Stonegate Capital Partners Updates Coverage on Pathfinder Bancorp, Inc. (Nasdaq:PBHC) Q4 2022

DALLAS, TX -- April 20th, 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: https://stonegateinc.com/reports/PBHC_Q423.pdf

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 10.5% and total deposit CAGR of 10.7% since 2016. Additionally, the Bank increased allowance for loan losses (ALL) from 1.57% of total loans on December 31, 2021, to 1.71% on December 31, 2022.
• Community banks on strong footing – In the wake of the recent SVB failure there has been increased scrutiny on 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 SVB had a much lower net interest margin (NIM), at 2.0% in 4Q22, as compared to PBHC at 3.42% in 4Q22.
• 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 0.04% in 2022 and 0.10% in 2021. 
• Improving profitability metrics –The Bank has experienced improving metrics over the years with a 53bps increase in ROAA (return on avg. assets) and a 643bps increase in ROAE (return on avg. equity) from 2019 to 2022. A focus on expense control also drove a ~14% decrease in the Bank’s efficiency ratio and a 41bps decrease in noninterest expense to average assets ratio, from 2019 to 2022
• Pathfinder Bank is well capitalized – At the end of 2022, the Bank’s Tier 1 capital ratio was 9.67%. Additionally, its Total Capital ratio was 15.14% as of December 31, 2022. 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 $13.9M in cash as of 4Q22
• Valuation –  We are using P/TBV and P/E multiples to frame our valuation of Pathfinder Bank. Using a P/TB value range of 1.1x to 1.4x, with a mid-point of 1.25x we arrive at a valuation range of $19.19 to $24.68, with a mid-point of $22.04. 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 $18.94 to $23.99 with a midpoint of $21.46. Based on the factors laid out on Page 9 of this report we believe PBHC should be trading more in line with comps, which is reflected by the multiples