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 ending March 31, 2006
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _______ to _______
COMMISSION FILE NUMBER: 000-23601
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PATHFINDER BANCORP, INC.
------------------------
(Exact Name of Registrant as Specified in its Charter)
FEDERAL 16-1540137
----------------------------------- -----------------------------
(State or Other Jurisdiction of
Incorporation or Organization) (I.R.S. Employer Identification Number)
214 West First Street, Oswego, NY 13126
---------------------------------------
(Address of Principal Executive Office) (Zip Code)
(315) 343-0057
--------------
(Registrant'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 twelve months (or for such shorter period that the
Registrant was required to file such reports) and (2) has been subject to such
requirements for the past 90 days. Yes [X] No [ ].
Indicate by check mark whether the Registrant is a large accelerated filer,
an accelerated filer, or a non-accelerated filer. See definition of
"accelerated filer and large accelerated filer" in Rule 12b-2 of the Exchange
Act. (Check one):
Large Accelerated Filer [] Accelerated Filer [] Non-Accelerated Filer [X]
Indicate by check mark whether the registrant is a shell company (as
defined in Rule 12b-2 of the Exchange Act). Yes [ ] No [X]
As of May 10, 2006 there were 2,950,419 shares issued and 2,463,132 shares
outstanding of the Registrant's Common Stock.
PATHFINDER BANCORP, INC.
INDEX
PART 1 FINANCIAL INFORMATION PAGE NO.
Item 1. Consolidated Financial Statements
Consolidated Statements of Condition 1
Consolidated Statements of Income 2
Consolidated Statements of Shareholders' Equity 3
Consolidated Statements of Cash Flows 4
Notes to Consolidated Financial Statements 5-8
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 9-16
Item 3. Quantitative and Qualitative Disclosure about Market
Risk 17-18
Item 4. Controls and Procedures 19
PART II OTHER INFORMATION 20
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. Submission of matters to a vote of security holders
Item 5. Other information
Item 6. Exhibits
SIGNATURES
PATHFINDER BANCORP, INC.
CONSOLIDATED STATEMENTS OF CONDITION
MARCH 31, 2006 (UNAUDITED) AND DECEMBER 31, 2005
March 31, December 31,
ASSETS 2006 2005
------------------------------------------------------------------------------------------------------------------------
(Dollars in thousands, except per share data)
Cash and due from banks $ 7,171 $ 7,309
Interest earning deposits 395 586
------------------------------------------------------------------------------------------------------------------------
Total cash and cash equivalents 7,566 7,895
Investment securities, at fair value 79,516 74,239
Federal Home Loan Bank stock, at cost 2,080 1,805
Loans 191,381 189,568
Less: Allowance for loan losses 1,693 1,679
------------------------------------------------------------------------------------------------------------------------
Loans receivable, net 189,688 187,889
Premises and equipment, net 7,951 8,020
Accrued interest receivable 1,642 1,678
Foreclosed real estate 887 743
Goodwill 3,840 3,840
Intangible asset, net 349 404
Bank owned life insurance 6,036 5,987
Other assets 4,199 4,448
------------------------------------------------------------------------------------------------------------------------
Total assets $ 303,754 $ 296,948
========================================================================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
-------------------------------------
Deposits:
Interest-bearing $ 217,418 $ 216,136
Noninterest-bearing 20,258 20,241
------------------------------------------------------------------------------------------------------------------------
Total deposits 237,676 236,377
Short-term borrowings 9,100 2,000
Long-term borrowings 28,360 29,360
Junior subordinated debentures 5,155 5,155
Other liabilities 2,604 3,128
------------------------------------------------------------------------------------------------------------------------
Total liabilities 282,895 276,020
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 shares issued; and 2,463,132 shares outstanding, respectively 29 29
Additional paid in capital 7,721 7,721
Retained earnings 20,953 20,965
Accumulated other comprehensive loss (1,342) (1,285)
Treasury stock, at cost; 487,287 shares (6,502) (6,502)
------------------------------------------------------------------------------------------------------------------------
Total shareholders' equity 20,859 20,928
------------------------------------------------------------------------------------------------------------------------
Total liabilities and shareholders' equity $ 303,754 $ 296,948
========================================================================================================================
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
March 31, 2006 March 31, 2005
---------------- ----------------
(Dollars in thousands, except per share data)
INTEREST INCOME:
Loans, including fees $ 3,057 $ 2,889
Debt securities:
Taxable 641 604
Tax-exempt 98 103
Dividends 61 51
Other 8 51
--------------------------------------------------------------------------------------------------
Total interest income 3,865 3,698
--------------------------------------------------------------------------------------------------
INTEREST EXPENSE:
Interest on deposits 1,249 1,030
Interest on short-term borrowings 61 10
Interest on long-term borrowings 438 459
Total interest expense 1,748 1,499
--------------------------------------------------------------------------------------------------
Net interest income 2,117 2,199
Provision for loan losses 22 72
--------------------------------------------------------------------------------------------------
Net interest income after provision for loan losses 2,095 2,127
--------------------------------------------------------------------------------------------------
OTHER INCOME:
Service charges on deposit accounts 371 274
Earnings on bank owned life insurance 49 44
Loan servicing fees 59 41
Net losses on sales of investment securities (2) -
Net losses on sales of loans and foreclosed real estate (19) (12)
Other charges, commissions and fees 135 142
--------------------------------------------------------------------------------------------------
Total other income 593 489
--------------------------------------------------------------------------------------------------
OTHER EXPENSES:
Salaries and employee benefits 1,275 1,264
Building occupancy 316 275
Data processing expenses 324 320
Professional and other services 115 178
Amortization of intangible asset 56 56
Other expenses 325 327
Total other expenses 2,411 2,420
--------------------------------------------------------------------------------------------------
Income before income taxes 277 196
Provision for income taxes 37 47
--------------------------------------------------------------------------------------------------
NET INCOME $ 240 $ 149
==================================================================================================
NET INCOME PER SHARE - BASIC $ 0.10 $ 0.06
==================================================================================================
NET INCOME PER SHARE - DILUTED $ 0.10 $ 0.06
==================================================================================================
DIVIDENDS PER SHARE $ 0.1025 $ 0.1025
==================================================================================================
The accompanying notes are an integral part of the consolidated financial
statements.
-2-
PATHFINDER BANCORP, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
THREE MONTHS ENDED MARCH 31, 2006 AND MARCH 31, 2005
(unaudited)
Accumulated
Additional Other Com- Unearned
Common Stock Paid in Retained prehensive ESOP
------------
Shares Amount Capital Earnings Income (Loss) Shares
------------ ------- ----------- ---------- -------------- ----------
(Dollars in thousands, except per share data)
BALANCE, DECEMBER 31, 2005 2,950,419 $ 29 $ 7,721 $ 20,965 $ (1,285) $ -
Comprehensive income
Net income 240
Other comprehensive loss, net of tax
Unrealized net losses on securities (57)
Total Comprehensive income
Dividends declared ($.1025 per share) (252)
-------------------------------------------------------------------------------------------------------------------------
BALANCE, MARCH 31, 2006 2,950,419 $ 29 $ 7,721 $ 20,953 $ (1,342) $ -
=========================================================================================================================
BALANCE, DECEMBER 31, 2004 2,937,419 $ 29 $ 7,453 $ 21,186 $ (307) $ (33)
Comprehensive loss
Net income 149
Other comprehensive loss, net of tax
Unrealized net losses on securities (823)
Total Comprehensive Loss
ESOP shares earned 22 11
Stock option exercised 3,000 - 20
Dividends declared ($.1025 per share) (251)
-------------------------------------------------------------------------------------------------------------------------
BALANCE, MARCH 31, 2005 2,940,419 $ 29 $ 7,495 $ 21,084 $ (1,130) $ (22)
=========================================================================================================================
Treasury
Stock Total
---------- --------
(Dollars in thousands, except per share data)
BALANCE, DECEMBER 31, 2005 $ (6,502) $20,928
Comprehensive income
Net income 240
Other comprehensive loss, net of tax
Unrealized net losses on securities (57)
--------
Total Comprehensive income 183
Dividends declared ($.1025 per share) (252)
-------------------------------------------------------------------
BALANCE, MARCH 31, 2006 $ (6,502) $20,859
===================================================================
BALANCE, DECEMBER 31, 2004 $ (6,502) $21,826
Comprehensive income
Net income 149
Other comprehensive loss, net of tax
Unrealized net losses on securities (823)
--------
Total Comprehensive Income (674)
ESOP shares earned 33
Stock option exercised 20
Dividends declared ($.1025 per share) (251)
-------------------------------------------------------------------
BALANCE, MARCH 31, 2005 $ (6,502) $20,954
===================================================================
The accompanying notes are an integral part of the consolidated financial
statements
-3-
PATHFINDER BANCORP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
March 31, March 31,
2006 2005
--------------------------------------------------------------------------------
(Dollars in thousands)
OPERATING ACTIVITIES
Net income $ 240 $ 149
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for loan losses 22 72
ESOP shares earned - 33
Deferred income tax expense 31 34
Proceeds from sale of loans - 1,120
Realized loss on:
Sale of real estate through foreclosure 7 1
Loans - 11
Available-for-sale investment securities 2 -
Depreciation 190 161
Amortization of intangible asset 56 56
Amortization of deferred financing costs 8 8
Amortization of mortgage servicing rights 28 37
Earnings on bank owned life insurance (49) (44)
Net amortization of premiums on investment securities 32 89
Decrease (increase) in interest receivable 36 (90)
Net change in other assets and liabilities (475) (294)
--------------------------------------------------------------------------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 128 1,343
================================================================================
INVESTING ACTIVITIES
Purchase of investment securities available-for-sale (12,013) (17,810)
Proceeds from maturities and principal reductions of
investment securities available-for-sale 2,366 1,577
Proceeds from sale:
Real estate acquired through foreclosure 50 49
Available-for-sale investment securities 3,976 -
Net (increase) decrease in loans (2,024) 997
Purchase of premises and equipment (121) (280)
--------------------------------------------------------------------------------
NET CASH USED IN INVESTING ACTIVITIES (7,766) (15,467)
================================================================================
FINANCING ACTIVITIES
Net decrease in demand deposits, NOW accounts
savings accounts, money market deposit accounts
and escrow deposits (519) (10,000)
Net increase in time deposits 1,818 18,308
Increase in short-term borrowings 7,100 1,000
Payments on long-term borrowings (1,000) (2,000)
Proceeds from exercise of stock options - 20
Cash dividends paid (90) (89)
--------------------------------------------------------------------------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 7,309 7,239
================================================================================
DECREASE IN CASH AND CASH EQUIVALENTS (329) (6,885)
Cash and cash equivalents at beginning of period 7,895 14,325
--------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 7,566 $ 7,440
================================================================================
The accompanying notes are an integral part of the consolidated financial
statements
-4-
PATHFINDER BANCORP, INC.
Notes to Consolidated Financial Statements
(1) BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements of Pathfinder
Bancorp, Inc. and its wholly owned subsidiaries have been prepared in accordance
with U.S. generally accepted accounting principles for interim financial
information and the instructions for Form 10-Q and Article 10 of Regulation S-X.
Accordingly, they do not include all of the information and footnotes necessary
for a complete presentation of consolidated financial position, 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.
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, 2005 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 months ended March 31, 2006 are not necessarily
indicative of the results that may be expected for the year ending December 31,
2006.
(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
ended March 31, 2006, and 2005, using 2,463,132 and 2,447,210 weighted average
common shares outstanding, respectively. Diluted earnings per share for the
three months ended March 31, 2006 and 2005 have been computed using 2,481,777
and 2,486,766 weighted average common shares outstanding, 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 ended
March 31, is as follows:
FOR THE THREE MONTHS
ENDED MARCH 31,
2006 2005
---------------------------------------------------
(In thousands)
Service cost $ 48 $ 38
Interest cost 63 57
Expected return on plan assets (92) (71)
Amortization of net losses 28 24
---------------------------------------------------
Net periodic benefit cost $ 47 $ 48
===================================================
-5-
The Company previously disclosed in its consolidated financial statements for
the year ended December 31, 2005, that it expected to contribute $192,000 to its
pension plan in 2006. As of March 31, 2006, $45,013 had been contributed to the
pension plan.
(4) DIVIDEND RESTRICTIONS
The Company maintains a restricted capital account with a $1.5 million balance,
representing Pathfinder Bancorp, M.H.C.'s portion of dividends waived as of
March 31, 2006.
(5) COMPREHENSIVE LOSS
The components of other comprehensive loss income and related tax effects for
the three month periods ended March 31, 2006 and 2005 are as follows:
For the three months
ended March 31,
2006 2005
-----------------------
(In thousands)
Gross change in unrealized losses on
securities available for sale $ (88) $(1,372)
Reclassification adjustment for losses
included in net income 2 -
---------------------------------------------------------------------
(86) (1,372)
Tax effect 29 549
---------------------------------------------------------------------
Net of tax amount $ (57) $ (823)
=====================================================================
(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 $134,000 of standby letters of credit as of March 31, 2006.
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 payments required under the corresponding guarantees.
The current amount of the liability as of March 31, 2006 for guarantees under
standby letters of credit issued is not material.
(7) STOCK BASED COMPENSATION
Prior to 2006, the Company accounted for stock-based compensation issued to
directors and employees using the intrinsic value method in accordance with
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees" (APB 25). This method required that compensation expense be
recognized to the extent that the fair value of the stock exceeds the exercise
price of the stock award at the grant date. The Company generally did not
recognize compensation expense related to stock option awards because the stock
options generally had fixed terms and exercise prices that were equal to or
greater than the fair value of the Company's common stock at the grant date.
-6-
Effective January 1, 2006, the Company adopted Financial Accounting Standards
Board (FASB) Statement No. 123(R), Share-Based Payment, ("SFAS 123(R)"). SFAS
123(R) requires compensation costs related to share-based payment transactions
to be recognized in the income statement (with limited exceptions) using the
modified prospective method based on the grant-date fair value of the
stock-based compensation issued. Compensation costs are recognized over the
period that an employee provides service in exchange for the award. As of the
date of adoption of SFAS 123(R), the Company's options are fully granted and
vested. There was no impact to the Company's consolidated financial position or
results of operations.
In conjunction with SFAS 123(R), the Company also adopted FASB Staff Position
("FSP") SFAS 123(R)-2, "Practical Accommodation to the Application of Grant Date
as Defined in SFAS 123(R)" effective January 1, 2006. FSP 123(R)-2 provides
guidance on the application of grant date as defined in SFAS 123(R). In
accordance with this standard a grant date of an award exists if (a) the award
is a unilateral grant, and (b) the key terms and conditions of the award are
expected to be communicated to an individual recipient within a relatively short
time period from the date of approval. The adoption of this standard did not our
consolidated financial position, results of operations or cash flows for the
three month period ended March 31, 2006.
In November 2005, the FASB issued final FSP No. 123(R)-3, "Transition Election
Related to Accounting for the Tax Effects of Share-Based Payment Awards." The
FSP provides an alternative method of calculating excess tax benefits (the
Additional Paid-in Capital "APIC" pool) from the method defined in SFAS 123(R)
for share-based payments. A one-time election to adopt the transition method in
this FSP is available to those entities adopting SFAS 123(R) using either the
modified retrospective or modified prospective method. Up to one year from the
initial adoption of SFAS 123(R) or effective date of the FSP is provided to make
this one-time election. However, until an entity makes its election, it must
follow the guidance in SFAS 123(R). We are currently evaluating the potential
impact of calculating the APIC pool with this alternative method and have not
yet determined which method we will adopt, or the expected impact on our
financial position or results of operations.
In February 2006, the FASB issued FSP No. 123(R)-4, "Classifications of Options
and Similar Instruments Issued as Employee Compensation That Allow for Cash
Settlement upon the Occurrence of a Contingent Event." The position amends SFAS
123(R) to incorporate that a cash settlement feature that can be exercised only
upon the occurrence of a contingent event that is outside the employee's control
does not meet certain conditions in SFAS 123(R) until it becomes probable that
the event will occur. The guidance in this FSP was required to be applied upon
initial adoption of SFAS 123(R). The Company does not have any option grants
that allow for cash settlement.
(8) NEW ACCOUNTING PRONOUNCEMENTS
In January 2006, the Company adopted Financial Accounting Standard Board
("FASB") Staff Position ("FSP") SFAS No. 115-1 and FAS 124-1, "The Meaning of
Other-Than-Temporary Impairment and Its Application to Certain Investments." The
FSP addresses when an investment is considered impaired, whether the impairment
is other-than-temporary and the measurement of an impairment loss. The FSP also
includes accounting considerations subsequent to the recognition of an
other-than-temporary impairment and requires certain disclosures about
unrealized losses that have not been recognized as other-than-temporary. The FSP
did not have a significant impact on the Company's consolidated financial
position or results of operations.
In January 2006, the Company adopted FASB Interpretation No. 47, "Accounting for
Conditional Asset Retirement Obligations - an interpretation of SFAS No. 143,"
("FIN 47"). This Interpretation provides clarification with respect to the
timing of liability recognition for legal obligations associated with the
retirement of tangible long-lived assets when the timing and/or method of
settlement of the obligation are conditional on a future event. The adoption of
FIN 47 did not impact the Company's consolidated financial statements.
-7-
In January 2006, the Company adopted SFAS No. 154, Accounting Changes and Error
Corrections ("SFAS 154"). SFAS No. 154 requires retroactive application of a
voluntary change in accounting principle to prior period financial statements
unless it is impracticable. SFAS No. 154 also requires that a change in method
of depreciation, amortization, or depletion for long-lived, non-financial assets
be accounted for as a change in accounting estimate that is affected by a change
in accounting principle. The adoption of the provisions of SFAS 154 did not have
a material impact on the Company's consolidated financial statements.
In January 2006, the Company adopted FASB Staff Position FAS 13-1 ("FSP 13-1"),
which requires companies to expense rental costs associated with ground or
building operating leases that are incurred during a construction period, versus
capitalizing these rental costs. The adoption of FSP 13-1 did not have a
material impact on the Company's consolidated financial condition or results of
operations.
In February 2006, the FASB issued SFAS No. 155, Accounting for Certain Hybrid
Financial Instruments ("SFAS 155"). SFAS 155 amends FASB Statement No. 133 and
FASB Statement No. 140, and improves the financial reporting of certain hybrid
financial instruments by requiring more consistent accounting that eliminates
exemptions and provides a means to simplify the accounting for these
instruments. Specifically, SFAS 155 allows financial instruments that have
embedded derivatives to be accounted for as a whole (eliminating the need to
bifurcate the derivative from its host) if the holder elects to account for the
whole instrument on a fair value basis. The Company is required to adopt the
provisions of SFAS 155, as applicable, beginning in 2007. Management does not
believe the adoption of SFAS 155 will have a material impact on the Company's
consolidated financial position and results of operations.
In March 2006, the FASB issued SFAS No. 156, Accounting for Servicing of
Financial Assets -An Amendment of FASB Statement No. 140 ("SFAS 156"). SFAS 156
requires that all separately recognized servicing assets and servicing
liabilities be initially measured at fair value, if practicable. The statement
permits, but does not require, the subsequent measurement of servicing assets
and servicing liabilities at fair value. SFAS 156 is effective for the Company
beginning in 2007. The Company does not believe that the adoption of SFAS 156
will have a significant effect on its consolidated financial statements.
-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, Inc. represent wholly owned subsidiaries of
Pathfinder Bank. At March 31, 2006, 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 March 31,
2006 and the results of operations for the three months ended March 31, 2006 and
March 31, 2005.
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 of America 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.
The most significant accounting policies followed by the Company are presented
in Note 1 to the consolidated financial statements included in the 2005 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 consolidated 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 March 31, 2006, 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 consolidated 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 $240,000, or $0.10 per share, for the three months ended March
31, 2006, as compared to $149,000, or $0.06 per share, for the same period in
2005. During the first quarter of 2006, the Company continued its efforts
-10-
toward transforming its more traditional thrift balance sheet with mostly
residential loans as earning assets, toward that of a community bank with a more
diverse mix of residential, consumer and commercial loans. On an average
balance basis, commercial loans comprise 27.1% of the total gross loan portfolio
at March 31, 2006, as compared to 21.3% of the portfolio at December 31, 2005.
Asset quality continues to improve during 2006 as reflected in the decreasing
non-performing loan ratios.
Short-term borrowings increased $7.1 million during the first quarter of 2006.
The short-term borrowings were entered into as a replacement for outflow of
municipal deposits from two large rate-sensitive customers toward the end of the
quarter.
On April 23, 2006, Alliance Bank N.A. announced it had reached a definitive
agreement to merge with the parent company of Oswego County National Bank
(OCNB). OCNB, formerly, Oswego County Savings Bank has been domiciled in the
city of Oswego since it's founding in 1870 and has been the primary local
competitor for Pathfinder Bank. In management's view, the absorption of OCNB
into Alliance bank, a $900 million bank headquartered in Syracuse, NY, will
provide both challenges and opportunities for Pathfinder Bank. The challenge
will be the ability of a larger competitor to more actively and aggressively
market within the primary business area of Pathfinder Bank. Opportunities exist,
as management believes that it's unique competencies and differentiators are
more closely matched by a locally domiciled bank than one headquartered outside
our primary market area. Opportunities may exist to garner additional business
opportunities with the traditional customer base of OCNB which is more apt to
conduct its business with a local bank.
RESULTS OF OPERATIONS
The return on average assets and return on average shareholders' equity were
0.31% and 4.54%, respectively, for the three months ended March 31, 2006,
compared with 0.19% and 2.77%, respectively, for the three months ended March
31, 2005. During the first quarter of 2006 when compared to the first quarter
of 2005, net interest income decreased $82,000, partially offset by a decrease
in provision for loan losses of $50,000, a $113,000 increase in other income and
a $9,000 decrease in other expenses.
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 earning
assets, interest-bearing liabilities, related yields and associated funding
costs.
Net interest income, on a tax-equivalent basis remained relatively constant at
$2.2 million for the three months ended March 31, 2006 when compared to the same
period of 2005. The Company's net interest margin for the first quarter of 2006
decreased to 3.13% from 3.20% when compared to the same quarter in 2005.
Management expects continued margin compression to adversely impact earnings as
we perceive the yield curve will continue to be flat over the near term. The
decline in net interest income is attributable to the higher rates paid on both
deposits and borrowings, offset by an increase of 33 basis points in earning
asset yields. Average interest-earning assets decreased 2% to $275.9 million at
March 31, 2006 as compared to $280.2 million at March 31, 2005. The decrease in
average earning assets is primarily attributable to an $8.7 million decrease in
interest earning deposits, offset by a $3.6 million increase in loans receivable
and an $863,000 increase in investment securities. Average interest-bearing
-11-
liabilities decreased $948,000, and the cost of funds increased 39 basis
points to 2.66% from 2.27% for the same period in 2005. The decrease in
the average balance of interest-bearing liabilities resulted primarily from the
anticipated cyclical outflow of municipal deposits during the second half of the
first quarter.
INTEREST INCOME
Total interest income, on a tax-equivalent basis, for the quarter ended March
31, 2006 increased $169,000, or 5%, to $3.9 million from $3.7 million at the
quarter ended March 31, 2005. The average balance of loans increased $3.6
million, with yields increasing 25 basis points to 6.42% for the first quarter
of 2006. Average commercial loans increased $2.6 million, and experienced an
increase in the average tax-equivalent yield of 149 basis points, to 8.00% from
6.51%, in 2006. The increase in the yield on commercial loans is primarily the
result of the adjustable rate portions of the portfolio repricing upward in
connection with upward adjustments in the prime rate, as well as new commercial
loan originations occurring at market rates significantly higher than the
weighted average existing portfolio rate. The average balance of loans to
municipal entities for the first quarter of 2006 was $3.1 million, compared to
$3.3 million for the same period in 2005. Average commercial real estate loans
increased $3.5 million for the first quarter of 2006, with an increase in the
yield of 34 basis points. The Company's residential mortgage loan portfolio
decreased $3.1 million, or 3%, when comparing the first quarter of 2006 to the
same period in 2005. The average yield on the residential mortgage loan
portfolio decreased 13 basis points to 5.73% in 2006 from 5.86% in 2005. An
increase in the average balance of consumer loans of $848,000, or 5%, resulted
from an increase in home equity loans. The average yield increased 75 basis
points, to 7.65% from 6.90% in 2005 as a result of the increase in the prime
rate. Average investment securities (taxable and tax-exempt) for the quarter
ended March 31, 2006 increased by $863,000, compared to the same period a year
ago, with an increase in tax-equivalent interest income from investments of
$40,000, or 5%, compared to the first quarter of 2005. The average
tax-equivalent yield of the portfolio increased 15 basis points, to 3.97% from
3.82%. The increase in the average balance of investment securities is a result
of security acquisitions made during February in order to provide the necessary
collateral for municipal deposit inflows.
INTEREST EXPENSE
Total interest expense increased $249,000 for the three months ended March 31,
2006, when compared to the same quarter in 2005. Deposit interest expense for
the comparable periods increased $219,000, or 21%, as the average rate paid on
higher earning money management accounts increased 97 basis points to 2.63% in
2006 from 1.66% in 2005, offset by a decrease in the average balance of money
management accounts to $39.6 million in 2006 from $42.8 million in 2005. The
cost of other interest-bearing deposits increased 27 basis points, to 2.15% from
1.88%, as the average balance of these deposits increased $2.4 million, or 1%.
Interest expense on borrowings increased by $30,000, or 6%, from the prior
period. The increase in interest expense on borrowings was the result of an
increase in the cost of the floating rate junior subordinated debentures to
8.07% in 2006 from 5.97% in 2005 and an increase in the cost of borrowings to
4.60% in 2006 from 4.53% in 2005. The increase in borrowing expense is partially
offset by a slight decrease in the average balance of borrowings of $220,000 or
1%.
PROVISION FOR LOAN LOSSES
Provision for loan losses for the quarter ended March 31, 2006 decreased to
$22,000 from $72,000 for the same period in 2005, primarily as a result of a 19%
decrease in non-performing loans due to the continued efforts to improve asset
quality. The Company's ratio of allowance for loan losses to period end loans
has decreased to 0.88% at March 31, 2006 from 1.01% at March 31, 2005.
Non-performing loans to period end loans have decreased to 0.75% at March 31,
2006 from 0.94% at March 31, 2005.
-12-
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.
The following table sets forth certain information on other income for the
periods indicated:
Three Months Ended March 31,
2006 2005 Change
-----------------------------------------------------------------------------------------
(Dollars in thousands)
Service charges on deposit accounts $371 $274 $ 97 35.4%
Earnings on bank owned life insurance 49 44 6 13.6%
Loan servicing fees 47 41 6 14.6%
Other charges, commissions and fees 135 142 (8) -5.6%
----------------------------------------------------------------------------------------
Core noninterest income 602 501 101 20.2%
Net losses on sales and impairment of investment securities (2) - (2) -
Net losses on sales of loans and foreclosed real estate (7) (12) 5 -41.7%
----------------------------------------------------------------------------------------
Total noninterest income $593 $489 $104 21.3%
========================================================================================
For the three months ended March 31, 2006, core noninterest income reflected an
increase of 20%, when compared with the three months ended March 31, 2005. The
increase in income from service charges on deposit accounts is primarily the
result of an increase in deposit accounts attributable to the opening of the
Central Square branch and additional customer acquisition efforts in all markets
served, combined with an increase in fees on all deposit accounts. Income from
loan servicing fees reflects an increase in commercial loan origination related
fees earned, combined with a decrease in the amortization of mortgage servicing
rights. The reduction in other charges, commissions and fees was primarily due
to recording a grant from New York State in March 2005 for a company wide
Leadership Training Program. This reduction was offset by increases in fees
associated with the Bank's debit card usage of $9,000.
-13-
OTHER EXPENSE
The following table sets forth certain information on other expense for the
quarters indicated:
Three Months Ended March 31,
2006 2005 Change
------------------------------------------------------------------
(Dollars in thousands)
Salaries and employee benefits $1,275 $1,264 $ 11 0.9%
Building occupancy 316 275 41 14.9%
Data processing 324 320 4 1.3%
Professional and other services 115 178 (63) -35.4%
Amortization of intangible assets 56 56 - 0.0%
Other operating 325 327 (2) -0.6%
-----------------------------------------------------------------
Total other expense $2,411 $2,420 $ (9) -0.4%
=================================================================
Total other expense decreased slightly for the three months ended March 31, 2006
when compared to the same quarter of 2005. The reduction in professional and
other services from 2005 was primarily due to consulting expenses associated
with a fee enhancement program and a company wide Leadership Training program
being recognized in the prior year. A portion of the expenses associated with
the Leadership Training program were offset by corresponding grant income in
other charges, commission and fees. The increase in building occupancy expenses
is primarily attributable to the operation of the Central Square branch that
opened in May 2005. Salaries and employee benefits also increased as a result of
the opening of the Central Square branch. These increases were offset by a
reduction in staffing and expenses recognized on the employee stock ownership
plan.
INCOME TAX EXPENSE
Income taxes decreased $10,000 for the quarter ended March 31, 2006 as compared
to the same period in 2005. The Company continues to strive to reduce 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. Enactment of proposed state tax legislation regarding Real Estate
Investment Trusts would increase the state tax rate for the Company.
CHANGES IN FINANCIAL CONDITION
ASSETS
Total assets increased approximately $6.8 million, or 2%, to $303.8 million at
March 31, 2006, from $296.9 million at December 31, 2005. The increase in total
assets was primarily the result of an increase in investment securities of $5.3
million and a $1.8 million, or 1%, increase in loans receivable. The growth in
investment securities was a result of security acquisitions during January and
February 2006 in order to obtain the required collateral for increased municipal
deposit inflows. The deposit inflows were substantially offset by municipal
outflows from two large rate-sensitive customers during March.
At March 31, 2006, the securities balance included a net unrealized loss on
available for sale securities of $2.2 million, versus a net unrealized loss of
$2.1 million at December 31, 2005. These unrealized losses relate principally to
changes in interest rates subsequent to the acquisition of specific securities.
None of the securities in this category had an unrealized loss that exceeded 8%
of book value. The Company has the intent and ability to hold the individual
securities to maturity or market price recovery.
-14-
LIABILITIES
Total liabilities increased $6.9 million, or 3%, to $282.9 million at March 31,
2006 from $276.0 million at December 31, 2005. The increase in liabilities is
primarily due to a $7.1 million increase in short-term borrowings and a $1.3
million increase in interest-bearing deposits, partially offset by a $1.0
million decrease in long-term borrowings. The increase in short-term borrowings
primarily resulted from the replacement of substantial municipal deposit
outflows of two large rate-sensitive, municipal customers occurring during the
latter half of the first quarter.
LOAN AND ASSET QUALITY AND ALLOWANCE FOR LOAN LOSSES
The following table represents information concerning the aggregate amount of
nonperforming assets:
March 31, December 31, March 31,
2006 2005 2005
--------------------------------------------------------------------------------------------
(Dollars In thousands)
Nonaccrual loans:
Commercial real estate and commercial $ 486 $ 757 $ 840
Consumer 81 89 117
Real estate - Construction 0 0 0
Mortgage 860 834 805
--------------------------------------------------------------------------------------------
Total nonaccrual loans 1,427 1,680 1,762
Loans past due 90 days or more and still accruing 0 0 0
--------------------------------------------------------------------------------------------
Total non-performing loans 1,427 1,680 1,762
Foreclosed real estate 887 743 850
--------------------------------------------------------------------------------------------
Total non-performing assets $ 2,314 $ 2,423 $ 2,612
============================================================================================
Non-performing loans to total loans 0.75% 0.89% 0.94%
Non-performing assets to total assets 0.76% 0.82% 0.85%
--------------------------------------------------------------------------------------------
Total nonperforming loans decreased 15% at March 31, 2006 when compared to
December 31, 2005. Management believes that adequate reserves exist for any
potential losses that may occur from the remediation process. The 19% increase
in foreclosed real estate is primarily due to carrying 13 foreclosed real estate
properties at March 31, 2006 versus 10 properties at December 31, 2005.
The allowance for loan losses at March 31, 2006 and December 31, 2005 was $1.7
million, or 0.88% and 0.89% of period end loans, respectively.
CAPITAL
Shareholders' equity remained constant at $20.9 million at March 31, 2006 when
compared to December 31, 2005. The Company added $240,000 to retained earnings
through net income and returned $252,000 to its shareholders in the form of cash
dividends. The Company's mutual holding company parent, Pathfinder Bancorp,
M.H.C, accepted the dividend for the quarter ended March 31, 2006. (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 March 31, 2006, Pathfinder Bank
-15-
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%.
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
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.
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 Committees of the Company are responsible for
implementing the policies and guidelines for the maintenance of prudent levels
of liquidity. As of March 31, 2006, management reported to the Board of
Directors that the Company is in compliance with its liquidity policy
guidelines.
-16-
ITEM 3 - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
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 Company has Asset-Liability Management
Committees which are 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
asset 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 the Committees.
Since December of 2004, the Federal Reserve has increased short-term target
rates 10 times, 25 basis points each time to 5.00% from 2.50%. During this time
frame longer-term interest rates have remained relatively unchanged resulting in
a flattening and inversion of the yield curve. The short-term interest rate
increases have caused continued net interest margin compression as short-term
deposits and borrowings on the Company's liability sensitive balance sheet
reprice into the current rate environment while security purchases and loan
originations and refinances were being done at the stable longer-term rates.
During the period of rising short-term interest rates, the Company has continued
to practice conservative balance sheet management strategies by attempting to
extend the maturities of its rate sensitive liabilities and shorten the maturity
or repricing term of its rate sensitive assets. This conservative balance sheet
management strategy has resulted in additional margin pressure and reduction in
net interest income during the prior two years. Management believes this balance
sheet strategy best positions the Company and lessens its risk against future
interest rate fluctuations.
The primary objective of the Company's asset/liability management process is to
maximize earnings and return on capital within acceptable levels of risk. The
Company does not believe it is possible to reliably predict future interest rate
movements, and it seeks to maintain an appropriate process and set of
measurement tools that enable it to identify and quantify sources of interest
rate risk ("IRR") in varying rate environments. The primary tools used by the
Company in managing rate risk are income simulation and net portfolio value
modeling techniques.
Interest rate risk can result from timing differences in the maturity/repricing
of an institution's assets, liabilities and off balance sheet contracts; the
effect of embedded options, such as loan prepayments, interest rate caps/floors,
and deposit withdrawals; and the difference in the behavior of the various
lending and funding rates, sometimes referred to as basis risk.
Given the potential types and differing related characteristics of IRR, it is
important that the Company maintains an appropriate process and set of
measurement tools that enable it to identify and quantify its primary sources of
IRR. The Company also recognizes that effective management of IRR includes an
understanding of when potential adverse changes in interest rates will flow
through its consolidated income statements. Accordingly, the Company not only
looks at a 12 month horizon when managing its exposure to IRR, it also considers
a longer-term strategic horizon.
It is the Company's objective to manage its exposure to interest rate risk,
understanding that it is in the business of taking on rate risk and the
elimination of such risk is not possible. It is also understood that as exposure
to interest rate risk is reduced, it may also result in net interest margin
being reduced.
Management believes the modeling and analysis of net interest income (Earnings
at Risk) and net portfolio value (Value at Risk) in different interest rate
-17-
environments provides the most meaningful measure of interest rate risk. Net
interest income simulation analysis captures both the potential of all assets
and liabilities to mature or reprice and the probability that they will do so.
Net interest income simulation also attends to the relative interest rate
sensitivities of these items, and projects their behavior over an extended
period of time. Finally, net interest income simulation permits management to
assess the probable effects on the consolidated 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).
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. 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. The Company's interest rate risk exposure as of March
31, 2006 is within those guidelines set forth.
Percentage Percentage
Change in NPV Change in Change in
Interest Capital Net Interest Net Portfolio
Rates Ratio Income Value
--------- -------- ------------- --------------
300 8.14% -13.92% -28.33%
200 9.16% -9.10% -19.03%
100 10.21% -4.48% -9.45%
0 11.24% -- --
-100 11.79% 1.79% 5.60%
-200 11.65% -2.17% 4.86%
-300 10.61% -8.54% 1.10%
GAP ANALYSIS. At March 31, 2006, the total interest bearing liabilities maturing
or repricing within one year exceeded the total interest-earning assets maturing
or repricing in the same period by $39.2 million, representing a cumulative
one-year gap ratio of a negative 12.91%.
-18-
ITEM 4 - CONTROLS 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.
-19-
PART II - OTHER INFORMATION
ITEM 1 - LEGAL PROCEEDINGS
--------------------------
None
ITEM 1A - RISK FACTORS
----------------------
There have been no significant changes in the risk factors affecting Pathfinder
Bancorp, Inc. that were identified in Item 1A of Part 1 of the Company's Form
10-K for the year ended December 31, 2005.
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
------------------------------------------------------------
None
ITEM 5 - OTHER INFORMATION
--------------------------
None
ITEM 6 - EXHIBITS
-----------------
Exhibit No. Description
----------- -----------
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
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
PATHFINDER BANCORP, INC.
------------------------
(Registrant)
May 22, 2006 /s/ Thomas W. Schneider
-----------------------
Date: Thomas W. Schneider
President, Chief Executive Officer
May 22, 2006 /s/ James A. Dowd
----------------
Date: James A. Dowd
Vice President, Chief Financial Officer
-20-