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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-----------------------
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE
QUARTER ENDED MARCH 31, 2003
SEC Exchange Act No. 000-23601
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Pathfinder Bancorp, Inc.
------------------------
(Exact name of Company as specified in its charter)
Federal
-------
(State or jurisdiction of incorporation or organization)
16-1540137
----------
(I.R.S. Employer Identification Number)
214 W. 1st Street
Oswego, New York 13126
- ------------------------------------------- ---------
(Address of principal executive office) (Zip Code)
Company's telephone number, including area code: (315) 343-0057
--------------
Not Applicable
--------------
(Former name, former address and former fiscal year, if changed since last
report)
Indicate by check mark whether the Company (1) has filed all reports
required to be filed by Section 13 of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
----- -----
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date: There were 2,441,882 shares
of the Company's common stock outstanding as of May 9, 2003.
PATHFINDER BANCORP, INC.
INDEX
PART 1 FINANCIAL INFORMATION PAGE
Item 1. Financial Statements
Consolidated Balance Sheets 1
Consolidated Statements of Income 2
Consolidated Statements of Shareholders' Equity 3
Consolidated Statements of Cash Flows 4-5
Notes to Consolidated Financial Statements 6-7
Item 2. Management's Discussion and Analysis of Financial 8-13
Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosure about Market 14-16
Risk
Item 4. Control and Procedures 17
PART II OTHER INFORMATION 18
Item 1. Legal proceedings
Item 2. Change in securities
Item 3. Defaults upon senior securities
Item 4. Submission of matters to a vote of security
holders
Item 5. Other information
Item 6. Exhibits and Reports on Form 8-K
SIGNATURES
PATHFINDER BANCORP, INC.
CONSOLIDATED STATEMENTS OF CONDITION
MARCH 31, 2003 (UNAUDITED) AND DECEMBER 31, 2002
March 31, December 31,
ASSETS 2003 2002
- ----------------------------------------------------------------------------------------------------------------------
Cash and due from banks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 8,486,572 $ 7,026,126
Interest earning deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,898,406 6,714,279
- ----------------------------------------------------------------------------------------------------------------------
Total cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . 15,384,978 13,740,405
Investment securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61,675,931 62,505,544
Mortgage loans held-for-sale. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,238,166 3,616,711
Loans:
Real estate residential. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 123,388,858 119,560,715
Real estate commercial . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32,055,203 32,657,177
Consumer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15,273,777 15,068,204
Commercial . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12,626,765 13,196,188
- ----------------------------------------------------------------------------------------------------------------------
Total Loans. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 183,344,603 180,482,284
Less: Allowance for loan losses. . . . . . . . . . . . . . . . . . . . . . . . . . . 1,515,176 1,480,874
- ----------------------------------------------------------------------------------------------------------------------
Loans receivable, net. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 181,829,427 179,001,410
Premises and equipment, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,655,976 5,622,171
Accrued interest receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,469,061 1,334,126
Other real estate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,459,378 1,395,714
Goodwill. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,840,226 3,840,226
Intangible asset, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,016,746 1,073,182
Other assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,068,180 6,926,378
- ----------------------------------------------------------------------------------------------------------------------
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $282,638,069 $ 279,055,867
======================================================================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
- ------------------------------------
Deposits:
Interest bearing. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $195,206,862 $ 188,757,723
Non-interest bearing. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16,238,990 15,764,382
- ----------------------------------------------------------------------------------------------------------------------
Total deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 211,445,852 204,522,105
Borrowed funds. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41,860,000 42,860,000
Company obligated mandatorily redeemable preferred securities of subsidiary, Pathfinder
Statutory Trust I, holding solely junior subordinated debentures of the Company . . . . 5,000,000 5,000,000
Other liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,423,711 3,443,740
- ----------------------------------------------------------------------------------------------------------------------
Total liabilities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 261,729,563 255,825,845
Shareholders' equity:
Preferred stock, authorized shares 1,000,000; no shares issued or outstanding
Common stock, par value $.01 and $.10 per share; authorized 10,000,000
shares; 2,894,220 shares issued; and 2,441,882 and 2,610,496
shares outstanding, respectively. . . . . . . . . . . . . . . . . . . . . . . . . . 29,146 29,146
Additional paid in capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,129,795 7,113,811
Retained earnings. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19,996,312 19,745,651
Accumulated other comprehensive income . . . . . . . . . . . . . . . . . . . . . . . 143,251 280,905
Unearned ESOP shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (112,714) (124,467)
Treasury Stock, at cost; 472,787 and 304,173 shares, respectively. . . . . . . . . . (6,277,284) (3,815,024)
- ----------------------------------------------------------------------------------------------------------------------
Total shareholders' equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20,908,506 23,230,022
- ----------------------------------------------------------------------------------------------------------------------
Total liabilities and shareholders' equity . . . . . . . . . . . . . . . . . . . . $282,638,069 $ 279,055,867
======================================================================================================================
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, 2003 March 31, 2002
- ----------------------------------------------------------------------------------------- ------
INTEREST INCOME:
Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 3,265,807 $ 3,257,362
Interest and dividends on investments:
U.S. Treasury and agencies. . . . . . . . . . . . . . . . 39,284 38,049
State and political subdivisions. . . . . . . . . . . . . 61,556 79,203
Corporate obligations . . . . . . . . . . . . . . . . . . 258,652 317,313
Marketable equity securities. . . . . . . . . . . . . . . 54,696 23,831
Mortgage-backed securities. . . . . . . . . . . . . . . . 309,321 269,473
Federal funds sold and interest-bearing deposits. . . . . 11,671 3,852
- ------------------------------------------------------------------------------------------------
Total interest income. . . . . . . . . . . . . . . . . 4,000,987 3,989,083
INTEREST EXPENSE:
Interest on deposits. . . . . . . . . . . . . . . . . . . . 1,027,471 1,220,329
Interest on borrowed funds. . . . . . . . . . . . . . . . . 572,729 569,893
- ------------------------------------------------------------------------------------------------
Total interest expense . . . . . . . . . . . . . . . . 1,600,200 1,790,222
- ------------------------------------------------------------------------------------------------
Net interest income . . . . . . . . . . . . . . . . 2,400,787 2,198,861
Provision for loan losses . . . . . . . . . . . . . . . . . 105,856 162,233
- ------------------------------------------------------------------------------------------------
Net interest income after provision for loan losses 2,294,931 2,036,628
- ------------------------------------------------------------------------------------------------
OTHER INCOME:
Service charges on deposit accounts . . . . . . . . . . . . 161,473 142,021
Loan servicing fees . . . . . . . . . . . . . . . . . . . . 49,795 45,322
Increase in value of bank owned life insurance. . . . . . . 42,867 74,582
Net gain on securities. . . . . . . . . . . . . . . . . . . 165,394 43,956
Net gain(loss) on loans/real estate . . . . . . . . . . . . 42,306 (6,082)
Other charges, commissions & fees . . . . . . . . . . . . . 102,144 104,552
- ------------------------------------------------------------------------------------------------
Total other income. . . . . . . . . . . . . . . . . 563,979 404,351
- ------------------------------------------------------------------------------------------------
OTHER EXPENSES:
Salaries and employee benefits. . . . . . . . . . . . . . . 1,112,607 783,876
Building occupancy. . . . . . . . . . . . . . . . . . . . . 257,227 179,739
Data processing expenses. . . . . . . . . . . . . . . . . . 198,081 218,012
Professional and other services . . . . . . . . . . . . . . 163,177 181,034
Amortization of intangible asset. . . . . . . . . . . . . . 56,435 -
Other expenses. . . . . . . . . . . . . . . . . . . . . . . 414,131 327,229
Total other expenses. . . . . . . . . . . . . . . . 2,201,658 1,689,890
- ------------------------------------------------------------------------------------------------
Income before income taxes. . . . . . . . . . . . . . . . . . 657,252 751,089
Provision for income taxes. . . . . . . . . . . . . . . . . . 164,313 200,540
- ------------------------------------------------------------------------------------------------
NET INCOME. . . . . . . . . . . . . . . . . . . . . . . . . . $ 492,939 $ 550,549
================================================================================================
NET INCOME PER SHARE - BASIC . . . . . . . . . . . . . . $ 0.20 $ 0.22
=============== ================
NET INCOME PER SHARE - DILUTED . . . . . . . . . . . . . $ 0.20 $ 0.21
=============== ================
The accompanying notes are an integral part of the consolidated financial
statements.
2
PATHFINDER BANCORP, INC.
STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
THREE MONTHS ENDED MARCH 31, 2003
Additional
Common Stock Issued Paid in Retained Comprehensive
Shares Amount Capital Earnings Income(Loss)
- ---------------------------------------------------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 2002. . . . . . . . . . . . . . 2,914,669 $ 29,146 $7,113,811 $ 19,745,651
Comprehensive income:
Net income. . . . . . . . . . . . . . . . . . . . . 492,939 492,939
Other comprehensive income, net of tax
Unrealized gains on securities:
Unrealized holding losses arising during period. (64,029)
Reclassification adjustment for gains included
in net income. . . . . . . . . . . . . . . . . (165,394)
---------
Other comprehensive loss, before tax. . . . . . . . (229,423)
Income tax provision. . . . . . . . . . . . . . . . 91,769
---------
Other comprehensive loss, net of tax. . . . . . . . (137,654)
---------
Comprehensive income: . . . . . . . . . . . . . . . . 355,285
========
ESOP shares earned. . . . . . . . . . . . . . . . . . 15,984
Treasury stock purchased
Dividends declared ($.10 per share) . . . . . . . . . (242,278)
- ------------------------------------------------------------------------------------------------------------------
BALANCE, MARCH 31, 2003 . . . . . . . . . . . . . . . 2,914,669 $ 29,146 $7,129,795 $ 19,996,312
==================================================================================================================
Accumulated
Other Com- Unearned
prehensive ESOP Treasury
Income(Loss) Shares Stock Total
- -----------------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 2002. . . . . . . $ 280,905 $ (124,467) $(3,815,024) $23,230,022
Comprehensive income:
Net income. . . . . . . . . . . . . . $ 492,939
Other comprehensive loss, net of tax. (137,654) (137,654)
ESOP shares earned. . . . . . . . . . . 11,753 27,737
Treasury stock purchased. . . . . . . . (2,462,260) (2,462,260)
Dividends declared ($.10 per share) . . (242,278)
- ------------------------------------------------------------------------------------------------
BALANCE, MARCH 31, 2003 . . . . . . . . $ 143,251 $ (112,714) $(6,277,284) $20,908,506
================================================================================================
The accompanying notes are an integral part of the consolidated financial
statements.
3
PATHFINDER BANCORP, INC.
STATEMENTS OF CASH FLOWS
March 31, 2003 and March 31, 2002 (Unaudited)
March 31, March 31,
2003 2002
- ----------------------------------------------------------------------------------
OPERATING ACTIVITIES:
Net income . . . . . . . . . . . . . . . . . . . . . . $ 492,939 $ 550,549
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for loan losses. . . . . . . . . . . . . . . 105,856 162,233
ESOP and other stock-based compensation earned . . . . 27,737 27,176
Deferred income tax expense (benefit). . . . . . . . . 60,893 (60,856)
Proceeds from sale of loans. . . . . . . . . . . . . . 2,607,490 5,779,247
Originations of loans held-for-sale. . . . . . . . . . (2,184,270) (6,551,469)
Realized loss/(gain) on:
Sale of real estate loans through foreclosure. . . . 5,807 (3,053)
Loans. . . . . . . . . . . . . . . . . . . . . . . . (44,675) 13,403
Available-for-sale investment securities . . . . . . (165,394) (43,956)
Depreciation . . . . . . . . . . . . . . . . . . . . . 121,190 124,140
Amortization of intangible . . . . . . . . . . . . . . 56,436 -
Amortization of deferred financing costs . . . . . . . 7,551 -
Increase in surrender value of life insurance. . . . . (42,867) (74,582)
Net accretion of premiums and discounts
on investment securities . . . . . . . . . . . . . . 27,888 (12,959)
(Increase) decrease in interest receivable . . . . . . (134,935) 112,227
Net change in other assets and liabilities . . . . . . (257,462) (291,598)
- ------------------------------------------------------------------------------------
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES. . . 684,184 (269,498)
- ------------------------------------------------------------------------------------
INVESTING ACTIVITIES
Purchase of investment securities available-for-sale . (6,749,290) (1,281,563)
Proceeds from maturities and principle reductions of
investment securities available-for-sale . . . . . . 5,455,683 3,280,472
Proceeds from sale:
Real estate acquired through foreclosure . . . . . . 54,193 154,279
Available-for-sale investment securities . . . . . . 2,031,303 1,225,602
Net increase in loans. . . . . . . . . . . . . . . . . (3,057,537) (7,488,511)
Purchase of premises and equipment . . . . . . . . . . (154,995) (277,501)
- ------------------------------------------------------------------------------------
NET CASH USED IN INVESTING ACTIVITIES. . . . . . . . . . (2,420,643) (4,387,222)
- ------------------------------------------------------------------------------------
FINANCING ACTIVITIES
Net increase in demand deposits, NOW accounts
savings accounts, money market deposit accounts
and escrow deposits. . . . . . . . . . . . . . . . . 4,047,866 4,271,034
Net increase (decrease) in time deposits . . . . . . . 2,875,881 (76,438)
Net repayments from borrowings . . . . . . . . . . . . (1,000,000) 630,000
Proceeds from exercise of stock options. . . . . . . . - 34,545
Cash dividends . . . . . . . . . . . . . . . . . . . . (82,365) (69,334)
Treasury stock purchased . . . . . . . . . . . . . . . (2,462,260) (48,835)
- ------------------------------------------------------------------------------------
NET CASH PROVIDED BY FINANCING ACTIVITIES. . . . . . . . 3,379,122 4,740,972
- ------------------------------------------------------------------------------------
INCREASE IN CASH AND CASH EQUIVALENTS. . . . . . . . . 1,644,573 84,252
Cash and cash equivalents at beginning of period. . . . 13,740,405 7,445,844
CASH AND CASH EQUIVALENTS AT END OF PERIOD . . . . . . $15,384,978 $ 7,530,096
====================================================================================
4
CASH PAID DURING THE PERIOD FOR:
Interest . . . . . . . . . . . . . . . . . . . . . . . $ 1,594,561 $ 1,757,969
Income taxes paid. . . . . . . . . . . . . . . . . . . - 400,000
NON-CASH INVESTING ACTIVITY:
Transfer of loans to other real estate . . . . . . . . 123,664 69,500
Decrease (increase) in unrealized gains and losses on
available-for-sale investments securities. . . . . . . 229,423 (311,493)
NON-CASH FINANCING ACTIVITY:
Dividends declared and unpaid. . . . . . . . . . . . . 244,188 71,243
The accompanying notes are an integral part of the consolidated financial
statements
5
PATHFINDER BANCORP, INC.
Notes to Financial Statements
(1) BASIS OF PRESENTATION
The accompanying unaudited financial statements were prepared in accordance
with the instructions for Form 10-Q and Regulation S-X and, therefore, do
not include information for footnotes necessary for a complete presentation
of financial position, results of operations, and cash flows in conformity
with generally accepted accounting principles. The following material under
the heading "Management's Discussion and Analysis of Financial Condition
and Results of Operations" is written with the presumption that the users
of the interim financial statements have read, or have access to, the
Company's latest audited financial statements and notes thereto, together
with Management's Discussion and Analysis of Financial Condition and
Results of Operations as of December 31, 2002 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, 2003 are not
necessarily indicative of the results that may be expected for the year
ending December 31, 2003.
(2) EARNINGS PER SHARE
Basic earnings per share have been computed based upon net income for the
three months ended March 31, 2003 and 2002, using 2,446,387 and 2,571,520
weighted average common shares outstanding. Diluted earnings per share for
the three month period ending March 31, 2003 and 2002 have been computed
using 2,490,657 and 2,621,986 weighted average common shares outstanding.
Dilutive 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) STOCK-BASED COMPENSATION
The Company's stock-based compensation plan is accounted for based on the
intrinsic value method set forth in Accounting Principles Board (APB)
Opinion No. 25, "Accounting for Stock Issued to Employees", and related
provisions. Compensation expense for employee stock options is generally
not recognized if the exercise price of the option equals or exceeds the
fair value of the stock on the date of the grant. Compensation expense for
restricted share awards is ratably recognized over the period of vesting,
usually the restricted period, based on the fair value of the stock on the
grant date.
6
The following table illustrates the effect on net income and earnings per
share as if the Black-Scholes fair value method described in SFAS No. 123,
"Accounting for Stock-Based Compensation", as amended, had been applied to
the Company's stock-based compensation plan:
For the quarter ended March 31,
2003 2002
- ------------------------------------------------------------------------
Net Income:
As reported . . . . . . . . . . . . . . . . . $492,939 $550,549
Less: Total stock-based employee compensation
expense determined under Black-Scholes option
pricing model, net of tax effect. . . . . . . 7,070 27,192
- --------------------------------------------- -------- --------
Pro forma net income. . . . . . . . . . . . . $485,869 $523,357
For the quarter ended March 31,
2003 2002
- --------------------------------------------------------
Earnings per share: Basic Diluted Basic Diluted
- --------------------------------------------------------
As reported . . . . $ 0.20 $ 0.20 $ 0.22 $ 0.21
Pro forma . . . . . $ 0.20 $ 0.20 $ 0.20 $ 0.20
For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the options vesting period. Therefore,
the foregoing pro forma results are not likely to be representative of the
effects of reported net income of future periods due to additional years of
vesting. Since changes in the subjective input assumptions can materially
affect the fair value estimates, the existing model, in management's
opinion does not necessarily provide a single reliable measure of the fair
value of its stock options. In addition, the pro forma effect on reported
net income and earnings per share for the periods presented should not be
considered representative of the pro forma effects on reported net income
and earnings per share for future periods.
In December 2002, the FASB issued SFAS No. 148, "Accounting for Stock-Based
Compensation - Transition and Disclosure", which provides alternative
methods of transition for an entity that voluntary changes to the fair
value based method of accounting for stock-based employee compensation. It
also amends to disclosure provisions of FASB Statement No. 123 to require
prominent disclosure about the effects on reported net income of an
entity's accounting policy decisions with respect to stock-based employee
compensation. This statement also amends APB No. 28, "Interim Financial
Reporting", to require disclosure about those effects in interim financial
information. The Company will continue to account for stock-based
compensation in accordance with APB Opinion No. 25.
(4) RECLASSIFICATIONS
Certain prior period information has been reclassified to conform to the
current period's presentation. These reclassifications had no affect on net
income as previously reported.
(5) DIVIDEND RESTRICTIONS
The Company maintains a restricted capital account with a $570,000 balance,
representing Pathfinder Bancorp, M.H.C.'s portion of dividends waived as of
March 31, 2003.
7
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATION
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.
GENERAL
Throughout the Management's Discussion and Analysis the term, "the Company",
refers to the consolidated entity of Pathfinder Bancorp, Inc. Pathfinder Bank
and Pathfinder Statutory Trust I are wholly owned subsidiaries of Pathfinder
Bancorp, Inc. Pathfinder Commercial Bank, Pathfinder REIT, Inc. and Whispering
Oaks Development Corp. are wholly owned subsidiaries of Pathfinder Bank. At
March 31, 2003, Pathfinder Bancorp, Inc.'s only business was the 100% ownership
of Pathfinder Bank and Pathfinder Statutory Trust I. At March 31, 2003,
1,583,239 shares, or 64.8%, of the Company's common stock were held by
Pathfinder Bancorp, M.H.C., the Company's mutual holding company parent and
858,643 shares, or 35.2%, were held by the public.
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 also is affected by its provision for loan losses, as well as by the
amount of noninterest income, including income from fees and service charges,
net gains and losses on sales of securities, loans and other real estate, and
non interest expense such as employee compensation and benefits, 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.
The following discussion reviews the Company's financial condition at March 31,
2003 and the results of operations for the three months ended March 31, 2003.
APPLICATION OF CRITICAL ACCOUNTING POLICIES
The Company's consolidated financial statements are prepared in accordance with
accounting principles generally accepted in the United States and follow
practices within the banking industry. Application of these principles requires
8
management to make estimates, assumptions and judgments that affect the amounts
reported in the financial statements and accompanying notes. These estimates,
assumptions and judgments are based on information available as of the date of
the financial statements; accordingly, as this information changes, the
financial statements could reflect different estimates, assumptions and
judgments. Certain policies inherently have a greater reliance on the use of
estimates, assumptions and judgments and as such have a greater possibility of
producing results that could be materially different than originally reported.
Estimates, assumptions and judgments are necessary when assets and liabilities
are required to be recorded at fair value or when an asset or liability needs to
be recorded contingent upon a future event. Carrying assets and liabilities at
fair value inherently results in more financial statement volatility. The fair
values and information used to record valuation adjustments for certain assets
and liabilities are based on quoted market prices or are provided by other
third-party sources, when available. When third party information is not
available, valuation adjustments are estimated in good faith by management.
The most significant accounting policies followed by the Company are presented
in Note 1 to the consolidated financial statements included in the 2002 Annual
Report on Form 10-K. These policies, along with the disclosures presented in the
other financial statement notes and in this discussion, provide information on
how significant assets and liabilities are valued in the financial statements
and how those values are determined. Based on the valuation techniques used and
the sensitivity of financial statement amounts to the methods, assumptions and
estimates underlying those amounts, management has identified the determination
of the allowance for loan losses to be the accounting area that requires the
most subjective and complex judgments, and as such could be the most subject to
revision as new information becomes available.
The allowance for loan losses represents management's estimate of probable loan
losses inherent in the loan portfolio. Determining the amount of the allowance
for loan losses in 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
in the Annual Report on Form 10-K describes the methodology used to determine
the allowance for loan losses.
FINANCIAL CONDITION
ASSETS
- ------
Total assets increased approximately $3.6 million, or 1%, to $282.6 million at
March 31, 2003 from $279.1 million at December 31, 2002. The increase in total
assets was primarily the result of an increase in net loans receivable of $2.8
million and a $1.6 million increase in cash and cash equivalents. These
increases were partially offset by an $830,000 decrease in investment securities
and a $379,000 decrease in mortgage loans held for sale. The increase in cash
and cash equivalents resulted from proceeds from calls and the maturities of
investment securities, amortization of mortgage-backed securities and loan
sales. The excess liquidity is being utilized to fund continued loan demand and
the acquisition of additional investment securities. The increase in net loans
receivable is primarily due to a $3.8 million increase in residential real
estate loans, and a $206,000 increase in consumer loans, partially offset by a
decrease in commercial real estate and commercial loans of $1.2 million.
9
LIABILITIES
- -----------
Total liabilities increased by $5.9 million, or 2%, to $261.7 million at March
31, 2003 from $255.8 million at December 31, 2002. The increase is primarily
attributable to a $6.9 million, or 3%, increase in deposits, offset by a
decrease of $1.0 million, or 2%, in borrowed funds. The increase in deposits was
comprised of a $6.4 million increase in interest-bearing deposits, and a
$475,000 increase in noninterest-bearing deposits. The increase in
interest-bearing deposits was comprised of a $2.9 million increase in money
management accounts, a $2.9 million increase in time deposits, and a $1.2
million increase in savings accounts, partially offset by a decrease of $540,000
in NOW deposit accounts. The increase in deposit accounts is primarily due to an
increase in municipal deposit accounts and the Company's active efforts in sales
training and relationship building during a period when consumers are seeking
the safety and fixed returns of bank deposits.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
Shareholders' equity decreased $2.3 million, or 10%, to $20.9 million at March
31, 2003 from $23.2 million at December 31, 2002. The decrease in shareholders'
equity is primarily the result of a $2.5 million increase in treasury stock,
offset by an increase in retained earnings of $251,000. The increase in treasury
stock represented from the Company's privately negotiated purchase of 160,114
shares of common stock for a price of $2.3 million, or $14.60 per share, on
January 13, 2003, from Jewelcor Management Inc. The repurchase represents
approximately 6.1% of the Company's outstanding common stock as of December 31,
2002. The increase in retained earnings is the result of net income of $493,000,
offset by dividends declared of $242,000 during the first three months of 2003.
The Company's mutual holding company parent, Pathfinder Bancorp, M.H.C, accepted
the dividends for the quarter ended March 31, 2003.
The Company's primary sources of funds are deposits, amortization and prepayment
of loans and maturities of investment securities and other short-term
investments, earnings and funds provided from operations and borrowings. 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-bearing instruments and
other assets, which provide liquidity to meet lending requirements. For
additional information about cash flows from the Company's operating, financing,
and investing activities, refer to the Statements of Cash Flows included in the
Financial Statements. The Company adjusts its liquidity levels in order to meet
funding needs of deposit outflows, loan commitments, the acquisition of fixed
assets and the general operating needs of the Company. At the quarter ended
March 31, 2003, the Company has $24.6 million in outstanding commitments to
extend credit and management believes the Company has the ability to meet these
outstanding credit commitments. The Company also adjusts liquidity as
appropriate to meet its assets and liability management objectives. The
available liquidity as a percentage of core deposits and total assets exceed the
minimum standards established by the liquidity management policy.
RESULTS OF OPERATIONS
- ---------------------
The Company recorded net income of approximately $493,000 for the three months
ended March 31, 2003, as compared to $550,000 for the same period during 2002.
The decrease in net income of $58,000, or 11%, for the three months ended March
31, 2003, resulted primarily from an increase of $512,000, or 30%, in operating
expenses, offset by an increase of $258,000, or 13%, in net interest income
after provision for loan losses, an increase in other income of $160,000, or
40%, and a decrease of $36,000, or 18%, in provision for income taxes.
10
Annualized return on average assets and return on average shareholders' equity
were 0.70% and 9.42%, respectively, for the three months ended March 31, 2003
compared to 0.90% and 9.67% for the first quarter of 2002. Earnings per share -
basic was $0.20 for the first quarter of 2003 compared to $0.22 for the same
period in 2002.
INTEREST INCOME
- ---------------
Interest income, on a tax-equivalent basis, remained relatively consistent, at
$4.0 million for the quarter ended March 31, 2003, as compared to the quarter
ended March 31, 2002. The average balance of interest-earning assets increased
to $254.0 million for the three months ended March 31, 2003 from $226.2 million
in the prior year period, offset by a decrease in the tax equivalent yield on
average interest-earning assets to 6.36% from 7.13%. The decrease in the tax
equivalent yield resulted from the continued period of historically low market
interest rate environment. The decrease in the average yield was somewhat
mitigated by increased originations of residential and commercial real estate
loans, consumer loans and an increase in the average balance of investment
securities. The increase in loans was primarily due to the Company's continued
emphasis on residential real estate financing and the Company competitively
pricing home equity loans and lines of credit combined with a marketing effort
to increase demand for those loans. The increase in investment securities was
primarily due to the investment of excess liquidity arising from the assumption
of deposits in connection with the acquisition of the Lacona, New York branch of
Cayuga Bank in October of 2002 and proceeds from residential mortgage loan
sales.
Interest income on loans receivable remained constant at $3.3 million for the
three months ended March 31, 2003 as compared to the same period in the prior
year. The average balance of loans receivable increased $11.9 million, or 7%, to
$185.2 million at March 31, 2003 from $173.3 million at March 31, 2002,
partially offset by a decrease in the average yield on loans receivable to 7.06%
from 7.52%.
Interest income on the mortgage-backed securities portfolio increased by
$40,000, or 15%, to $309,000 for the three months ended March 31, 2003, from
$269,000 for the three months ended March 31, 2002. The increase in interest
income on mortgage-backed securities resulted from an increase in the average
balance on mortgage-backed securities of $8.5 million, partially offset by a
decrease in the average yield on mortgage-backed securities to 4.87% from 6.37%.
Interest income on investment securities, on a tax equivalent basis, decreased
$46,000 or 9%, for the three months ended March 31, 2003 to $453,000 from
$499,000 for the same period in 2002. The decrease resulted primarily from a
decrease in the tax equivalent yield of investment securities to 4.95% from
5.68%, partially offset by an increase in the average balance of investment
securities of $1.0 million, or 4%.
Interest income on interest-earning deposits increased $8,000, to $12,000 from
$4,000 for the three months ended March 31, 2003 and 2002, respectively. The
increase is the result of a $5.9 million increase in the average balance of
interest-earning deposits, partially offset by a decrease in the average yield
to 0.71% from 1.82% for the same period in the prior year.
INTEREST EXPENSE
- ----------------
Interest expense for the quarter ended March 31, 2003 decreased by approximately
$190,000, or 11%, to $1.6 million from $1.8 million when compared to the same
quarter for 2002. The decrease in interest expense for the period was
principally the result of the decrease in the average cost of interest-bearing
11
deposits to 2.15% from 3.10%, partially offset by an increase of $33.7 million
in the average balance of interest-bearing deposits. The average cost of
borrowings increased to 4.79% from 4.47%, partially offset by a $3.1 million
decrease in the average balance of borrowings. The increase in the cost of
borrowings and the average balance of borrowings was primarily due to the June
2002 issuance of the $5.0 million in debentures underlying the mandatory
redeemable trust preferred security.
NET INTEREST INCOME
- -------------------
Net interest income, on a tax equivalent basis, increased $200,000, or 9%, to
$2.4 million for the quarter ended March 2003, when compared to the same period
in the prior year.
Net interest margin for the quarter ended March 31, 2003 decreased to 3.84% from
3.96% when compared to the same period in the prior year.
PROVISION FOR LOAN LOSSES
- -------------------------
The Company maintains an allowance for loan losses based upon a quarterly
evaluation of known and inherent risks in the loan portfolio, which includes a
review of the balances and composition of the loan portfolio as well as
analyzing the level of delinquencies in each segment of the loan portfolio. Loan
loss reserves are based upon a methodology that uses loss factors applied to
loan balances and reflects actual loss experience, delinquency trends, and
current economic conditions, as well as standards applied by the FDIC. The
Company established a provision for possible loan losses for the three months
ended March 31, 2003 of $106,000, as compared to a provision of $162,000 for the
three months ended March 31, 2002.
In the first six months of 2002, the Company took actions to increase reserves
to recognize the deterioration in credit quality of two significant commercial
lending relationships. During the second half of 2002, the Company foreclosed on
the assets of one of the borrowers and transferred the net realizable value of
the assets to other real estate owned and charged-off the other relationship.
The Company's allowance for loan losses to nonperforming loans ratio improved to
81.99% at March 31, 2003 as compared to 47.42% at March 31, 2002. Similar
improvement was noted when comparing the ratio of nonperforming loans to total
loans of 1.01% at March 31, 2003 to the March 31, 2002 ratio of 2.20%. The
Company had nonperforming loans of $1.8 million at March 31, 2003. The Company
has experienced a reduction in delinquent loans (greater than 30 days past due)
to $3.4 million from $6.1 million at December 31, 2002. $2.0 million of the
reduction in delinquencies related to the modification of a commercial lending
relationship that is now current under the new terms. The decrease in delinquent
loans is attributable to management's efforts to improve loan collection
procedures, loss mitigation efforts, the hiring of a senior commercial loan
officer and the retention of a third party loan review firm.
NONINTEREST INCOME
- ------------------
The Company's noninterest income is principally comprised of fees on deposit
accounts and transactions, loan servicing, commissions, and net gains and losses
on the sale of securities, loans and other real estate gains and losses.
Noninterest income, net of gains and losses from the sale of securities, loans
and other real estate, decreased 3% to $356,000 for the quarter ended March 31,
2003 compared to $366,000 for the same period in the prior year. The decrease in
noninterest income is primarily attributable to a $32,000 decrease in the value
of bank owned life insurance, partially offset by a $19,000 increase in service
charges on deposit accounts and a $4,000 increase in loan servicing fees. Net
12
gains and losses from the sale of securities, loans and other real estate
increased $170,000 to $208,000 for the quarter ended March 31, 2003 compared to
$38,000 for the same period in the prior year primarily resulting from a
$103,000 gain recognized on the sale of equity securities and a $58,000 increase
in the net gains recognized on the sale of loans.
NONINTEREST EXPENSE
- -------------------
Noninterest expenses increased 30% to $2.2 million for the quarter ended March
31, 2003, when compared to the same period in the prior year. The increase in
noninterest expenses was due to a $329,000 increase in salary and employee
benefits, a $77,000 increase in building occupancy expenses, a $56,000 increase
in the amortization of intangible asset and an $87,000 increase in other
expenses. These increases were partially offset by a $20,000 decrease in data
processing expenses and an $18,000 decrease in professional and other services.
The increase in salaries and employee benefits was primarily due to the salaries
and benefits associated with the addition of the Lacona, New York branch
location, an increase in pension benefit costs, an increase in health insurance
benefits and the hiring of a senior commercial loan officer in the second
quarter of 2002. The increase in building occupancy expenses is primarily due to
the operation of the additional branch location.
INCOME TAXES
- ------------
Income taxes decreased $36,000 for the quarter ended March 31, 2003 as compared
to the same period in the prior year. This decrease was primarily attributable
to a $94,000 decrease in the Company's pre-tax income.
13
ITEM 3 - QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
The Company's most significant form of market risk is interest rate risk, as the
majority of the Company's assets and liabilities are sensitive to changes in
interest rates. The Company's mortgage loan portfolio, consisting primarily of
loans on residential real property located in Oswego County, is subject to risks
associated with the local economy. The Company's interest rate risk management
program focuses primarily on evaluating and managing the composition of the
Company's assets and liabilities in the context of various interest rate
scenarios. Factors beyond management's control, such as market interest rates
and competition, also have an impact on interest income and interest expense.
The extent to which such assets and liabilities are "interest rate sensitive"
can be measured by an institution's interest rate sensitivity "gap". An asset or
liability is said to be interest rate sensitive within a specific time period if
it will mature or reprice within that time period. The interest rate sensitivity
gap is defined as the difference between the amount of interest-earning assets
maturing or repricing within a specific time period and that amount of
interest-bearing liabilities maturing or repricing within that time period. A
gap is considered positive when the amount of interest rate sensitive assets
exceeds the amount of interest rate sensitive liabilities. A gap is considered
negative when the amount of interest rate sensitive liabilities exceeds the
amount of interest rate sensitive assets. During a period of rising interest
rates, a negative gap would tend to adversely affect net interest income while a
positive gap would tend to positively affect net interest income. Conversely,
during a period of falling interest rates, a negative gap would tend to
positively affect net interest income while a positive gap would tend to
adversely affect net interest income.
Generally, the Company tends to fund longer-term loans and mortgage-backed
securities with shorter-term time deposits, repurchase agreements, and advances.
The impact of this asset/liability mix creates an inherent risk to earnings in a
rising interest rate environment. In a rising interest rate environment, the
Company's cost of shorter-term deposits may rise faster than its earnings on
longer-term loans and investments. Additionally, the prepayment of principal on
real estate loans and mortgage-backed securities tends to decrease as rates
rise, providing less available funds to invest in the higher rate environment.
Conversely, as interest rates decrease, the prepayment of principal on
real-estate loans and mortgage-backed securities tends to increase, causing the
Company to invest funds in a lower rate environment. The potential impact on
earnings from this mismatch is mitigated to a large extent by the size and
stability of the Company's savings accounts. Savings accounts have traditionally
provided a source of relatively low cost funding that has demonstrated a
historically low sensitivity to interest rate changes. The Company generally
matches a percentage of these, which are deemed core, against longer-term loans
and investments. In addition, the Company has sought to extend the terms of its
time deposits. In this regard, the Company has, on occasion, offered
certificates of deposits with three and four year terms which allow depositors
to make a one-time election, at any time during the term of the certificate of
deposit, to adjust the rate of the certificate of deposit to the then prevailing
rate for a certificate of deposit with the same term.
The Company has further sought to reduce the term of a portion of its rate
sensitive assets by originating one year ARM loans, three year/one year and five
year/one year ARM loans (mortgage loans which are fixed rate for the first three
or five years and adjustable annually thereafter) and by maintaining a
relatively short term investment securities (original maturities of three to
five years) portfolio with staggered maturities. The Company generally maintains
in its portfolio fixed interest rate loans with terms less than 20 years. By
policy, the Company may only maintain up to 5% of the loan portfolio in fixed
14
rate loans exceeding 20 years. Thirty-year fixed rate loans not held in
portfolio are held for sale into the secondary market. The Company manages
interest rate and credit risk associated with the mortgage loans held for sale
and outstanding loan commitments through utilization of forward sale commitments
of mortgage-backed securities for the purpose of passing along these risks to
acceptable third parties. Management generally enters into forward sale
commitments to minimize the exposure to longer term fixed rate mortgages in
mortgage loans held for sale and mortgage commitments where interest rate locks
have been granted. At March 31, 2003, there were $1.0 million in outstanding
forward sale commitments. To manage interest rate risk within the loan
portfolio, ARM loans are originated with terms that provide that the interest
rate on such loans cannot adjust below the initial rate.
The Company manages its interest rate sensitivity by monitoring (through
simulation and net present value techniques) the impact on its GAP position, net
interest income, and the market value of portfolio equity to changes in interest
rates on its current and forecast mix of assets and liabilities. The Company has
an Asset-Liability Management Committee which is responsible for reviewing the
Company's assets and liability policies, setting prices and terms on
rate-sensitive products, and monitoring and measuring the impact of interest
rate changes on the Company's earnings. The Committee meets monthly on a formal
basis and reports to the Board of Directors on interest rate risks and trends,
as well as liquidity and capital ratios and requirements. The Company does not
have a targeted gap range, rather the Board of Directors has set parameters of
percentage change by which net interest margin and the market value of portfolio
equity are affected by changing interest rates. The Board and management deem
these measures to be a more significant and realistic means of measuring
interest rate risk.
GAP ANALYSIS. At March 31, 2003, the total interest bearing liabilities maturing
or repricing within one year exceeded total interest-earning assets maturing or
repricing in the same period by $19.8 million, representing a cumulative
one-year gap ratio of a negative 6.99%.
CHANGES IN NET INTEREST INCOME AND NET PORTFOLIO VALUE. 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 50 basis point increments in market interest rates. Net
portfolio value (also referred to as market value of portfolio equity)
represents the fair value of net assets (determined as the market value of
assets minus the market value of liabilities). The table quantifies the changes
in net interest income and net portfolio value to parallel shifts in the yield
curve. The column "Net Interest Income Percent Change" measures the change to
the next twelve months' projected net interest income, due to parallel shifts in
the yield curve. The column "Net Portfolio Value Percent Change" measures
changes in the current net mark-to-market value of assets and liabilities due to
parallel shifts in the yield curve. The base case assumes March 31, 2003
interest rates. 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 current interest rate risk exposure is within those guidelines set
forth.
15
CHANGE IN INTEREST RATES
INCREASE (DECREASE)
BASIS POINTS NET INTEREST INCOME NETPORTFOLIO VALUE
(RATE SHOCK) PERCENTAGE CHANGE PERCENTAGE CHANGE
- --------------------------------------------------------------------------------
300 -6.09% -14.99%
200 -3.71% - 8.64%
100 -1.42% - 3.26%
Base Case
(100) 0.31% 0.10%
(200) - 0.26% 4.01%
(300) - 4.49% 9.36%
16
ITEM 4 - CONTROLS AND PROCEDURES
EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES. Under the supervision and with
the participation of our management, including our Chief Executive Officer and
Chief Financial Officer, we evaluated the effectiveness of the design and
operation of our disclosure controls and procedures (as defined in Rule
13a-14(c) under the Exchange Act) as of a date (the "Evaluation Date") within 90
days prior to the filing date of this report. Based upon that evaluation, the
Chief Executive Officer and Chief Financial Officer concluded that, as of the
Evaluation Date, our disclosure controls and procedures were effective in timely
alerting them to the material information relating to us (or our consolidated
subsidiaries) required to be included in our periodic SEC filings.
CHANGES IN INTERNAL CONTROLS. There were no significant changes made in our
internal controls during the period covered by this report or, to our knowledge,
in other factors that could significantly affect these controls subsequent to
the date of their evaluation.
See the Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002,
which immediately precedes the signature page.
17
PART II - OTHER INFORMATION
- ---------------------------
LEGAL PROCEEDINGS
- -----------------
From time to time, the Company is involved as a plaintiff or defendant in
various legal actions incident to its business. None of these actions
individually or in the aggregate is believed to be material to the financial
condition of the Company.
On November 28, 2001, the Company and its Board of Directors were named as
defendants in Jewelcor Management, Inc. ("Jewelcor") v. Pathfinder Bancorp,
Inc., et al. This action was filed in the United States District Court, Northern
District. In its complaint, Jewelcor alleged that the Company's directors
breached their fiduciary duties to the Company by failing to consider an offer
from Fulton Savings Bank for the sale of the Company. Jewelcor was seeking
damages in excess of $1 million, punitive damages in excess of $10 million and
equitable relief.
On January 13, 2003, the Company completed the purchase of 160,114 shares of
common stock at a price of $2.3 million, or $14.60 per share, from Jewelcor
("the Repurchase"). As part of the repurchase agreement, Jewelcor agreed to
stipulate to the discontinuance with prejudice of the lawsuit entitled "Jewelcor
Management, Inc. v. Pathfinder Bancorp, Inc.", and withdrew a shareholder
proposal previously submitted by Jewelcor. In addition, Mr. Holtzman and
Jewelcor, as well as those persons and entities who signed the Schedule 13D with
Mr. Holtzman with respect to the Company's common stock, agreed in writing, that
neither they nor their affiliates will purchase shares of the Company's common
stock for a period of five years.
CHANGES IN SECURITIES
- ---------------------
Not applicable
DEFAULTS UPON SENIOR SECURITIES
- -------------------------------
Not applicable
SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
- ---------------------------------------------------
Not applicable
OTHER INFORMATION
- -----------------
On March 18, 2003, the Board of Directors declared a $.10 cash dividend to
shareholders of record as of March 31, 2003, payable on April 14, 2003.
EXHIBITS AND REPORTS ON FORM 8-K
- --------------------------------
The Company has two Current Reports on Form 8-K during the first quarter ending
March 31, 2003 dated January 8, 2003 and January 13, 2003 reporting press
releases regarding the relocation of the Fulton branch and the announcement of
the Company's privately negotiated purchase of 160,114 shares of its common
stock from Jewelcor Management Inc., respectively.
18
CERTIFICATION OF CHIEF EXECUTIVE OFFICER
PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Thomas W. Schneider, President and Chief Executive Officer, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Pathfinder Bancorp,
Inc.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3 . Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
a) designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities,
particularly during the period in which this quarterly report is being
prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent functions):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have identified
for the registrant's auditors any material weaknesses in internal
controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether there were significant changes in internal controls
or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any
corrective actions with regard to significant deficiencies and material
weaknesses.
May 14, 2003 /s/ Thomas W. Schneider
- -------------- --------------------------
Date President and Chief Executive Officer
CERTIFICATION OF CHIEF FINANCIAL OFFICER
PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, James A. Dowd, Vice President and Chief Financial Officer, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Pathfinder Bancorp,
Inc.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3 . Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
a) designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities,
particularly during the period in which this quarterly report is being
prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent functions):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have identified
for the registrant's auditors any material weaknesses in internal
controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether there were significant changes in internal controls
or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any
corrective actions with regard to significant deficiencies and material
weaknesses.
May 14, 2003 /s/ James A. Dowd
- -------------- --------------------
Date Vice President and Chief Financial Officer
SIGNATURES
Under the requirements of the Securities Exchange Act of 1934, the Company has
duly caused this report to be signed on its behalf by the undersigned thereunto
duly authorized.
PATHFINDER BANCORP, INC.
--------------------------
/s/ Thomas W. Schneider
--------------------------
Date: May 14, 2003 Thomas W. Schneider
-------------- President, Chief Executive Officer
/s/ James A. Dowd
-------------------
Date: May 14, 2003 James A. Dowd
-------------- Vice President, Chief Financial Officer
Exhibit 99.1
Certification pursuant to
18 U.S.C. Section 1350,
as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002
Thomas W. Schneider, President and Chief Executive Officer and James A. Dowd,
Vice President and Chief Financial Officer of Pathfinder Bancorp, Inc. (the
"Company") each certify in his capacity as an officer of the Company that he has
reviewed the quarterly report of the Company on Form 10-Q for the quarter ended
September 30, 2002 and that to the best of his knowledge:
1) the report fully complies with the requirements of Sections 13(a) of the
Securities Exchange Act of 1934; and
2) the information contained in the report fairly presents, in all material
respects, the financial condition and results of operations.
The purpose of this statement is solely to comply with Title 18, Chapter 63,
Section 1350 of the United States Code, as amended by Section 906 of the
Sarbanes-Oxley Act of 2002.
May 14, 2003 /s/Thomas W. Schneider
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Date President and Chief Executive Officer
May 14,2003 /s/ James A. Dowd
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Date Vice President and Chief Financial Officer