.45% -6.32% -10.17%
0 11.34% ---- ----
-100. . . 11.40% 2.48% 2.52%
-200. . . 11.16% 2.08% 2.22%
-19-
ITEM 4- CONTROL AND PROCEDURES
Under the supervision and with the participation of the Company's management,
including our Chief Executive Officer and Chief Financial Officer, the Company
has evaluated the effectiveness of the design and operation of its disclosure
controls and procedures (as defined in Rule 13a-15(e) and 15d-15(e) under the
Exchange Act) as of the end of the period covered by this quarterly report.
Based upon that evaluation, the Chief Executive Officer and Chief Financial
Officer concluded that, as of the end of the period covered by this report, the
Company's disclosure controls and procedures are effective to ensure that
information required to be disclosed in the reports that the Company files or
submits under the Securities Exchange Act of 1934 is recorded, processed,
summarized and reported, within the time periods specified in the Securities and
Exchange Commission's rules and forms. There has been no change in the
Company's internal control over financial reporting during the most recent
fiscal quarter that has materially affected, or is reasonable likely to
materially affect, the Company's internal control over financial reporting.
-20-
PART II - OTHER INFORMATION
ITEM 1 - LEGAL PROCEEDINGS
------------------------------
None
ITEM 2 - UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
-------------------------------------------------------------------------------
None
ITEM 3 - DEFAULTS UPON SENIOR SECURITIES
----------------------------------------------
None
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
-----------------------------------------------------------------------
The Company's Meeting of Shareholders was held on April 27, 2005. The following
are the items voted on and the results of the shareholder voting:
1. The election of Chris C. Gagas, Thomas W. Schneider and Chris R. Burritt
to serve as directors of the Company, each for a term of three years or until
his successor has been elected and qualified.
Name For Withheld
Chris C. Gagas 2,411,590 19,665
Thomas W. Schneider 2,412,040 19,215
Chris R. Burritt 2,405,886 25,369
Set forth below is the names of the other directors of the Company and
their terms of office.
Name Term Expires
Bruce Manwaring 2006
L. William Nelson 2006
George P. Joyce 2006
Chris C. Gagas 2008
Thomas W. Schneider 2008
Chris R. Burritt 2008
2. The ratification of the appointment of Beard Miller Company LLP as
auditors for the Company.
For Against Abstain
Number of Votes 2,422,041 9,214 -
ITEM 5 - OTHER INFORMATION
------------------------------
None
-21-
ITEM 6 - EXHIBITS
--------------------
Exhibit No. Description
------------ -----------
3.2 Bylaws of Pathfinder Bancorp, Inc.
31.1 Rule 13a-14(a) / 15d-14(a) Certification of the Chief
Executive Officer
31.2 Rule 13a-14(a) / 15d-14(a) Certification of the Chief
Financial Officer
32.1 Section 1350 Certification of the Chief Executive Officer and Chief
Financial Officer
SIGNATURES
Under the requirements of the Securities Exchange Act of 1934, the Company has
duly caused this report to be signed on its behalf by the undersigned thereunto
duly authorized.
PATHFINDER BANCORP, INC.
--------------------------
August 15, 2005 /s/ Thomas W. Schneider
--------------------------
Date: Thomas W. Schneider
President, Chief Executive Officer
August 15, 2005 /s/ James A. Dowd
-------------------
Date: James A. Dowd
Vice President, Chief Financial Officer
EXHIBIT 3.2
PATHFINDER BANCORP, INC.
BYLAWS
ARTICLE I - HOME OFFICE
The home office of Pathfinder Bancorp, Inc. (the "Company") shall be 214
West First Street, Oswego, New York 13126-2547.
ARTICLE II - SHAREHOLDERS
SECTION 1. PLACE OF MEETINGS. All annual and special meetings of
shareholders shall be held at the home office of the Company or at such other
convenient place as the Board of Directors may determine.
SECTION 2. ANNUAL MEETING. A meeting of the shareholders of the Company for
the election of directors and for the transaction of any other business of the
Company shall be held annually within 150 days after the end of the Company's
fiscal year on the fourth Wednesday of April, if not a legal holiday, and if a
legal holiday, then on the next day following which is not a legal holiday, at
10:00 a.m., or at such other date and time within such 150-day period as the
Board of Directors may determine.
SECTION 3. SPECIAL MEETINGS. Special meetings of the shareholders for any
purpose or purposes, unless otherwise prescribed by the regulations of the
Office of Thrift Supervision (the "Office"), may be called at any time by the
chairman of the board, the president, or a majority of the Board of Directors,
and shall be called by the chairman of the board, the president, or the
secretary upon the written request of the holders of not less than one-tenth of
all of the outstanding capital stock of the Company entitled to vote at the
meeting. Such written request shall state the purpose or purposes of the meeting
and shall be delivered to the home office of the Company addressed to the
chairman of the board, the president or the secretary.
SECTION 4. CONDUCT OF MEETINGS. Annual and special meetings shall be
conducted in accordance with the most current edition of Robert's Rules of Order
unless otherwise prescribed by regulations of the Office or these bylaws or the
Board of Directors adopts another written procedure for the conduct of meetings.
The Board of Directors shall designate, when present, either the chairman of the
board or president to preside at such meetings.
SECTION 5. NOTICE OF MEETINGS. Written notice stating the place, day, and
hour of the meeting and the purpose(s) for which the meeting is called shall be
delivered not fewer than 20 nor more than 50 days before the date of the
meeting, either personally or by mail, by or at the direction of the chairman of
the board, the president, the secretary or the directors calling the meeting, to
each shareholder of record entitled to vote at such meeting. If mailed, such
notice shall be deemed to be delivered when deposited in the mail, addressed to
the shareholder at the address as it appears on the stock transfer books or
records of the Company as of the record date prescribed in Section 6 of this
Article II with postage prepaid. When any shareholders meeting, either annual or
special, is adjourned for 30 days or more, notice of the adjourned meeting shall
be given as in the case of an original meeting. It shall not be necessary to
give any notice of the time and place of any meeting adjourned for less than 30
days or of the business to be transacted at the meeting, other than an
announcement at the meeting at which such adjournment is taken.
SECTION 6. FIXING OF RECORD DATE. For the purpose of determining
shareholders entitled to notice of or to vote at any meeting of shareholders or
any adjournment, or shareholders entitled to receive payment of any dividend, or
in order to make a determination of shareholders for any other proper purpose,
the Board of Directors shall fix in advance a date as the record date for any
such determination of shareholders. Such date in any case shall be not more than
60 days and, in case of a meeting of shareholders, not fewer than 10 days prior
to the date on which the particular action, requiring such determination of
shareholders, is to be taken. When a determination of shareholders entitled to
vote at any meeting of shareholders has been made as provided in this section,
such determination shall apply to any adjournment.
SECTION 7. VOTING LIST. At least 20 days before each meeting of the
shareholders, the officer or agent having charge of the stock transfer books for
shares of the Company shall make a complete list of the shareholders of record
entitled to vote at such meeting, or any adjournment, arranged in alphabetical
order, with the address and the number of shares held by each. This list of
shareholders shall be kept on file at the home office of the Company and shall
be subject to inspection by any shareholder of record or the shareholder's agent
at any time during usual business hours for a period of 20 days prior to such
meeting. Such list also shall be produced and kept open at the time and place of
the meeting and shall be subject to inspection by any shareholder of record or
the shareholder's agent during the entire time of the meeting. The original
stock transfer book shall constitute prima facie evidence of the shareholders
entitled to examine such list or transfer books or to vote at any meeting of
shareholders.
In lieu of making the shareholder list available for inspection by
shareholders as provided in the preceding paragraph, the Board of Directors may
elect to follow the procedures described in 552.6(d) of the Office's regulations
as now or hereafter in effect.
SECTION 8. QUORUM. A majority of the outstanding shares of the Company
entitled to vote, represented in person or by proxy, shall constitute a quorum
at a meeting of shareholders. If less than a majority of the outstanding shares
is represented at a meeting, a majority of the shares so represented may adjourn
the meeting from time to time without further notice. At such adjourned meeting
at which a quorum shall be present or represented, any business may be
transacted which might have been transacted at the meeting as originally
notified. The shareholders present at a duly organized meeting may continue to
transact business until adjournment, notwithstanding the withdrawal of enough
shareholders to constitute less than a quorum. If a quorum is present the
affirmative vote of the majority of the shares represented at the meeting and
entitled to vote on the subject matter shall be the act of the shareholders,
unless the vote of a greater number of shareholders voting together or voting by
classes is required by law or the charter. Directors, however, are elected by a
plurality of the votes cast at an election of directors.
SECTION 9. PROXIES. At all meetings of shareholders, a shareholder may vote
by proxy executed in writing by the shareholder or by his or her duly authorized
attorney in fact. Proxies may be given telephonically or electronically as long
as the holder uses a procedure for verifying the identity of the shareholder.
Proxies solicited on behalf of the management shall be voted as directed by the
shareholder or, in the absence of such direction, as determined by a majority of
the Board of Directors. No proxy shall be valid more than eleven months from the
date of its execution except for a proxy coupled with an interest.
SECTION 10. VOTING OF SHARES IN THE NAME OF TWO OR MORE PERSONS. When
ownership stands in the name of two or more persons, in the absence of written
directions to the Company to the contrary, at any meeting of the shareholders of
the Company any one or more of such shareholders may cast, in person or by
proxy, all votes to which such ownership is entitled. In the event an attempt is
made to cast conflicting votes, in person or by proxy, by the several persons in
whose names shares of stock stand, the vote or votes to which those persons are
entitled shall be cast as directed by a majority of those holding such and
present in person or by proxy at such meeting, but no votes shall be cast for
such stock if a majority cannot agree.
SECTION 11. VOTING OF SHARES OF CERTAIN HOLDERS. Shares standing in the
name of another corporation may be voted by any officer, agent, or proxy as the
bylaws of such corporation may prescribe, or, in the absence of such provision,
as the Board of Directors of such corporation may determine. Shares held by an
administrator, executor, guardian, or conservator may be voted by him or her,
either in person or by proxy, without a transfer of such shares into his or her
name. Shares standing in the name of a trustee may be voted by him or her,
either in person or by proxy, but no trustee shall be entitled to vote shares
held by him or her without a transfer of such shares into his name. Shares held
in trust in an IRA or Keogh Account, however, may be voted by the Company if no
other instructions are received. Shares standing in the name of a receiver may
be voted by such receiver, and shares held by or under the control of a receiver
may be voted by such receiver without the transfer into his or her name if
authority to do so is contained in an appropriate order of the court or other
public authority by which such receiver was appointed.
A shareholder whose shares are pledged shall be entitled to vote such
shares until the shares have been transferred into the name of the pledgee, and
thereafter the pledgee shall be entitled to vote the shares so transferred.
Neither treasury shares of its own stock held by the Company nor shares
held by another corporation, if a majority of the shares entitled to vote for
the election of directors of such other corporation are held by the Company,
shall be voted at any meeting or counted in determining the total number of
outstanding shares at any given time for purposes of any meeting.
SECTION 12. CUMULATIVE VOTING. Stockholders may not cumulate their votes
for election of directors.
SECTION 13. INSPECTORS OF ELECTION. In advance of any meeting of
shareholders, the Board of Directors may appoint any person other than nominees
for office as inspectors of election to act at such meeting or any adjournment.
The number of inspectors shall be either one or three. Any such appointment
shall not be altered at the meeting. If inspectors of election are not so
appointed, the chairman of the board or the president may, or on the request of
not fewer than 10 percent of the votes represented at the meeting shall, make
such appointment at the meeting. If appointed at the meeting, the majority of
the votes present shall determine whether one or three inspectors are to be
appointed. In case any person appointed as inspector fails to appear or fails or
refuses to act, the vacancy may be filled by appointment by the Board of
Directors in advance of the meeting or at the meeting by the chairman of the
board or the president.
Unless otherwise prescribed by regulations of the Office, the duties of
such inspectors shall include: determining the number of shares and the voting
power of each share, the shares represented at the meeting, the existence of a
quorum, and the authenticity, validity and effect of proxies; receiving votes,
ballots, or consents; hearing and determining all challenges and questions in
any way arising in connection with the rights to vote; counting and tabulating
all votes or consents; determining the result; and such acts as may be proper to
conduct the election or vote with fairness to all shareholders.
SECTION 14. NOMINATING COMMITTEE. The Board of Directors shall act as a
nominating committee for selecting the management nominees for election as
directors. Except in the case of a nominee substituted as a result of the death
or other incapacity of a management nominee, the nominating committee shall
deliver written nominations to the secretary at least 20 days prior to the date
of the annual meeting. Upon delivery, such nominations shall be posted in a
conspicuous place in each office of the Company. No nominations for directors
except those made by the nominating committee shall be voted upon at the annual
meeting unless other nominations by shareholders are made in writing and
delivered to the secretary of the Company at least five days prior to the date
of the annual meeting. Upon delivery, such nominations shall be posted in a
conspicuous place in each office of the Company. Ballots bearing the names of
all persons nominated by the nominating committee and by shareholders shall be
provided for use at the annual meeting. However, if the nominating committee
shall fail or refuse to act at least 20 days prior to the annual meeting,
nominations for directors may be made at the annual meeting by any shareholder
entitled to vote and shall be voted upon.
SECTION 15. NEW BUSINESS. Any new business to be taken up at the annual
meeting shall be stated in writing and filed with the secretary of the Company
at least five days prior to the date of the annual meeting, and all business so
stated, proposed, and filed shall be considered at the annual meeting; but no
other proposal shall be acted upon at the annual meeting. Any shareholder may
make any other proposal at the annual meeting and the same may be discussed and
considered, but unless stated in writing and filed with the secretary at least
five days before the meeting, such proposal shall be laid over for action at an
adjourned, special or annual meeting of the shareholders taking place 30 days or
more thereafter. This provision shall not prevent the consideration and approval
or disapproval at the annual meeting of reports of officers, directors, and
committees; but in connection with such reports, no new business shall be acted
upon at such annual meeting unless stated and filed as herein provided.
SECTION 16. INFORMAL ACTION BY SHAREHOLDERS. Any action required to be
taken at a meeting of the shareholders, or any other action which may be taken
at a meeting of shareholders, may be taken without a meeting if consent in
writing, setting forth the action to be taken, shall be given by all of the
shareholders entitled to vote with respect to the subject matter.
ARTICLE III - BOARD OF DIRECTORS
SECTION 1. GENERAL POWERS. The business and affairs of the Company shall
be under the direction of its Board of Directors. The Board of Directors shall
annually elect a chairman of the board from among its members and shall
designate, when present, either the chairman of the board or in his absence, an
alternative member of the board to preside at its meetings.
SECTION 2. NUMBER AND TERM. The Board of Directors shall consist of 10
(ten) members and shall be divided into three classes as nearly equal in number
as possible. The members of each class shall be elected for a term of three
years and until their successors are elected and qualified. One class shall be
elected by ballot annually.
SECTION 3. REGULAR MEETINGS. A regular meeting of the Board of Directors
shall be held without other notice than this bylaw following the annual meeting
of shareholders. The Board of Directors may provide, by resolution, the time and
place for the holding of additional regular meetings without notice other than
such resolution. Directors may participate in a meeting by means of a conference
telephone or similar communications device through which all persons
participating can hear each other at the same time. Participation by such means
shall constitute presence in person for all purposes.
SECTION 4. QUALIFICATION. Each director shall at all times be the
beneficial owner of not less than 100 shares of capital stock of the Company
unless the company is a wholly-owned subsidiary of a holding company
.
SECTION 5. SPECIAL MEETINGS. Special meetings of the Board of Directors may
be called by or at the request of the chairman of the board, the president or
one-third of the directors. The persons authorized to call special meetings of
the Board of Directors may fix any place, within the Company's normal lending
territory, as the place for holding any special meeting of the Board of
Directors called by such persons.
Members of the Board of Directors may participate in special meetings by
means of conference telephone or similar communications equipment by which all
persons participating in the meeting can hear each other. Such participation
shall constitute presence in person for all purposes.
SECTION 6. NOTICE. Written notice of any special meeting shall be given to
each director at least 24 hours prior thereto when delivered personally or by
telegram or at least five days prior thereto when delivered by mail at the
address at which the director is most likely to be reached. Such notice shall be
deemed to be delivered when deposited in the mail so addressed, with postage
prepaid if sent by mail, when delivered to the telegraph company if sent by
telegram or when the Company receives notice of delivery if electronically
transmitted. Any director may waive notice of any meeting by a writing filed
with the secretary. The attendance of a director at a meeting shall constitute a
waiver of notice of such meeting, except where a director attends a meeting for
the express purpose of objecting to the transaction of any business because the
meeting is not lawfully called or convened. Neither the business to be
transacted at, nor the purpose of, any meeting of the Board of Directors need be
specified in the notice of waiver of notice of such meeting.
SECTION 7. QUORUM. A majority of the number of directors fixed by Section 2
of this Article III shall constitute a quorum for the transaction of business at
any meeting of the Board of Directors; but if less than such majority is present
at a meeting, a majority of the directors present may adjourn the meeting from
time to time. Notice of any adjourned meeting shall be given in the same manner
as prescribed by Section 5 of this Article III.
SECTION 8. MANNER OF ACTING. The act of the majority of the directors
present at a meeting at which a quorum is present shall be the act of the Board
of Directors, unless a greater number is prescribed by regulation of the Office
or by these bylaws.
SECTION 9. ACTION WITHOUT A MEETING. Any action required or permitted to be
taken by the Board of Directors at a meeting may be taken without a meeting if a
consent in writing, setting forth the action so taken, shall be signed by all of
the directors.
SECTION 10. RESIGNATION. Any director may resign at any time by sending a
written notice of such resignation to the home office of the Company addressed
to the chairman of the board or the president. Unless otherwise specified, such
resignation shall take effect upon receipt by the chairman of the board or the
president. More than three consecutive absences from regular meetings of the
Board of Directors, unless excused by resolution of the Board of Directors,
shall automatically constitute a resignation, effective when such resignation is
accepted by the Board of Directors.
SECTION 11. VACANCIES. Any vacancy occurring on the Board of Directors may
be filled by the affirmative vote of a majority of the remaining directors
although less than a quorum of the Board of Directors. A director elected to
fill a vacancy shall be elected to serve until the next election of directors by
the shareholders. Any directorship to be filled by reason of an increase in the
number of directors may be filled by election by the Board of Directors for a
term of office continuing only until the next election of directors by the
shareholders.
SECTION 12. COMPENSATION. Directors, as such, may receive a stated salary
for their services. By resolution of the Board of Directors, a reasonable fixed
sum, and reasonable expenses of attendance, if any, may be allowed for actual
attendance at each regular or special meeting of the Board of Directors. Members
of either standing or special committees may be allowed such compensation for
actual attendance at committee meetings as the Board of Directors may determine.
SECTION 13. PRESUMPTION OF ASSENT. A director of the Company who is present
at a meeting of the Board of Directors at which action on any Company matter is
taken shall be presumed to have assented to the action taken unless his or her
dissent or abstention shall be entered in the minutes of the meeting or unless
he or she shall file a written dissent to such action with the person acting as
the secretary of the meeting before the adjournment thereof or shall forward
such dissent by registered mail to the secretary of the Company within five days
after the date a copy of the minutes of the meeting is received. Such right to
dissent shall not apply to a director who voted in favor of such action.
SECTION 14. REMOVAL OF DIRECTORS. At a meeting of shareholders called
expressly for that purpose, any director may be removed for cause by a vote of
the holders of a majority of the shares then entitled to vote at an election of
directors. Whenever the holders of the shares of any class are entitled to elect
one or more directors by the provisions of the charter or supplemental sections
thereto, the provisions of this section shall apply, in respect to the removal
of a director or directors so elected, to the vote of the holders of the
outstanding shares of that class and not to the vote of the outstanding shares
as a whole.
ARTICLE IV - EXECUTIVE AND OTHER COMMITTEES
SECTION 1. APPOINTMENT. The Board of Directors, by resolution adopted by a
majority of the full board, may designate three or more of the directors to
constitute an executive committee. The designation of any committee pursuant to
this Article IV and the delegation of authority shall not operate to relieve the
Board of Directors, or any director, of any responsibility imposed by law or
regulation.
SECTION 2. AUTHORITY. The executive committee, when the Board of Directors
is not in session, shall have and may exercise all of the authority of the Board
of Directors except to the extent, if any, that such authority shall be limited
by the resolution appointing the executive committee; and except also that the
executive committee shall not have the authority of the Board of Directors with
reference to: the declaration of dividends; the amendment of the charter or
bylaws of the Company or recommending to the shareholders a plan of merger,
consolidation, or conversion; the sale, lease, or other disposition of all or
substantially all of the property and assets of the Company otherwise than in
the usual and regular course of its business; a voluntary dissolution of the
Company; a revocation of any of the foregoing; or the approval of a transaction
in which any member of the executive committee, directly or indirectly, has any
material beneficial interest.
SECTION 3. TENURE. Subject to the provisions of Section 8 of this Article
IV, each member of the board of directors may serve on the executive committee
during a calendar year.
SECTION 4. MEETINGS. Regular meetings of the executive committee may be
held without notice at such times and places as the executive committee may fix
from time to time by resolution. Special meetings of the executive committee may
be called by any member thereof upon not less than one days notice stating the
place, date, and hour of the meeting, which notice may be written or oral. Any
member of the executive committee may waive notice of any meeting and no notice
of any meeting need be given to any member thereof who attends in person. The
notice of a meeting of the executive committee need not state the business
proposed to be transacted at the meeting.
SECTION 5. QUORUM. A majority of the members of the executive committee
shall constitute a quorum for the transaction of business at any meeting
thereof, and action of the executive committee must be authorized by the
affirmative vote of a majority of the members present at a meeting at which a
quorum is present.
SECTION 6. ACTION WITHOUT A MEETING. Any action required or permitted to be
taken by the executive committee at a meeting may be taken without a meeting if
a consent in writing, setting forth the action so taken, shall be signed by all
of the members of the executive committee.
SECTION 7. VACANCIES. Any vacancy in the executive committee may be filled
by a resolution adopted by a majority of the full Board of Directors.
SECTION 8. RESIGNATIONS AND REMOVAL. Any member of the executive committee
may be removed at any time with or without cause by resolution adopted by a
majority of the full Board of Directors. Any member of the executive committee
may resign from the executive committee at any time by giving written notice to
the president or secretary of the Company. Unless otherwise specified, such
resignation shall take effect upon its receipt; the acceptance of such
resignation shall not be necessary to make it effective.
SECTION 9. PROCEDURE. The executive committee shall elect a presiding
officer from its members and may fix its own rules of procedure which shall not
be inconsistent with these bylaws. It shall keep regular minutes of its
proceedings and report the same to the Board of Directors for its information at
the meeting held next after the proceedings shall have occurred.
SECTION 10. OTHER COMMITTEES. The Board of Directors may by resolution
establish an audit, loan, or other committee composed of directors as they may
determine to be necessary or appropriate for the conduct of the business of the
Company and may prescribe the duties, constitution, and procedures thereof.
ARTICLE V - OFFICERS
SECTION 1. POSITIONS. The officers of the Company shall be a president, one
or more vice presidents, a secretary and a treasurer, each of whom shall be
elected by the Board of Directors. The Board of Directors also may designate the
chairman of the board as an officer. The president shall be the chief executive
officer, unless the Board of Directors designates the chairman of the board as
chief executive officer. The offices of the secretary and treasurer may be held
by the same person and a vice president also may be either the secretary or the
treasurer. The Board of Directors may designate one or more vice presidents as
executive vice president or senior vice president. The Board of Directors also
may elect or authorize the appointment of such other officers as the business of
the Company may require. The officers shall have such authority and perform such
duties as the Board of Directors may from time to time authorize or determine.
In the absence of action by the Board of Directors, the officers shall have such
powers and duties as generally pertain to their respective offices.
SECTION 2. ELECTION AND TERM OF OFFICE. The officers of the Company shall
be elected annually at the first meeting of the Board of Directors held after
each annual meeting of the shareholders. If the election of officers is not held
at such meeting, such election shall be held as soon thereafter as possible.
Each officer shall hold office until a successor has been duly elected and
qualified or until the officers death, resignation, or removal in the manner
hereinafter provided. Election or appointment of an officer, employee, or agent
shall not of itself create contractual rights. The Board of Directors may
authorize the Company to enter into an employment contract with any officer in
accordance with regulations of the Office; but no such contract shall impair the
right of the Board of Directors to remove any officer at any time in accordance
with Section 3 of this Article V.
SECTION 3. REMOVAL. Any officer may be removed by the Board of Directors
whenever in its judgment the best interests of the Company will be served
thereby, but such removal, other than for cause, shall be without prejudice to
any contractual rights of the person so removed.
SECTION 4. VACANCIES. A vacancy in any office because of death,
resignation, removal, disqualification, or otherwise may be filled by the Board
of Directors for the unexpired portion of the term.
SECTION 5. REMUNERATION. The remuneration of the officers shall be fixed
from time to time by the Board of Directors.
ARTICLE VI - CONTRACTS, LOANS, CHECKS, AND DEPOSITS
SECTION 1. CONTRACTS. To the extent permitted by regulations of the Office,
and except as otherwise prescribed by these bylaws with respect to certificates
for shares, the Board of Directors may authorize any officer, employee or agent
of the Company to enter into any contract or execute and deliver any instrument
in the name of and on behalf of the Company. Such authority may be general or
confined to specific instances.
SECTION 2. LOANS. No loans shall be contracted on behalf of the Company and
no evidence of indebtedness shall be issued in its name unless authorized by the
Board of Directors. Such authority may be general or confined to specific
instances.
SECTION 3. CHECKS, DRAFTS, ETC. All checks, drafts, or other orders for the
payment of money, notes, or other evidences of indebtedness issued in the name
of the Company shall be signed by one or more officers, employees, or agents of
the Company in such manner as shall from time to time be determined by the Board
of Directors.
SECTION 4. DEPOSITS. All funds of the Company not otherwise employed shall
be deposited from time to time to the credit of the association in any duly
authorized depositors as the Board of Directors may select.
ARTICLE VII - CERTIFICATES FOR SHARES AND THEIR TRANSFER
SECTION 1. CERTIFICATES FOR SHARES. Certificates representing shares of
capital stock of the Company shall be in such form as shall be determined by the
Board of Directors and approved by the Office. Such certificates shall be signed
by the chief executive officer or by any other officer of the Company authorized
by the Board of Directors, attested by the secretary or an assistant secretary,
and sealed with the corporate seal or a facsimile thereof. The signature of such
officers upon a certificate may be facsimiles if the certificate is manually
signed on behalf of a transfer agent or a registrar other than the Company
itself or one of its employees. Each certificate for shares of capital stock
shall be consecutively numbered or otherwise identified. The name and address of
the person to whom the shares are issued, with the number of shares and date of
issue, shall be entered on the stock transfer books of the Company. All
certificates surrendered to the Company for transfer shall be canceled and no
new certificate shall be issued until the former certificate for a like number
of shares has been surrendered and canceled, except that in the case of a lost
or destroyed certificate, a new certificate may be issued upon such terms and
indemnity to the Company as the Board of Directors may prescribe.
SECTION 2. TRANSFER OF SHARES. Transfer of shares of capital stock of the
Company shall be made only on its stock transfer books. Authority for such
transfer shall be given only by the holder of record or by his or her legal
representative, who shall furnish proper evidence of such authority, or by his
or her attorney authorized by a duly executed power of attorney and filed with
the Company. Such transfer shall be made only on surrender for cancellation of
the certificate for such shares. The person in whose name shares of capital
stock stand on the books of the Company shall be deemed by the Company to be the
owner for all purposes.
ARTICLE VIII - FISCAL YEAR; ANNUAL AUDIT
The fiscal year of the Company shall end on the last day of December of
each year. The Company shall be subject to an annual audit as of the end of its
fiscal year by independent public accountants appointed by and responsible to
the Board of Directors.
ARTICLE IX - DIVIDENDS
Subject only to the terms of the Company's charter and the regulations and
orders of the Office, the Board of Directors may, from time to time declare, and
the Company may pay, dividends on its outstanding shares of capital stock.
ARTICLE X - CORPORATE SEAL
The Board of Directors shall provide a Company seal which shall be two
concentric circles between which shall be the name of the Company. The year of
incorporation or an emblem may appear in the center.
ARTICLE XI - CORPORATE GOVERNANCE PROCEDURES
The corporate governance procedures and provisions of Subchapters IV, VII
and XIII (and any successors or amendments thereto) of the Delaware General
Corporation Law apply to the Company to the extent those procedures and
provisions are not inconsistent with Federal law and regulation and are
consistent with safety and soundness.
ARTICLE XII - AMENDMENTS
These bylaws may be amended in a manner consistent with regulations of the
Office and shall be effective after: (i) approval of the amendment by a majority
vote of the authorized Board of Directors, or by a majority vote of the votes
cast by the shareholders of the Company at any legal meeting; and (ii) receipt
of any applicable regulatory approval. When a Company fails to meet its quorum
requirements, solely due to vacancies on the board, then the affirmative vote of
a majority of the sitting board will be required to amend the bylaws. The CEO of
the Company or his designee is authorized to have bylaw amendments filed with
the Office of Thrift Supervision.
EXHIBIT 31.1
Rule 13a-14(a) / 15d-14(a) Certification of the Chief Executive Officer
Certification of Chief Executive Officer
Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
I, Thomas W. Schneider, President and Chief Executive Officer, certify
that:
1. I have reviewed the June 30, 2005 quarterly report on Form 10-Q of
Pathfinder Bancorp, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement
of a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements were
made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material respects the
financial condition, results of operations and cash flows of the registrant as
of, and for, the periods presented in this report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:
a) Designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the
registrant, including its consolidated subsidiaries, is made known to
us by others within those entities, particularly during the period in
which this report is being prepared;
(b) Evaluated the effectiveness of the registrant's disclosure controls
and procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end
of the period covered by this report based on such evaluation; and
(c) Disclosed in this report any change in the registrant's internal
control over financial reporting that occurred during the registrant's
most recent fiscal quarter (the registrant's fourth fiscal quarter in
the case of an annual report) that has materially affected, or is
reasonably likely to materially affect, the registrant's internal
control over financial reporting; and
5. The registrant's other certifying officer and I have disclosed, based on
our most recent evaluation of internal control over financial reporting, to the
registrant's auditors and the audit committee of the registrant's board of
directors:
(a) All significant deficiencies and material weaknesses in the design or
operation of internal control over financial reporting which are
reasonably likely to adversely affect the registrant's ability to
record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
control over financial reporting.
August 15, 2005 /s/ Thomas W. Schneider
---------------- --------------------------
Date Thomas W. Schneider
President and Chief Executive Officer
EXHIBIT 31.2
Rule 13a-14(a) / 15d-14(a) Certification of the Chief Financial Officer
Certification of Chief Financial Officer
Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
I, James A. Dowd, Vice President and Chief Financial Officer, certify that:
1. I have reviewed the June 30, 2005 quarterly report on Form 10-Q of
Pathfinder Bancorp, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement
of a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements were
made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material respects the
financial condition, results of operations and cash flows of the registrant as
of, and for, the periods presented in this report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:
a) Designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the
registrant, including its consolidated subsidiaries, is made known to
us by others within those entities, particularly during the period in
which this report is being prepared;
(b) Evaluated the effectiveness of the registrant's disclosure controls
and procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end
of the period covered by this report based on such evaluation; and
(c) Disclosed in this report any change in the registrant's internal
control over financial reporting that occurred during the registrant's
most recent fiscal quarter (the registrant's fourth fiscal quarter in
the case of an annual report) that has materially affected, or is
reasonably likely to materially affect, the registrant's internal
control over financial reporting; and
5. The registrant's other certifying officer and I have disclosed, based on
our most recent evaluation of internal control over financial reporting, to the
registrant's auditors and the audit committee of the registrant's board of
directors:
(a) All significant deficiencies and material weaknesses in the design or
operation of internal control over financial reporting which are
reasonably likely to adversely affect the registrant's ability to
record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
control over financial reporting.
August 15, 200 /s/ James A. Dowd
---------------- --------------------
Date James A. Dowd
Vice President and Chief Financial Officer
EXHIBIT 32.1
Section 1350 Certification of the Chief Executive and Chief Financial Officer
Certification pursuant to
18 U.S.C. Section 1350,
as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002
Thomas W. Schneider, President and Chief Executive Officer, and James A. Dowd,
Vice President and Chief Financial Officer of Pathfinder Bancorp, Inc. (the
"Company"), each certify in his capacity as an officer of the Company that he
has reviewed the Quarterly Report of the Company on Form 10-Q for the quarter
ended June 30, 2005 and that to the best of his knowledge:
1. the report fully complies with the requirements of Sections 13(a) of
the Securities Exchange Act of 1934; and
2. the information contained in the report fairly presents, in all
material respects, the financial condition and results of operations of the
Company.
The purpose of this statement is solely to comply with Title 18, Chapter 63,
Section 1350 of the United States Code, as amended by Section 906 of the
Sarbanes-Oxley Act of 2002.
August 15, 2005 /s/ Thomas W. Schneider
----------------- --------------------------
Date Thomas W. Schneider
President and Chief Executive Officer
August 15, 2005 /s/ James A. Dowd
----------------- --------------------
Date James A. Dowd
Vice President and Chief Financial Officer