DALLAS, TX -- June 2nd, 2023 -- Pathfinder Bancorp, Inc. (Nasdaq:PBHC): Stonegate Capital Partners updates coverage on Pathfinder Bancorp, Inc. (Nasdaq:PBHC). The full report can be accessed by clicking on the following link: PBHC Q1 23 Report
Company Summary
- 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 10.3% and total deposit CAGR of 10.6% since 2016. Additionally, the Bank increased allowance for loan losses (ALL) from 0.93% of total loans on March 31, 2022, to 2.10% on March 31, 2023. This is expected to be a short-term development as management has taken a conservative approach towards risk management given the current macro environment.
- Community banks on strong footing: In the wake of the recent bank failures there has been increased scrutiny in the banking sector. When compared to larger regional banks, we believe that local banks like PBHC are better suited to weather this bank sector turmoil. This is in large part due to community banks in aggregate having less than 10% of their accounts uninsured by the FDIC as compared to SVB’s 95% of accounts being uninsured. It is also notable that banks now have access to the Bank Term Funding Program (“BTFP”), providing increased liquidity and confidence in the banking sector.
- 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 0.01% in 1Q23 and 0.04% in 4Q22.
- Improving profitability metrics: The Bank has experienced improving metrics over the years with a 32bps increase in ROAA (return on avg. assets) and a 386bps increase in ROAE (return on avg. equity) from 2019 to 1Q23. Notably, the Company has seen decreased metrics year over year, though this is expected to be a short-term effect from the increase in provision for credit losses as these metrics are expected to increase sequentially over the balance of 2023.
- Pathfinder Bank is well capitalized: At the end of 1Q23, the Bank’s Tier 1 capital ratio was 9.68%. Additionally, its Total Capital ratio was 15.11% as of March 31, 2023. The Company has historically been proactive in supplementing its ratios for future growth as evidenced by its subordinated debt offerings in FY15 and FY20, and an equity offering in FY19. Lastly, the Company has $15.2M in cash as of 1Q23.
- Valuation: We are using P/TBV and P/E multiples to frame our valuation of Pathfinder Bank. Using a P/TB value range of 1.0x to 1.2x, with a mid-point of 1.1x we arrive at a valuation range of $17.75 to $21.30, with a mid-point of $19.53. When applying a P/E range of 7.5x to 9.5x with a midpoint of 8.5x we arrive at a valuation range of $16.95 to $21.47 with a midpoint of $19.21. Based on the factors laid out on Page 8 of this report we believe PBHC should be trading more in line with comps, which is reflected by the multiples.
About Stonegate
Stonegate Capital Partners is a leading capital markets advisory firm providing investor relations, equity research, and institutional investor outreach services for public companies. Our affiliate, Stonegate Capital Markets (member FINRA) provides a full spectrum of investment banking, equity research and capital raising for public and private companies.
