MAIN OFFICE
MEXICO OFFICE
CENTRAL SQUARE OFFICE
214 West First Street, Oswego
Norman & Main Streets, Mexico
3025 East Avenue, Central Square
343-0057
PLAZA OFFICE
963-7248
676-2265
FULTON OFFICE
CICERO OFFICE
State Route 104 East, Oswego
5 West First Street South, Fulton
6194 State Route 31, Cicero
343-4483
592-9545
752-0033
DOWNTOWN DRIVE-THRU
LACONA OFFICE
PIKE BLOCK BUSINESS OFFICE
34 East Bridge Street, Oswego
1897 Harwood Drive, Lacona
109 West Fayette, Syracuse
343-2577
387-3437
207-8020
WWW.PATHFINDERBANK.COM
2 0 1 5 A N N U A L R E P O R T
LOCAL.
COMMUNITY.
TRUST.
Pathfinder Bank is an independent community bank. Our mission is to foster
relationships with individuals and businesses within our communities to be the
financial provider of choice. Our goal is to continually enhance the value of the
bank for the benefit of our shareholders, customers, employees and communities.
S
T
H
G
I
L
H
G
I
H
L
A
I
C
N
A
N
I
F
YEAR END (IN THOUSANDS)
Total assets
Investment securities (AFS)
Investment securities (HTM)
Loans receivable, net
Deposits
Borrowings and subordinated debt
Shareholders’ equity
FOR THE YEAR (IN THOUSANDS)
Net interest income
Core noninterest income (a)
Net gains on sales, redemptions and
impairment of investment securities
Net gains (losses) on sales of loans and
foreclosed real estate
Noninterest expense (b)
Regulatory assessments
Interest income
Interest expense
Provision for loan losses
Net income attributable to the Company
PER SHARE
Net income (basic) (c)
Net income (diluted) (c)
Book value per common share
Tangible book value per common share (d)
Cash dividends declared
2015
2014
2013
2012
2011
$623,254
98, 942
44,297
424,732
490,315
41,300
71,229
$561,024
88,073
40,875
382,189
415,568
66,100
69,204
$503,793
80,959
34,412
336,592
410,140
40,853
43,070
$477,796
108,339
-
329,247
391,805
34,964
40,747
$442,980
100,395
-
300,770
366,129
26,074
37,841
$18,767
3,716
$17,085
3,415
$15,619
2,581
$14,857
2,627
$14,263
2,451
422
310
365
375
791
34
17,179
408
21,424
2,657
1,349
2,889
$0.67
0.66
13.28
12.19
0.16
34
15,287
398
19,699
2,614
1,205
2,745
$0.64
0.63
12.82
11.78
0.12
470
14,336
415
18,883
3,264
1,032
2,406
$0.58
0.58
11.33
10.16
0.12
61
13,207
311
18,765
3,908
825
2,648
$0.53
0.53
10.60
9.13
0.12
(50)
12,758
390
18,604
4,341
940
2,323
$0.32
0.32
9.49
8.02
0.12
PERFORMANCE RATIOS
Return on average assets 0.48% 0.51% 0.48% 0.57% 0.55%
Return on average equity
Return on average tangible equity (d)
Return on average common equity
Average equity to average assets
Equity to total assets at end of period
Dividend payout ratio (e)
Net interest rate spread
Net interest margin
Average interest-earning assets to average
interest-bearing liabilities
Noninterest income to average assets
Noninterest expense to average assets
Efficiency ratio (f)
6.68
7.40
8.26
8.48
8.53
11.37
3.28
3.41
5.86
6.47
8.58
8.24
8.55
12.47
3.23
3.34
5.50
6.11
7.45
9.27
12.26
13.89
3.31
3.40
4.08
4.46
5.00
11.76
11.36
25.22
3.21
3.31
6.75
7.59
5.09
8.21
8.54
12.87
3.52
3.66
117.88
0.70
2.92
76.51
121.73
0.69
2.92
78.22
115.85
0.69
2.96
79.14
113.89
0.66
2.89
75.53
112.22
0.76
3.14
77.56
ASSET QUALITY RATIOS
Nonperforming loans as a percent of total loans 1.24% 1.61% 1.57% 1.66% 1.55%
1.19
Nonperforming assets as a percent of total assets
Allowance for loan losses to loans receivable
1.31
Allowance for loan losses as a percent of
nonperforming loans
1.25
1.35
1.16
1.38
0.94
1.33
1.18
1.48
107.30
81.13
94.22
84.18
85.50
REGULATORY CAPITAL RATIOS (BANK ONLY)
Total Core Capital (to Risk-Weighted Assets) 16.22% 16.60% 14.13% 14.20% 14.94%
Tier 1 Capital (to Risk-Weighted Assets)
Tier 1 Common Equity (to Risk-Weighted Assets)
Tier 1 Capital (to Assets)
13.66
13.66
9.37
15.31
15.31
10.55
12.82
12.82
8.72
12.90
12.90
8.80
14.95
14.95
10.00
NUMBER OF:
Banking offices
Full-time equivalent employees
9
124
9
122
8
112
8
110
8
110
(a) Exclusive of net gains (losses) on sales and impairment of investment securities and net gains (losses) on sales of loans and foreclosed real estate.
(b) Exclusive of regulatory assessments.
(c) Adjusted to reflect the 1.6472 exchange ratio used in the conversion.
(d) Tangible equity excludes intangible assets.
(e) The dividend payout ratio is calculated using dividends declared and not waived by the Mutual Holding Company, divided by net income.
(f) The efficiency ratio is calculated as noninterest expense, including regulatory assessments, divided by the sum of taxable-equivalent net interest income and noninterest income excluding net gains on sales,
redemptions and impairment of investment securities and net gains (losses) on sales of loans and foreclosed real estate.
1
Chris R. Burritt
Thomas W. Schneider,
Chairman of the Board
President and CEO
WE ARE PLEASED TO PRESENT OUR 20TH ANNUAL REPORT TO SHAREHOLDERS.
Loan Growth Over 10 years
($ in millions)
LOAN PORTFOLIO
$500.0
$450.0
$400.0
$350.0
$300.0
$250.0
$200.0
$150.0
05 06 07 08 09 10 11 12 13 14 15
1.7%
10.4%
Loan Composition
December 31, 2005
8.0%
16.8%
63.1%
Residential Real Estate
Commercial Real Estate
Commercial Loans
Municipal Loans
Consumer Loans
2.1%
6.6%
17.2%
30.1%
44.0%
Loan Composition
December 31, 2015
Residential Real Estate
Commercial Real Estate
Commercial Loans
Municipal Loans
Consumer Loans
In 1995, Pathfinder Bank (formerly named Oswego City Savings Bank)
completed its initial offering of common stock to depositors and the
public. In the following 20 years, the Bank has:
n Transformed its balance sheet from a traditional savings bank to a
full service community bank.
n Extended our market reach throughout Central New York.
n Expanded our services to include insurance and investments.
n Enhanced our systems, delivery channels and risk management
processes commensurate to the evolving competitive and regulatory
landscape.
n Provided a strong return to our shareholders.
This transformation has been measured, consistent and progressive
through 3 economic cycles, and in accordance with our risk management
philosophies.
Throughout this period, we have remained consistent with our vision
and our value systems and the understanding of the competitive
advantages of being a local, community focused bank, trusted by
our customers.
2015 was a year in which we again achieved record levels of total assets,
loans, deposits, revenue and net income.
As we have done in past reports, we provide charts to demonstrate
the consistent and stable growth of our balance sheet, as well as the
diversification of our loan and deposit portfolios in conformance to
our Strategic Plan execution.
ASSET GROWTH
Asset Growth Over 10 years
($ in millions)
05 06 07 08 09 10 11 12 13 14 15
$650.0
$550.0
$450.0
$350.0
$250.0
2
DEPOSIT PORTFOLIO
$500.0
$450.0
$400.0
$350.0
$300.0
$250.0
$200.0
$70.0
$60.0
$50.0
$40.0
$30.0
$20.0
$10.0
Deposit Growth Over 10 years
($ in millions)
05 06 07 08 09 10 11 12 13 14 15
Non-Interest Bearing Demand Accounts
Growth Over 10 Years
($ in millions)
05 06 07 08 09 10 11 12 13 14 15
5.5%
11.0%
83.4%
Deposit Composition
December 31, 2005
Retail
Commercial
Municipal
23.4%
18.5%
58.2%
Deposit Composition
December 31, 2015
Retail
Commercial
Municipal
CONVERSION TO A NEW YORK STATE CHARTERED
COMMERCIAL BANK
Consistent with our balance sheet diversification strategy, the Board
of Directors approved a Plan of Conversion to merge Pathfinder Bank
with its limited purpose subsidiary, Pathfinder Commercial Bank, with
the resultant entity being Pathfinder Bank, a New York State chartered
commercial bank.
Pathfinder Bank was originally chartered as a savings bank in 1859.
Under New York State Municipal Law, public funds held by government
entities and municipalities can only be deposited in a commercial bank.
Our limited purpose subsidiary was formed for this reason in 2002.
We have received approval for the merger and Plan of Conversion from
the Federal Deposit Insurance Corporation (FDIC) and the New York
State Department of Financial Services (NYSDFS).
We anticipate completing this process in the second quarter of 2016.
The conversion will streamline operations, reduce customer confusion,
and allow us to operate with additional powers under a charter more
consistent with our business model and balance sheet composition.
EARNINGS
While net income achieved historic levels, there are two trends which
have created challenging headwinds for more robust returns:
1. Capacity Building
2. Flattening Yield Curve
We feel it is essential to continue to build our capacity and capabilities
and position the bank to operate in the future as a billion dollar bank.
Towards this end we have been investing in:
n Quality people on both the production and risk management sides.
n Systems and delivery channels.
n Facilities and market reach.
The expansion of digital channels has, thus far, not replaced existing
delivery channels but merely expanded them to the convenience of
customers. We believe we currently have the capabilities to deliver
across all channels as well as any bank in the marketplace.
In 2015, we performed next generation upgrades to our internet
banking platforms, not only enhancing functionality and navigability,
but allowing the introduction of mobile deposit and electronic
statements. With these enhanced delivery channels, combined with
our remote deposit capture services, we feel we can not only meet
all of our consumer electronic needs but also offer robust Treasury
Management Services to our business customers.
The challenges inherent in the flattening of the yield curve as longer
term rates fall will impact the revenue growth opportunities of our
robust growing balance sheet. Cost control will be increasingly
important the longer this cycle lasts and will be focused on and
accomplished while maintaining our growth trends and strong risk
culture.
CAPITAL MANAGEMENT
In February 2016, we redeemed the $13.0 million in preferred stock
issued by the U.S. Treasury through the Small Business Lending Fund
(SBLF) that had been created as part of the Small Business Jobs Act of
2010. The SBLF was an excellent source of capital to enable our growth
over the last four years and an excellent example of good execution by
the Federal Government to temporarily stimulate small business lending
and to ultimately be replaced, as in the case of Pathfinder, with capital
from the private sector.
The dividend rate on the SBLF preferred stock was 5.0% at issuance,
could decline to 1.0% based upon a community bank’s ability to
generate qualified small business loans (QSBL) and was set to increase
to 9.0% four and a half years after the issuance.
3
We issued the $13.0 million in preferred stock to the Treasury in 2011.
During the term in which we held SBLF, we grew our qualified small
business loan portfolio by $84.3 million, or 118.8%. This level of lending
activity allowed us to reduce our annual preferred dividend rate to 1.0%,
which was the lowest possible rate obtainable under the SBLF program
during that time.
At the time we participated in SBLF we began planning for its eventual
repayment. In October 2014, we raised $25.0 million in net proceeds
through an oversubscribed common stock offering. In October 2015, we
issued $10.0 million in subordinated debt to provide liquidity and Tier 2
capital at the holding company. The market timing and acceptance for
both transactions was favorable.
REVENUE DIVERSIFICATION
Given the challenges to net interest income inherent in a flat yield curve,
it is important to note progress in revenue diversification and in other
value added services.
INSURANCE SERVICES
In January 2015, the FitzGibbons Agency completed its acquisition
of Baldwinsville, New York based Huntington Agency. The FitzGibbons
Agency has demonstrated consistent revenue growth since our affiliation
in December 2013, and combined with the Huntington Agency
purchase, is poised to deliver their local services in the same manner
as the Bank across the same geographic footprint.
MARKET CONSOLIDATION
INVESTMENT SERVICES
Mergers and acquisitions will continue to have a significant impact on
the industry, our regional market, banking customers and market share.
Over the past 5 years, there have been 3 significant acquisitions in our
marketplace. The disruptions to customers, as local decision making and
community involvement is limited, has been an important and positive
impact on our market place growth and brand recognition.
Our commitment to being a locally governed and managed bank,
integrally involved in our communities, has led to a growing trust among
consumers, businesses and municipalities seeking a banking partner.
The pending Key Bank/First Niagara acquisition will significantly alter the
competitive landscape in our marketplace, and we stand ready to take
advantage of the inevitable customer disruption and disenfranchisement.
DEPOSIT MARKET RANK
OSWEGO AND ONONDAGA COUNTY COMBINED
2015 TOTAL
DEPOSITS
2015 %
TOTAL MARKET
AT JUNE 30TH
1. M & T Bank Corp. (NY)
2. Bank of America Corp. (NC)
2. KeyCorp (OH)
4. JP Morgan Chase & Co. (NY)
5. First Niagara Finl Group (NY)
2,813,353
1,687,223
1,312,769
875,259
763,827
6. Solvay Bank Corp. (NY)
697,320
7. NBT Bancorp Inc. (NY)
8. Pathfinder Bancorp Inc. (NY)
520,044
470,914
9. Geddes FS&LA (NY)
416,893
10. Community Bank System Inc. (NY)
308,649
11. Berkshire Hills Bancorp Inc. (MA) 284,758
13. Citizens Bank, NA
262,055
12. Fulton Savings Bank (NY)
241,148
15. Seneca FS&LA (NY)
103,612
16. Lyons Bancorp Inc (NY)
31,546
17. Adirondack Bank
17. Woodforest Financial Group (TX)
8,119
450
TOTAL INSTITUTION SHARE
10,797,939
4
26.05%
15.63%
12.16%
8.11%
7.07%
6.46%
4.82%
4.36%
3.86%
2.86%
2.64%
2.43%
2.23%
0.96%
0.29%
0.08%
0.00%
Investment Services are also a value added offering to our communities
and has demonstrated positive trends in revue growth.
Insurance Company Revenue
($ in thousands)
$700.0
$500.0
$300.0
$100.0
Investment Services Revenue
($ in millions)
$280.0
$230.0
$180.0
$130.0
$80.0
$30.0
14
15
11
12
13
14
15
GOVERNANCE
We are pleased that Melanie Littlejohn, Regional Executive for National
Grid, and a significant leader in Central New York’s economic development
and community enhancement organizations, has agreed to join the Board
of Pathfinder and stand for election to the Company board at this year’s
Annual Meeting.
We are proud of the trends we have
demonstrated and believe firmly in our
market, our business model, and our
employees to build value for our franchise,
our customers, our communities and our
shareholders.
We appreciate the support of our
shareholders and we are confident
in our future.
Melanie Littlejohn
Regional Executive, National Grid
Chris R. Burritt
Chairman of the Board
Thomas W. Schneider,
President and CEO
CORPORATE INFORMATION
PATHFINDER BANCORP, INC.
BOARD OF DIRECTORS (1)
Chris R. Burritt, Chairman
David A. Ayoub
William A. Barclay
John P. Funiciello
Adam Gagas
George P. Joyce
Thomas W. Schneider
John F. Sharkey, III
Lloyd “Buddy” Stemple
PATHFINDER EXECUTIVE OFFICERS
Thomas W. Schneider
President, Chief Executive Officer
James A. Dowd, CPA
Senior Vice President,
Chief Financial Officer
Edward A. Mervine, Esq.
Senior Vice President, General Counsel,
Corporate Secretary
Melissa A. Miller
Senior Vice President, Chief Operating Officer
Daniel R. Phillips
Senior Vice President,
Chief Information Officer
Ronald Tascarella
Senior Vice President, Chief Credit Officer
PATHFINDER OFFICERS
Calvin Corriders
First Vice President, Sales Manager
Will O’Brien
First Vice President,
Credit Administration
Beth K. Alfieri
Vice President, Business Sales Officer
Heather Bush
Vice President, Human Resources
Robert Butkowski
Vice President, Branch Administration
Roberta J. Davis
Vice President, Financial Analyst
Rhonda Hutchins
Vice President, Compliance
Lisa A. Kimball
Vice President, Controller
Michael Quenville
Vice President, Sales Officer
Walter F. Rusnak
Vice President, Finance
Michele C. Torbitt
Vice President,
Electronic Commerce Manager
John Andrews
Assistant Vice President, Branch Manager
Randall Barnard
Assistant Vice President, Branch Manager
Susan Cahill
Assistant Vice President, Branch Manager
Jodi DeAugustine
Assistant Vice President, Market Manager
Jeremy Fadden
Assistant Vice President,
Business Account Manager
Jessica DeGrenier
Assistant Vice President,
Commercial Loan Mitigation
Theresa L. Dullen
Assistant Vice President, Internal Audit
Amy E. Favata
Assistant Vice President,
Financial Reporting Specialist
Shari Gordon
Assistant Vice President,
Information Security Officer
Lorna Hall
Bank Secrecy and Security Officer
April Jordal
Assistant Vice President,
Sales Support Manager
Laurie L. Lockwood
Assistant Vice President, Assistant Controller
Denise Lyga
Assistant Vice President, Branch Manager
Joseph P. McManus
Assistant Vice President,
Computer Operations Manager
Deana Michaels
Assistant Vice President, Branch Manager
Craig Nessel
Assistant Vice President, Branch Manager
Reyne Pierce
Assistant Vice President,
Retail Lending Manager
Crystal Rafte
Assistant Vice President, Operations Manager
Robert Rickert
Assistant Vice President, Retail Loss Mitigation
Amy Shaw
Assistant Vice President, Branch Manager
Jennifer Wright, Assistant Vice President
Municipal and Business Deposit Sales Manager
CORPORATE HEADQUARTERS
214 West First Street
Oswego, NY 13126
(315) 343-0057
ANNUAL MEETING
Wednesday, May 4, 2016, 10:00 AM
Alexandria’s, at the Lake Ontario
Conference and Events Center
26 East First Street, Oswego, NY 13126
STOCK LISTING
The NASDAQ Capital Market
Symbol: PBHC
SPECIAL COUNSEL
Luse, Gorman, Pomerenk & Schick
5335 Wisconsin Avenue N.W.
Suite 400
Washington, D.C. 20015
INDEPENDENT AUDITORS
Bonadio & Co., LLP
432 North Franklin Street, Suite 60
Syracuse, NY 13204
TRANSFER AGENT
Computershare
480 Washington Blvd, 29th Floor
Jersey City, NJ 07310
INVESTOR RELATIONS
Thomas W. Schneider
President, Chief Executive Officer
James A. Dowd, CPA
Senior Vice President, Chief Financial Officer
214 West First Street
Oswego, NY 13126
(315) 343-0057
GENERAL INQUIRIES AND REPORTS
A copy of the Bank’s 2015 Annual
Report to the Securities and Exchange
Commission, Form 10-K, may be
obtained without charge by written
request of shareholders to:
Edward A. Mervine, Esq.
Senior Vice President, General Counsel
Corporate Secretary
Pathfinder Bank
214 West First Street
Oswego, NY 13126
A copy of this Annual Report on Form 10K
and our 2016 Annual Proxy Statement is also
available free of charge on our website at:
www.pathfinderbank.com/annualmeeting
The public may read and copy any mate-
rials the Company files with the SEC
at the SEC’s Public Reference Room at
450 Fifth Street, N.W., Washington, D.C.
20549. The public may obtain informa-
tion on the operation of the Public Ref-
erence Room by calling the SEC at
1-800-SEC-0330. The Company’s
filings are also available electronically
free of charge at the SEC website:
http://www.sec.gov and at the Company’s
website:http://www.pathfinderbank.com
FDIC DISCLAIMER
This Annual Report has not been
reviewed or confirmed for accuracy
or relevance by the FDIC.
(1) Information concerning the principal
occupation of the Directors is available
in the Company’s Proxy Statement
MAIN OFFICE
214 West First Street, Oswego
343-0057
MEXICO OFFICE
Norman & Main Streets, Mexico
963-7248
CENTRAL SQUARE OFFICE
3025 East Avenue, Central Square
676-2265
PLAZA OFFICE
State Route 104 East, Oswego
343-4483
FULTON OFFICE
5 West First Street South, Fulton
592-9545
CICERO OFFICE
6194 State Route 31, Cicero
752-0033
DOWNTOWN DRIVE-THRU
34 East Bridge Street, Oswego
343-2577
LACONA OFFICE
1897 Harwood Drive, Lacona
387-3437
PIKE BLOCK BUSINESS OFFICE
109 West Fayette, Syracuse
207-8020
WWW.PATHFINDERBANK.COM
2 0 1 5 A N N U A L R E P O R T
LOCAL.
COMMUNITY.
TRUST.