Pathfinder Bancorp, Inc. Announces First Quarter Earnings

Market Wire, April, 2009

Pathfinder Bancorp, Inc., the mid-tier holding company of Pathfinder Bank (NASDAQ: PBHC) (listing: PathBcp), announced reported net income of $579,000, or $0.23 per diluted share, for the three months ended March 31, 2009 as compared to $332,000, or $0.13 per diluted share for the same period in 2008. The return on average assets and return on average shareholders' equity were 0.65% and 11.67%, respectively, for the three months ended March 31, 2009, compared with 0.40% and 5.94%, respectively, for the three months ended March 31, 2008.

"In this first quarter of our 150th year, we are very pleased with the Bank's performance, particularly given the continued stress on the national economy," stated Thomas W. Schneider, President and CEO. "All significant performance metrics have shown positive trends. Net income has risen 74% on stronger margins and controlled expenses, deposits have grown 8% and loans 11%, year over year," Schneider continued. "Asset quality remains stable and loan loss reserves have increased by 38% when compared to March 31, 2008."

"Even with these positive trends," Schneider stated, "we must remain vigilant to assessing and responding to the heightened risks that now exist. We will continue our careful focus on balance sheet management and capital growth as our primary areas of emphasis over short-term earnings performance. We are proud of our 150 year history and mindful of the traditional banking principles that have provided for our longevity, our stability, and our success."

Net interest income for the three months ended March 31, 2009, increased $301,000, or 12.5%, when compared to the same period during 2008. Interest income decreased $70,000, or 1.6%, while interest expense decreased $371,000, or 17.8%. Net interest rate spread increased to 3.19% for the first quarter of 2009 from 2.99% for the same period in 2008. Average interest-earning assets increased 9% to $334.3 million at March 31, 2009, as compared to $305.8 million at March 31, 2008, while the yield on those assets decreased 51 basis points to 5.43% compared to 5.94% for the same period in 2008. The increase in average earning assets is primarily attributable to a $24.8 million increase in the average loan portfolio and a $3.6 million increase in average balance of interest earning deposits. Average interest bearing liabilities increased $23.6 million, or 8%, while the cost of funds decreased 71 basis points to 2.24% from 2.95% for the same period in 2008. The increase in the average balance of interest bearing liabilities resulted primarily from a $19.0 million increase in average deposits and a $4.5 million increase in average wholesale borrowings.

The provision for loan losses for the quarter ended March 31, 2009 decreased to $135,000 from $145,000 for the same period in 2008. The Company continues to reserve for potential loan losses in reaction to a loan portfolio more heavily weighted to commercial term and commercial real estate, which have higher inherent risk characteristics than a consumer real estate portfolio, as well as a general weakening in economic conditions. The Company's ratio of allowance for loan losses to period end loans increased to 1.03% at March 31, 2009 as compared to 0.99% at December 31, 2008. Nonperforming loans to period end loans decreased to 0.89% at March 31, 2009 from 0.93% at December 31, 2008.

Non-interest income, exclusive of gains and losses from the sales of securities, loans and foreclosed real estate, decreased to $632,000 for the quarter ended March 31, 2009 compared to $698,000 for the same quarter in the prior year. The decrease in non-interest income is primarily attributable to a $34,000 decrease in loan servicing fees, a $28,000 decrease in service charges on deposit accounts, and a $11,000 decrease in the income from bank owned life insurance, offset by a $9,000 increase in other service charges.

Net gains and losses from the sales of securities, loans and foreclosed real estate increased to net gains of $167,000 for the quarter ended March 31, 2009, as compared to net gains of $6,000 when compared to the same quarter of 2008. The increase was due to the gains recognized on the sale of $5.5 million in 30-year fixed rate residential mortgages and $4.5 million in municipal securities.

Non-interest expense increased $48,000, or 1.9% for the quarter ended March 31, 2009. A $53,000, or 16.9%, increase in other expenses was primarily due to an increase in FDIC assessments on deposits. Pathfinder Bank offset 90% of its Deposit Insurance Fund assessments with available one-time assessment credits for the first two quarters of 2008 and took the remaining balance of the credit against the third quarter assessment. For the first nine months of 2008, credits utilized to offset amounts assessed for Pathfinder Bank totaled $76,000. Fourth quarter 2008 assessments for Pathfinder Bank were assessed in March 2009 and were not offset by credits. Salaries and employee benefits increased $35,000, or 2.6%, primarily due to annual merit increases. Data processing costs increased $30,000, or 9.7% due to an increase in maintenance fees and Internet banking charges from greater customer access and penetration. These increases were offset by decreases of $47,000 and $23,000 in professional and other services and building occupancy, respectively.