Pathfinder Bancorp, Inc.

What they do

Pathfinder Bancorp, Inc. conducts its business primarily through Pathfinder Bank, which attracts deposits from the general public in its market area and invests those deposits in loans secured by commercial and residential real estate, commercial business and consumer assets, and unsecured small business and consumer loans. The Bank also invests in a broad range of debt securities issued by the U.S. Government and its agencies, state and municipal governments, and corporations, including mortgage-backed and asset-backed securities. Principal sources of funds are deposits, loan and investment payments, and borrowings from the FHLB-NY and correspondent financial institutions. The Bank owns subsidiaries including Whispering Oaks Development Corp., which operates a low-income residential housing facility, and Pathfinder Risk Management Company, Inc., which exists as a separate legal entity after the sale of its insurance brokerage interest in October 2024.

Revenue drivers

• Commercial loans — Commercial loans, including commercial real estate and commercial business loans, totaled $544.6 million at June 30, 2026, representing 61.3% of total loans. These loans generate interest income and are a primary focus of the Company's transformation from a savings bank to a commercial bank.
• Residential real estate loans — The Bank remains a leading originator of one-to-four family residential real estate loans in its marketplace. These loans contribute interest income and are part of the diversified loan portfolio.
• Consumer and small business loans — The Bank originates unsecured small business and consumer loans, as well as loans secured by consumer assets. These loans provide additional interest income and diversify the loan portfolio.
• Investment securities — The Company invests in a range of debt securities, including U.S. Government and agency securities, mortgage-backed securities, collateralized mortgage obligations, and asset-backed securities. Income from these securities contributes to net interest income.

Recent performance

In the second quarter of 2026, the Company reported net income attributable to common shareholders of $2.7 million, or $0.42 per diluted share, compared to $2.4 million, or $0.38 per share, in the first quarter of 2026, and $31,000, or less than $0.01 per share, in the second quarter of 2025. Net interest income was $10.5 million in the second quarter, benefiting from reallocating underutilized liquidity into the AFS securities portfolio, while net interest margin was 3.08%, down from 3.10% in the linked quarter and 3.11% in the year-ago quarter. Noninterest expense was $8.7 million, and the efficiency ratio was 74.26%. The allowance for credit losses was $26.9 million, or 3.03% of total loans, at June 30, 2026, down from $29.0 million at March 31, 2026, and $16.0 million at June 30, 2025. The Company recorded a $155,000 provision benefit in the second quarter, and net charge-offs were $1.9 million, including a previously reserved commercial loan charge-off. Deposits totaled $1.17 billion at June 30, 2026, down from $1.21 billion at March 31, 2026.

Strategy

Management has substantially transformed the Company from a traditional savings bank to a commercial bank, focusing on growing commercial business and commercial real estate loan portfolios to diversify credit risk and generate more consistent net interest margins across interest rate environments. The Bank funds the majority of loan growth with locally gathered deposits, aiming to keep deposit costs reasonable. In the second quarter of 2026, the Company opportunistically reallocated underutilized liquidity into the available-for-sale securities portfolio to generate incremental net interest income. Management emphasized disciplined loan and deposit pricing and stable credit performance as keys to achieving more consistent, durable profitability.

Risks

• Credit risk in commercial portfolio — The Company's commercial loan portfolio, which represents over 60% of total loans, has experienced elevated charge-offs and reserve builds, including a $1.9 million charge-off in Q2 2026 from a previously reserved commercial relationship identified in last year's comprehensive portfolio review.
• Interest rate risk — Changes in interest rates can affect net interest margin and the value of the securities portfolio; the Company's NIM declined slightly in Q2 2026, and the reallocation into AFS securities exposes the balance sheet to market value fluctuations.
• Deposit competition and funding costs — Deposits declined from $1.21 billion at March 31, 2026 to $1.17 billion at June 30, 2026, and competitive pressure on deposit rates could increase funding costs and reduce margins.
• Regulatory and supervisory risk — The Company and Bank are subject to supervision by the Federal Reserve Board, NYSDFS, and FDIC, and changes in regulations or enforcement actions could adversely affect operations and capital.

Outlook

Management expects third quarter 2026 results to benefit more fully from the securities purchases made in late May, which were funded with borrowings at rates that are expected to generate incremental net interest income. The Company continues to focus on improving profitability and returns on assets and equity, as evidenced by the sequential earnings growth in Q2 2026. The allowance for credit losses is considered adequate to absorb future loss resolution activity related to individually analyzed commercial loans.