Pathfinder Bancorp operates as a holding company that owns Pathfinder Bank (the Company or Bank), which provides various banking and financial products and services primarily in Central New York. The Bank is primarily engaged in the business of attracting deposits from the general public in the Bank’s market areas. The Bank has a loan portfolio secured by commercial real-estate, residential real-estate, and originates unsecured small business loans, and consumer loans. The Company is also involved in the property, casualty, and life insurance brokerage business. The Company primarily serves individuals, families, small to mid-size businesses, and municipalities. Pathfinder Bancorp was founded in 1859 and is headquartered in Oswego, NY.
- Pathfinder Bank is focused on measured growth and risk mitigation – Pathfinder Bank is positioned as the market leader in Oswego County, NY by deposit market share and has a growing presence in the attractive Onondaga County, NY market. Given its market position, the Bank has shown consistent balance sheet growth over the past 5 years, with total loan CAGR of 10.8% and total deposit CAGR of 12.1% since 2016. Additionally, the Bank increased allowance for loan losses (ALL) from 1.55% of total loans on December 31, 2020, to 1.57% on December 31, 2021.
- Well diversified portfolio with good credit quality – Pathfinder Bank’s loan portfolio is well diversified and primarily consists of commercial real-estate loans, commercial loans, and residential mortgage loans. Net charge-offs to average loans were 0.12% in 2021 and 0.08% in 2020.
- Improving profitability metrics – The Bank has experienced improving metrics over the years with a 55bps increase in ROAA (return on avg. assets) and a 657bps increase in ROAE (return on avg. equity) from 2019 to 2021. A focus on expense control also drove a ~12% decrease in the Bank’s efficiency ratio and a 38bps decrease in noninterest expense to average assets ratio, from 2019 to 2021.
- Pathfinder Bank is well capitalized – At the end of 2021, the Bank’s Tier 1 capital ratio was 9.52% and is still at 9.48% as of 3Q22. Additionally, its Total Capital ratio was 15.19% as of December 31, 2021 and is currently at 14.69%. The Company has historically been proactive in supplementing its ratios for future growth as evidenced by its subordinated debt offerings in F15 and F20, and an equity offering in 2019. Lastly, the Company has $36.7M in cash as of 3Q22.
- Simplified capital structure – On June 28th, 2021, the Company converted all its Series B convertible preferred stock into an equal number of newly created Series A non-voting common shares. The new non-voting shares are equal to existing voting common shares in terms of dividend and liquidation preferences. Importantly, the conversion simplified the capital structure and increased the Company’s tangible common equity and related ratios. As a result, its TCE/TA ratio increased to 7.89% in 1Q22 compared to 6.22% in 2Q20. Current TCE/TA ratio is still strong at 7.38%.
- Valuation – We are using a P/TB to help frame valuation of Pathfinder Bank. Using a P/TB value range of 1.0x to 1.4x, with a mid-point of 1.2x, we arrive at a valuation range of $17.11 to $23.95, with a mid-point of $20.53. See page 6 for further details.
Stonegate Capital Partners is a Dallas-based corporate advisory firm dedicated to serving the specialized needs of small-cap public companies. Since our inception, our mission has been to find innovative, undervalued public companies for our network of leading institutional investors who seek high-quality investment opportunities.