path8040 Electronic EDGAR Proof

 
  Job Number:  
 
  Filer:  
 
  Form Type: 10-Q
 
  Reporting Period / Event Date: 09-30-2014
 
  Customer Service Representative:  
 
  Version Number:  
 

 
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EDGAR Submission Header Summary

  Submission Form Type 10-Q
  XBRL Filing Yes
  Use External XBRL Yes
  Period of Report 09-30-2014
  Filer Pathfinder Bancorp, Inc.
     CIK 0001609065
     CCC xxxxxxxx
     Smaller Reporting Company (Non-Investment Companies Only) Yes
     Ticker Symbol pbhc
     Selected Exchanges  
        Exchange NASD
  Confirming Copy No
  Co-Registrants  
  Submission Contact Roberta Dvis
  Contact Phone Number 315-207-8040
  Emails rdavis@pathfinderbank.com
  emervine@pathfinderbank.com
  jkeiser@bonadio.com

Documents

  10-Q form10q.htm
    2014 3rd Quarter 10-Q
  EX-31.1 ex31_1.htm
    Certification of Chief Executive Officer
  EX-31.2 ex31_2.htm
    Certification of the Chief Financial Officer
  EX-32.1 ex32_1.htm
    Exhibit 32.1 Certification of Chief Executive Officer and Chief Financial Officer
  EX-101.INS pbhc-20140930.xml
    XBRL Instance Document
  EX-101.SCH pbhc-20140930.xsd
    XBRL Taxonomy Extension Schema
  EX-101.CAL pbhc-20140930_cal.xml
    XBRL Taxonomy Extension Calculation Linkbase
  EX-101.DEF pbhc-20140930_def.xml
    XBRL Taxonomy Extension Definition Linkbase
  EX-101.LAB pbhc-20140930_lab.xml
    XBRL Taxonomy Extension Label Linkbase
  EX-101.PRE pbhc-20140930_pre.xml
    XBRL Taxonomy Extension Presentation Linkbase

UNITED STATES
 SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.  20549
_____________________________

FORM 10-Q

[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
       EXCHANGE ACT OF 1934

       For the quarterly period ended September 30, 2014

OR
[  ]  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
       EXCHANGE ACT OF 1934
     For the transition period from _______ to _______


PATHFINDER BANCORP, INC.
(Exact Name of Company as Specified in its Charter)

Maryland
(State of Other Jurisdiction of Incorporation)
001-36695
(Commission File No.)
38-3941859
(I.R.S. Employer Identification No.)
 

214 West First Street, Oswego, NY 13126
(Address of Principal Executive Office) (Zip Code)

(315) 343-0057
(Issuer's Telephone Number including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) 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 T        NO *                                        

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (Section 232.405 of this Chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
YES T        NO *

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.  See definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act.

Large accelerated filer*                                        Accelerated filer*                                    Non-accelerated filer*                               Smaller reporting company  T
                      (Do not check if a smaller reporting company)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).   YES *    NO T

As of November 7, 2014, there were 4,352,203 shares issued and outstanding of the registrant's common stock.


 
PATHFINDER BANCORP, INC.
INDEX



PART I - FINANCIAL INFORMATION
 
PAGE NO.
 
 
 
 
Item 1.
Consolidated Financial Statements (Unaudited)
 
 
 
 
3
 
 
4
 
 
5
 
 
6
 
 
7
 
 
8
 
 
 
 
Item 2.
 
32
 
and Results of Operations (Unaudited)
 
 
 
 
 
 
Item 3.
Quantitative and Qualitative Disclosures About Market Risk
 
48
 
 
 
 
Item 4.
 
48
 
 
 
 
PART II - OTHER INFORMATION
 
49
 
 
 
 
Item 1.
Legal Proceedings
 
 
Item 1A.
Risk Factors
 
 
Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds
 
 
Item 3.
Defaults upon Senior Securities
 
 
Item 4.
Mine Safety Disclosures
 
 
Item 5.
Other information
 
 
Item 6.
Exhibits
 
 
 
 
 
 
SIGNATURES
 
51
 
 
 
 
 
 
 
 

 


PART I -  FINANCIAL INFORMATION
Item 1 – Consolidated Financial Statements
Pathfinder Bancorp, Inc.
Consolidated Statements of Condition
(Unaudited)
 
 
September 30,
  
December 31,
 
(In thousands, except share and per share data)
 
2014
  
2013
 
ASSETS:
 
  
 
Cash and due from banks
 
$
7,432
  
$
6,535
 
Interest earning deposits
  
17,550
   
10,040
 
Total cash and cash equivalents
  
24,982
   
16,575
 
Interest earning time deposits
  
500
   
500
 
Available-for-sale securities, at fair value
  
94,135
   
80,959
 
Held-to-maturity securities, at amortized cost (fair value of $43,629 and $34,222, respectively)
  
42,477
   
34,412
 
Federal Home Loan Bank stock, at cost
  
1,829
   
2,440
 
Loans
  
374,257
   
341,633
 
Less: Allowance for loan losses
  
5,171
   
5,041
 
Loans receivable, net
  
369,086
   
336,592
 
Premises and equipment, net
  
12,945
   
11,644
 
Accrued interest receivable
  
1,865
   
1,715
 
Foreclosed real estate
  
440
   
619
 
Intangible assets, net
  
178
   
187
 
Goodwill
  
4,367
   
4,367
 
Bank owned life insurance
  
10,238
   
8,268
 
Other assets
  
6,992
   
5,515
 
Total assets
 
$
570,034
  
$
503,793
 
 
        
LIABILITIES AND SHAREHOLDERS' EQUITY:
        
Deposits:
        
Interest-bearing
 
$
390,928
  
$
361,969
 
Noninterest-bearing
  
92,101
   
48,171
 
Total deposits
  
483,029
   
410,140
 
Short-term borrowings
  
14,000
   
24,000
 
Long-term borrowings
  
17,021
   
16,853
 
Junior subordinated debentures
  
5,155
   
5,155
 
Accrued interest payable
  
73
   
86
 
Other liabilities
  
5,387
   
4,489
 
Total liabilities
  
524,665
   
460,723
 
Shareholders' equity:
        
Preferred stock - SBLF, par value $0.01 per share; $1,000 liquidation preference;
        
13,000 shares authorized; 13,000 shares issued and outstanding
  
13,000
   
13,000
 
Common stock, par value $0.01; authorized 10,000,000 shares;
        
2,979,969 and 2,979,969 shares issued and 2,625,182 and 2,623,182 shares outstanding
  
30
   
30
 
Additional paid in capital
  
8,334
   
8,226
 
Retained earnings
  
30,407
   
28,788
 
Accumulated other comprehensive loss
  
(1,330
)
  
(1,745
)
Unearned ESOP
  
(743
)
  
(826
)
Treasury stock, at cost; 354,787 and 356,787 shares,  respectively
  
(4,735
)
  
(4,761
)
Total Pathfinder Bancorp, Inc. shareholders' equity
  
44,963
   
42,712
 
Noncontrolling interest
  
406
   
358
 
Total equity
  
45,369
   
43,070
 
Total liabilities and shareholders' equity
 
$
570,034
  
$
503,793
 
 
The accompanying notes are an integral part of the consolidated financial statements.
        
- 3 -



 



Pathfinder Bancorp, Inc.
Consolidated Statements of Income
(Unaudited)
 
 
  
  
  
 
 
 
For the three
  
For the three
  
For the nine
  
For the nine
 
 
 
months ended
  
months ended
  
months ended
  
months ended
 
(In thousands, except per share data)
 
September 30, 2014
  
September 30, 2013
  
September 30, 2014
  
September 30, 2013
 
Interest and dividend income:
 
  
  
  
 
Loans, including fees
 
$
4,344
  
$
4,057
  
$
12,512
  
$
12,298
 
Debt securities:
                
Taxable
  
473
   
399
   
1,360
   
1,181
 
Tax-exempt
  
196
   
189
   
585
   
569
 
Dividends
  
35
   
29
   
85
   
89
 
Interest earning time deposits
  
2
   
5
   
6
   
16
 
Federal funds sold and interest earning deposits
  
2
   
2
   
4
   
5
 
       Total interest income
  
5,052
   
4,681
   
14,552
   
14,158
 
Interest expense:
                
Interest on deposits
  
479
   
605
   
1,505
   
1,894
 
Interest on short-term borrowings
  
28
   
23
   
68
   
40
 
Interest on long-term borrowings
  
149
   
151
   
443
   
575
 
       Total interest expense
  
656
   
779
   
2,016
   
2,509
 
          Net interest income
  
4,396
   
3,902
   
12,536
   
11,649
 
Provision for loan losses
  
410
   
216
   
930
   
816
 
          Net interest income after provision for loan losses
  
3,986
   
3,686
   
11,606
   
10,833
 
Noninterest income:
                
Service charges on deposit accounts
  
311
   
313
   
894
   
856
 
Earnings and gain on bank owned life insurance
  
64
   
60
   
190
   
172
 
Loan servicing fees
  
81
   
30
   
202
   
112
 
Net gains on sales and redemptions of investment securities
  
3
   
17
   
29
   
116
 
Net gains on sales of loans and foreclosed real estate
  
10
   
36
   
39
   
487
 
Debit card interchange fees
  
127
   
114
   
369
   
341
 
Other charges, commissions & fees
  
304
   
134
   
880
   
400
 
          Total noninterest income
  
900
   
704
   
2,603
   
2,484
 
Noninterest expense:
                
Salaries and employee benefits
  
2,141
   
2,033
   
6,526
   
5,884
 
Building occupancy
  
421
   
382
   
1,193
   
1,109
 
Data processing
  
367
   
356
   
1,131
   
1,067
 
Professional and other services
  
160
   
178
   
508
   
502
 
Advertising
  
141
   
146
   
372
   
393
 
FDIC assessments
  
99
   
123
   
294
   
291
 
Audits and exams
  
61
   
61
   
186
   
184
 
Other expenses
  
422
   
388
   
1,273
   
1,343
 
          Total noninterest expenses
  
3,812
   
3,667
   
11,483
   
10,773
 
Income before income taxes
  
1,074
   
723
   
2,726
   
2,544
 
Provision for income taxes
  
317
   
195
   
767
   
688
 
Net income attributable to noncontrolling interest and Pathfinder Bancorp, Inc .
  
757
   
528
   
1,959
   
1,856
 
Net income attributable to noncontrolling interest
  
11
   
-
   
48
   
-
 
Net income attributable to Pathfinder Bancorp Inc.
 
$
746
  
$
528
  
$
1,911
  
$
1,856
 
Preferred stock dividends
  
33
   
-
   
63
   
-
 
Net income available to common shareholders
 
$
713
  
$
528
  
$
1,848
  
$
1,856
 
 
                
Earnings per common share - basic
 
$
0.28
  
$
0.21
  
$
0.73
  
$
0.74
 
Earnings per common share - diluted
 
$
0.28
  
$
0.20
  
$
0.72
  
$
0.73
 
Dividends per common share
 
$
0.03
  
$
0.03
  
$
0.09
  
$
0.09
 

The accompanying notes are an integral part of the consolidated financial statements.
- 4 -



 

Pathfinder Bancorp, Inc.
Consolidated Statements of Comprehensive Income (Loss)
(Unaudited)
 
 
  
  
  
 
 
 
For the three months ended
  
For the nine months ended
 
(In thousands)
 
September 30, 2014
  
September 30, 2013
  
September 30, 2014
  
September 30, 2013
 
Net Income
 
$
757
  
$
528
  
$
1,959
  
$
1,856
 
 
                
Other Comprehensive Income (Loss)
                
Retirement Plans:
                
Net unrealized gains on retirement plans
  
11
   
95
   
33
   
286
 
 
                
Unrealized holding gains on financial derivative:
                
Change in unrealized holding gains (losses) on financial derivative
  
2
   
(10
)
  
(6
)
  
2
 
Reclassification adjustment for interest expense included in net income
  
16
   
15
   
47
   
46
 
Net unrealized gain on financial derivative
  
18
   
5
   
41
   
48
 
 
                
Unrealized holding (losses) gains on available-for-sale securities:
                
Unrealized holding (losses) gains arising during the period
  
(69
)
  
1,401
   
561
   
(1,888
)
Reclassification adjustment for net gains included in net income
  
(3
)
  
(17
)
  
(29
)
  
(116
)
Net unrealized (losses) gains on securities available-for-sale
  
(72
)
  
1,384
   
532
   
(2,004
)
 
                
Accretion of net unrealized loss on securities transferred to held-to-maturity(1)
  
30
   
(1,332
)
  
90
   
(1,332
)
 
                
Other comprehensive (loss) income,  before tax
  
(13
)
  
152
   
696
   
(3,002
)
Tax effect
  
3
   
(56
)
  
(281
)
  
1,201
 
Other comprehensive (loss) income, net of tax
  
(10
)
  
96
   
415
   
(1,801
)
Comprehensive income
  
747
   
624
   
2,374
   
55
 
Comprehensive income attributable to noncontrolling interest
  
11
   
-
   
48
   
-
 
Comprehensive income attributable to Pathfinder Bancorp, Inc.
 
$
736
  
$
624
  
$
2,326
  
$
55
 
 
                
 
                
Tax Effect Allocated to Each Component of Other Comprehensive Income (Loss)
                
Retirement plan net losses recognized in plan expenses
 
$
(4
)
 
$
(38
)
 
$
(13
)
 
$
(115
)
Change in unrealized holding  losses on financial derivative
  
(1
)
  
5
   
2
   
-
 
Reclassification adjustment for interest expense included in net income
  
(6
)
  
(6
)
  
(19
)
  
(18
)
Unrealized holding gains (losses) arising during the period
  
27
   
(557
)
  
(226
)
  
755
 
Reclassification adjustment for net gains included in net income
  
1
   
7
   
12
   
46
 
Accretion of net unrealized loss on securities transferred to held-to-maturity(1)
  
(14
)
  
533
   
(37
)
  
533
 
Income tax effect related to other comprehensive income
 
$
3
  
$
(56
)
 
$
(281
)
 
$
1,201
 
 
                
(1) The accretion of the unrealized holding losses in accumulated other comprehensive loss at the date of transfer partially offsets the amortization of the difference between the par value and the fair value of the investment securities at the date of transfer, and is an adjustment of yield.
                
 
                
The accompanying notes are an integral part of the consolidated financial statements.
                
 
                

- 5 -



 


PATHFINDER BANCORP, INC.
 
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
 
Nine months ended September 30, 2014 and September 30, 2013
'(Unaudited)
 
 
 
  
  
  
  
Accumulated
  
  
  
  
 
 
 
  
  
Additional
  
  
Other Com-
  
  
  
Non-
  
 
 
 
Preferred
  
Common
  
Paid in
  
Retained
  
prehensive
  
Unearned
  
Treasury
  
controlling
  
 
 (In thousands, except share and per share data)
 
Stock
  
Stock
  
Capital
  
Earnings
  
Loss
  
ESOP
  
Stock
  
Interest
  
Total
 
 
 
  
  
  
  
  
  
  
  
 
 Balance, January 1, 2014
 
$
13,000
  
$
30
  
$
8,226
  
$
28,788
  
$
(1,745
)
 
$
(826
)
 
$
(4,761
)
 
$
358
  
$
43,070
 
 
                                    
 Net income
  
-
   
-
   
-
   
1,911
   
-
   
-
   
-
   
48
   
1,959
 
 
                                    
 Other comprehensive income, net of tax
  
-
   
-
   
-
   
-
   
415
   
-
   
-
   
-
   
415
 
 
                                    
 Preferred stock dividends - SBLF
  
-
   
-
   
-
   
(63
)
  
-
   
-
   
-
   
-
   
(63
)
 
                                    
 ESOP shares earned (9,375 shares)
  
-
   
-
   
53
   
-
   
-
   
83
   
-
   
-
   
136
 
 
                                    
 Stock based compensation
  
-
   
-
   
63
   
-
   
-
   
-
   
-
   
-
   
63
 
 
                                    
 Stock options exercised
  
-
   
-
   
(8
)
  
-
   
-
   
-
   
26
   
-
   
18
 
 
                                    
 Common stock dividends declared
 ($0.09 per share)
  
-
   
-
   
-
   
(229
)
  
-
   
-
   
-
   
-
   
(229
)
 Balance, September 30, 2014
 
$
13,000
  
$
30
  
$
8,334
  
$
30,407
  
$
(1,330
)
 
$
(743
)
 
$
(4,735
)
 
$
406
  
$
45,369
 
 
                                    
 Balance, January 1, 2013
 
$
13,000
  
$
30
  
$
8,120
  
$
26,685
  
$
(1,318
)
 
$
(936
)
 
$
(4,834
)
 
$
-
  
$
40,747
 
 
                                    
 Net income
  
-
   
-
   
-
   
1,856
   
-
   
-
   
-
   
-
   
1,856
 
 
                                    
 Other comprehensive loss, net of tax
  
-
   
-
   
-
   
-
   
(1,801
)
  
-
   
-
   
-
   
(1,801
)
 
                                    
 ESOP shares earned (9,375 shares)
  
-
   
-
   
38
   
-
   
-
   
83
   
-
   
-
   
121
 
 
                                    
 Stock based compensation
  
-
   
-
   
59
   
-
   
-
   
-
   
-
   
-
   
59
 
 
                                    
 Stock options exercised
  
-
   
-
   
(6
)
  
-
   
-
   
-
   
6
   
-
   
-
 
 
                                    
 Common stock dividends declared
 ($0.09 per share)
  
-
   
-
   
-
   
(227
)
  
-
   
-
   
-
   
-
   
(227
)
 Balance, September 30, 2013
 
$
13,000
  
$
30
  
$
8,211
  
$
28,314
  
$
(3,119
)
 
$
(853
)
 
$
(4,828
)
 
$
-
  
$
40,755
 


The accompanying notes are an integral part of the consolidated financial statements.
- 6 -



 
PATHFINDER BANCORP, INC.
 
CONSOLIDATED STATEMENTS OF CASH FLOWS
 
(Unaudited)
 
 
 
For the nine months ended September 30,
 
(In thousands)
 
2014
  
2013
 
OPERATING ACTIVITIES
 
  
 
Net income attributable to Pathfinder Bancorp, Inc.
 
$
1,911
  
$
1,856
 
Adjustments to reconcile net income to net cash flows from operating activities:
        
Provision for loan losses
  
930
   
816
 
Proceeds from sales of loans
  
-
   
11,456
 
Originations of loans held-for-sale
  
-
   
(11,016
)
Realized gains on sales and redemptions of:
        
Real estate acquired through foreclosure
  
(39
)
  
(47
)
Loans
  
-
   
(440
)
Available-for-sale investment securities
  
(29
)
  
(116
)
Depreciation
  
596
   
532
 
Amortization of mortgage servicing rights
  
11
   
(82
)
Amortization of deferred loan costs
  
91
   
83
 
Earnings on bank owned life insurance
  
(190
)
  
(170
)
Realized gain on proceeds from bank owned life insurance
  
-
   
(2
)
Net amortization of premiums and discounts on investment securities
  
530
   
567
 
Amortization of intangible assets
  
9
   
-
 
Stock based compensation and ESOP expense
  
199
   
180
 
Net change in accrued interest receivable
  
(150
)
  
(89
)
Net change in other assets and liabilities
  
(811
)
  
927
 
Net cash flows from operating activities
  
3,058
   
4,455
 
INVESTING ACTIVITIES
        
Purchase of investment securities available-for-sale
  
(27,099
)
  
(34,861
)
Purchase of investment securities held-to-maturity
  
(8,767
)
  
-
 
Proceeds from maturities of interest earning time deposits
  
-
   
500
 
Net proceeds from (purchases of) Federal Home Loan Bank stock
  
611
   
(984
)
Proceeds from maturities and principal reductions of
        
investment securities available-for-sale
  
13,545
   
18,353
 
Proceeds from maturities and principal reductions of
        
investment securities held-to-maturity
  
692
   
68
 
Proceeds from sales and redemptions of:
        
Available-for-sale investment securities
  
510
   
5,589
 
Real estate acquired through foreclosure
  
667
   
324
 
Purchase of bank owned life insurance
  
(1,780
)
  
-
 
Proceeds from bank owned life insurance
  
-
   
2
 
Net change in loans
  
(33,989
)
  
(4,811
)
Purchase of premises and equipment
  
(1,897
)
  
(607
)
Net cash flows from investing activities
  
(57,507
)
  
(16,427
)
FINANCING ACTIVITIES
        
Net change in demand deposits, NOW accounts, savings accounts,
        
money management deposit accounts, MMDA accounts and escrow deposits
  
52,925
   
21,953
 
Net change in time deposits and brokered deposits
  
19,964
   
(12,459
)
Net change in short-term borrowings
  
(10,000
)
  
15,000
 
Proceeds from long-term borrowings
  
250
   
-
 
Payments on long-term borrowings
  
(82
)
  
(9,083
)
Proceeds from exercise of stock options
  
18
   
-
 
Cash dividends paid to preferred shareholder - SBLF
  
(31
)
  
-
 
Cash dividends paid to common shareholders
  
(236
)
  
(83
)
Change in noncontrolling interest, net
  
48
   
(227
)
Net cash flows from financing activities
  
62,856
   
15,101
 
Change in cash and cash equivalents
  
8,407
   
3,129
 
Cash and cash equivalents at beginning of period
  
16,575
   
8,665
 
Cash and cash equivalents at end of period
 
$
24,982
  
$
11,794
 
CASH PAID DURING THE PERIOD FOR:
        
Interest
 
$
2,029
  
$
2,577
 
Income taxes
  
331
   
668
 
NON-CASH INVESTING ACTIVITY
        
Real estate acquired in exchange for loans
  
474
   
170
 
Transfer of available-for-sale securities to held-to-maturity
  
-
   
32,495
 
 
The accompanying notes are an integral part of the consolidated financial statements.
        
- 7 -



 

Pathfinder Bancorp, Inc.
Consolidated Statements of Cash Flows
 (Unaudited)



Notes to Consolidated Financial Statements (Unaudited)

(1)  Basis of Presentation

The accompanying unaudited consolidated financial statements of Pathfinder Bancorp, Inc., a federal corporation (the "Company"), Pathfinder Bank (the "Bank") and its other wholly owned subsidiaries have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information, the instructions for Form 10-Q and Article 8 of Regulation S-X.  Accordingly, they do not include all of the information and footnotes necessary for a complete presentation of consolidated financial condition, results of operations and cash flows in conformity with generally accepted accounting principles.  In the opinion of management, all adjustments, consisting of normal recurring accruals considered necessary for a fair presentation, have been included.  Certain amounts in the 2013 consolidated financial statements may have been reclassified to conform to the current period presentation.  These reclassifications had no effect on net income or comprehensive income as previously reported.
 
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 consolidated 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.
 
Although the Company owns, through its subsidiary Pathfinder Risk Management Company, Inc., 51% of the membership interest in FitzGibbons Agency, LLC ("Agency"), the Company is required to consolidate 100% of the Agency within the consolidated financial statements.  The 49% of which the Company does not own is accounted for separately as noncontrolling interests within the consolidated financial statements.

On April 8, 2014, the Boards of Directors of the Company, Pathfinder Bancorp, MHC, Pathfinder Bancorp, Inc., a Maryland corporation ("New Pathfinder"), and the Bank unanimously adopted a Plan of Conversion of Pathfinder Bancorp, MHC pursuant to which Pathfinder Bancorp, MHC undertook a "second-step" conversion and now ceases to exist. The Bank reorganized from a two-tier mutual holding company structure to a fully public stock holding company structure effective October 16, 2014, and, as a result is now the wholly-owned subsidiary of New Pathfinder. Because the conversion occurred after September 30, 2014, the information included in this quarterly report is that of the Company.  For further information on the plan of conversion and offering, see Note 25 of the Notes to the financial statements of the Company included in the New Pathfinder's registration statement, filed with the Securities and Exchange Commission on June 11, 2014.
 
(2)  New Accounting Pronouncements

In August 2014, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") ASU 2014-14 – Receivables-Troubled Debt Restructurings by Creditors (Subtopic 310-40).  This ASU addressed the classification of certain government-guaranteed mortgage loans upon foreclosure.  Under certain government-sponsored loan guarantee programs, qualifying creditors can extend mortgage loans to borrowers with a guarantee that entitles the creditor to recover all or a portion of the unpaid principal balance from the government if the borrower defaults.  Currently, there is diversity in practice related to how creditors classify government-guaranteed mortgage loans, including FHA or VA guaranteed loans, upon foreclosure. Some creditors reclassify those loans to real estate consistent with other foreclosed loans that do not have guarantees; others reclassify the loans to other receivables. The objective of this Update is to reduce that diversity by addressing the classification of certain foreclosed mortgage loans held by creditors that are either fully or partially guaranteed under government programs. Greater consistency in classification of such mortgage loans upon foreclosure is expected to provide more decision-useful information about a creditor's foreclosed mortgage loans that are expected to be recovered, at least in part, through government guarantees. The amendments in this Update are effective for public business entities for annual periods, and interim periods within those annual periods, beginning after December 15, 2014.  The Company does not expect a material impact on its consolidated statements of condition, results of operations, or cash flows.

- 8 -

 (3)  Earnings per Common Share

Basic earnings per share are calculated by dividing net income available to common shareholders by the weighted average number of common shares outstanding during the period.  Net income available to common shareholders is net income less the total of preferred dividends declared.  Diluted earnings per share include the potential dilutive effect that could occur upon the assumed exercise of issued stock options that are not anti-dilutive using the treasury stock method.  Anti-dilutive stock options, not included in the computation below, were 10,000 in the three and nine month periods ended September 30, 2014 and - and 35,000 in the three and nine month periods ended September 30, 2013, respectively.  Unallocated common shares held by the ESOP are not included in the weighted-average number of common shares outstanding for purposes of calculating earnings per common share until they are committed to be released to plan participants.

The following table sets forth the calculation of basic and diluted earnings per share:


 
 
Three months ended
  
Nine months ended
 
 
 
September 30,
  
September 30,
 
(In thousands, except per share data)
 
2014
  
2013
  
2014
  
2013
 
Basic Earnings Per Common Share
 
  
  
  
 
Net income available to common shareholders
 
$
713
  
$
528
  
$
1,848
  
$
1,856
 
Weighted average common shares outstanding
  
2,537
   
2,518
   
2,533
   
2,515
 
Basic earnings per common share
 
$
0.28
  
$
0.21
  
$
0.73
  
$
0.74
 
 
                
Diluted Earnings Per Common Share
                
Net income available to common shareholders
 
$
713
  
$
528
  
$
1,848
  
$
1,856
 
Weighted average common shares outstanding
  
2,537
   
2,518
   
2,533
   
2,515
 
Effect of assumed exercise of stock options
  
26
   
21
   
25
   
13
 
Diluted weighted average common shares outstanding
  
2,563
   
2,539
   
2,558
   
2,528
 
Diluted earnings per common share
 
$
0.28
  
$
0.20
  
$
0.72
  
$
0.73
 




- 9 -



 


(4) Investment Securities

The amortized cost and estimated fair value of investment securities are summarized as follows:

 
 
September 30, 2014
 
 
 
  
Gross
  
Gross
  
Estimated
 
 
 
Amortized
  
Unrealized
  
Unrealized
  
Fair
 
(In thousands)
 
Cost
  
Gains
  
Losses
  
Value
 
Available-for-Sale Portfolio
 
  
  
  
 
Debt investment securities:
 
  
  
  
 
US Treasury, agencies and GSEs
 
$
18,900
  
$
3
  
$
(184
)
 
$
18,719
 
State and political subdivisions
  
7,838
   
131
   
(3
)
  
7,966
 
Corporate
  
13,801
   
153
   
(25
)
  
13,929
 
Residential mortgage-backed - US agency
  
33,283
   
388
   
(233
)
  
33,438
 
Collateralized mortgage obligations - US agency
  
18,062
   
217
   
(179
)
  
18,100
 
Total
  
91,884
   
892
   
(624
)
  
92,152
 
Equity investment securities:
                
Mutual funds:
                
Ultra short mortgage fund
  
643
   
4
   
-
   
647
 
Large cap equity fund
  
456
   
216
   
-
   
672
 
Other mutual funds
  
183
   
194
   
-
   
377
 
Common stock - financial services industry
  
271
   
16
   
-
   
287
 
Total
  
1,553
   
430
   
-
   
1,983
 
Total available-for-sale
 
$
93,437
  
$
1,322
  
$
(624
)
 
$
94,135
 
 
                
Held-to-Maturity Portfolio
                
Debt investment securities:
                
US Treasury, agencies and GSEs
 
$
4,827
  
$
17
  
$
(4
)
 
$
4,840
 
State and political subdivisions
  
22,807
   
780
   
(2
)
  
23,585
 
Corporate
  
3,671
   
170
   
-
   
3,841
 
Residential mortgage-backed - US agency
  
8,275
   
112
   
-
   
8,387
 
Collateralized mortgage obligations - US agency
  
2,897
   
79
   
-
   
2,976
 
Total held-to-maturity
 
$
42,477
  
$
1,158
  
$
(6
)
 
$
43,629
 

- 10 -



 

 
 
December 31, 2013
 
 
 
  
Gross
  
Gross
  
Estimated
 
 
 
Amortized
  
Unrealized
  
Unrealized
  
Fair
 
(In thousands)
 
Cost
  
Gains
  
Losses
  
Value
 
Available-for-Sale Portfolio
 
  
  
  
 
Debt investment securities:
 
  
  
  
 
US Treasury, agencies and GSEs
 
$
16,935
  
$
2
  
$
(340
)
 
$
16,597
 
State and political subdivisions
  
6,429
   
164
   
(6
)
  
6,587
 
Corporate
  
13,498
   
198
   
-
   
13,696
 
Residential mortgage-backed - US agency
  
22,231
   
332
   
(424
)
  
22,139
 
Collateralized mortgage obligations - agency
  
20,147
   
164
   
(308
)
  
20,003
 
Total
  
79,240
   
860
   
(1,078
)
  
79,022
 
Equity investment securities:
                
Mutual funds:
                
Ultra short mortgage fund
  
643
   
5
   
-
   
648
 
Large cap equity fund
  
456
   
195
   
-
   
651
 
Other mutual funds
  
183
   
162
   
-
   
345
 
Common stock - financial services industry
  
271
   
22
   
-
   
293
 
Total
  
1,553
   
384
   
-
   
1,937
 
Total available-for-sale
 
$
80,793
  
$
1,244
  
$
(1,078
)
 
$
80,959
 
 
                
Held-to-Maturity Portfolio
                
Debt investment securities:
                
US Treasury, agencies and GSEs
 
$
1,872
  
$
-
  
$
(25
)
 
$
1,847
 
State and political subdivisions
  
21,371
   
11
   
(118
)
  
21,264
 
Corporate
  
3,746
   
16
   
(44
)
  
3,718
 
Residential mortgage-backed - US agency
  
5,556
   
-
   
(30
)
  
5,526
 
Collateralized mortgage obligations - agency
  
1,867
   
-
   
-
   
1,867
 
Total held-to-maturity
 
$
34,412
  
$
27
  
$
(217
)
 
$
34,222
 
 
The amortized cost and estimated fair value of debt investments at September 30, 2014 by contractual maturity are shown below.  Expected maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without penalties.

 
 
Available-for-Sale
  
Held-to-Maturity
 
 
 
Amortized
  
Estimated
  
Amortized
  
Estimated
 
 
 
Cost
  
Fair Value
  
Cost
  
Fair Value
 
(In thousands)
 
  
  
  
 
Due in one year or less
 
$
4,891
  
$
4,925
  
$
185
  
$
185
 
Due after one year through five years
  
30,645
   
30,763
   
4,908
   
4,910
 
Due after five years through ten years
  
5,003
   
4,926
   
16,635
   
17,037
 
Due after ten years
  
-
   
-
   
9,577
   
10,134
 
Sub-total
  
40,539
   
40,614
   
31,305
   
32,266
 
Residential mortgage-backed - US agency
  
33,283
   
33,438
   
8,275
   
8,387
 
Collateralized mortgage obligations - US agency
  
18,062
   
18,100
   
2,897
   
2,976
 
Totals
 
$
91,884
  
$
92,152
  
$
42,477
  
$
43,629
 


- 11 -

The Company's investment securities' gross unrealized losses and fair value, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position, are as follows:

 
 
September 30, 2014
 
 
 
Less than Twelve Months
  
Twelve Months or More
  
Total
 
 
 
Number of
  
  
  
Number of
  
  
  
Number of
  
  
 
 
 
Individual
  
Unrealized
  
Fair
  
Individual
  
Unrealized
  
Fair
  
Individual
  
Unrealized
  
Fair
 
 
 
Securities
  
Losses
  
Value
  
Securities
  
Losses
  
Value
  
Securities
  
Losses
  
Value
 
(Dollars in thousands)
 
  
  
  
  
  
  
  
  
 
Available-for-Sale
 
  
  
  
  
  
  
  
  
 
US Treasury, agencies and GSE's
  
3
  
$
(5
)
 
$
4,006
   
11
  
$
(179
)
 
$
11,810
   
14
  
$
(184
)
 
$
15,816
 
State and political subdivisions
  
3
   
(3
)
  
1,045
   
1
   
-
   
91
   
4
   
(3
)
  
1,136
 
Corporate
  
8
   
(25
)
  
4,999
   
-
   
-
   
-
   
8
   
(25
)
  
4,999
 
Residential mortgage-backed - US agency
  
6
   
(14
)
  
7,428
   
7
   
(219
)
  
8,177
   
13
   
(233
)
  
15,605
 
Collateralized mortgage obligations - US agency
  
3
   
(39
)
  
2,795
   
5
   
(140
)
  
4,104
   
8
   
(179
)
  
6,899
 
Totals
  
23
  
$
(86
)
 
$
20,273
   
24
  
$
(538
)
 
$
24,182
   
47
  
$
(624
)
 
$
44,455
 
Held-to-Maturity
                                    
US Treasury, agencies and GSE's
  
2
  
$
(4
)
 
$
1,976
   
-
  
$
-
  
$
-
   
2
  
$
(4
)
 
$
1,976
 
State and political subdivisions
  
1
   
(2
)
  
1,470
   
-
   
-
   
-
   
1
   
(2
)
  
1,470
 
Corporate
  
1
   
-
   
311
   
-
   
-
   
-
   
1
   
-
   
311
 
Residential mortgage-backed - US agency
  
-
   
-
   
-
   
-
   
-
   
-
   
-
   
-
   
-
 
Collateralized mortgage obligations - US agency
  
-
   
-
   
-
   
-
   
-
   
-
   
-
   
-
   
-
 
Totals
  
4
  
$
(6
)
 
$
3,757
   
-
  
$
-
  
$
-
   
4
  
$
(6
)
 
$
3,757
 

The Company conducts a formal review of investment securities on a quarterly basis for the presence of other-than-temporary impairment ("OTTI").  The Company assesses whether OTTI is present when the fair value of a debt security is less than its amortized cost basis at the statement of condition date.  Under these circumstances, OTTI is considered to have occurred (1) if we intend to sell the security; (2) if it is "more likely than not" we will be required to sell the security before recovery of its amortized cost basis; or (3) the present value of expected cash flows is not anticipated to be sufficient to recover the entire amortized cost basis.  The guidance requires that credit-related OTTI is recognized in earnings while non-credit-related OTTI on securities not expected to be sold is recognized in other comprehensive income ("OCI").  Non-credit-related OTTI is based on other factors, including illiquidity and changes in the general interest rate environment.  Presentation of OTTI is made in the consolidated statement of income on a gross basis, including both the portion recognized in earnings as well as the portion recorded in OCI.  The gross OTTI would then be offset by the amount of non-credit-related OTTI, showing the net as the impact on earnings.

Management does not believe any individual unrealized loss in the securities portfolio as of September 30, 2014 represents OTTI.  All securities are rated A3 or better by Moody's or S&P, with the exception of two corporate securities. The agency and municipal securities have relatively insignificant unrealized loss positions ranging from 4.3% to 0.1% of their current book values.  The unrealized losses reflected in the mortgage-backed security holdings and collateralized mortgage obligations are primarily attributable to changes in interest rates since the securities were acquired.  The Company does not intend to sell these securities, nor is it more likely than not that the Company will be required to sell these securities prior to the recovery of the amortized cost.

In determining whether OTTI has occurred for equity securities, the Company considers the applicable factors described above and the length of time the equity security's fair value has been below the carrying amount. Management has determined that we have the intent and ability to retain the equity securities for a sufficient period of time to allow for recovery. All of the Company's equity securities had a fair value greater than the book value at September 30, 2014.



- 12 -




Gross realized gains (losses) on sales of securities for the indicated periods are detailed below:

 
For the three months
 
For the nine months
 
 
ended September 30,
 
ended September 30,
 
(In thousands)
2014
 
2013
 
2014
 
2013
 
Realized gains
 
$
3
  
$
17
  
$
29
  
$
121
 
Realized losses
  
-
   
-
   
-
   
(5
)
 
 
$
3
  
$
17
  
$
29
  
$
116
 

As of September 30, 2014 and December 31, 2013, securities with a fair value of $62.2 million and $58.6 million, respectively, were pledged to collateralize certain municipal deposit relationships.  As of the same dates, securities with a fair value of $19.9 million and $21.6 million were pledged against certain borrowing arrangements.

Management has reviewed its loan and mortgage-backed securities portfolios and determined that, to the best of its knowledge, little or no exposure exists to sub-prime or other high-risk residential mortgages.  The Company is not in the practice of investing in, or originating, these types of investments or loans.

(5)  Pension and Postretirement Benefits

The Company had a non-contributory defined benefit pension plan that covered substantially all employees. On May 14, 2012, the Company informed its employees of its decision to freeze participation and benefit accruals under the plan, primarily to reduce some of the volatility in earnings that can accompany the maintenance of a defined benefit plan.  The freeze became effective June 30, 2012.  Compensation earned by employees up to June 30, 2012 is used for purposes of calculating benefits under the plan but there will be no future benefit accruals after this date.  Participants as of June 30, 2012, who continue to be employed by the Bank continue to earn vesting credit with respect to their frozen accrued benefits.

Prior to being frozen, the plan provided defined benefits based on years of service and final average salary. Although the plan was frozen, the Company maintains the responsibility for funding the plan, and its funding practice is to contribute at least the minimum amount annually to meet minimum funding requirements.  The funded status of the plan has and will continue to be affected by market conditions.  The Company expects to continue to fund this plan on an as needed basis and does not foresee any issues or conditions that could negatively impact the payment of benefit obligations to plan participants.  In addition, the Company provides certain health and life insurance benefits for eligible retired employees.  The healthcare plan is contributory with participants' contributions adjusted annually; the life insurance plan is noncontributory.  Employees with less than 14 years of service as of January 1, 1995, are not eligible for the health and life insurance retirement benefits.

The composition of net periodic pension plan and postretirement plan costs for the indicated periods is as follows:

 
Pension Benefits
 
Postretirement Benefits
 
Pension Benefits
 
Postretirement Benefits
 
 
For the three months ended September 30,
 
For the nine months ended September 30,
 
(In thousands)
2014
 
2013
 
2014
 
2013
 
2014
 
2013
 
2014
 
2013
 
 
 
 
 
 
 
 
 
 
Service cost
 
$
-
  
$
-
  
$
-
  
$
-
  
$
-
  
$
-
  
$
-
  
$
-
 
Interest cost
  
102
   
95
   
5
   
4
   
305
   
284
   
14
   
13
 
Expected return on plan assets
  
(236
)
  
(214
)
  
-
   
-
   
(707
)
  
(640
)
  
-
   
-
 
Amortization of net losses
  
8
   
90
   
3
   
5
   
23
   
270
   
10
   
15
 
Net periodic benefit plan (benefit) cost
 
$
(126
)
 
$
(29
)
 
$
8
  
$
9
  
$
(379
)
 
$
(86
)
 
$
24
  
$
28
 

The Company will evaluate the need for further contributions to the defined benefit pension plan during 2014.  The prepaid pension asset is recorded in other assets on the statement of condition as of September 30, 2014.
 

 
- 13 -

(6)  Loans

Major classifications of loans at the indicated dates are as follows:

 
 
September 30,
  
December 31,
 
(In thousands)
 
2014
  
2013
 
Residential mortgage loans:
 
  
 
1-4 family first-lien residential mortgages
 
$
170,424
  
$
166,298
 
Construction
  
1,896
   
1,982
 
Total residential mortgage loans
  
172,320
   
168,280
 
 
        
Commercial loans:
        
Real estate
  
119,453
   
95,536
 
Lines of credit
  
16,568
   
14,444
 
Other commercial and industrial
  
36,994
   
32,675
 
Municipal
  
2,922
   
5,122
 
Total commercial loans
  
175,937
   
147,777
 
 
        
Consumer loans:
        
Home equity and junior liens
  
21,724
   
21,110
 
Other consumer
  
4,061
   
4,166
 
Total consumer loans
  
25,785
   
25,276
 
 
        
Total loans
  
374,042
   
341,333
 
Net deferred loan costs
  
215
   
300
 
Less allowance for loan losses
  
(5,171
)
  
(5,041
)
Loans receivable, net
 
$
369,086
  
$
336,592
 

The Company originates residential mortgage, commercial, and consumer loans largely to customers throughout Oswego and Onondaga counties. Although the Company has a diversified loan portfolio, a substantial portion of its borrowers' abilities to honor their loan contracts is dependent upon the counties' employment and economic conditions.

As of September 30, 2014 and December 31, 2013, residential mortgage loans with a carrying value of $120.2 million and $114.8 million, respectively, have been pledged by the Company to the Federal Home Loan Bank of New York ("FHLBNY") under a blanket collateral agreement to secure the Company's line of credit and term borrowings.

Loan Origination / Risk Management

The Company's lending policies and procedures are presented in Note 5 to the consolidated financial statements included in the 2013 Annual Report on Form 10-K filed with the Securities and Exchange Commission on March 17, 2014 as amended March 25, 2014 and have not changed.

To develop and document a systematic methodology for determining the allowance for loan losses, the Company has divided the loan portfolio into three portfolio segments, each with different risk characteristics but with similar methodologies for assessing risk.  Each portfolio segment is broken down into loan classes where appropriate.  Loan classes contain unique measurement attributes, risk characteristics, and methods for monitoring and assessing risk that are necessary to develop the allowance for loan losses.  Unique characteristics such as borrower type, loan type, collateral type, and risk characteristics define each class.  

- 14 -



 

The following table illustrates the portfolio segments and classes for the Company's loan portfolio:


Portfolio Segment
Class
 
 
Residential Mortgage Loans
1-4 family first-lien residential mortgages
 
Construction
 
 
Commercial Loans
Real estate
 
Lines of credit
 
Other commercial and industrial
 
Municipal
 
 
Consumer Loans
Home equity and junior liens
 
Other consumer

The following tables present the classes of the loan portfolio, not including net deferred loan costs, summarized by the aggregate pass rating and the classified ratings of special mention, substandard and doubtful within the Company's internal risk rating system as of the dates indicated:

 
 
As of September 30, 2014
 
 
 
  
Special
  
  
  
 
(In thousands)
 
Pass
  
Mention
  
Substandard
  
Doubtful
  
Total
 
Residential mortgage loans:
 
  
  
  
  
 
1-4 family first-lien residential mortgages
 
$
164,786
  
$
907
  
$
3,561
  
$