Pathfinder Bancorp Q3 profit declines on higher labor costs

OSWEGO — Pathfinder Bancorp, Inc. (NASDAQ: PBHC), parent of Pathfinder Bank, reported that its profit slipped 21 percent in the third quarter, led by increased labor costs.

Pathfinder announced on Nov. 1 that net income declined to $528,000 in the third quarter from $670,000 in the year-ago period.  The profit decrease “was principally due to the $300,000 increase in personnel expenses driven, in part, by increased health insurance expenses,” Pathfinder said in the earnings report. 

Earnings per share fell to 20 cents a share in the third quarter from 22 cents a year earlier.

Pathfinder’s net interest income increased to $3.9 million in the latest quarter from $3.7 million in the third quarter of 2012. The bank’s average balance of earning assets — particularly commercial real estate and commercial loans — rose, partially offset by a dip in its net interest margin to 3.45 percent from 3.46 percent a year ago.

Noninterest income for the third quarter rose to $704,000 from $661,000 for the comparable prior-year period on increased service charges on deposit accounts and net gains on the sales of loans and foreclosed real estate. 

Those income gains were offset by Pathfinder’s noninterest expense rising to $3.7 million in the third quarter from $3.2 million in the year-ago period. Staffing expenses increased, driven by wage increases and benefit costs, including costs under Pathfinder’s self-insured health-insurance program, according to the earnings report. The banking company said it also faced higher miscellaneous other expenses comprised of a write-down on a repossessed asset, fraud losses, office supplies, and travel and training. 

Pathfinder had total loans of $338.1 million as of Sept. 30, 2013, up 1.3 percent from $333.7 million as of Dec. 31, 2012.

“Year over year earnings have been relatively flat as reductions in net interest margin and higher operating expenses offset the benefits of organic loan and deposit growth,” Thomas W. Schneider, president and CEO of Oswego–based Pathfinder, said in the earnings report. “We have a healthy loan pipeline and look forward to the benefits of our continued growth and expansion into the Greater Syracuse market. However, we remain highly cognizant of the risks inherent in an environment of uncertain monetary and fiscal policy.”

Pathfinder now expects to open a 2,600-square-foot loan office in the Pike Block development in downtown Syracuse next March, Schneider says in an interview. The bank has executed a lease agreement for the space with developer VIP Development Associates, Inc., and a completed design is being converted into drawings.

Pathfinder had previously hoped to open the Syracuse office this fall in the 130,000-square-foot mixed-use retail and residential development that encompasses four restored historic buildings. But construction on the Pathfinder space has not yet begun and city approvals still need to be obtained, Schneider says.

Pathfinder’s leader says the bank — which has had a retail branch in Cicero since 2011 and started making loans into the market well before that — is generating some of its best growth in the Onondaga County market. And, he’s confident that will be boosted further by the opening of the downtown Syracuse office.

“There is growth [in the greater Syracuse area.] It’s really driven by the colleges and the hospitals,” Schneider says. “It’s not a sharp upward trend, but I think it’s a nice, gentle, sustainable, positive slope.”

Pathfinder’s planned Pike Block branch office will primarily focus on making small business, commercial real estate, commercial term, and industrial loans, and accepting commercial deposits. The bank may also eventually turn it into a full-scale retail branch office, accepting consumer deposits.

More earnings stats

Pathfinder produced a return on average assets of 0.43 percent for the three-month period ending Sept. 30, 2013 compared to 0.57 percent in the same quarter in 2012. 

The bank’s return on average equity was 5.25 percent for the quarter ending Sept. 30, down from 6.59 percent in the year-prior period.

Pathfinder recorded a provision for loan losses of $216,000 for the third quarter, compared to $275,000 in the year-earlier quarter as loan losses fell.

The banking company’s total assets increased to $492.5 million as of Sept. 30 from $477.8 million last Dec. 31. This increase of $14.7 million was largely centered in investment securities and, to a lesser extent, gross loans, Pathfinder said.

The rise in total assets was largely funded by increases in municipal, retail, and business deposits in support of the banking company’s organic growth objectives, it said. Total deposits as of Sept. 30, 2013 were $401.3 million, up from $391.8 million as of Dec. 31, 2012.

Pathfinder’s stock price closed at $13.50 on Nov. 4, which is up 31 percent year to date. Pathfinder shares are thinly traded, with an average of just over 1,000 shares trading hands daily during the last three months, according to Yahoo Finance data. On many trading days, either no shares or just 100 shares trade, the data shows.

Pathfinder Bank is a New York state chartered savings bank that has eight branches — seven in Oswego County and one in Onondaga County. 

Contact Rombel at arombel@cnybj.com