10q10k10q10k.net

What changed in Pathfinder Bancorp, Inc.'s 10-K — 2022 vs 2023

vs

Paragraph-level year-over-year comparison of Pathfinder Bancorp, Inc.'s 2022 and 2023 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2023 report.

+418 added−519 removedSource: 10-K (2024-03-22) vs 10-K (2023-03-31)

Top changes in Pathfinder Bancorp, Inc.'s 2023 10-K

418 paragraphs added · 519 removed · 295 edited across 5 sections

Item 1. Business

Business — how the company describes what it does

119 edited+47 added−91 removed205 unchanged
Biggest changeOur Allowance for Loan and Lease Losses policy (“ALLL”) establishes criteria for selecting loans to be measured for impairment based on the following: Residential and Consumer Loans: • All loans rated substandard or worse, on nonaccrual, and above our total related credit (“TRC”) threshold balance of $300,000. • All Troubled Debt Restructured Loans Commercial Lines and Loans, Commercial Real Estate and Tax-exempt loans: • All loans rated substandard or worse, on nonaccrual, and above our TRC threshold balance of $100,000. • All Troubled Debt Restructured Loans - 11 - Impairment is measured by determining the present value of expected future cash flows or, for collateral-dependent loans, the fair value of the collateral adjusted for market conditions and selling expenses as compared to the loan carrying value.
Biggest changeOur Allowance for Credit Losses policy (“ACL”) establishes criteria for specifically-identified loans to be measured for impairment based on the following: Residential and Consumer Loans: • All loans rated substandard or worse, on nonaccrual, and above our total related credit (“TRC”) threshold balance of $300,000.
The projected credit losses related to purchased loan pools are evaluated prior to purchase and the performance of those loans against expectations are analyzed at least monthly. Over the life of the purchased loan pools, the allowance for loan losses is adjusted, through the provision for loan losses, for expected loss experience, over the projected life of the loans.
The projected credit losses related to purchased loan pools are evaluated prior to purchase and the performance of those loans against expectations are analyzed at least monthly. Over the life of the purchased loan pools, the allowance for credit losses is adjusted, through the provision for credit losses, for expected loss experience, over the projected life of the loans.
The expected credit loss experience is determined at the time of purchase and is modified, to the extent necessary, during the life of the purchased loan pools. The Bank does not initially increase the allowance for loan losses on the purchase date of the loan pools.
The expected credit loss experience is determined at the time of purchase and is modified, to the extent necessary, during the life of the purchased loan pools. The Bank does not initially increase the allowance for credit losses on the purchase date of the loan pools.
Generally, Sections 23A and 23B of the Federal Reserve Act limit the extent to which the bank or its subsidiaries may engage in “covered transactions” with any one affiliate to 10% of such institution’s capital stock and surplus and contain an aggregate limit on all such transactions with all affiliates to an amount - 20 - equal to 20% of such institution’s capital stock and surplus.
Generally, Sections 23A and 23B of the Federal Reserve Act limit the extent to which the bank or its subsidiaries may engage in “covered transactions” with any one affiliate to 10% of such institution’s capital stock and surplus and contain an aggregate limit on all such transactions with all affiliates to an amount equal to 20% of such institution’s capital stock and surplus.
This rule amended the Truth in Lending Act and the Real Estate Settlement Procedures Act to integrate several consumer disclosures for mortgage loans; • Home Mortgage Disclosure Act, requiring financial institutions to provide information to enable the public and public officials to determine whether a financial institution is fulfilling its obligation to help meet the housing needs of the community it serves; • Equal Credit Opportunity Act, prohibiting discrimination on the basis of race, creed or other prohibited factors in extending credit; • Fair Credit Reporting Act, governing the use and provision of information to credit reporting agencies; • Fair Debt Collection Act, governing the manner in which consumer debts may be collected by collection agencies; • Truth in Savings Act; • Rules and regulations of the various federal agencies charged with the responsibility of implementing such federal laws; • Right to Financial Privacy Act, which imposes a duty to maintain confidentiality of consumer financial records and prescribes procedures for complying with administrative subpoenas of financial records; • Electronic Funds Transfer Act and Regulation E promulgated thereunder, which govern automatic deposits to and withdrawals from deposit accounts and customers’ rights and liabilities arising from the use of automated teller machines and other electronic banking services; • Check Clearing for the 21 st Century Act (also known as “Check 21”), which gives “substitute checks,” such as digital check images and copies made from that image, the same legal standing as the original paper check; • USA PATRIOT Act, which requires banks operating to, among other things, establish broadened anti-money laundering compliance programs, due diligence policies and controls to ensure the detection and reporting of money laundering.
This rule amended the Truth in Lending Act and the Real Estate Settlement Procedures Act to integrate several consumer disclosures for mortgage loans; • Home Mortgage Disclosure Act, requiring financial institutions to provide information to enable the public and public officials to determine whether a financial institution is fulfilling its obligation to help meet the housing needs of the community it serves; • Equal Credit Opportunity Act, prohibiting discrimination on the basis of race, creed or other prohibited factors in extending credit; • Fair Credit Reporting Act, governing the use and provision of information to credit reporting agencies; • Fair Debt Collection Act, governing the manner in which consumer debts may be collected by collection agencies; • Truth in Savings Act; • Rules and regulations of the various federal agencies charged with the responsibility of implementing such federal laws; - 18 - • Right to Financial Privacy Act, which imposes a duty to maintain confidentiality of consumer financial records and prescribes procedures for complying with administrative subpoenas of financial records; • Electronic Funds Transfer Act and Regulation E promulgated thereunder, which govern automatic deposits to and withdrawals from deposit accounts and customers’ rights and liabilities arising from the use of automated teller machines and other electronic banking services; • Check Clearing for the 21 st Century Act (also known as “Check 21”), which gives “substitute checks,” such as digital check images and copies made from that image, the same legal standing as the original paper check; • USA PATRIOT Act, which requires banks operating to, among other things, establish broadened anti-money laundering compliance programs, due diligence policies and controls to ensure the detection and reporting of money laundering.
Some of the - 22 - principal activities that the Federal Reserve Board has determined by regulation to be closely related to banking are: (i) making or servicing loans; (ii) performing certain data processing services; (iii) providing securities brokerage services; (iv) acting as fiduciary, investment or financial advisor; (v) leasing personal or real property under certain conditions; (vi) making investments in corporations or projects designed primarily to promote community welfare; and (vii) acquiring a savings association.
Some of the principal activities that the Federal Reserve Board has determined by regulation to be closely related to banking are: (i) making or servicing loans; (ii) performing certain data processing services; (iii) providing securities brokerage services; (iv) acting as fiduciary, investment or financial advisor; (v) leasing personal or real property under certain conditions; (vi) making investments in corporations or projects designed primarily to promote community welfare; and (vii) acquiring a savings association.
We continue to grow and employ team members respectively across our three-county footprint as follows: Date Headcount 12/31/2022 174 12/31/2021 173 12/31/2020 183 12/31/2019 162 At December 31, 2022, approximately 60% of our staff was employed at our bank branch and loan production offices, with the remainder of our team employed within all other functional areas, including our customer-facing electronic commerce and call center units.
We continue to grow and employ team members respectively across our three-county footprint as follows: Date Headcount 12/31/2023 174 12/31/2022 174 12/31/2021 173 12/31/2020 183 12/31/2019 162 At December 31, 2023, approximately 60% of our staff was employed at our bank branch and loan production offices, with the remainder of our team employed within all other functional areas, including our customer-facing electronic commerce and call center units.
Commercial Loans We typically originate commercial loans, including commercial term loans and commercial lines of credit, on the basis of a borrower’s ability to make repayment from the cash flows of the borrower’s business, conversion of current assets in the normal course of business - 6 - (for seasonal working capital lines), the industry and market in which they operate, experience and stability of the borrower’s management team, earnings projections and the underlying assumptions, and the value and marketability of any collateral securing the loan.
We typically originate commercial loans, including commercial term loans and commercial lines of credit, on the basis of a borrower’s ability to make repayment from the cash flows of the borrower’s business, conversion of current assets in the normal course of business (for seasonal working capital lines), the industry and market in which they operate, experience and stability of the borrower’s management team, earnings projections and the underlying assumptions, and the value and marketability of any collateral securing the loan.
These lenders include commercial banks, savings institutions, credit unions, and mortgage banking companies that also actively compete for local real estate loans. Accordingly, the volume of loan originations may vary from period to period. The majority of the fixed rate residential loans that are originated each year meet the underwriting guidelines established by Fannie Mae.
These lenders include commercial banks, savings institutions, credit unions, and mortgage banking companies that also actively compete for local real estate loans. Accordingly, the volume of loan originations may vary from period to period. - 7 - The majority of the fixed rate residential loans that are originated each year meet the underwriting guidelines established by Fannie Mae.
Each subsidiary bank of a Qualifying BHC must comply with the Basel III Capital Adequacy rules (or the Community Bank Leverage Ratio) and must be well-capitalized. If any subsidiary bank is not, the Federal Reserve Board expects it to become well-capitalized within a brief period of time. This Policy Statement applies to the Company.
Each subsidiary bank of a Qualifying BHC must comply with the Basel III Capital - 19 - Adequacy rules (or the Community Bank Leverage Ratio) and must be well-capitalized. If any subsidiary bank is not, the Federal Reserve Board expects it to become well-capitalized within a brief period of time. This Policy Statement applies to the Company.
As a Maryland business corporation, the Company is required to file an annual report with, and pay franchise taxes to, the State of Maryland. Human Capital Resources Our Mission Our Mission, which is thoroughly communicated to all of our team members, is “To foster relationships with individuals and businesses within our communities to be the financial provider of choice.
As a Maryland business corporation, the Company is required to file an annual report with, and pay franchise taxes to, the State of Maryland. - 21 - HUMAN CAPITAL RESOURCES Our Mission Our Mission, which is thoroughly communicated to all of our team members, is “To foster relationships with individuals and businesses within our communities to be the financial provider of choice.
This classification includes securities that may be sold in response to changes in interest rates, the security's prepayment risk, liquidity needs, the availability of and the yield on alternative investments, and funding sources and terms. These securities are reported at fair value, which is determined on - 14 - a monthly basis.
This classification includes securities that may be sold in response to changes in interest rates, the security's prepayment risk, liquidity needs, the availability of and the yield on alternative investments, and funding sources and terms. These securities are reported at fair value, which is determined on a monthly basis.
Third - 9 - party-originated loan pools are acquired primarily when, in the view of management, they offer superior risk vs. return characteristics to debt securities. Such loans are generally acquired through the facilitation of third-party brokerages and are serviced in perpetuity by the originating entries or their designees.
Third party-originated loan pools are acquired primarily when, in the view of management, they offer superior risk vs. return characteristics to debt securities. Such loans are generally acquired through the facilitation of third-party brokerages and are serviced in perpetuity by the originating entries or their designees.
We invest in mortgage-backed securities and collateralized mortgage obligations to achieve positive interest rate spreads with minimal administrative expense, and to lower our credit risk through geographic diversification. These securities are generally relatively short in duration and therefore reduce the Bank’s sensitivity to changes in interest rates.
We invest in mortgage-backed and asset-backed securities and collateralized mortgage obligations to achieve positive interest rate spreads with minimal administrative expense, and to lower our credit risk through geographic diversification. These securities are generally relatively short in duration and therefore reduce the Bank’s sensitivity to changes in interest rates.
The Company invests primarily in debt securities but will, within certain regulatory limits, invest from time to time in mutual funds and equity securities. The Bank's principal sources of funds are deposits, principal and interest payments on loans and investments, as well as borrowings from correspondent financial institutions.
The Company invests primarily in debt securities but will, within certain regulatory limits, invest from time to time in mutual funds and equity securities. The Bank's principal sources of funds are deposits, principal and interest payments on loans and investments, as well as borrowings from the FHLBNY and correspondent financial institutions.
The communities in which we serve include persons of various race, ethnicity, gender, sexual orientation, socio-economic status, age, physical and cognitive ability, religion and political belief. We are committed to valuing and sharing the strength of our differences in a safe and positive environment.
The communities in which we serve include persons of various race, ethnicity, - 22 - gender, sexual orientation, socio-economic status, age, physical and cognitive ability, religion and political belief. We are committed to valuing and sharing the strength of our differences in a safe and positive environment.
The Federal Reserve Board has indicated that it has no plans to re-impose reserve requirements, but may do so in the future if conditions warrant. - 21 - Federal Home Loan Bank System. Pathfinder Bank is a member of the Federal Home Loan Bank System, which consists of eleven regional Federal Home Loan Banks.
The Federal Reserve Board has indicated that it has no plans to re-impose reserve requirements, but may do so in the future if conditions warrant. Federal Home Loan Bank System. Pathfinder Bank is a member of the Federal Home Loan Bank System, which consists of eleven regional Federal Home Loan Banks.
The Company also invests in mortgage‑backed securities issued or guaranteed by United States Government sponsored enterprises, collateralized mortgage obligations and similar debt - 4 - securities issued by both government sponsored entities and private (non-governmental) issuers, and asset-backed securities that are generally issued by private entities.
The Company also invests in mortgage‑backed securities issued or guaranteed by United States Government sponsored enterprises, collateralized mortgage obligations and similar debt securities issued by both government sponsored entities and private (non-governmental) issuers, and asset-backed securities that are generally issued by private entities.
Many established financial institutions are now implementing, or planning to implement, various forms of fintech solutions and technologies in order to broaden their product and service offerings and/or to gain improved competitive positions in this emerging marketplace.
Many established financial institutions are now implementing, or planning to implement, various forms of fintech solutions and technologies in order to broaden - 4 - their product and service offerings and/or to gain improved competitive positions in this emerging marketplace.
Our President, Chief Operating Officer and Chief Financial Officer have the authority to purchase and sell securities within specific guidelines established by the investment policy. All transactions are reviewed by the Board of Directors at its regular meetings.
Our President and Chief Executive Officer, Chief Operating Officer and Chief Financial Officer have the authority to purchase and sell securities within specific guidelines established by the investment policy. All transactions are reviewed by the Board of Directors at its regular meetings.
Holders of the new Series A Non-Voting Common Stock will be entitled to receive dividends, if and when declared by the Company’s Board of Directors, in the same per share amount as paid on the Company’s Voting Common Stock.
Holders of the Series A Non-Voting Common Stock will be entitled to receive dividends, if and when declared by the Company’s Board of Directors, in the same per share amount as paid on the Company’s Voting Common Stock.
We compete for deposits by offering depositors a high level of personal service, a wide range of competitively-priced - 5 - financial services, and a well distributed network of branches, ATMs, and electronic banking.
We compete for deposits by offering depositors a high level of personal service, a wide range of competitively-priced financial services, and a well distributed network of branches, ATMs, and electronic banking.
Assets classified as “doubtful” have all of the weaknesses inherent in those classified “substandard,” with the added characteristic that the weaknesses present make “collection or liquidation in full,” on the basis of currently existing facts, conditions, and values, “highly questionable and improbable.” Assets classified as “loss” are those considered “uncollectible” and of such little value that their continuance as assets without the establishment of a specific allowance for loan losses is not warranted.
Assets classified as “doubtful” have all of the weaknesses inherent in those classified “substandard,” with the added characteristic that the weaknesses present make “collection or liquidation in full,” on the basis of currently existing facts, conditions, and values, “highly questionable and improbable.” Assets classified as “loss” are those considered “uncollectible” and of such little value that their continuance as assets without the establishment of a specific allowance for credit losses is not warranted.
An institution is “undercapitalized” if it has a total risk-based capital ratio of less than 8.0%, a Tier 1 risk-based capital ratio of less than 6.0%, a leverage ratio of less than 4.0% or a common equity Tier 1 ratio of less than 4.5%.
An institution is “undercapitalized” if it has a total risk-based capital ratio of less than 8.0%, a Tier 1 risk-based capital ratio of less than 6.0%, a leverage ratio of less than 4.0% or a - 16 - common equity Tier 1 ratio of less than 4.5%.
Neither the previously-issued Series B Convertible Perpetual Preferred Stock, nor the newly-issued Series A Non-Voting Common Stock had, or will have, dividend or liquidation preference over the Company’s existing Voting Common Stock.
Neither the previously-issued Series B Convertible Perpetual Preferred Stock, nor the Series A Non-Voting Common Stock had, or will have, dividend or liquidation preference over the Company’s existing Voting Common Stock.
Our investment securities include a broad range of debt securities issued by the United States Government and its agencies and sponsored enterprises, state and municipal governments and agencies, and corporations.
Our investment securities include a broad range of debt securities issued by the United States Government and its agencies and sponsored enterprises, - 11 - state and municipal governments and agencies, and corporations.
The New York State franchise tax is imposed in an amount equal to the greater of 6.5% of Business Income for companies with a Business Income Base up to $5 million, or 7.25% for companies with a Business Income Base greater than $5 million, 0.025% and 0.1875% of average Business Capital for 2021 and 2022, respectively, or a fixed dollar amount based on New York sourced gross receipts.
The New York State franchise tax is imposed in an amount equal to the greater of 6.5% of Business Income for companies with a Business Income Base up to $5 million, or 7.25% for companies with a Business Income Base greater than $5 million, 0.025% and 0.1875% of average Business Capital for 2022 and 2023, respectively, or a fixed dollar amount based on New York sourced gross receipts.
In addition, when combining both Oswego and Onondaga Counties, we have the fifth largest market share of fifteen institutions, representing 7.7% of the total market.
In addition, when combining both Oswego and Onondaga Counties, we have the fifth largest market share of fifteen institutions, representing 7.9% of the total market.
The Company invests primarily in debt securities but will from time to time also invest, within certain regulatory limits, in mutual funds and equity securities. All securities purchased are classified at the time of purchase as either held-to-maturity or available-for-sale. We do not maintain a trading account.
The Company invests primarily in debt securities but will from time to time also invest, within certain regulatory limits, in mutual funds and equity securities. All securities purchased are classified at the time of purchase as either held-to-maturity (HTM) or available-for-sale (AFS). We do not maintain a trading account.
Foreclosed real estate Fair values for foreclosed real estate are initially recorded based on market value evaluations by third parties, less costs to sell (“initial cost basis”). Any write-downs required when the related loan receivable is exchanged for the underlying real estate collateral at the time of transfer to foreclosed real estate are charged to the allowance for loan losses.
Foreclosed real estate Fair values for foreclosed real estate are initially recorded based on market value evaluations by third parties, less costs to sell (“initial cost basis”). Any write-downs required when the related loan receivable is exchanged for the underlying real estate collateral at the time of transfer to foreclosed real estate are recorded to the allowance for credit losses.
All privately issued mortgage-backed securities held by the Bank at December 31, 2022 were either rated at or above the lowest investment grade for credit quality by a nationally-recognized statistical rating organization (a “NRSRO”) or were the most senior tranches of securitizations that were not rated by a NRSRO at the time of the securities’ issuance.
All privately issued mortgage-backed securities held by the Bank at December 31, 2023 were either rated at or above the lowest investment grade for credit quality by a nationally-recognized statistical rating organization (a “NRSRO”) or were the most senior tranches of securitizations that were not rated by a NRSRO at the time of the securities’ issuance.
In addition, the FDIC and NYSDFS, as an integral part of their examination process, periodically review our allowance for loan losses and may require us to recognize additions to the allowance based on their judgments about information available to them at the time of their examination, which may not be currently available to management.
In addition, the FDIC and NYSDFS, as an integral part of their examination process, periodically review our allowance for credit losses and may require us to recognize additions to the allowance based on their judgments about information available to them at the time of their examination, which may not be currently available to management.
“Critically undercapitalized” institutions are subject to additional measures including, subject to a narrow exception, the appointment of a receiver or conservator within 270 days after being designated “critically undercapitalized.” At December 31, 2022, Pathfinder Bank was well-capitalized. Transactions with Related Parties.
“Critically undercapitalized” institutions are subject to additional measures including, subject to a narrow exception, the appointment of a receiver or conservator within 270 days after being designated “critically undercapitalized.” At December 31, 2023, Pathfinder Bank was well-capitalized. Transactions with Related Parties.
At December 31, 2022, Pathfinder Bank had no reserves subject to recapture in excess of its base year reserves. The Bank continues to be required to use the specific charge-off method to account for tax bad debt deductions. Taxable Distributions and Recapture .
At December 31, 2023, Pathfinder Bank had no reserves subject to recapture in excess of its base year reserves. The Bank continues to be required to use the specific charge-off method to account for tax bad debt deductions. Taxable Distributions and Recapture .
Also included in Tier 2 capital is the allowance for loan and lease losses limited to a maximum of 1.25% of risk-weighted assets and, for institutions that have exercised an opt-out election regarding the treatment of Accumulated Other Comprehensive Income, up to 45% of net unrealized gains on available-for-sale equity securities with readily determinable fair market values.
Also included in Tier 2 capital is the allowance for credit losses limited to a maximum of 1.25% of risk-weighted assets and, for institutions that have exercised an opt-out election regarding the treatment of Accumulated Other Comprehensive Income, up to 45% of net unrealized gains on available-for-sale equity securities with readily determinable fair market values.
Pathfinder Bank’s NYCRA most recent rating, dated September 30, 2021, was “satisfactory.” Federal Regulations Capital Requirements.
Pathfinder Bank’s NYCRA most recent rating, dated September 30, 2021, was “satisfactory.” - 15 - Federal Regulations Capital Requirements.
The regulatory structure also gives the regulatory authorities extensive discretion in connection with their supervisory and enforcement activities and examination policies, including policies concerning the establishment of deposit insurance assessment fees, classification of assets and establishment of adequate loan loss reserves for regulatory purposes.
The regulatory structure also gives the regulatory authorities extensive discretion in connection with their supervisory and enforcement activities and examination policies, including policies concerning the establishment of deposit insurance assessment fees, classification of assets and establishment of adequate credit loss reserves for regulatory purposes.
As of December 31, 2022, Pathfinder Bank was in compliance with this requirement. Other Regulations Interest and other charges collected or contracted for by Pathfinder Bank are subject to state usury laws and federal laws concerning interest rates.
As of December 31, 2023, Pathfinder Bank was in compliance with this requirement. Other Regulations Interest and other charges collected or contracted for by Pathfinder Bank are subject to state usury laws and federal laws concerning interest rates.
However, our primary deposit generating area is concentrated in Oswego County and in the areas surrounding our Onondaga County branches. The economies of Oswego County and Onondaga County are based primarily on manufacturing, energy production, heath care, education, and government.
However, our primary deposit generating area is concentrated in Oswego County and in the areas surrounding our Onondaga County branches. The economies of Oswego County and Onondaga County are based primarily on manufacturing, energy production, health care, education, and government.
Collateral will be inspected not less than annually for all impaired loans and will be reevaluated not less than every two years. Appraised values are discounted to arrive at the estimated selling price of the collateral, which is considered to be the estimated fair value. The discounts also include estimated costs to sell the property.
Collateral will be inspected not less than annually for all specifically-identified loans and will be reevaluated not less than every two years. Appraised values are discounted to arrive at the estimated selling price of the collateral, which is considered to be the estimated fair value. The discounts also include estimated costs to sell the property.
At December 31, 2022, over 34% of our current staff had been with us for ten years or more. There is a team assigned to retention efforts as a strategic initiative for 2023 and forward. ITEM 1A: RI SK FACTORS Not required of a smaller reporting company. ITEM 1B: UNRESOLV ED STAFF COMMENTS None. - 27 -
At December 31, 2023, over 27% of our current staff had been with us for ten years or more. There is a team assigned to retention efforts as a strategic initiative for 2024 and forward. ITEM 1A: RI SK FACTORS Not required of a smaller reporting company. ITEM 1B: UNRESOLV ED STAFF COMMENTS None. - 24 -
A loan is considered impaired when, based on current information and events, it is probable that we will be unable to collect the scheduled payments of principal or interest when due according to the contractual terms of the loan agreement.
A loan is considered specifically-identified when, based on current information and events, it is probable that we will be unable to collect the scheduled payments of principal or interest when due according to the contractual terms of the loan agreement.
Additionally, the Bank owns 100% of Pathfinder Risk Management Company, Inc., ("PRMC") which was established to record the 51% controlling interest upon the December 2013 purchase of the FitzGibbons Agency, an Oswego County property, casualty and life insurance brokerage business with approximately $1.1 million in annual revenues. The activities of PRMC resulted in pre-tax income of $207,000 in 2022.
Additionally, the Bank owns 100% of Pathfinder Risk Management Company, Inc., ("PRMC") which was established to record the 51% controlling interest upon the December 2013 purchase of the FitzGibbons Agency, an Oswego County property, casualty and life insurance brokerage business with approximately $1.3 million in annual revenues. The activities of PRMC resulted in pre-tax income of $263,000 in 2023.
Our voluntary turnover rates for the previous four years are as follows: Year Voluntary Turnover % 2022 25.0% 2021 24.2% 2020 13.2% 2019 18.8% Diversity and Inclusion An inclusive open-minded community that engages excellence and embraces diversity is fundamental to supporting the Pathfinder Bank vision to be a local bank that the community trusts.
Our voluntary turnover rates for the previous five years are as follows: Year Voluntary Turnover % 2023 23.4% 2022 25.0% 2021 24.2% 2020 13.2% 2019 18.8% Diversity and Inclusion An inclusive open-minded community that engages excellence and embraces diversity is fundamental to supporting the Pathfinder Bank vision to be a local bank that the community trusts.
We currently offer one-to-four family residential real estate loans with terms up to 30 years that are generally underwritten according to Federal National Mortgage Association (“Fannie Mae”) guidelines, and we refer to loans that conform to such guidelines as “conforming loans.” We generally originate both fixed-rate and adjustable-rate mortgage loans in amounts up to the maximum conforming loan limits as established by the Federal Housing Finance Agency, which as of December 31, 2022, was generally $647,200 for single-family homes in our market area.
Residential Real Estate Loans We currently offer one-to-four family residential real estate loans, made to borrowers in our general market area, with terms up to 30 years that are generally underwritten according to Federal National Mortgage Association (“Fannie Mae”) guidelines, and we refer to loans that conform to such guidelines as “conforming loans.” We generally originate both fixed-rate and adjustable-rate mortgage loans in amounts up to the maximum conforming loan limits as established by the Federal Housing Finance Agency, which as of December 31, 2023, was generally $726,200 for single-family homes in our market area.
Conforming loans are generally saleable at management’s discretion, we hold our one-to-four family residential real estate loans in our portfolio but do sell mortgages into the secondary market, at management’s discretion, as a source of liquidity or as a means of managing liquidity and interest-rate risks.
We hold our one-to-four family residential real estate loans in our portfolio but do sell mortgages into the secondary market, at management’s discretion, as a source of liquidity or as a means of managing liquidity and interest-rate risks.
Based on management’s comprehensive analysis of the loan portfolio, we believe the current level of the allowance for loan losses is adequate. INVESTMENT AND HEDGING ACTIVITIES Our investment policy is established by the Board of Directors.
Based on management’s comprehensive analysis of the loan portfolio, we believe the current level of the allowance for credit losses is adequate. INVESTMENT ACTIVITIES Our investment policy is established by the Board of Directors.
The FDIC has authority to increase insurance assessments and adopted a final rule in October 2022 to increase initial base deposit insurance assessment rates by two basis points beginning in the first quarterly assessment period of 2023. As a result, effective January 1, 2023, assessment rates for institutions of the Bank’s size will range from 2.5 to 32 basis points.
The FDIC has authority to increase insurance assessments and adopted a final rule in October 2022 to increase initial base deposit insurance assessment rates by two basis points beginning in the first quarterly assessment period of 2023. As a result, effective January 1, 2023, assessment rates for institutions of the Bank’s size ranged from 3.5 to 32 basis points.
As of June 30, 2022, based on the most recently-available FDIC data, we had the largest market share in Oswego County, representing 48.7% of all deposits, and we additionally held 2.0% of all deposits in Onondaga County.
As of June 30, 2023, based on the most recently-available FDIC data, we had the largest market share in Oswego County, representing 48.6% of all deposits, and we additionally held 2.0% of all deposits in Onondaga County.
Impairment is measured by either the present value of the expected future cash flows discounted at the loan’s effective interest rate or the fair value of the underlying collateral if the loan is collateral dependent. The majority of our loans utilize the fair value of the underlying collateral.
Specifically-identified loans are measured by either the present value of the expected future cash flows discounted at the loan’s effective interest rate or the fair value of the underlying collateral if the loan is collateral dependent. The majority of our loans utilize the fair value of the underlying collateral.
Indications of value from these sources are generally discounted based on the age of the financial information or the quality of the assets. Large groups of homogeneous loans, including purchased loans, are evaluated for impairment in the aggregate.
Indications of value from these sources are generally discounted based on the age of the financial information or the quality of the assets. Large groups of homogeneous loans, including purchased loans, are evaluated for borrowers experiencing financial difficulties in the aggregate.
These securities are generally senior tranches, and most often the most senior tranche of multi-class issuances that provide substantial credit enhancements to their senior tranches and therefore reasonable, but not absolute, protection for the Bank from the risks of default.
The securities issued by private entities are generally senior tranches, and most often the most senior tranche of multi-class issuances that provide substantial credit enhancements to their senior tranches and therefore reasonable, but not absolute, protection for the Bank from the risks of default.
No portion of the allowance for loan losses is restricted to any individual loan type and the entire allowance is available to absorb any and all loan losses.
No portion of the ACL is restricted to any individual loan type and the entire allowance is available to absorb any and all credit losses.
Securities purchased with the intent and ability to hold until maturity will be classified as held-to-maturity. Securities placed in the held-to-maturity category will be accounted for at amortized cost. Securities that do not qualify or are not categorized as held-to-maturity are classified as available-for-sale.
Securities purchased with the intent and ability to hold until maturity will be classified as HTM. Securities placed in the HTM category will be accounted for at amortized cost. Securities that do not qualify or are not categorized as HTM are classified as AFS.
The Company’s federal tax returns are statutorily subject to potential audit for the years 2019 through 2022. No federal income tax returns are under audit as of the date of this report. Method of Accounting .
The Company’s federal tax returns are statutorily subject to potential audit for the years 2020 through 2023. No federal income tax returns are under audit as of the date of this report. Method of Accounting .
The composition of the investment portfolio is substantially the same for securities classified as both held-to-maturity and available-for-sale, although the portion of the securities portfolio classified as available-for-sale generally has a higher concentration of shorter-term, and/or more liquid assets. Such securities are held as part of the Bank’s liquidity management programs.
The composition of the investment portfolio is substantially the same for securities classified as both HTM and AFS, although the portion of the securities portfolio classified as AFS generally has a higher concentration of shorter-term, and/or more liquid assets. Such securities are held as part of the Bank’s liquidity management programs.
At December 31, 2022 and 2021, 6,032,112 and 5,983,467 shares of Company common stock (voting and non-voting) were outstanding, respectively. Following shareholder approval obtained on June 4, 2021, the Company converted 1,380,283, or 100%, of its previously-outstanding shares of Series B Convertible Perpetual Preferred Stock to an equal number of newly-created Series A Non-Voting Common Stock.
At December 31, 2023 and 2022, 6,099,571 and 6,032,112 shares of Company common stock (voting and non-voting) were outstanding, respectively. Following shareholder approval obtained on June 4, 2021, the Company converted 1,380,283, or 100%, of its previously-outstanding shares of Series B Convertible Perpetual Preferred Stock to an equal number of Series A Non-Voting Common Stock.
Factors considered by management in determining impairment include payment status, collateral value and the probability of collecting scheduled principal and interest payments when due. Loans that experience insignificant payment delays and payment shortfalls generally are not classified as impaired.
Factors considered by management in determining specifically-identified loans include payment status, collateral value and the probability of collecting scheduled principal and interest payments when due. Loans that experience insignificant payment delays and payment shortfalls generally are not specifically-identified.
Whispering Oaks, through a wholly-owned second-tier subsidiary, is the sole limited partner in an unconsolidated special-purpose real estate management partnership. The partnership currently operates a low-income residential housing facility. The activities of Whispering Oaks, which included the sale of real property, resulted in a pre-tax gain of $111,000 in 2022.
Whispering Oaks, through a wholly-owned second-tier subsidiary, is the sole limited partner in an unconsolidated special-purpose real estate management partnership. The partnership currently operates a low-income residential housing facility. The activities of Whispering Oaks resulted in a pre-tax gain of $10,000 in 2023.
The Company’s 51% controlling interest in this entity resulted in income of $106,000 for the Company on a consolidated basis in 2022.
The Company’s 51% controlling interest in this entity resulted in income of $134,000 for the Company on a consolidated basis in 2023.
The Company is subject to supervision and regulation by the Board of Governors of the Federal Reserve System (the “Federal Reserve Board”). Pathfinder Bank is a commercial bank chartered by the New York State Department of Financial Services (the “NYSDFS”).
The Company is a registered bank holding company subject to supervision and regulation by the Board of Governors of the Federal Reserve System (the “Federal Reserve Board”). The Company is also subject to supervision and regulation by the New York State Department of Financial Services (the “NYSDFS”).
The Company’s status as a registered BHC under the Bank Holding Company Act will not exempt it from certain federal and state laws and regulations applicable to corporations generally, including, without limitation, certain provisions of the federal securities laws. - 23 - Federal Securities Laws The Company’s common stock is registered with the Securities and Exchange Commission under the Securities Exchange Act of 1934.
The Company’s status as a registered BHC under the Bank Holding Company Act will not exempt it from certain federal and state laws and regulations applicable to corporations generally, including, without limitation, certain provisions of the federal securities laws.
Reimbursement is available to team members enrolled in pre-approved degree or certification programs at accredited institutions that teach skills or knowledge relevant to our business, in compliance with Section 127 of the Internal Revenue Code, and for seminars, conferences, and other training events team members attend in connection with their job duties.
Reimbursement is available to team members enrolled in pre-approved degree or certification programs at accredited institutions that teach skills or knowledge relevant to our business, in compliance with Section 127 of the Internal Revenue Code, and for seminars, conferences, and other training events team members attend in connection with their job duties. - 23 - Retention Efforts Employee retention helps us operate efficiently and achieve one of our business objectives.
The Board of Directors grants loan officers individual lending authority to approve extensions of credit. The level of authority for loan officers varies based upon the loan type, total relationship, form of collateral and risk rating of the borrower. Each loan officer is charged with the responsibility of achieving high credit standards.
The level of authority for loan officers varies based upon the loan type, total relationship, form of collateral and risk rating of the borrower. Each loan officer is charged with the responsibility of achieving high credit standards.
The Bank’s authority to invest in equity securities is constrained by federal law, as explained later. Such equity securities must meet certain earnings ratios and other tests of financial performance. A bank may also exercise trust powers upon approval of the NYSDFS.
The Bank’s authority to invest in equity securities is constrained by federal law, as explained later. Such equity securities must meet certain earnings ratios and other tests of financial performance. A bank may also exercise trust powers upon approval of the NYSDFS. Pathfinder Bank does not presently have trust powers. New York State chartered banks may also invest in subsidiaries.
We make exceptions to this general rule when such loans are (1) rated substandard or worse, on nonaccrual status and are related to borrowers with total related credit exposure in excess of our threshold balance of $300,000; or (2) the loans are subject to a troubled debt restructuring agreement.
We make exceptions to this general rule when such loans are (1) rated substandard or worse, on nonaccrual status and are related to borrowers with total related credit exposure in excess of our threshold balance of $300,000; or (2) the loans are modified due to borrowers experiencing financial difficulties.
Environmental due diligence is generally conducted for commercial real estate loans. Typically, commercial real estate loans made to corporations, partnerships and other business entities require personal guarantees by the owners of 20% or more of the borrowing entity.
We will also consider the terms and conditions of the leases and the stability of the tenant base. Environmental due diligence is generally conducted for commercial real estate loans. Typically, commercial real estate loans made to corporations, partnerships and other business entities require personal guarantees by the owners of 20% or more of the borrowing entity.
Management determines the significance of payment delays and shortfalls on a case-by case basis, taking into consideration all of the circumstances surrounding the loan and the borrower, including the length and reason for the delay, the borrower’s prior payment record and the amount of shortfall in relation to what is owed.
Management determines the significance of payment delays and shortfalls on a case-by case basis, taking into consideration all of the circumstances surrounding the loan and the borrower, including the length and reason for the delay, the borrower’s prior payment record and the amount of shortfall in relation to what is owed. - 10 - When a loan is determined to be specifically-identified, we will reevaluate the collateral which secures the loan.
The second component is the general allowance which covers pools of loans, by loan class, not considered impaired, smaller balance homogenous loans, such as residential real estate, home equity and other consumer loans. These pools of loans are evaluated for loss exposure based on historical loss rates for each of these categories of loans.
The second component of the ACL estimation is based on quantitative factors, which cover discrete pools of loans, by loan class, not considered specifically-identified, smaller balance homogenous loans, such as residential real estate, home equity and other consumer loans. These pools of loans are evaluated for loss exposure based on historical loss rates for each of these categories of loans.
The issuers of such securities pool and resell the participation interests in the form of securities to investors such as the Bank, and in the case of government agency sponsored issues, guarantee the payment of principal and interest to investors.
These securities typically represent a participation interest in a pool of mortgages or other loans The issuers of such securities pool and resell the participation interests in the form of securities to investors such as the Bank, and in the case of government agency sponsored issues, guarantee the payment of principal and interest to investors.
The Economic Growth, Regulatory Relief and Consumer Protection Act of 2018 (the “EGRRCPA”) On May 24, 2018, the EGRRCPA was enacted, which repealed or modified certain provisions of the Dodd-Frank Act and eased regulations on all financial institutions with the exception of the largest banks.
The Dodd-Frank Act also gave state attorneys general the ability to enforce applicable federal consumer protection laws. - 14 - The Economic Growth, Regulatory Relief and Consumer Protection Act of 2018 (the “EGRRCPA”) On May 24, 2018, the EGRRCPA was enacted, which repealed or modified certain provisions of the Dodd-Frank Act and eased regulations on all financial institutions with the exception of the largest banks.
Our construction loans generally have rates and terms comparable to residential real estate loans that we originate. Tax-exempt Loans We make loans to local governments and municipalities for either tax anticipation or for small expenditure projects, including equipment acquisitions and construction projects. Our municipal loans are generally fixed for a term of one year or less, and are generally unsecured.
Our construction loans generally have rates and terms comparable to residential real estate loans that we originate. - 6 - Tax-exempt Loans We make loans to local governments and municipalities for either tax anticipation or for small expenditure projects, including equipment acquisitions and construction projects.
For further information regarding our securities portfolio, see Note 4 to the consolidated financial statements. MORTGAGE-BACKED SECURITIES AND COLLATERALIZED MORTGAGE OBLIGATIONS We purchase mortgage-backed securities and collateralized mortgage obligations guaranteed by Fannie Mae, Freddie Mac and Ginnie Mae.
For further information regarding our securities portfolio, see Note 4 to the consolidated financial statements. More specifically, we purchase mortgage-backed and asset-backed securities, as well as collateralized mortgage obligations guaranteed by Fannie Mae, Freddie Mac and Ginnie Mae as well as a number of private issuers.
However, under current law, pre-1988 tax bad debt reserves remain subject to recapture if Pathfinder Bank makes certain non-dividend distributions, repurchases any of its common stock, pays dividends in excess of earnings and profits, or fails to qualify as a “bank” for tax purposes.
However, under current law, pre-1988 tax bad debt reserves remain subject to recapture if Pathfinder Bank makes certain non-dividend distributions, repurchases any of its common stock, pays dividends in excess of earnings and profits, or fails to qualify as a “bank” for tax purposes. At December 31, 2023, our total federal pre-base year bad debt reserve was approximately $1.3 million.
The Bank’s deposits are insured up to applicable limits by the FDIC. The Bank is subject to extensive regulation by NYSDFS, as its chartering agency, and by the FDIC, its primary federal regulator and deposit insurer.
The Bank is subject to extensive regulation by NYSDFS, as its chartering agency, and by the FDIC, its primary federal regulator and deposit insurer.
Interest earned on municipal loans is tax exempt for federal tax purposes, which enhances the overall yield on each loan. Generally, the municipality will have a deposit relationship with us along with the lending relationship.
Our municipal loans are generally fixed for a term of one year or less, and are generally unsecured. Interest earned on municipal loans is tax exempt for federal tax purposes, which enhances the overall yield on each loan. Generally, the municipality will have a deposit relationship with us along with the lending relationship.
Accordingly, interest expense related to this transaction of $1.6 million and $1.5 million was recorded in the years ended December 31, 2022 and 2021, respectively. - 17 - SUPERVISION AND REGULATION General Pathfinder Bank is a New York-chartered commercial bank and the Company is a Maryland corporation and a registered bank holding company.
Accordingly, interest expense related to this transaction of $1.6 million was recorded in both the years ended December 31, 2023 and 2022. SUPERVISION AND REGULATION General Pathfinder Bank is a New York-chartered commercial bank and the Company is a Maryland corporation and a registered bank holding company. The Bank’s deposits are insured up to applicable limits by the FDIC.
None of these employees are represented by a collective bargaining agreement and management considers its relationship with employees to be good. During fiscal year 2022, we hired 36 employees, of which 29 were full-time, five were part-time, and two were interns.
None of these employees are represented by a collective bargaining agreement and management considers its relationship with employees to be good. During fiscal year 2023, we hired 44 employees, of which 34 were full-time, six were part-time, one was temporary, and three were interns.
Based on recent independent market survey reports, median home values were $204,700 in Onondaga County and $132,400 in Oswego County at the end of 2022. Home values have shown only modest increases in recent years within the Syracuse, NY metro area, including Onondaga and Oswego Counties.
Based on recent independent market survey reports, median home values were $216,750 in Onondaga County and $162,500 in Oswego County at the end of 2023. Home values have shown modestly accelerating increases in recent years within the Syracuse, NY metro area, including Onondaga and Oswego Counties.
The Directors Loan Committee, which consists of members of the Bank’s Board of Directors, must approve all extensions of credit in excess of the limits for the OLC and lenders' individual authority. - 10 - Loans to One Borrower Under New York law, New York commercial banks are subject to loans-to-one borrower limits, which are substantially similar as those applicable to national banks, which generally restrict loans to one borrower to an amount equal to 15% of unimpaired capital and unimpaired surplus, which was $22.4 million at December 31, 202 2 , on an unsecured basis, and an additional amount equal to 10% of unimpaired capital and unimpaired surplus, which was $14.9 million at December 31, 202 2 , if the loan is secured by readily marketable collateral (generally, financial instruments and bullion, but not real estate), subject to exceptions.
Loans to One Borrower Under New York law, New York commercial banks are subject to loans-to-one borrower limits, which are substantially similar as those applicable to national banks, which generally restrict loans to one borrower to an amount equal to 15% of unimpaired capital and unimpaired surplus, which was $24.0 million at December 31, 2023, on an unsecured basis, and an additional amount equal to 10% of unimpaired capital and unimpaired surplus, which was $16.0 million at December 31, 2023, if the loan is secured by readily marketable collateral (generally, financial instruments and bullion, but not real estate), subject to exceptions.

… 177 more changes not shown on this page.

Item 2. Properties

Properties — owned and leased real estate

4 edited+0 added−0 removed1 unchanged
Biggest change(2) The building is owned; the underlying land is leased with an annual rent of $37,000. (3) The premises are leased with an annual rent of $90,000. (4) The premises are leased with an annual rent of $74,000. (5) The premises are leased with an annual rent of $257,000.
Biggest change(2) Both building and land are owned as of July 2023; the land lease expense in 2023 was $23,000. (3) The premises are leased with an annual rent of $91,000. (4) The premises are leased with an annual rent of $75,000. (5) The premises are leased with an annual rent of $262,000.
Location Opening Date Owned/Leased Main Office 1874 Owned 214 West First Street Oswego, New York 13126 Plaza Branch 1989 Owned (1) 291 State Route 104 East Oswego, New York 13126 Mexico Branch 1978 Owned 3361 Main Street Mexico, New York 13114 Oswego East Branch 1994 Owned 34 East Bridge Street Oswego, New York 13126 Lacona Branch 2002 Owned 1897 Harwood Drive Lacona, New York 13083 Fulton Branch 2003 Owned (2) 5 West First Street South Fulton, New York 13069 Central Square Branch 2005 Owned 3025 East Ave Central Square, New York 13036 Cicero Branch 2011 Owned 6194 State Route 31 Cicero, New York 13039 Pike Block Branch 2014 Leased (3) 109 West Fayette Street Syracuse, New York 13202 Clay Branch 2018 Leased (4) 3775 State Route 31 Liverpool, NY 13090 Southwest Corridor Branch 2022 Leased (5) 506 West Onondaga Street Syracuse, NY 13204 Utica Loan Production Office 2017 Leased (6) 258 Genesee Street Utica, New York 13502 (1) The building is owned; the underlying land is leased with an annual rent of $38,000.
Location Opening Date Owned/Leased Main Office 1874 Owned 214 West First Street Oswego, New York 13126 Plaza Branch 1989 Owned (1) 291 State Route 104 East Oswego, New York 13126 Mexico Branch 1978 Owned 3361 Main Street Mexico, New York 13114 Oswego East Branch 1994 Owned 34 East Bridge Street Oswego, New York 13126 Lacona Branch 2002 Owned 1897 Harwood Drive Lacona, New York 13083 Fulton Branch 2003 Owned (2) 5 West First Street South Fulton, New York 13069 Central Square Branch 2005 Owned 3025 East Ave Central Square, New York 13036 Cicero Branch 2011 Owned 6194 State Route 31 Cicero, New York 13039 Pike Block Branch 2014 Leased (3) 109 West Fayette Street Syracuse, New York 13202 Clay Branch 2018 Leased (4) 3775 State Route 31 Liverpool, NY 13090 Southwest Corridor Branch 2022 Leased (5) 506 West Onondaga Street Syracuse, NY 13204 Utica Loan Production Office 2017 Leased (6) 258 Genesee Street Utica, New York 13502 (1) The building is owned; the underlying land is leased with an annual rent of $39,000.
The following table sets forth certain information concerning the main office and each branch office of the Bank at December 31, 2022. The aggregate net book value of the Bank's premises and equipment was $17.9 million at December 31, 2022. For additional information regarding the Bank's properties, see Notes 8 and 28 to the consolidated financial statements.
The following table sets forth certain information concerning the main office and each branch office of the Bank at December 31, 2023. The aggregate net book value of the Bank's premises and equipment was $18.4 million at December 31, 2023. For additional information regarding the Bank's properties, see Notes 8 and 28 to the consolidated financial statements.
(6) The premises are leased with an annual rent of $16,000. - 28 -
(6) The premises are leased with an annual rent of $17,000. - 26 -

Item 3. Legal Proceedings

Legal Proceedings — active lawsuits and investigations

1 edited+0 added−0 removed1 unchanged
Biggest changeIn the opinion of management, such claims and lawsuits in the aggregate are not expected to have a material adverse impact on the Company's consolidated financial condition and results of operations at December 31, 2022. ITEM 4: MINE SAF ETY DISCLOSURE Not applicable. PART II
Biggest changeIn the opinion of management, such claims and lawsuits in the aggregate are not expected to have a material adverse impact on the Company's consolidated financial condition and results of operations at December 31, 2023. ITEM 4: MINE SAF ETY DISCLOSURE Not applicable. PART II

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

4 edited+0 added−0 removed2 unchanged
Biggest changeThe Company did not repurchase any shares of its common stock for the year ended December 31, 2022. Equity Compensation Plan Information The following table provides information as of December 31, 2022 with respect to shares of voting common stock that may be issued under the Company’s existing equity compensation plans.
Biggest changeThe Company did not repurchase any shares of its common stock for the year ended December 31, 2023. Equity Compensation Plan Information The following table provides information as of December 31, 2023 with respect to shares of voting common stock that may be issued under the Company’s existing equity compensation plans.
ITEM 5: MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STO CKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES The Company’s common stock trades on the NASDAQ Capital Market under the symbol “PBHC.” There were 310 shareholders of record (excluding the number of persons or entities holding stock in street name through various brokerage firms) as of March 22, 2023.
ITEM 5: MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STO CKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES The Company’s voting common stock trades on the NASDAQ Capital Market under the symbol “PBHC.” There were 310 shareholders of record (excluding the number of persons or entities holding stock in street name through various brokerage firms) as of March 22, 2024.
More details are included within the section titled Regulation and Supervision. ITEM 6: RES ERVED - 29 -
More details are included within the section titled Regulation and Supervision. ITEM 6: RES ERVED - 27 -
Plan Category Number of securities to be issued upon exercise of outstanding options, warrants and rights Weighted-average exercise price of outstanding options, warrants and rights Number of securities remaining available for future issuance under equity compensation plans Equity compensation plans approved by security holders 223,217 $ 10.94 10,408 Equity compensation plans not approved by stockholders N/A N/A N/A Dividends and Dividend History The Company has historically paid regular quarterly cash dividends on its common stock.
Plan Category Number of securities to be issued upon exercise of outstanding options, warrants and rights Weighted-average exercise price of outstanding options, warrants and rights Number of securities remaining available for future issuance under equity compensation plans Equity compensation plans approved by security holders 164,857 $ 11.03 10,408 Equity compensation plans not approved by stockholders N/A N/A N/A Dividends and Dividend History The Company has historically paid regular quarterly cash dividends on its common stock.

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

167 edited+76 added−133 removed86 unchanged
Biggest changeThe following table sets forth the allowance for loan losses for the years indicated: (Dollars In thousands) 2022 2021 2020 2019 2018 Balance at beginning of year $ 12,935 $ 12,777 $ 8,669 $ 7,306 $ 7,126 Provisions charged to operating expenses 2,754 1,022 4,707 1,966 1,497 Recoveries of loans previously charged-off: Commercial real estate and loans 296 70 4 1 66 Consumer and home equity 95 88 95 60 58 Residential real estate - - 2 2 21 Total recoveries 391 158 101 63 145 Loans charged off: Commercial real estate and loans (585 ) (764 ) (222 ) (294 ) (952 ) Consumer and home equity (147 ) (240 ) (353 ) (361 ) (265 ) Residential real estate (29 ) (20 ) (125 ) (11 ) (245 ) Total charged-off (761 ) (1,024 ) (700 ) (666 ) (1,462 ) Net charge-offs (370 ) (866 ) (599 ) (603 ) (1,317 ) Balance at end of year $ 15,319 $ 12,935 $ 12,777 $ 8,669 $ 7,306 Net charge-offs to average loans outstanding 0.04 % 0.10 % 0.08 % 0.09 % 0.22 % Allowance for loan losses to year-end loans 1.71 % 1.57 % 1.55 % 1.11 % 1.18 % - 55 - The following table sets forth the loan net charge-off ratios for the years indicated: 2022 2021 Allowance for loan losses to year-end loans 1.71 % 1.57 % Allowance for loan losses to nonperforming loans 169.93 % 155.99 % Nonaccrual Loans to total loans 1.00 % 1.00 % Allowance for loan losses to nonaccrual loans 169.93 % 155.99 % Net charge-offs to average loans outstanding Commercial real estate and loans 0.03 % 0.15 % Consumer and home equity 0.01 % 0.13 % Residential real estate 0.00 % 0.01 % Total charged-off 0.04 % 0.10 % Bank Owned Life Insurance The Company held $24.0 million and $23.4 million in bank owned life insurance at December 31, 2022 and 2021, respectively.
Biggest changeThe allocation of the allowance by category is not necessarily indicative of future losses and does not restrict the use of the allowance to absorb losses in any category. 2023 2022 2021 2020 2019 Allocation Percent of Allocation Percent of Allocation Percent of Allocation Percent of Allocation Percent of of the Loans to of the Loans to of the Loans to of the Loans to of the Loans to (Dollars in thousands) Allowance Total Loans Allowance Total Loans Allowance Total Loans Allowance Total Loans Allowance Total Loans Residential real estate $ 2,466 28.8 % $ 714 29.2 % $ 872 29.6 % $ 931 28.2 % $ 580 27.2 % Commercial real estate 5,751 40.0 % 5,881 38.4 % 5,308 34.5 % 4,776 34.7 % 4,010 32.6 % Commercial and tax exempt 4,956 18.4 % 6,937 18.3 % 3,701 18.8 % 4,663 23.6 % 2,841 19.0 % Home equity and junior liens 657 3.9 % 741 3.8 % 774 3.8 % 739 4.7 % 553 6.0 % Consumer loans 2,145 8.9 % 1,046 10.3 % 1,297 13.2 % 1,123 8.6 % 413 10.6 % Unallocated (1) - - - - 983 0.1 % 545 0.2 % 272 4.6 % Total $ 15,975 100.0 % $ 15,319 100.0 % $ 12,935 100.0 % $ 12,777 100.0 % $ 8,669 100.0 % (1) Includes loans held-for-sale at December 31 for each of the indicated years. - 48 - The following table sets forth the allowance for credit losses for the years indicated: (Dollars In thousands) 2023 2022 2021 2020 2019 Balance at beginning of year $ 15,319 $ 12,935 $ 12,777 $ 8,669 $ 7,306 Adoption of New Accounting Standards 1,886 Provisions charged to operating expenses 2,991 2,754 1,022 4,707 1,966 Recoveries of loans previously charged-off: Commercial real estate and loans 236 296 70 4 1 Consumer and home equity 118 95 88 95 60 Residential real estate 1 - - 2 2 Total recoveries 355 391 158 101 63 Loans charged off: Commercial real estate and loans (4,109 ) (585 ) (764 ) (222 ) (294 ) Consumer and home equity (346 ) (147 ) (240 ) (353 ) (361 ) Residential real estate (121 ) (29 ) (20 ) (125 ) (11 ) Total charged-off (4,576 ) (761 ) (1,024 ) (700 ) (666 ) Net charge-offs (4,221 ) (370 ) (866 ) (599 ) (603 ) Balance at end of year $ 15,975 $ 15,319 $ 12,935 $ 12,777 $ 8,669 Net charge-offs to average loans outstanding 0.48 % 0.04 % 0.10 % 0.08 % 0.09 % Allowance for credit losses to year-end loans 1.78 % 1.71 % 1.57 % 1.55 % 1.11 % The following table sets forth the loan net charge-off ratios for the years indicated: 2023 2022 Allowance for credit losses to year-end loans 1.78 % 1.71 % Allowance for credit losses to nonperforming loans 92.73 % 169.93 % Nonaccrual loans to total loans 1.92 % 1.00 % Allowance for credit losses to nonaccrual loans 92.73 % 169.93 % Net charge-offs to average loans outstanding Commercial real estate and loans 0.44 % 0.03 % Consumer and home equity 0.03 % 0.01 % Residential real estate 0.01 % 0.00 % Total charged-off 0.48 % 0.04 % Bank Owned Life Insurance The Company held $24.6 million and $24.0 million in bank owned life insurance at December 31, 2023 and 2022, respectively.
Over the life of the purchased loan pools, the allowance for loan losses is adjusted, through the provision for loan losses, for expected loss experience, over the projected life of the loans. The expected credit loss experience is determined at the time of purchase and is modified, to the extent necessary, during the life of the purchased loan pools.
Over the life of the purchased loan pools, the allowance for credit losses is adjusted, through the provision for credit losses, for expected loss experience, over the projected life of the loans. The expected credit loss experience is determined at the time of purchase and is modified, to the extent necessary, during the life of the purchased loan pools.
The allowance for loan losses represents the amount available for probable credit losses in the Company’s loan portfolio as estimated by management.
The allowance for credit losses represents the amount available for probable credit losses in the Company’s loan portfolio as estimated by management.
(“Castle Creek”), pursuant to which the Company sold: (i) 37,700 shares of the Company’s common stock, par value $0.01 per share, at a purchase price of $14.25 per share (the “Common Stock”); (ii) 1,155,283 shares of a new series of preferred stock, Series B convertible perpetual preferred stock, par value $0.01 per share, at a purchase price of $14.25 per share (the “Series B Preferred Stock”); and (iii) a warrant, with an approximate fair value of $373,000, to purchase 125,000 shares of Common Stock at an exercise price initially equal to $14.25 per share (the “Warrant”), in a private placement transaction (the “Private Placement”) for gross proceeds of approximately $17.0 million.
(“Castle Creek”), pursuant to which the Company sold: (i) 37,700 shares of the Company’s common stock, par value $0.01 per share, at a purchase price of $14.25 per share (the “Common Stock”); (ii) 1,155,283 shares of a new series of preferred stock, Series B convertible perpetual preferred stock, par value $0.01 per share, at a purchase price of $14.25 per share (the “Series B Preferred Stock”); and (iii) a warrant, with an approximate fair value of $373,000, to purchase 125,000 shares of Common Stock at an exercise price equal to $14.25 per share (the “Warrant”), in a private placement transaction (the “Private Placement”) for gross proceeds of approximately $17.0 million.
In each case, the Bank’s analytical processes consider the types of loans being evaluated, the underwriting criteria employed by the originating entity, the historical performance of such loans, especially in the most recent deeply recessionary period, the offered collateral enhancements - 53 - and other credit loss mitigation factors offered by the seller and the capabilities and financial stability of the servicing entities involved.
In each case, the Bank’s analytical processes consider the types of loans being evaluated, the underwriting criteria employed by the originating entity, the historical performance of such loans, especially in the most recent deeply recessionary period, the offered collateral enhancements and other credit loss mitigation factors offered by the seller and the capabilities and financial stability of the servicing entities involved.
Notwithstanding this emphasis, the Company also anticipates a continued commitment to financing the purchase or improvement of residential real estate in its market area. - 50 - The following table sets forth the composition of our loan portfolio, including net deferred costs, in dollar amount and as a percentage of loans.
Notwithstanding this emphasis, the Company also anticipates a continued commitment to financing the purchase or improvement of residential real estate in its market area. The following table sets forth the composition of our loan portfolio, including net deferred costs, in dollar amount and as a percentage of loans.
The Bank does not initially increase the allowance for loan losses on the purchase date of the loan pools. In the normal course of business, the Bank has, from time to time, sold residential mortgage loans and participation interests in commercial loans. As is typical in the industry, the Bank makes certain representations and warranties to the buyer.
The Bank does not initially increase the allowance for credit losses on the purchase date of the loan pools. In the normal course of business, the Bank has, from time to time, sold residential mortgage loans and participation interests in commercial loans. As is typical in the industry, the Bank makes certain representations and warranties to the buyer.
In evaluating the level of the allowance for loan losses, management considers historical loss experience, the types and amount of loans in the loan portfolio, adverse situations that may affect a borrower’s ability to repay, estimated value of any underlying collateral, and prevailing economic conditions.
In evaluating the level of the allowance for credit losses, management considers historical loss experience, the types and amount of loans in the loan portfolio, adverse situations that may affect a borrower’s ability to repay, estimated value of any underlying collateral, and prevailing economic conditions.
The performance of all purchased loan pools are monitored regularly from detailed reports and remittance reconciliations provided at least monthly by the servicing entities. The projected credit losses related to purchased loan pools are evaluated prior to purchase and the performance of those loans against expectations are analyzed at least monthly.
The performance of all purchased loan pools are monitored regularly from detailed reports and remittance reconciliations provided at least monthly by the external servicing entities. The projected credit losses related to purchased loan pools are evaluated prior to purchase and the performance of those loans against expectations are analyzed at least monthly.
The Company was required to request stockholder approval to eliminate the Exchange Cap no later than at the 2021 annual meeting of Company shareholders. In addition, at the same meeting, the Company was required to seek shareholder approval to create a class of non-voting convertible common stock.
The Company was required to request stockholder approval to eliminate the Exchange Cap no later than at the 2021 annual meeting of Company shareholders. In addition, at the same meeting, the Company was required to seek shareholder approval to create a class of - 28 - non-voting convertible common stock.
The Company invests primarily in securities issued by United States Government agencies and sponsored enterprises (“GSE”), mortgage-backed securities, collateralized mortgage obligations, state and municipal obligations, mutual funds, equity securities, investment grade corporate debt instruments, and common stock issued by the FHLBNY.
The Company invests in securities issued by United States Government agencies and sponsored enterprises (“GSE”), mortgage-backed securities, collateralized mortgage obligations, state and municipal obligations, mutual funds, equity securities, investment grade corporate debt instruments, and common stock issued by the FHLBNY.
On October 16, 2014, Pathfinder Bancorp, MHC converted from the mutual to stock form of organization (the “Conversion”). Following the completion of the Conversion, the Company was created substantially in its current form and Pathfinder Bancorp, MHC ceased to exist.
On October 16, 2014, Pathfinder Bancorp, MHC converted from the mutual holding company form of organization to the stock holding company form of organization (the “Conversion”). Following the completion of the Conversion, the Company was created substantially in its current form and Pathfinder Bancorp, MHC ceased to exist.
Depending on market conditions, we may be required to pay higher rates on such deposits or other borrowings than we currently pay on the certificates of deposit due on or before December 31, 2023. The Company is a separate legal entity from the Bank and must provide for its own liquidity.
Depending on market conditions, we may be required to pay higher rates on such deposits or other borrowings than we currently pay on the certificates of deposit due on or before December 31, 2024. The Company is a separate legal entity from the Bank and must provide for its own liquidity.
However, the exercise of such Warrant remains subject to certain contractual provisions, and regulatory approval if Castle Creek’s ownership of Common Stock would exceed 9.9%. At December 31, 2022, Castle Creek owned approximately 8.8% of the Company’s common voting stock. The Warrant will receive dividends equal to the amount paid on the Company’s common stock.
However, the exercise of such Warrant remains subject to certain contractual provisions, and regulatory approval if Castle Creek’s ownership of Common Stock would exceed 9.9%. At December 31, 2023, Castle Creek owned approximately 8.8% of the Company’s common voting stock. The Warrant will receive dividends equal to the amount paid on the Company’s common stock.
This evaluation is inherently subjective as it requires estimates that are susceptible to significant revision as more information becomes available or as future events change. The provision for loan losses represents management’s estimate of the amount necessary to maintain the allowance for loan losses at an adequate level.
This evaluation is inherently subjective as it requires estimates that are susceptible to significant revision as more information becomes available or as future events change. The provision for credit losses represents management’s estimate of the amount necessary to maintain the allowance for credit losses at an adequate level.
The 2020 Subordinated Debt is senior in the Company’s credit repayment hierarchy only to the Company’s common equity and, any future senior indebtedness and is intended to qualify as Tier 2 capital for regulatory capital purposes for the Company, when applicable. The Company paid $783,000 in origination and legal fees as part of this transaction.
The 2020 Subordinated Debt is senior in the Company’s credit repayment hierarchy only to the Company’s common equity and, and any future senior indebtedness and is intended to qualify as Tier 2 capital for regulatory capital purposes for the Company. The Company paid $783,000 in origination and legal fees as part of this transaction.
As of December 31, 2022, the Bank’s most recent notification from the Federal Deposit Insurance Corporation categorized the Bank as “well-capitalized”, under the regulatory framework for prompt corrective action. To be categorized as “well-capitalized”, the Bank must maintain specified total risk-based, Tier 1 risk-based and Tier 1 leverage ratios.
As of December 31, 2023, the Bank’s most recent notification from the Federal Deposit Insurance Corporation categorized the Bank as “well-capitalized”, under the regulatory framework for prompt corrective action. To be categorized as “well-capitalized”, the Bank must maintain specified total risk-based, Tier 1 risk-based and Tier 1 leverage ratios.
Pathfinder Bank maintains a quality control program for closed loans and considers the risks and uncertainties associated with potential repurchase requirements to be minimal. Allowance for Loan Losses The allowance for loan losses is established through provision for loan losses and reduced by loan charge-offs net of recoveries.
Pathfinder Bank maintains a quality control program for closed loans and considers the risks and uncertainties associated with potential repurchase requirements to be minimal. Allowance for Credit Losses The allowance for credit losses (ACL) is established through provision for credit losses and reduced by loan charge-offs net of recoveries.
The Company establishes a specific allocation for all commercial loans identified as being impaired with a balance in excess of $100,000 that are also on nonaccrual or have been risk rated under the Company’s risk rating system as substandard, doubtful, or loss.
The Company establishes a specific allocation for all commercial loans identified as being specifically-identified with a balance in excess of $100,000 that are also on nonaccrual or have been risk rated under the Company’s risk rating system as substandard, doubtful, or loss.
Management continues to monitor and react to national and local economic trends as well as general portfolio conditions which may impact the quality of the portfolio, and considers these environmental factors in support of the allowance for loan loss reserve.
Management continues to monitor and react to national and local economic trends as well as general portfolio conditions which may impact the quality of the portfolio, and considers these environmental factors in support of the allowance for credit loss reserve.
The following table sets forth the allocation of allowance for loan losses by loan category for the years indicated.
The following table sets forth the allocation of allowance for credit losses by loan category for the years indicated.
At December 31, 2022, the Bank exceeded all current regulatory required minimum capital ratios, including the capital buffer requirements. 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 an ongoing basis.
At December 31, 2023, the Bank exceeded all current regulatory required minimum capital ratios, including the capital buffer requirements. - 53 - 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 an ongoing basis.
The Company establishes a specific allowance for all commercial loans in excess of the total related credit threshold of $100,000 and single borrower residential mortgage loans in excess of the total related credit threshold of $300,000 identified as being impaired which are on nonaccrual and have been risk rated under the Company’s risk rating system as substandard, doubtful, or loss.
The Company establishes a specific allowance for all commercial loans in excess of the total related credit threshold of $100,000 and single borrower residential mortgage loans in excess of the total related credit threshold of $300,000 identified as being individually evaluated which are on nonaccrual and have been risk rated under the Company’s risk rating system as substandard, doubtful, or loss.
Given the concentration of ALLL allocation to the total commercial loan portfolio and the significant judgments made by management in deriving the qualitative loss factors, management considers the impact that changes in judgments could have on the ALLL.
Given the concentration of ACL allocation to the total commercial loan portfolio and the significant judgments made by management in deriving the qualitative loss factors, management considers the impact that changes in judgments could have on the ACL.
NON-GAAP FINANCIAL INFORMATION Regulation G, a rule adopted by the Securities and Exchange Commission (SEC), applies to certain SEC filings, including earnings releases, made by registered companies that contain “non-GAAP financial measures.” GAAP is generally accepted accounting principles in the United States of America.
NON-GAAP FINANCIAL INFORMATION Regulation G, a rule adopted by the Securities and Exchange Commission (SEC), applies to certain SEC filings, made by registered companies that contain “non-GAAP financial measures.” GAAP is generally accepted accounting principles in the United States of America.
In addition, future problems with one or more specifically-identified loans or one or more specifically-identified borrower relationships could require a significant increase to the ALLL. Management’s methodology and policy in determining the allowance for loan losses can be found in Note 1 to the consolidated financial statements included in Item 8 of this Annual Report on Form 10-K.
In addition, future problems with one or more specifically-identified loans or one or more specifically-identified borrower relationships could require a significant increase to the ACL. Management’s methodology and policy in determining the allowance for credit losses can be found in Note 1 to the consolidated financial statements included in Item 8 of this Annual Report on Form 10-K.
For regulatory reporting purposes, the Federal Reserve Board has indicated that the preferred securities will continue to qualify as Tier 1 Capital subject to previously specified limitations, until further notice. If regulators make a determination that Trust Preferred Securities can no longer be considered in regulatory capital, the securities become callable and the Company may redeem them at its discretion.
For regulatory reporting purposes, the Federal Reserve Board has indicated that the preferred securities will continue to qualify as Tier 1 Capital subject to previously specified limitations, until further notice. If regulators make a - 52 - determination that Trust Preferred Securities can no longer be considered in regulatory capital, the securities become callable and the Company may redeem them.
The fair values of foreclosed real estate and the underlying collateral value of impaired loans are typically determined based on evaluations by third parties, less estimated costs to sell. When necessary, appraisals are updated to reflect changes in market conditions.
The fair values of foreclosed real estate and the underlying collateral value of individually analyzed loans are typically determined based on evaluations by third parties, less estimated costs to sell. When necessary, appraisals are updated to reflect changes in market conditions.
The Company believes that this restriction will not have an impact on the Company's ability to meet its ongoing cash obligations. At December 31, 2022 and 2021, the Company had cash and cash equivalents of $35.3 million and $37.1 million, respectively. The Bank has a number of existing credit facilities available to it.
The Company believes that this restriction will not have an impact on the Company's ability to meet its ongoing cash obligations. At December 31, 2023 and 2022, the Company had cash and cash equivalents of $47.1 million and $35.3 million, respectively. The Bank has a number of existing credit facilities available to it.
The Company considers a loan impaired when, based on current information and events, it is probable that the Company will be unable to collect the scheduled payments of principal and interest when due according to the contractual terms of the loan.
The Company considers a loan specifically-identified when, based on current information and events, it is probable that the Company will be unable to collect the scheduled payments of principal and interest when due according to the contractual terms of the loan.
At December 31, 2022, the Bank exceeded all regulatory required minimum capital ratios and met the regulatory definition of a “well-capitalized” institution.
At December 31, 2023, the Bank exceeded all regulatory required minimum capital ratios and met the regulatory definition of a “well-capitalized” institution.
The measurement of impaired loans is based upon the fair value of the collateral or the present value of future cash flows discounted at the historical effective interest rate for impaired loans when the receipt of contractual principal and interest is probable.
The measurement of specifically-identified loans is based upon the fair value of the collateral or the present value of future cash flows discounted at the historical effective interest rate for specifically-identified loans when the receipt of contractual principal and interest is probable.
RECENT EVENTS On December 23, 2022, the Company announced that its Board of Directors had declared a cash dividend of $0.09 per share on the Company’s voting common and non-voting common stock, and a cash dividend of $0.09 per notional share for the issued Warrant relating to the fiscal quarter ended December 31, 2022.
RECENT EVENTS On December 22, 2023, the Company announced that its Board of Directors had declared a cash dividend of $0.09 per share on the Company’s voting common and non-voting common stock, and a cash dividend of $0.09 per notional share for the issued Warrant relating to the fiscal quarter ended December 31, 2023.
The sensitivity and related range of - 39 - impacts for various judgments on the ALLL is a hypothetical analysis and is used to determine management’s judgments or assumptions of qualitative loss factors that were utilized at December 31, 2022 in the final recorded estimation of the ALLL on loans recognized on the Statement of Financial Condition.
The sensitivity and related range of impacts for various judgments on the ACL is a hypothetical analysis and is used to determine management’s judgments or assumptions of qualitative loss factors that were utilized at December 31, 2023 in the final recorded estimation of the ACL on loans recognized on the Statement of Financial Condition.
Determining the amount of the allowance for loan losses is considered a critical accounting estimate because it requires significant judgment on 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 environmental factors, all of which may be susceptible to significant change.
Determining the amount of the allowance for credit losses is considered a critical accounting estimate because it requires - 34 - significant judgment on the use of estimates related to the amount and timing of expected future cash flows on individually evaluated loans, estimated losses on pools of homogeneous loans based on historical loss experience, and environmental factors, all of which may be susceptible to significant change.
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 allowance for loan losses, deferred income tax assets and liabilities, pension obligations, the evaluation of investment securities for other than temporary impairment, the annual evaluation of the Company’s goodwill for possible impairment, and the estimation of fair values for accounting and disclosure purposes to be the accounting areas that require the most subjective and complex judgments.
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 allowance for credit losses, deferred income tax assets and liabilities, pension obligations, the annual evaluation of the Company’s goodwill for possible impairment, and the estimation of fair values for accounting and disclosure purposes to be the accounting areas that require the most subjective and complex judgments.
If the assumptions underlying the determination of the ALLL prove to be incorrect, the ALLL may not be sufficient to cover actual loan losses and an increase to the ALLL may be necessary in future periods to allow for different assumptions or adverse developments.
If the assumptions underlying the determination of the ACL prove to be incorrect, the ACL may not be sufficient to cover actual credit losses and an increase to the ACL may be necessary in future periods to allow for different assumptions or adverse developments.
Such sources could include, but are not limited to, additional borrowings, brokered deposits, negotiated time deposits, the sale of "available-for-sale" investment securities, or the sale of loans. Such actions could result in higher interest expense costs and/or losses on the sale of securities or loans. For the year ended December 31, 2022, cash and cash equivalents decreased by $1.9 million.
Such sources could include, but are not limited to, additional borrowings, brokered deposits, negotiated time deposits, the sale of "available-for-sale" investment securities, or the sale of loans. Such actions could result in higher interest expense costs and/or losses on the sale of securities or loans. For the year ended December 31, 2023, cash and cash equivalents increased by $11.9 million.
For all other loans, the Company uses the general allocation methodology that establishes an allowance to estimate the probable incurred loss for each risk-rating category.
For all other loans, the Company uses the general allocation methodology that establishes an allowance to estimate the lifetime loss for each risk-rating category.
Management monitors its loan portfolios closely and has incorporated our current estimate of the ultimate collectability of all loans into the reported allowance for loan losses at December 31, 2022. The ratio of the allowance for loan losses to year end loans was 1.71% and 1.55% at December 31, 2022 and December 31, 2021, respectively.
Management monitors its loan portfolios closely and has incorporated our current estimate of the ultimate collectability of all loans into the reported allowance for credit losses at December 31, 2023. The ratio of the allowance for credit losses to year end loans was 1.78% and 1.71% at December 31, 2023 and December 31, 2022, respectively.
Total deposits of $1.13 billion at December 31, 2022 consisted in part of $248.6 million in brokered money market and certificates of deposit accounts. Brokered deposits represented 22.1% of all deposits at December 31, 2022. Total deposits of $1.06 billion at December 31, 2021 consisted in part of $157.8 million in brokered money market and certificates of deposit accounts.
Total deposits of $1.13 billion at December 31, 2022 consisted in part of $248.6 million in brokered money market and certificates of deposit accounts. Brokered deposits represented 22.1% of all deposits at December 31, 2022.
The measurement of impaired loans is generally based upon the present value of future cash flows discounted at the historical effective interest rate, except that all collateral-dependent loans are measured for impairment based on the fair value of the collateral, less costs to sell.
The measurement of individually evaluated loans is generally based upon the present value of future cash flows discounted at the historical effective interest rate, except that all collateral-dependent loans are measured based on the fair value of the collateral, less costs to sell.
The increase in earnings per share between these two years was due to the increase in net income available to common shareholders between these two time periods. Further information on earnings per share can be found in Note 3 of this Form 10-K.
The decrease in earnings per share between these two years was due to the decrease in net income available to common shareholders between these two time periods. Further information on earnings per share can be found in Note 3 to the consolidated financial statements of this Form 10-K.
Bank owned life insurance increased $589,000, or 2.5%, to $24.0 million at December 31, 2022, as compared to December 31, 2021. The increase was primarily due to an increase in the cash value of the policies recorded as income in 2022. Deposits The Company’s deposit base is drawn from eleven full-service offices in its market area.
Bank owned life insurance increased $630,000, or 2.6%, to $24.6 million at December 31, 2023, as compared to December 31, 2022. The increase was primarily due to an increase in the cash value of the policies recorded as income in 2023. Deposits The Company’s deposit base is drawn from eleven full-service offices in its market area.
Had the loans in - 52 - nonaccrual status performed in accordance with their original terms, additional interest income of $476,000 and $592,000 would have been recorded for the years ended December 31, 2022 and December 31, 2021, respectively.
Had the loans in nonaccrual status performed in accordance with their original terms, additional interest income of $989,000 and $476,000 would have been recorded for the years ended December 31, 2023 and December 31, 2022, respectively.
This transition adjustment was booked to retained earnings in the first quarter of 2023 and therefore will be a subtraction from tangible book value (“TBV”), after tax effects of approximately $1.7 million.
This transition adjustment was booked to retained earnings in the first quarter of 2023 and was therefore a subtraction from tangible book value, after tax effects of approximately $2.1 million.
The ratio of net charge-offs to average loans decreased to 0.04% in 2022 from 0.10% in 2021. For further discussion of our allowance for loan losses procedures, please see “Business-Allowance for Loan Losses” and Note 6 to the consolidated financial statements contained in this Annual Report on Form 10-K.
The ratio of net charge-offs to average loans increased to 0.47% in 2023 from 0.04% in 2022. For further discussion of our allowance for credit losses procedures, please see “Business-Allowance for Credit Losses” and Note 6 to the consolidated financial statements contained in this Annual Report on Form 10-K.
The Company provides, as supplemental information, such non-GAAP measures included in this document as described immediately below. - 36 - At or for the years ended December 31, (In thousands, except per share amounts) 2022 2021 2020 2019 2018 Per Share Book value per common share Total Pathfinder Bancorp, Inc. shareholders' equity (book value) (GAAP) $ 110,997 $ 110,287 $ 97,456 $ 90,434 $ 64,221 Preferred stock - - 17,901 15,370 - Total shares outstanding 6,032 5,983 4,531 4,709 4,362 Book value per common share $ 18.40 $ 18.43 $ 17.56 $ 15.94 $ 14.72 Total common equity Total equity (GAAP) $ 110,997 $ 110,287 $ 79,555 $ 75,064 $ 64,221 Goodwill 4,536 4,536 4,536 4,536 4,536 Intangible assets 101 117 133 149 165 Tangible common equity $ 106,360 $ 105,634 $ 74,886 $ 70,379 $ 59,520 Tangible book value per common share Tangible common equity $ 106,360 $ 105,634 $ 74,886 $ 70,379 $ 59,520 Total shares outstanding 6,032 5,983 4,531 4,709 4,362 Tangible book value per common share $ 17.63 $ 17.66 $ 16.53 $ 14.95 $ 13.65 Performance Ratios Efficiency ratio Operating expenses (numerator) $ 28,874 $ 27,495 $ 25,080 $ 25,730 $ 23,549 Net interest income 41,403 38,295 31,643 28,230 25,766 Noninterest income 5,914 6,231 6,485 4,917 3,835 Less: (Losses)/Gains on the sale/redemption of investment securities, fixed assets, loans, and foreclosed real estate (282 ) 551 2,255 393 (132 ) Less : Gains/(Losses) on marketable securities 352 382 (629 ) 81 (62 ) Denominator $ 47,247 $ 43,593 $ 36,502 $ 32,673 $ 29,795 Efficiency ratio 61.11 % 63.07 % 68.71 % 78.75 % 79.04 % Dividend payout ratio Dividends declared (numerator) $ 2,143 $ 1,548 $ 1,102 $ 1,081 $ 1,005 Net income available to common shareholders (denominator) 10,221 9,576 5,405 3,578 4,031 Dividend payout ratio 20.97 % 16.17 % 20.39 % 30.21 % 24.93 % Return on average common equity Net income attributable to Pathfinder Bancorp Inc.
The Company provides, as supplemental information, such non-GAAP measures included in this document as described immediately below. - 32 - At or for the year ended December 31, (In thousands, except per share amounts) 2023 2022 2021 2020 2019 Per Share Book value per common share Total Pathfinder Bancorp, Inc. shareholders' equity (book value) (GAAP) $ 119,495 $ 110,997 $ 110,287 $ 97,456 $ 90,434 Preferred stock - - - 17,901 15,370 Total shares outstanding 6,100 6,032 5,983 4,531 4,709 Book value per common share $ 19.59 $ 18.40 $ 18.43 $ 17.56 $ 15.94 Total common equity Total equity (GAAP) $ 119,495 $ 110,997 $ 110,287 $ 79,555 $ 75,064 Goodwill 4,536 4,536 4,536 4,536 4,536 Intangible assets 85 101 117 133 149 Tangible common equity $ 114,874 $ 106,360 $ 105,634 $ 74,886 $ 70,379 Tangible book value per common share Tangible common equity $ 114,874 $ 106,360 $ 105,634 $ 74,886 $ 70,379 Total shares outstanding 6,100 6,032 5,983 4,531 4,709 Tangible book value per common share $ 18.83 $ 17.63 $ 17.66 $ 16.53 $ 14.95 Performance Ratios Efficiency ratio Operating expenses (numerator) $ 29,395 $ 28,874 $ 27,495 $ 25,080 $ 25,730 Net interest income 38,919 41,403 38,295 31,643 28,230 Noninterest income 5,190 5,914 6,231 6,485 4,917 Less: Gains/(Losses) on the sale/redemption of investment securities, fixed assets, loans, and foreclosed real estate 243 (282 ) 551 2,255 393 Less : (Losses)/Gains on marketable securities (255 ) 352 382 (629 ) 81 Denominator $ 44,121 $ 47,247 $ 43,593 $ 36,502 $ 32,673 Efficiency ratio 66.62 % 61.11 % 63.07 % 68.71 % 78.75 % Dividend payout ratio Dividends declared (numerator) $ 2,177 $ 2,143 $ 1,548 $ 1,102 $ 1,081 Net income available to common shareholders (denominator) 7,519 10,221 9,576 5,405 3,578 Dividend payout ratio 28.95 % 20.97 % 16.17 % 20.39 % 30.21 % Return on average common equity Net income attributable to Pathfinder Bancorp Inc.
December 31, (Dollars in thousands) 2022 2021 2020 2019 2018 Residential real estate $ 262,008 29.2 % $ 246,344 29.6 % $ 233,094 28.2 % $ 212,663 27.2 % $ 238,894 38.5 % Residential real estate held-for-sale 19 0.0 % 513 0.1 % 1,526 0.2 % 35,936 4.6 % - 0.0 % Commercial real estate 344,721 38.4 % 287,279 34.5 % 286,066 34.7 % 254,781 32.6 % 212,622 34.3 % Commercial and tax exempt 163,806 18.3 % 156,167 18.8 % 194,963 23.6 % 148,776 19.0 % 116,914 18.8 % Home equity and junior liens 34,349 3.8 % 32,048 3.8 % 38,941 4.7 % 46,688 6.0 % 26,416 4.3 % Consumer loans 92,851 10.3 % 110,108 13.2 % 70,905 8.6 % 82,607 10.6 % 25,424 4.1 % Total loans receivable $ 897,754 100.0 % $ 832,459 100.0 % $ 825,495 100.0 % $ 781,451 100.0 % $ 620,270 100.0 % The following table shows the amount of loans outstanding, including net deferred costs, as of December 31, 2022 which, based on remaining scheduled repayments of principal, are due in the periods indicated.
December 31, (Dollars in thousands) 2023 2022 2021 2020 2019 Residential real estate $ 258,198 28.8 % $ 262,008 29.2 % $ 246,344 29.6 % $ 233,094 28.2 % $ 212,663 27.2 % Residential real estate held-for-sale - 0.0 % 19 0.0 % 513 0.1 % 1,526 0.2 % 35,936 4.6 % Commercial real estate 358,521 40.0 % 344,721 38.4 % 287,279 34.5 % 286,066 34.7 % 254,781 32.6 % Commercial and tax exempt 165,460 18.4 % 163,806 18.3 % 156,167 18.8 % 194,963 23.6 % 148,776 19.0 % Home equity and junior liens 35,231 3.9 % 34,349 3.8 % 32,048 3.8 % 38,941 4.7 % 46,688 6.0 % Consumer loans 79,797 8.9 % 92,851 10.3 % 110,108 13.2 % 70,905 8.6 % 82,607 10.6 % Total loans receivable $ 897,207 100.0 % $ 897,754 100.0 % $ 832,459 100.0 % $ 825,495 100.0 % $ 781,451 100.0 % The following table shows the amount of loans outstanding, including net deferred costs, as of December 31, 2023 which, based on remaining scheduled repayments of principal, are due in the periods indicated.
Determining the amount of the ALLL requires significant judgment on the part of management 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, consideration of current economic trends and conditions, and other qualitative and quantitative factors, all of which may be susceptible to significant change.
Determining the amount of the ACL requires significant judgment on the part of management and the use of estimates related to the amount and timing of expected future cash flows on individually evaluated loans, estimated losses on pools of homogeneous loans based on historical loss experience, as correlated to historical economic metrics and in consideration of current economic trends and conditions, and other qualitative factors, all of which may be susceptible to significant change.
Comprehensive loss increased primarily as the result of increased losses on available for sale securities of $10.6 million and a $1.0 million adjustment to pension and post retirement, partially offset by a $669,000 gain on derivatives and hedging activities. Risk-based capital provides the basis for which all banks are evaluated in terms of capital adequacy.
Comprehensive loss decreased primarily as the result of decreased losses on available for sale securities of $2.6 million and a $354,000 adjustment to pension and post retirement, partially offset by a $350,000 loss on derivatives and hedging activities. Risk-based capital provides the basis for which all banks are evaluated in terms of capital adequacy.
Management believes that the current level of the allowance for loan losses, at $15.3 million at December 31, 2022, adequately addresses the current level of risk within the loan portfolio, particularly considering the types and levels of collateralization supporting the substantial majority of the portfolio.
Management believes that the current level of the allowance for credit losses, at $16.0 million at December 31, 2023, adequately addresses the current level of risk within the loan portfolio, particularly considering the types and levels of collateralization supporting the substantial majority of the portfolio.
The Company recorded a provision for loan losses of $2.8 million in 2022 as compared to $1.0 million in the prior year. The $1.8 million year-over-year increase in provision for loan losses was primarily due to the downgrading of a limited number of relatively large commercial real estate and commercial loan relationships.
The Company recorded a provision for credit losses of $2.9 million in 2023 as compared to $2.8 million in the prior year. The $176,000 year-over-year increase in provision for credit losses was primarily due to the downgrading of a limited number of relatively large commercial real estate and commercial loan relationships.
While not reducing our role as a leading originator of one-to-four family residential real estate loans within our marketplace, which had been our primary focus as a savings bank, we have substantially grown our commercial business and commercial real estate loan portfolios since the Conversion.
This transformation of activities has significantly affected the overall composition of our balance sheet. While not reducing our role as a leading originator of one-to-four family residential real estate loans within our marketplace, which had been our primary focus as a savings bank, we have substantially grown our commercial business and commercial real estate loan portfolios since the Conversion.
The increase in residential mortgage loans was primarily the result of increases in the percentage of originated loans allocated for addition to the Bank's portfolio as rates generally increased throughout 2022.
The decrease in residential mortgage loans was primarily the result of decreases in the percentage of originated loans allocated for addition to the Bank's portfolio as rates generally increased throughout 2023.
Of these loans, 15 loans, totaling $1.5 million, were valued using the present value of future cash flows method; and 66 loans, totaling $18.7 million, were valued based on a collateral analysis. For all other loans, the Company uses the general allocation methodology that establishes an allowance to estimate the probable incurred loss for each risk-rating category.
Of these loans, 17 loans, totaling $1.6 million, were valued using the present value of future cash flows method; and 52 loans, totaling $20.9 million, were valued based on a collateral analysis. For all other loans, the Company uses the general allocation methodology that establishes an allowance to estimate the probable lifetime loss for each risk-rating category.
At December 31, 2022, total credit available under the existing lines of credit was approximately $163.4 million at FHLBNY, the FRB, and two other correspondent banks.
At December 31, 2023, total credit available under the existing lines of credit was approximately $236.7 million at FHLBNY, the FRB, and two other correspondent banks.
The ALLL could increase (or decrease) by approximately $2.0 million, assuming a 25% negative (or positive) change within the group of qualitative factors used to determine the ALLL for commercial loans.
The ACL could increase (or decrease) by approximately $891,000, assuming a 25% negative (or positive) change within the group of qualitative factors used to determine the ACL for commercial loans.
In addition, the Company did not pay any commission or remuneration for the solicitation of the exchange. - 31 - On November 13, 2020, the Company filed an amendment to the Articles Supplementary to the Articles of Incorporation of the Company designating the Series B Preferred Stock with the Maryland Department of Assessments and Taxation to increase the classified number of shares of the Series B Preferred Stock from 1,155,283 to 1,506,000 to allow for the additional issuance of Series B Preferred Stock to Castle Creek.
On November 13, 2020, the Company filed an amendment to the Articles Supplementary to the Articles of Incorporation of the Company designating the Series B Preferred Stock with the Maryland Department of Assessments and Taxation to increase the classified number of shares of the Series B Preferred Stock from 1,155,283 to 1,506,000 to allow for the additional issuance of Series B Preferred Stock to Castle Creek.
The measurement of impaired loans is based upon either the present value of future cash flows discounted at the historical effective interest rate or the fair value of the collateral, less costs to sell for collateral dependent loans. At December 31, 2022, the Bank’s position in impaired loans consisted of 81 loans totaling $20.2 million.
The measurement of specifically-identified loans is based upon either the present value of future cash flows discounted at the historical effective interest rate or the fair value of the collateral, less costs to sell for collateral dependent loans. At December 31, 2023, the Bank’s position in specifically-identified loans consisted of 69 loans totaling $22.5 million.
The Company reported net cash flows from financing activities of $107.6 million generated principally by a $47.8 million increase in short term borrowings and a $90.8 million increase in brokered deposits, offset by a decrease in customer deposits of $20.7 million, a decrease in net proceeds from long-term borrowings of $8.9 million, and an aggregate decrease in net cash of all other financing sources, including dividends paid to common shareholders, and the holder of the Warrant of $2.1 million.
The Company reported net cash flows from financing activities of $52.8 million generated principally by a $65.3 million increase in short term borrowings, offset by a decrease in brokered deposits of $5.0 million, customer deposits of $352,000, a decrease in net proceeds from long-term borrowings of $5.7 million, and an aggregate decrease in net cash of all other financing sources, including dividends paid to common shareholders, and the holder of the Warrant of $2.2 million.
The ratio of delinquent loans to total loans increased to 3.21% at December 31, 2022 as compared to 2.14% at December 31, 2021. This increase was due to an increase of $6.4 million in past due commercial loans, a $3.8 million increase in past due consumer loans, and a $911,000 increase in past due residential loans.
The ratio of delinquent loans to total loans increased to 3.79% at December 31, 2023 as compared to 3.21% at December 31, 2022. This increase was due to an increase of $3.8 million in past due commercial loans, a $1.9 million increase in past due consumer loans, and a $2.3 million increase in past due residential loans.
The deposit base consists of demand deposits, money management and money market deposit accounts, savings, and time deposits. Average deposits increased $89.0 million, or 8.6%, in 2022. For the year ended December 31, 2022, 63.3% of the Company's average deposit base of $1.1 billion consisted of core deposits.
The deposit base consists of demand deposits, money management and money market deposit accounts, savings, and time deposits. Average deposits increased by $1.3 million, or 0.12%, in 2023. For the year ended December 31, 2023, 57.2% of the Company's average deposit base of $1.1 billion consisted of core deposits.
This transition adjustment was booked to retained earnings in the first quarter of 2023 and therefore will be a subtraction from tangible book value (“TBV”), after tax effects of approximately $1.7 million. Deferred Income Tax Assets and Liabilities . Deferred income tax assets and liabilities are determined using the liability method.
This transition adjustment, which had no effect on reported earnings in 2023, was booked to retained earnings in the first quarter of 2023 and was therefore a nonrecurring subtraction from tangible book value, after tax effects of approximately $2.1 million. Deferred Income Tax Assets and Liabilities . Deferred income tax assets and liabilities are determined using the liability method.
The allowance for loan losses at December 31, 2022 and 2021 was $15.3 million and $12.9 million respectively, or 1.71% and 1.57% of total year end loans on those dates, respectively. The Company recorded $370,000 in net charge-offs in 2022, as compared to $866,000 in net charge-offs in 2021.
The allowance for credit losses and the allowance for loan losses at December 31, 2023 and 2022 was $16.0 million and $15.3 million, respectively, or 1.78% and 1.71% of total year end loans on those dates, respectively. The Company recorded $4.2 million in net charge-offs in 2023, as compared to $370,000 in net charge-offs in 2022.
The following table represents information regarding short-term borrowings for the years ended December 31: (Dollars in thousands) 2022 2021 2020 Maximum outstanding at any month end $ 60,333 $ 12,500 $ 10,158 Average amount outstanding during the year 12,492 3,677 8,985 Balance at the end of the period 60,333 12,500 4,020 Average interest rate during the year 2.48 % 0.28 % 1.65 % Average interest rate at the end of the period 3.86 % 1.28 % 0.26 % The following table represents information regarding long-term borrowings for the years ended December 31: (Dollars in thousands) 2022 2021 2020 Maximum outstanding at any month end $ 67,371 $ 85,125 $ 83,299 Average amount outstanding during the year 58,593 75,724 72,430 Balance at the end of the period 55,664 64,598 78,030 Average interest rate during the year 0.96 % 1.34 % 2.08 % Average interest rate at the end of the period 1.39 % 1.12 % 1.60 % Subordinated Debt The Company has a non-consolidated subsidiary trust, Pathfinder Statutory Trust II, of which the Company owns 100% of the common equity.
The following table represents information regarding short-term borrowings for the years ended December 31: (Dollars in thousands) 2023 2022 2021 Maximum outstanding at any month end $ 125,680 $ 60,333 $ 12,500 Average amount outstanding during the year 49,601 12,492 3,677 Balance at the end of the period 125,680 60,333 12,500 Average interest rate during the year 5.42 % 2.48 % 0.28 % Average interest rate at the end of the period 4.50 % 3.86 % 1.28 % The following table represents information regarding long-term borrowings for the years ended December 31: (Dollars in thousands) 2023 2022 2021 Maximum outstanding at any month end $ 58,369 $ 67,371 $ 85,125 Average amount outstanding during the year 55,091 58,593 75,724 Balance at the end of the period 49,919 55,664 64,598 Average interest rate during the year 1.54 % 0.96 % 1.34 % Average interest rate at the end of the period 1.84 % 1.39 % 1.12 % Subordinated Debt The Company has a non-consolidated subsidiary trust, Pathfinder Statutory Trust II, of which the Company owns 100% of the common equity.
Certificates of deposit due within one year of December 31, 2022 totaled $216.2 million, representing 56.0% of certificates of deposit at December 31, 2022, a decrease from 57.9% at December 31, 2021. If these maturing deposits do not remain with us, we will be required to seek other sources of funds, including other certificates of deposit and borrowings.
Certificates of deposit due within one year of December 31, 2023 totaled $325.0 million, representing 68.7% of certificates of deposit at December 31, 2023, an increase from 56.0% at December 31, 2022. If these maturing deposits do not remain with us, we will be required to seek other sources of funds, including other certificates of deposit and borrowings.
Pursuant to the Subscription Agreements, the investors purchased an aggregate of 269,277 shares of Common Stock at $14.25 per share for gross proceeds of approximately $3.8 million, before payment of placement fees and related costs and expenses.
Pursuant to the Subscription Agreements, the investors purchased an aggregate of 269,277 shares of Common Stock at $14.25 per share for gross proceeds of approximately $3.8 million, before payment of placement fees and related costs and expenses. The Subscription Agreements contain representations, warranties, and covenants of the purchasers and the Company that are customary in private placement transactions.
The Company does not originate sub-prime, Alt-A, negative amortizing or other higher risk structured residential mortgages. - 51 - Nonperforming Loans and Assets The following table represents information concerning the aggregate amount of nonperforming assets: December 31 (Dollars In thousands) 2022 2021 2020 2019 2018 Nonaccrual loans: Commercial and commercial real estate loans $ 5,720 $ 6,297 $ 17,978 $ 3,002 $ 830 Consumer 2,183 1,104 747 631 142 Residential mortgage loans 1,112 891 2,608 1,613 1,176 Total nonaccrual loans 9,015 8,292 21,333 5,246 2,148 Total nonperforming loans 9,015 8,292 21,333 5,246 2,148 Foreclosed real estate 221 - - 88 1,173 Total nonperforming assets $ 9,236 $ 8,292 $ 21,333 $ 5,334 $ 3,321 Accruing troubled debt restructurings $ 3,047 $ 3,605 $ 3,554 $ 2,008 $ 2,574 Nonperforming loans to total loans 1.00 % 1.00 % 2.58 % 0.67 % 0.35 % Nonperforming assets to total assets 0.66 % 0.65 % 1.74 % 0.49 % 0.36 % Nonperforming assets include nonaccrual loans, nonaccrual troubled debt restructurings (“TDR”), and foreclosed real estate (“FRE”).
The Company does not originate sub-prime, Alt-A, negative amortizing or other higher risk structured residential mortgages. - 45 - Nonperforming Loans and Assets The following table represents information concerning the aggregate amount of nonperforming assets: December 31 (Dollars In thousands) 2023 2022 2021 2020 2019 Nonaccrual loans: Commercial and commercial real estate loans $ 12,317 $ 5,720 $ 6,297 $ 17,978 $ 3,002 Consumer 3,140 2,183 1,104 747 631 Residential mortgage loans 1,770 1,112 891 2,608 1,613 Total nonaccrual loans 17,227 9,015 8,292 21,333 5,246 Total nonperforming loans 17,227 9,015 8,292 21,333 5,246 Foreclosed real estate 151 221 - - 88 Total nonperforming assets $ 17,378 $ 9,236 $ 8,292 $ 21,333 $ 5,334 Nonperforming loans to total loans 1.92 % 1.00 % 1.00 % 2.58 % 0.67 % Nonperforming assets to total assets 1.19 % 0.66 % 0.65 % 1.74 % 0.49 % Nonperforming assets include nonaccrual loans, and foreclosed real estate (“FRE”).
At December 31, 2021, there were $17.9 million in loans past due including $5.2 million, $4.6 million and $8.0 million in loans 30-59 days, 60-89 days, and 90 days and over past due, respectively.
At December 31, 2023, there were $34.0 million in loans past due including $13.6 million, $3.2 million and $17.2 million in loans 30-59 days, 60-89 days, and 90 days and over past due, respectively.
Additionally, $21.7 million was provided through operating activities generated principally by net income and proceeds from loan sales. These cash flows were primarily invested in: $114.9 million in purchases of investment securities in 2022, and $66.3 million net increases in loans outstanding.
Additionally, $13.8 million was provided through operating activities generated principally by net income and proceeds from loan sales. These cash flows were primarily invested in: $112.8 million in purchases of investment securities in 2023, and $1.8 million net increases in loans outstanding.
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.
Note 1 to the consolidated financial statements describes the methodology used to determine the allowance for credit losses and a discussion of the factors driving changes in the amount of the allowance for credit losses is included in this report. As noted above, the allowance for credit losses (“ACL”) represents management’s estimate of lifetime losses in the Bank’s loan portfolio.
It is our intent to balance our future growth with capital adequacy considerations in a manner that will continue to allow us to effectively serve all of our key stakeholders and maintain our “well capitalized” capital position. - 34 - Selected Financial Data The following selected consolidated financial data sets forth certain financial highlights of the Company and should be read in conjunction with the consolidated financial statements and related notes At or for the years ended December 31, (In thousands, except per share amounts) 2022 2021 2020 2019 2018 Year End Total assets $ 1,399,921 $ 1,285,177 $ 1,227,443 $ 1,093,807 $ 933,115 Investment securities available-for-sale 191,726 190,598 128,261 111,134 177,664 Investment securities held-to-maturity 194,402 160,923 171,224 122,988 53,908 Loans receivable, net 882,435 819,524 812,718 772,782 612,964 Deposits 1,125,430 1,055,346 995,907 881,893 727,060 Borrowings and subordinated debt 145,730 106,661 121,450 108,253 133,628 Shareholders' equity 111,582 110,633 97,722 90,669 64,459 For the Year Total interest income $ 51,098 $ 45,827 $ 42,507 $ 41,758 $ 34,810 Total interest expense 9,695 7,532 10,864 13,528 9,044 Net interest income 41,403 38,295 31,643 28,230 25,766 Provision for loan losses 2,754 1,022 4,707 1,966 1,497 Net interest income after provision for loan losses 38,649 37,273 26,936 26,264 24,269 Total noninterest income 5,914 6,231 6,485 4,917 3,835 Total noninterest expense 28,874 27,495 25,080 25,730 23,549 Income before income taxes 15,689 16,009 8,341 5,451 4,555 Income tax expense 2,656 3,499 1,295 1,165 546 Net income (loss) attributable to noncontrolling interest 101 103 96 10 (22 ) Net income attributable to Pathfinder Bancorp, Inc. $ 12,932 $ 12,407 $ 6,950 $ 4,276 $ 4,031 Convertible preferred stock dividends - 97 291 208 - Warrant dividends 45 35 30 23 - Undistributed earnings allocated to participating securities 2,666 2,699 1,224 467 - Net income available to common shareholders $ 10,221 $ 9,576 $ 5,405 $ 3,578 $ 4,031 Per Share Income per share - basic $ 2.13 $ 2.07 $ 1.17 $ 0.80 $ 0.97 Income per share - diluted 2.13 2.07 1.17 0.80 0.94 Book value per common share 18.40 18.43 17.56 15.94 14.72 Tangible book value per common share (a) 17.63 17.66 16.53 14.95 13.65 Cash dividends declared 0.36 0.28 0.24 0.24 0.24 Performance Ratios Return on average assets 0.96 % 0.98 % 0.60 % 0.43 % 0.45 % Return on average equity 11.77 11.91 7.43 5.34 6.33 Average equity to average assets 8.17 8.26 8.02 7.97 7.09 Shareholders' Equity to total assets at end of year 7.93 8.58 7.94 8.27 6.88 Net interest rate spread 3.05 3.06 2.68 2.73 2.85 Net interest margin 3.24 3.21 2.88 2.98 3.02 Average interest-earning assets to average interest-bearing liabilities 124.03 124.61 120.49 116.84 116.52 Noninterest expense to average assets 2.15 2.18 2.15 2.56 2.62 Efficiency ratio (a) (b) 61.11 63.07 68.71 78.75 79.04 Dividend payout ratio 20.87 16.17 20.39 30.21 24.93 Return on average common equity 11.77 11.91 8.92 6.02 6.33 - 35 - At December 31, 2022 2021 2020 2019 2018 Asset Quality Ratios Nonperforming loans to year end loans 1.00 % 1.00 % 2.58 % 0.67 % 0.35 % Nonperforming assets to total assets 0.66 0.65 1.74 0.49 0.36 Allowance for loan losses to year end loans 1.71 1.57 1.55 1.11 1.18 Allowance for loan losses to nonperforming loans 169.93 155.99 59.89 165.25 340.13 Regulatory Capital Ratios (Bank Only) Total capital (to risk-weighted assets) 15.14 % 15.19 % 13.13 % 12.28 % 13.69 % Tier 1 capital (to risk-weighted assets) 13.88 13.94 11.87 11.16 12.49 Tier 1 capital (to adjusted assets) 9.67 9.52 8.63 8.20 8.31 Tier 1 Common Equity (to risk-weighted assets) 13.88 13.94 11.87 11.16 12.49 Number of: Banking offices 12 11 11 11 11 Fulltime equivalent employees 160 161 176 157 160 (a) See table below for reconciliation of the non-GAAP financial measures.
Conversion : Each share of Non-Voting Common Stock will be convertible into one share of the Company’s Common Stock (i) at any time and from time to time at the request of the holder thereof or at the written request of the Company; provided that upon such conversion, the holder, together with all affiliates of the holder, will not own or control in the aggregate more than 9.9% of the Company’s Common Stock (or of any class of the Company’s voting securities), excluding for the purpose of this calculation any reduction in the ownership resulting from transfers by such holder of voting securities (which, for the avoidance of doubt, does not included the Non-Voting Common Stock); or (ii) automatically, without any further action of the part of the holder, on the date that the holder transfers such share of Non-Voting Common Stock to a non-affiliate of the holder in a permissible transfer. - 30 - SELECTED FINANCIAL DATA The following selected consolidated financial data sets forth certain financial highlights of the Company and should be read in conjunction with the consolidated financial statements and related notes: At or for the year ended December 31, (In thousands, except per share amounts) 2023 2022 2021 2020 2019 Year End Total assets $ 1,465,798 $ 1,399,921 $ 1,285,177 $ 1,227,443 $ 1,093,807 Investment securities available-for-sale 258,716 191,726 190,598 128,261 111,134 Investment securities held-to-maturity 179,286 194,402 160,923 171,224 122,988 Loans receivable, net 881,232 882,435 819,524 812,718 772,782 Deposits 1,120,067 1,125,430 1,055,346 995,907 881,893 Borrowings and subordinated debt 205,513 145,730 106,661 121,450 108,253 Shareholders' equity 120,256 111,582 110,633 97,722 90,669 For the Year Total interest income $ 67,663 $ 51,098 $ 45,827 $ 42,507 $ 41,758 Total interest expense 28,744 9,695 7,532 10,864 13,528 Net interest income 38,919 41,403 38,295 31,643 28,230 Provision for credit losses 2,930 2,754 1,022 4,707 1,966 Net interest income after provision for credit losses 35,989 38,649 37,273 26,936 26,264 Total noninterest income 5,190 5,914 6,231 6,485 4,917 Total noninterest expense 29,395 28,874 27,495 25,080 25,730 Income before income taxes 11,784 15,689 16,009 8,341 5,451 Income tax expense 2,362 2,656 3,499 1,295 1,165 Net income attributable to noncontrolling interest 129 101 103 96 10 Net income attributable to Pathfinder Bancorp, Inc. $ 9,293 $ 12,932 $ 12,407 $ 6,950 $ 4,276 Convertible preferred stock dividends - - 97 291 208 Warrant dividends 45 45 35 30 23 Undistributed earnings allocated to participating securities 1,729 2,666 2,699 1,224 467 Net income available to common shareholders $ 7,519 $ 10,221 $ 9,576 $ 5,405 $ 3,578 Per Share Income per share - basic $ 1.51 $ 2.13 $ 2.07 $ 1.17 $ 0.80 Income per share - diluted 1.51 2.13 2.07 1.17 0.80 Book value per common share 19.59 18.40 18.43 17.56 15.94 Tangible book value per common share (a) 18.83 17.63 17.66 16.53 14.95 Cash dividends declared 0.36 0.36 0.28 0.24 0.24 Performance Ratios Return on average assets 0.67 % 0.96 % 0.98 % 0.60 % 0.43 % Return on average equity 8.09 11.77 11.91 7.43 5.34 Average equity to average assets 8.26 8.17 8.26 8.02 7.97 Shareholders' Equity to total assets at end of year 8.15 7.93 8.58 7.94 8.27 Net interest rate spread 2.47 3.05 3.06 2.68 2.73 Net interest margin 2.95 3.24 3.21 2.88 2.98 Average interest-earning assets to average interest-bearing liabilities 121.63 124.03 124.61 120.49 116.84 Noninterest expense to average assets 2.11 2.15 2.18 2.15 2.56 Efficiency ratio (a) (b) 66.62 61.11 63.07 68.71 78.75 Dividend payout ratio 28.95 20.87 16.17 20.39 30.21 Return on average common equity 8.09 11.77 11.91 8.92 6.02 - 31 - At December 31, 2023 2022 2021 2020 2019 Asset Quality Ratios Nonperforming loans to year end loans 1.92 % 1.00 % 1.00 % 2.58 % 0.67 % Nonperforming assets to total assets 1.19 0.66 0.65 1.74 0.49 Allowance for credit losses to year end loans 1.78 1.71 1.57 1.55 1.11 Allowance for credit losses to nonperforming loans 92.73 169.93 155.99 59.89 165.25 Regulatory Capital Ratios (Bank Only) Total capital (to risk-weighted assets) 15.05 % 15.14 % 15.19 % 13.13 % 12.28 % Tier 1 capital (to risk-weighted assets) 13.80 13.88 13.94 11.87 11.16 Tier 1 capital (to adjusted assets) 10.11 9.67 9.52 8.63 8.20 Tier 1 Common Equity (to risk-weighted assets) 13.80 13.88 13.94 11.87 11.16 Number of: Banking offices 12 12 11 11 11 Fulltime equivalent employees 164 160 161 176 157 (a) See table below for reconciliation of the non-GAAP financial measures.
This increase was primarily due to a $10.4 million increase in retained earnings, a $1.0 million increase in additional paid in capital and a $180,000 increase in ESOP shares earned, offset by a $10.9 million increase in comprehensive loss. The increase in retained earnings resulted from $12.9 million in net income recorded in 2022.
This increase was primarily due to a $4.7 million increase in retained earnings, a $2.6 million decrease in accumulated other comprehensive loss, a $1.0 million increase in additional paid in capital, and a $180,000 increase in ESOP shares earned. The increase in retained earnings resulted from $9.3 million in net income recorded in 2023.
The following table sets forth the carrying value of the Company's investment portfolio at December 31: Available-for-Sale Held-to-Maturity (In thousands) 2022 2021 2020 2022 2021 2020 Investment Securities: US treasury, agencies and GSEs $ 29,364 $ 32,273 $ 6,416 $ 3,852 $ - $ 1,000 State and political subdivisions 45,385 39,199 23,753 15,211 14,790 16,482 Corporate 11,829 14,127 12,668 45,086 46,290 36,441 Asset backed securities 15,400 13,613 8,607 19,158 14,636 18,414 Residential mortgage-backed - US agency 16,400 22,164 25,211 7,489 9,740 11,807 Collateralized mortgage obligations - US agency 11,708 12,285 26,464 15,109 11,362 24,482 Collateralized mortgage obligations - Private label 61,434 56,731 24,936 88,497 64,105 62,598 Common stock - financial services industry 206 206 206 - - - Total investment securities $ 191,726 $ 190,598 $ 128,261 $ 194,402 $ 160,923 $ 171,224 - 48 - The following table sets forth the scheduled maturities, amortized cost, fair values and average yields for the Company's investment securities at December 31, 2022.
The following table sets forth the carrying value of the Company's investment portfolio at December 31: Available-for-Sale Held-to-Maturity (In thousands) 2023 2022 2021 2023 2022 2021 Investment Securities: US treasury, agencies and GSEs $ 80,083 $ 29,364 $ 32,273 $ 3,760 $ 3,852 $ - State and political subdivisions 32,924 45,385 39,199 16,576 15,211 14,790 Corporate 10,919 11,829 14,127 45,427 45,086 46,290 Asset backed securities 19,892 15,400 13,613 16,860 19,158 14,636 Residential mortgage-backed - US agency 24,418 16,400 22,164 6,974 7,489 9,740 Collateralized mortgage obligations - US agency 12,179 11,708 12,285 13,221 15,109 11,362 Collateralized mortgage obligations - Private label 78,095 61,434 56,731 76,819 88,497 64,105 Common stock - financial services industry 206 206 206 - - - Total investment securities $ 258,716 $ 191,726 $ 190,598 $ 179,637 $ 194,402 $ 160,923 The following table sets forth the scheduled maturities, amortized cost, fair values and average yields for the Company's investment securities at December 31, 2023.
Investment Securities The average investment portfolio represented 30.5% of the Company’s average interest-earning assets in 2022 and is designed to generate a favorable rate of return in consideration of all risk factors associated with debt securities while assisting the Company in meeting its liquidity needs and interest rate risk strategies.
All other asset categories had a net increase of $500,000. - 42 - Investment Securities The average investment portfolio represented 31.0% of the Company’s average interest-earning assets in 2023 and is designed to generate a favorable rate of return in consideration of all risk factors associated with debt securities while assisting the Company in meeting its liquidity needs and interest rate risk strategies.
Evaluation of Goodwill . Management performs an annual evaluation of the Company’s goodwill for possible impairment. Based on the results of the 2022 evaluation, management has determined that the carrying value of goodwill is not impaired as of December 31, 2022. The evaluation approach is described in Note 10 of the consolidated financial statements contained herein. Estimation of Fair Value.
The assumptions used by management are discussed in Note 14 to the consolidated financial statements contained herein. Evaluation of Goodwill . Management performs an annual evaluation of the Company’s goodwill for possible impairment. Based on the results of the 2023 evaluation, management has determined that the carrying value of goodwill is not impaired as of December 31, 2023.
These increases in outstanding loan balances were partially offset by a decrease of $15.0 million in consumer loans. Although the Company maintained its previously established credit standards, the outstanding balances of commercial real estate and commercial loans increased as the Bank continued to benefit from the expanding relationship-derived business activity within the markets that the Bank serves.
Although the Company maintained its previously established credit standards, the outstanding balances of commercial real estate and commercial loans increased as the Bank continued to benefit from the expanding relationship-derived business activity within the markets that the Bank serves.
Total past due loans measured as a percent of total loans, increased from 2.14% at December 31, 2021 to 3.21% at December 31, 2022, primarily due to an increase of $6.4 million in past due commercial loans, a $3.8 million increase in past due consumer loans, and a $911,000 increase in past due residential loans.
Total past due loans measured as a percent of total loans, increased from 2.89% at December 31, 2022 to 3.79% at December 31, 2023, primarily due to an increase of $3.8 million in past due commercial loans, a $2.3 million increase in past due residential loans, and a $1.9 million increase in past due consumer loans.
The $8.8 million year-over-year increase in impaired loans was principally due to increases of $5.1 million, $2.6 million, $750,000, $293,000 and $86,000 in impaired commercial lines of credit, other commercial and industrial, commercial real estate, residential mortgages, and home equity and junior liens, respectively.
The $2.4 million year-over-year increase in specifically-identified loans was principally due to increases of $4.4 million, $2.0 million, and $177,000 in specifically-identified commercial real estate, other commercial and industrial, and residential mortgages, respectively, offset by decreases of $4.1 million and $8,000 in commercial lines of credit and home equity and junior liens, respectively.

… 296 more changes not shown on this page.

Other PBHC 10-K year-over-year comparisons