UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
_____________________________
FORM 10-QSB
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ending March 31, 2007
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
---------
PATHFINDER BANCORP, INC.
------------------------
(Exact Name of Small Business Issuer as Specified in its Charter)
FEDERAL 16-1540137
------------------------------- ----------------------------
(State or Other Jurisdiction of (I.R.S.)
Incorporation or Organization) Employer Identification Number)
214 West First Street, Oswego, NY 13126
---------------------------------------
(Address of Principal Executive Office) (Zip Code)
(315) 343-0057
--------------
(Issuer's Telephone Number including area code)
Check whether the issuer (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past twelve months (or for
such shorter period that the issuer was required to file such reports) and (2)
has been subject to such filing requirements for the past 90 days.
Yes [X] No [ ].
Indicate by check mark whether the small business issuer is a shell company
(as defined in Rule 12b-2 of the Exchange Act). Yes [ ] No [X]
State the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable date: As of May 11, 2007, there
were 2,970,819 shares issued and 2,483,532 shares outstanding of the Small
business issuer's Common Stock.
Transitional Small Business Disclosure Format (check one) Yes [X No [ ]
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 Changes in
Shareholders' Equity 3
Consolidated Statements of Cash Flows 4
Notes to Consolidated Financial Statements 5
Item 2. Management's Discussion and Analysis or Plan of 9
Operation
Item 3. Controls and Procedures 17
PART II OTHER INFORMATION 18
Item 1. Legal proceedings
Item 2. Unregistered sales of equity securities and use
of proceeds
Item 3. Defaults upon senior securities
Item 4. Submission of matters to a vote of security holders
Item 5. Other information
Item 6. Exhibits
SIGNATURES 18
PART I FINANCIAL INFORMATION
ITEM 1 - CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
PATHFINDER BANCORP, INC.
CONSOLIDATED STATEMENTS OF CONDITION
MARCH 31, 2007 AND DECEMBER 31, 2006
(UNAUDITED)
MARCH 31, DECEMBER 31,
---------------------
(In thousands, except share data) 2007 2006
---------------------------------------------------------------------------------------------------
ASSETS:
Cash and due from banks $ 6,397 $ 7,068
Interest earning deposits 9,912 6,655
---------------------------------------------------------------------------------------------------
Total cash and cash equivalents 16,309 13,723
Investment securities, at fair value 74,335 62,640
Federal Home Loan Bank stock, at cost 1,383 1,579
Loans 204,691 203,209
Less: Allowance for loan losses 1,481 1,496
---------------------------------------------------------------------------------------------------
Loans receivable, net 203,210 201,713
Premises and equipment, net 7,543 7,597
Accrued interest receivable 1,732 1,694
Foreclosed real estate 365 471
Goodwill 3,840 3,840
Intangible asset, net 125 181
Bank owned life insurance 6,268 6,212
Other assets 2,109 1,732
---------------------------------------------------------------------------------------------------
Total assets $317,219 $301,382
===================================================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY:
Deposits:
Interest-bearing $238,283 $225,003
Noninterest-bearing 22,178 20,582
---------------------------------------------------------------------------------------------------
Total deposits 260,461 245,585
----------------------------------------------------------------------------------------------------
Long-term borrowings 22,010 26,360
Junior subordinated debentures 10,310 5,155
Other liabilities 3,506 3,432
---------------------------------------------------------------------------------------------------
Total liabilities 296,287 280,532
Shareholders' equity:
Preferred stock, authorized shares 1,000,000; no shares issued or
outstanding
Common stock, par value $.01; authorized 10,000,000 shares;
2,970,819 and 2,953,619 shares issued; and 2,483,532 and
2,466,332 shares outstanding, respectively 30 29
Additional paid-in-capital 7,899 7,786
Retained earnings 21,215 21,307
Accumulated other comprehensive loss (1,710) (1,770)
Treasury Stock, at cost; 487,287 shares (6,502) (6,502)
---------------------------------------------------------------------------------------------------
Total shareholders' equity 20,932 20,850
---------------------------------------------------------------------------------------------------
Total liabilities and shareholders' equity $317,219 $301,382
===================================================================================================
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
(In thousands, except per share data) MARCH 31, 2007 MARCH 31, 2006
-----------------------------------------------------------------------------------------------
INTEREST INCOME:
Loans, including fees $ 3,413 $ 3,057
Debt securities:
Taxable 638 641
Tax-exempt 44 98
Dividends 81 61
Other 93 8
-----------------------------------------------------------------------------------------------
Total interest income 4,269 3,865
-----------------------------------------------------------------------------------------------
INTEREST EXPENSE:
Interest on deposits 1,735 1,249
Interest on short-term borrowings 0 61
Interest on long-term borrowings 413 438
-----------------------------------------------------------------------------------------------
Total interest expense 2,148 1,748
-----------------------------------------------------------------------------------------------
Net interest income 2,121 2,117
PROVISION FOR LOAN LOSSES 50 22
-----------------------------------------------------------------------------------------------
Net interest income after provision for loan losses 2,071 2,095
-----------------------------------------------------------------------------------------------
NONINTEREST INCOME:
Service charges on deposit accounts 333 371
Earnings on bank owned life insurance 56 49
Loan servicing fees 64 59
Net losses on sales and impairment of investment securities (3) (2)
Net losses on sales of loans and foreclosed real estate (7) (19)
Debit card interchange fees 48 41
Other charges, commissions and fees 100 94
-----------------------------------------------------------------------------------------------
Total noninterest income 591 593
-----------------------------------------------------------------------------------------------
NONINTEREST EXPENSES:
Salaries and employee benefits 1,227 1,275
Building occupancy 318 316
Data processing expenses 342 324
Professional and other services 237 115
Amortization of intangible asset 56 56
Other expenses 278 325
-----------------------------------------------------------------------------------------------
Total noninterest expenses 2,458 2,411
-----------------------------------------------------------------------------------------------
Income before income taxes 204 277
Provision for income taxes 39 37
-----------------------------------------------------------------------------------------------
Net income $ 165 $ 240
===============================================================================================
Net income per share - basic $ 0.07 $ 0.10
-----------------------------------------------------------------------------------------------
Net income per share - diluted $ 0.07 $ 0.10
-----------------------------------------------------------------------------------------------
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, 2007 AND MARCH 31 2006
(UNAUDITED)
ACCUMULATED
ADDITIONAL OTHER
COMMON ISSUED PAID-IN RETAINED COMPREHENSIVE TREASURY
(In thousands, except share data) SHARES AMOUNT CAPITAL EARNINGS LOSS STOCK TOTAL
-------------------------------------------------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 2006 2,953,619 $ 29 $ 7,786 $ 21,307 $ (1,770) $(6,502) $20,850
Comprehensive income:
Net income 165 165
Other comprehensive gain, net of tax
Unrealized net gains on securities 60 60
--------
TOTAL COMPREHENSIVE INCOME 225
Stock options exercised 17,200 1 113 114
Dividends declared ($.1025 per share) (257) (257)
--------------------------------------------------------------------------------------------------------------------------------
BALANCE, MARCH 31, 2007 2,970,819 $ 30 $ 7,899 $ 21,215 $ (1,710) $(6,502) $20,932
================================================================================================================================
BALANCE, DECEMBER 31, 2005 2,950,419 $ 29 $ 7,721 $ 20,965 $ (1,285) $(6,502) $20,928
Comprehensive income:
Net income 240 240
Other comprehensive loss, net of tax
Unrealized net losses on securities (57) (57)
--------
TOTAL COMPREHENSIVE INCOME 183
Dividends declared ($.1025 per share) (252) (252)
--------------------------------------------------------------------------------------------------------------------------------
BALANCE, MARCH 31, 2006 2,950,419 $ 29 $ 7,721 $ 20,953 $ (1,342) $(6,502) $20,859
================================================================================================================================
The accompanying notes are an integral part of the consolidated financial
statements.
-3-
PATHFINDER BANCORP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
FOR THE THREE FOR THE THREE
MONTHS ENDED MONTHS ENDED
(In thousands) MARCH 31, 2007 MARCH 31, 2006
----------------------------------------------------------------------------------------------------------------------
OPERATING ACTIVITIES:
Net income $ 165 $ 240
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for loan losses 50 22
Proceeds from sale of loans 781 -
Originations of loans held-for-sale (784) -
Realized losses on sales of:
Foreclosed real estate 4 7
Loans 3 12
Available-for-sale investment securities 3 2
Depreciation 195 190
Amortization of intangible asset 56 56
Amortization of deferred financing costs 8 8
Amortization of mortgage servicing rights 13 28
Earnings on bank owned life insurance (56) (49)
Net amortization of premiums and discounts on investment securities 29 32
(Increase) decrease in interest receivable (38) 36
Net change in other assets and liabilities (532) (456)
----------------------------------------------------------------------------------------------------------------------
Net cash (used in) provided by operating activities (103) 128
----------------------------------------------------------------------------------------------------------------------
INVESTING ACTIVITIES:
Purchase of investment securities available-for-sale (13,226) (10,906)
Net redemption (purchase) of Federal Home Loan Bank stock 196 (274)
Proceeds from maturities and principal reductions of investment securities
available-for-sale 1,600 1,533
Proceeds from sale:
Available-for-sale investment securities - 3,976
Real estate acquired through foreclosure 102 50
Net increase in loans (1,547) (2,024)
Purchase of premises and equipment (141) (121)
----------------------------------------------------------------------------------------------------------------------
Net cash used in investing activities (13,016) (7,766)
----------------------------------------------------------------------------------------------------------------------
FINANCING ACTIVITIES:
Net (decrease) increase in demand deposits, NOW accounts, saving accounts,
money market deposit accounts, MMDA accounts, escrow deposits 11,081 (519)
Net increase in time deposits 3,795 1,818
Net proceeds from short-term borrowings - 7,100
Payments on long-term borrowings (4,350) (1,000)
Proceeds from issuance of junior subordinated debentures 5,155 -
Proceeds from exercise of stock options 114 -
Cash dividends (90) (90)
----------------------------------------------------------------------------------------------------------------------
Net cash provided by financing activities 15,705 7,309
----------------------------------------------------------------------------------------------------------------------
Increase (decrease) in cash and cash equivalents 2,586 (329)
Cash and cash equivalents at beginning of period 13,723 7,895
----------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of period $ 16,309 $ 7,566
======================================================================================================================
The accompanying notes are an integral part of the consolidated financial
statements.
-4-
PATHFINDER BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(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-QSB and Regulation S-B.
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, 2006 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, 2007 are not necessarily
indicative of the results that may be expected for the year ending December 31,
2007.
(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, 2007 and 2006, using 2,481,572 and 2,463,132 weighted average
common shares outstanding, respectively. Diluted earnings per share for the
three months ended March 31, 2007 and 2006 have been computed using 2,490,053
and 2,481,777 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,
--------------------------------------------------
(In thousands) 2007 2006
--------------------------------------------------
Service cost $49 $48
Interest cost 68 63
Expected return on plan assets (98) (92)
Amortization of net losses 22 28
--------------------------------------------------
Net periodic benefit cost $41 $47
==================================================
The Company previously disclosed in its consolidated financial statements for
the year ended December 31, 2006, that it expected to contribute $190,000 to its
pension plan in 2007. As of March 31, 2007, $47,000 had been contributed to the
pension plan.
-5-
4) COMPREHENSIVE INCOME (LOSS)
The components of other comprehensive income (loss) and related tax effects are
as follows:
FOR THE THREE MONTHS
ENDED MARCH 31,
--------------------------------------------------------------
2007 2006
--------------------------------------------------------------
Gross change in unrealized gains (losses) on
securities available for sale $ 97 $ (88)
Reclassification adjustment for losses
included in net income 3 2
--------------------------------------------------------------
100 (86)
Tax effect (40) 29
--------------------------------------------------------------
Net of tax amount $ 60 $ (57)
==============================================================
The components of accumulated other comprehensive loss, net of related tax
effects are as follows:
MARCH 31, DECEMBER 31,
2007 2006
------------------------------------------------------------------------
Unrealized losses on available for sale securities $ (789) $ (849)
Unrecognized pension and other postretirement
benefit losses (921) (921)
------------------------------------------------------------------------
$(1,710) $(1,770)
========================================================================
(5) 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 $271,000 of standby letters of credit as of March
31, 2007. 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, 2007 for guarantees under
standby letters of credit issued is not material.
(6) NEW ACCOUNTING PRONOUNCEMENTS
In July 2006, the FASB issued FASB Interpretation No. 48, "Accounting for
Uncertainty in Income Taxes-an interpretation of FASB Statement No. 109" ("FIN
48"), which clarifies the accounting for uncertainty in tax positions. This
Interpretation requires that companies recognize in their financial statements
the impact of a tax position, if that position is more likely than not of being
sustained on audit, based on the technical merits of the position. The
provisions of FIN 48 are effective for fiscal years beginning after December 15,
2006, with the cumulative effect of the change in accounting principle recorded
as an adjustment to opening retained earnings. The adoption of FIN 48 did not
have a significant effect on its consolidated financial statements.
-6-
In September 2006, the FASB issued SFAS No. 157, Fair Value Measurements, ("SFAS
157") which defines fair value, establishes a framework for measuring fair value
under GAAP, and expands disclosures about fair value measurements. SFAS 157
applies to other accounting pronouncements that require or permit fair value
measurements. The new guidance is effective for financial statements issued for
fiscal years beginning after November 15, 2007, and for interim periods within
those fiscal years. We are currently evaluating the potential impact, if any, of
the adoption of SFAS 157 on our consolidated financial position, results of
operations and cash flows.
In February 2007, the FASB issued SFAS No. 159, The Fair Value Option for
Financial Assets and Financial Liabilities - Including an Amendment of FASB
Statement No. 115, ("SFAS 159"). This standard permits an entity to choose to
measure many financial instruments and certain other items at fair value. Most
of the provisions in SFAS 159 are elective; however, the amendment to SFAS 115,
Accounting for Certain Investments in Debt and Equity Securities, applies to all
entities with available-for-sale and trading securities. The FASB's stated
objective in issuing this standard is as follows: "to improve financial
reporting by providing entities with the opportunity to mitigate volatility in
reported earnings caused by measuring related assets and liabilities differently
without having to apply complex hedge accounting provisions." The fair value
option established by SFAS 159 permits all entities to choose to measure
eligible items at fair value at specified election dates. A business entity will
report unrealized gains and losses on items for which the fair value option has
been elected in earnings at each subsequent reporting date. The fair value
option: (a) may be applied instrument by instrument, with a few exceptions, such
as investments otherwise accounted for by the equity method; (b) is irrevocable
(unless a new election date occurs); and (c) is applied only to entire
instruments and not to portions of instruments. SFAS 159 is effective for the
Company as of January 1, 2008, unless early adoption is elected. The Company is
currently analyzing the effects of this interpretation but does not expect its
implementation will have a significant impact on the Company's consolidated
financial condition or results of operations.
EITF 06-4
In September 2006, the FASB's Emerging Issues Task Force (EITF) issued EITF
Issue No. 06-4, "Accounting for Deferred Compensation and Postretirement Benefit
Aspects of Endorsement Split Dollar Life Insurance Arrangements" ("EITF 06-4").
EITF 06-4 requires the recognition of a liability related to the postretirement
benefits covered by an endorsement split-dollar life insurance arrangement. The
consensus highlights that the employer (who is also the policyholder) has a
liability for the benefit it is providing to its employee. As such, if the
policyholder has agreed to maintain the insurance policy in force for the
employee's benefit during his or her retirement, then the liability recognized
during the employee's active service period should be based on the future cost
of insurance to be incurred during the employee's retirement. Alternatively, if
the policy holder has agreed to provide the employee with a death benefit, then
the liability for the future death benefit should be recognized by following the
guidance in SFAS No. 106 or Accounting Principals Board (APB) Opinion No. 12, as
appropriate. For transition, an entity can choose to apply the guidance using
either of the following approaches: (a) a change in accounting principle through
retrospective application to all periods presented or (b) a change in accounting
principle through a cumulative-effect adjustment to the balance in retained
earnings at the beginning of the year of adoption. The disclosures are required
in fiscal years beginning after December 15, 2007, with early adoption
permitted. The Company does not believe that the implementation of this guidance
will have a material impact on the Company's consolidated financial statements.
EITF 06-5
On September 7, 2006, the Task Force reached a conclusion on EITF Issue No.
06-5, "Accounting for Purchases of Life Insurance - Determining the Amount That
Could Be Realized in Accordance with FASB Technical Bulletin No. 85-4,
Accounting for Purchases of Life Insurance" ("EITF 06-5"). The scope of EITF
06-5 consists of six separate issues relating to accounting for life insurance
policies purchased by entities protecting against the loss of "key persons." The
six issues are clarifications of previously issued guidance on FASB Technical
Bulletin No. 85-4. EITF 06-5 is effective for fiscal years beginning after
December 15, 2006. The adoption of EITF 06-5 did not have a material impact on
the Company's consolidated financial statements.
-7-
EITF 06-10
In March 2007, the FASB ratified Emerging Issues Task Force Issue No. 06-10
"Accounting for Collateral Assignment Split-Dollar Life Insurance Agreements"
(EITF 06-10). EITF 06-10 provides guidance for determining a liability for the
postretirement benefit obligation as well as recognition and measurement of the
associated asset on the basis of the terms of the collateral assignment
agreement. EITF 06-10 is effective for fiscal years beginning after December 15,
2007. The Company is currently assessing the impact of EITF 06-10 on its
consolidated financial position and results of operations.
-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 and its
wholly owned subsidiary, Pathfinder Bank. Pathfinder Commercial Bank,
Pathfinder REIT, Inc. and Whispering Oaks Development, Inc. represent wholly
owned subsidiaries of Pathfinder Bank. At March 31, 2007, Pathfinder Bancorp,
M.H.C., the Company's mutual holding company parent, whose activities are not
included in the MD&A, held 64.2% of the Company's common stock and the public
held 35.8%.
The following discussion reviews the Company's financial condition at March 31,
2007 and the results of operations for the three months ended March 31, 2007 and
March 31, 2006.
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.
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
-9-
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 2006 Annual
Report on Form 10-K ("the Consolidated Financial Statements"). Beginning with
this Form 10-QSB, the Company has elected to file its Exchange Act reports
under the rules and regulations applicable to small business issuers.
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, 2007, 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 $165,000, or $0.07 per share, for the three months ended March
31, 2007, as compared to $240,000, or $0.10 per share, for the same period in
2006. During the first quarter of 2007, the Company continued its efforts
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, total commercial loans comprise 31.8% of the total gross loan
portfolio for the quarter ended March 31, 2007, as compared to 28.3% of the
portfolio for the year ended December 31, 2006.
On March 22, 2007, the Company entered into a trust preferred issuance for $5.0
million, adjustable quarterly at a 1.65% spread over the 3-month LIBOR. The
Company intends to use all the proceeds from the issuance to retire its existing
trust preferred obligation on June 27, 2007, at its first call date.
Long-term borrowings decreased $4.4 million during the first quarter of 2007 as
excess liquidity was used to pay off advances when they matured.
-10-
In the fall of 2006, Alliance Bank N.A. merged with the parent company of Oswego
County National Bank (OCNB). OCNB, formerly, Oswego County Savings Bank had
been domiciled in the city of Oswego since it's founding in 1870 and had 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
0.21% and 3.13%, respectively, for the three months ended March 31, 2007,
compared with 0.31% and 4.54%, respectively, for the three months ended March
31, 2006. During the first quarter of 2007 when compared to the first quarter
of 2006, net interest income increased $4,000, offset by an increase in
provision for loan losses of $28,000, a $13,000 decrease in core noninterest
income and a $47,000 increase 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
$2.1 million for the three months ended March 31, 2007 when compared to the same
period of 2006. The Company's net interest margin for the first quarter of 2007
decreased to 3.02% from 3.13% when compared to the same quarter in 2006.
Management expects continued margin compression to adversely impact earnings as
we perceive the yield curve will continue to be flat or inverted 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 37 basis points
in the average yield earned on earning assets. Average interest-earning assets
increased 3% to $284.6 million at March 31, 2007 as compared to $275.9 million
at March 31, 2006. The increase in average earning assets is primarily
attributable to a $13.7 million increase in loans receivable and a $6.3 million
increase in interest earning deposits, offset by an $11.4 million decrease in
investment securities. Average interest-bearing liabilities increased $2.7
million, and the cost of funds increased 58 basis points to 3.24% from 2.66% for
the same period in 2006. The increase in the average balance of interest-bearing
liabilities resulted primarily from a $11.6 million increase in deposits, offset
by a $9.0 million reduction in borrowed funds.
INTEREST INCOME
Total interest income, on a tax-equivalent basis, for the quarter ended March
31, 2007 increased $386,000, or 5%, to $4.3 million from $3.9 million for the
quarter ended March 31, 2006. The average balance of loans increased $13.7
million, with the average yield increasing 27 basis points to 6.69% for the
first quarter of 2007. Average commercial loans increased $5.6 million, and
experienced an increase in the average tax-equivalent yield of 54 basis points,
to 8.54% from 8.00%, 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 higher than the weighted
average existing portfolio rate. Average commercial real estate loans increased
$8.1 million for the first quarter of 2007, with an increase in the yield of 2
basis points.
-11-
The Company's residential mortgage loan portfolio decreased $1.2 million, or 1%,
during the first quarter of 2007, when compared to the first quarter of 2006.
The average yield on the residential mortgage loan portfolio increased 4 basis
points to 5.77% in 2007 from 5.73% in 2006. An increase in the average balance
of consumer loans of $1.5 million, or 8%, resulted from an increase in home
equity loans. The average yield increased 60 basis points, to 8.25% from 7.65%
in 2006 as a result of the increase in the prime rate. Average investment
securities (taxable and tax-exempt) for the quarter ended March 31, 2007
decreased by $11.3 million, compared to the same period a year ago, with a
decrease in tax-equivalent interest income from investments of $56,000, or 7%,
compared to the first quarter of 2006. The average tax-equivalent yield of the
portfolio increased 31 basis points, to 4.28% from 3.97%. The decrease in the
average balance of investment securities is a result of liquidity provided by
portfolio amortization and maturities being reinvested into the loan portfolio.
INTEREST EXPENSE
Total interest expense increased $400,000 for the three months ended March 31,
2007 compared to the same quarter in 2006, as the cost of funds increased 58
basis points to 3.24% in 2007 from 2.66% in 2006. Deposit interest expense for
the comparable periods increased $486,000 or 39%, as the average rate paid on
higher earning time accounts and MMDA accounts increased 75 basis points to
4.45% and 50 basis points to 4.17% as compared to 3.70% and 3.67% in 2006,
respectively. These increases were offset by decreases in the average balance
of money management accounts to $12.0 million in 2007 from $14.4 million in 2006
and the average balance of savings accounts to $54.9 million in 2007 from $64.4
million in 2006. Interest expense on borrowings decreased by $86,000, or 17%,
from the prior period. The decrease in interest expense on borrowings was the
result of a $9.4 million decrease in the average balance of borrowed funds,
offset by an increase in the cost of the floating rate junior subordinated
debentures to 8.87% in 2007 from 8.07% in 2006.
PROVISION FOR LOAN LOSSES
Provision for loan losses for the quarter ended March 31, 2007 increased to
$50,000 from $22,000 for the same period in 2006. The increased provision is
reflective of a growing commercial loan portfolio and one more heavily weighted
to commercial and commercial real estate, which has higher inherent risk than a
consumer real estate portfolio. Offsetting the need for an increased provision
for loan losses from a growing portfolio, is improvement in asset quality. The
Company's ratio of allowance for loan losses to period end loans has decreased
to 0.72% at March 31, 2007 from 0.74% at December 31, 2006 and 0.88% at March
31, 2006. Non-performing loans to period end loans have decreased to 0.66% at
March 31, 2007 from 0.76% at March 31, 2006.
-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 (losses)
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,
2007 2006 CHANGE
------------------------------------------------------------------------------------------------
(Dollars in thousands)
Service charges on deposit accounts $ 333 $ 371 $ (38) -10.2%
Earnings on bank owned life insurance 56 49 7 14.3%
Loan servicing fees 64 59 5 8.5%
Debit card interchange fees 48 41 7 17.1%
Other charges, commissions and fees 100 94 6 6.4%
----------------------------------------------------------------------------------------------
Core noninterest income 601 614 (13) -2.1%
Net losses on sales and impairment of investment securities (3) (2) (1) 50.0%
Net losses on sales of loans and foreclosed real estate (7) (19) 12 -63.2%
----------------------------------------------------------------------------------------------
TOTAL NONINTEREST INCOME $ 591 $ 593 $ (2) -0.3%
==============================================================================================
For the three months ended March 31, 2007, core noninterest income decreased
$13,000 when compared with the three months ended March 31, 2006. The $38,000
decrease in service charges on deposit accounts is attributable to decreased
utilization of our extended overdraft program by the customer base. This
decrease was offset by a $7,000 increase in debit card usage fees, a $7,000
increase in earnings on bank owned life insurance, a $6,000 increase in other
charges, commissions and fees, and a $5,000 increase in loan servicing fees. The
increase in other charges, commissions and fees is primarily attributable to an
increase in revenue from in-house investment services.
NONINTEREST EXPENSE
The following table sets forth certain information on noninterest expense for
the quarters indicated:
THREE MONTHS ENDED MARCH 31,
2007 2006 CHANGE
--------------------------------------------------------------------
(Dollars in thousands)
Salaries and employee benefits $1,227 $1,275 $ (48) -3.8%
Building occupancy 318 316 2 0.6%
Data processing 342 324 18 5.6%
Professional and other services 237 115 122 106.1%
Amortization of intangible assets 56 56 - 0.0%
Other operating expenses 278 325 (47) -14.5%
--------------------------------------------------------------------
TOTAL NONINTEREST EXPENSES $2,458 $2,411 $ 47 1.9%
====================================================================
Total noninterest expense increased for the three months ended March 31, 2007
when compared to the same quarter of 2006. Professional and other services
expense increased $122,000 primarily from consulting expenses associated with
the on-going SOX 404 process review, additional legal costs associated with
expanded compensation disclosures within the annual proxy statement and a direct
mailing campaign aimed at attracting new deposit customers. Data processing
expenses increased $18,000 primarily due to an increase in internet banking
-13-
costs, ATM processing charges, depreciation expense and maintenance charges.
These increases were partially offset by $48,000 and $47,000 decreases in
salaries and employee benefits and other expenses, respectively. The decrease in
salaries and employee benefits was primarily due to a reduction in compensation
and employee benefits, as management has realigned responsibilities in its
effort to contain expenses. The decrease in other expenses was the result of a
reduction in costs associated with foreclosed real estate properties as the
number of properties decreased to 4 from 13 in the comparable quarter of 2006,
combined with a reduction in audit and exam expenses.
INCOME TAX EXPENSE
Income taxes increased $2,000 for the quarter ended March 31, 2007 as compared
to the same period in 2006. 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. The increase in the effective tax rate for the quarter ended March
31, 2007 of 19% from 13% in 2006 is due primarily to a decline in tax-exempt
interest income. 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 $15.8 million, or 5%, to $317.2 million at
March 31, 2007, from $301.4 million at December 31, 2006. The increase in total
assets was primarily the result of an increase in investment securities of $11.7
million, or 19%, a $3.2 million, or 49%, increase in interest earning deposits
and a $1.5 million, or 1%, increase in loans receivable. The growth in
investment securities was a result of securities acquisitions during January and
February 2007 in order to obtain the required collateral for increased municipal
deposit levels.
At March 31, 2007, the securities balance included a net unrealized loss on
available for sale securities of $1.3 million, versus a net unrealized loss of
$1.4 million at December 31, 2006. 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 6% of book value. The Company has the intent and ability to hold the
individual securities to maturity or market price recovery.
LIABILITIES
Total liabilities increased $15.8 million, or 6%, to $296.3 million at March 31,
2007 from $280.5 million at December 31, 2006. The increase in liabilities is
primarily due to a $14.9 million increase in total deposits and a $5.1 million
increase in junior subordinated debentures, partially offset by a decrease in
other long-term borrowings of $4.4 million. On March 22, 2007, the Company
entered into a trust preferred issuance for $5.1 million, adjustable quarterly
at a 1.65% spread over the 3-month LIBOR. The Company intends to use all the
proceeds from the issuance to retire its existing trust preferred obligation on
June 27, 2007 - its first call date.
-14-
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,
(Dollars in thousands) 2007 2006
----------------------------------------------------------------------------------
NONACCRUAL LOANS:
Commercial real estate and commercial $ 491 $ 481
Consumer 99 125
Real estate - construction - -
mortgage 760 566
--------------------------------------------------------------------------------
Total nonaccrual loans $ 1,350 $1,172
--------------------------------------------------------------------------------
Total non-performing loans $ 1,350 $1,172
--------------------------------------------------------------------------------
Foreclosed real estate $ 365 $ 471
--------------------------------------------------------------------------------
Total non-performing assets $ 1,715 $1,643
--------------------------------------------------------------------------------
Non-performing loans to total loans 0.66% 0.57%
--------------------------------------------------------------------------------
Non-performing assets to total assets 0.54% 0.54%
--------------------------------------------------------------------------------
Interest income that would have been recorded
under the original terms of the loans $ 67 $ 53
--------------------------------------------------------------------------------
Total nonperforming loans increased 15% at March 31, 2007 when compared to
December 31, 2006. Management believes that adequate reserves exist for any
potential losses that may occur from the remediation process. The 23% decrease
in foreclosed real estate is primarily due to carrying four foreclosed real
estate properties at March 31, 2007 versus seven properties at December 31,
2006.
The allowance for loan losses at March 31, 2007 and December 31, 2006 was $1.5
million, or 0.72% and 0.74% of period end loans, as of these dates.
CAPITAL
Shareholders' equity remained constant at $20.9 million at March 31, 2007 when
compared to December 31, 2006. The Company added $165,000 to retained earnings
through net income, which was offset by cash dividends returned to its
shareholders of $257,000. Additional paid in capital increased $113,000 due to
the exercise of stock options during the first quarter of 2007.The Company's
mutual holding company parent, Pathfinder Bancorp, M.H.C, accepted the dividend
for the quarter ended March 31, 2007, payable in April 2007.
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, 2007, Pathfinder
Bank exceeded all regulatory required minimum capital ratios and met the
regulatory definition of a "well-capitalized" institution, i.e. a leverage
capital ratio exceeding 5%, a Tier 1 risk-based capital ratio exceeding 6% and a
total risk-based capital ratio exceeding 10%.
LIQUIDITY
Liquidity management involves the Company's ability to generate cash or
otherwise obtain funds at reasonable rates to support asset growth, meet deposit
withdrawals, maintain reserve requirements, and otherwise operate the Company on
-15-
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 Company has a number of existing credit facilities available to it. The
combined aggregate amount of credit available in connection with its existing
facilities is approximately $86.0 million at March 31, 2007.
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, 2007, management reported to the Board of
Directors that the Company is in compliance with its liquidity policy
guidelines.
-16-
ITEM 3 - 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.
-17-
PART II - OTHER INFORMATION
ITEM 1 - LEGAL PROCEEDINGS
--------------------------
None
ITEM 2 - UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
--------------------------------------------------------------------
None
ITEM 3 - DEFAULTS UPON SENIOR SECURITIES
----------------------------------------
None
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
------------------------------------------------------------
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 small
business issuer has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
PATHFINDER BANCORP, INC.
------------------------
(Small business issuer)
May 14, 2007 /s/ Thomas W. Schneider
------------ -----------------------
Date: Thomas W. Schneider
President, Chief Executive Officer
May 14, 2007 /s/ James A. Dowd
------------ ----------------
Date: James A. Dowd
Senior Vice President, Chief Financial Officer
-18-
EXHIBIT 31.1
Rule 13a-14(a) / 15d-14(a) Certification of the Chief Executive Officer
Certification of Chief Executive Officer
Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
I, Thomas W. Schneider, certify that:
1. I have reviewed the March 31, 2007 quarterly report on Form 10-QSB of
Pathfinder Bancorp, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement
of a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements were
made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material respects the
financial condition, results of operations and cash flows of the small business
issuer as of, and for, the periods presented in this report;
4. The small business issuer's other certifying officer and I are
responsible for establishing and maintaining disclosure controls and procedures
(as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the small
business issuer and have:
a) Designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the small
business issuer, including its consolidated subsidiaries, is made
known to us by others within those entities, particularly during the
period in which this report is being prepared;
(b) Evaluated the effectiveness of the small business issuer's
disclosure controls and procedures and presented in this report our
conclusions about the effectiveness of the disclosure controls and
procedures, as of the end of the period covered by this report based
on such evaluation; and
(c) Disclosed in this report any change in the small business
issuer's internal control over financial reporting that occurred
during the small business issuer's most recent fiscal quarter (the
small business issuer's fourth fiscal quarter in the case of an annual
report) that has materially affected, or is reasonably likely to
materially affect, the small business issuer's internal control over
financial reporting; and
5. The small business issuer's other certifying officer and I have
disclosed, based on our most recent evaluation of internal control over
financial reporting, to the small business issuer's auditors and the audit
committee of the small business issuer's board of directors (or persons
performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the
design or operation of internal control over financial reporting which
are reasonably likely to adversely affect the small business issuer's
ability to record, process, summarize and report financial
information; and
(b) Any fraud, whether or not material, that involves management or
other employees who have a significant role in the small business
issuer's internal control over financial reporting.
May 14, 2007 /s/ Thomas W. Schneider
------------ -----------------------
Date Thomas W. Schneider
President and Chief Executive Officer
EXHIBIT 31.2
Rule 13a-14(a) / 15d-14(a) Certification of the Chief Financial Officer
Certification of Chief Financial Officer
Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
I, James A. Dowd, certify that:
1. I have reviewed the March 31, 2007 quarterly report on Form 10-QSB of
Pathfinder Bancorp, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement
of a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements were
made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material respects the
financial condition, results of operations and cash flows of the small business
issuer as of, and for, the periods presented in this report;
4. The small business issuer's other certifying officer and I are
responsible for establishing and maintaining disclosure controls and procedures
(as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the small
business issuer and have:
a) Designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the small
business issuer, including its consolidated subsidiaries, is made
known to us by others within those entities, particularly during the
period in which this report is being prepared;
(b) Evaluated the effectiveness of the small business issuer's
disclosure controls and procedures and presented in this report our
conclusions about the effectiveness of the disclosure controls and
procedures, as of the end of the period covered by this report based
on such evaluation; and
(c) Disclosed in this report any change in the small business
issuer's internal control over financial reporting that occurred
during the small business issuer's most recent fiscal quarter (the
small business issuer's fourth fiscal quarter in the case of an annual
report) that has materially affected, or is reasonably likely to
materially affect, the small business issuer's internal control over
financial reporting; and
5. The small business issuer's other certifying officer and I have
disclosed, based on our most recent evaluation of internal control over
financial reporting, to the small business issuer's auditors and the audit
committee of the small business issuer's board of directors (or persons
performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the
design or operation of internal control over financial reporting which
are reasonably likely to adversely affect the small business issuer's
ability to record, process, summarize and report financial
information; and
(b) Any fraud, whether or not material, that involves management or
other employees who have a significant role in the small business
issuer's internal control over financial reporting.
May 14, 2007 /s/ James A. Dowd
------------ -----------------
Date James A. Dowd
Senior Vice President and Chief Financial Officer
EXHIBIT 32.1
Section 1350 Certification of the Chief Executive and Chief Financial Officer
Certification pursuant to
18 U.S.C. Section 1350,
as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002
Thomas W. Schneider, President and Chief Executive Officer, and James A. Dowd,
Vice President and Chief Financial Officer of Pathfinder Bancorp, Inc. (the
"Company"), each certify in his capacity as an officer of the Company that he
has reviewed the Quarterly Report of the Company on Form 10-QSB for the quarter
ended March 31, 2007 and that to the best of his knowledge:
1. the report fully complies with the requirements of Sections 13(a) of
the Securities Exchange Act of 1934; and
2. the information contained in the report fairly presents, in all
material respects, the financial condition and results of operations of the
Company.
The purpose of this statement is solely to comply with Title 18, Chapter 63,
Section 1350 of the United States Code, as amended by Section 906 of the
Sarbanes-Oxley Act of 2002.
May 14, 2007 /s/ Thomas W. Schneider
------------ -----------------------
Date Thomas W. Schneider
President and Chief Executive Officer
May 14, 2007 /s/ James A. Dowd
------------ -----------------
Date James A. Dowd
Senior Vice President and Chief Financial
Officer