OSWEGO — In October, Pathfinder Bancorp, Inc. offered more than 2.6 million shares of its common stock for sale at $10 a share as it pursues its business-diversification strategy. The offering was oversubscribed, generating $37.6 million, and signaled that investors approve of the company’s business direction, according to its leader.

Proceeds above the $26.4 million maximum were returned to the eligible account holders, who were all depositors of Pathfinder Bank, a New York state-chartered bank. The transaction closed on Oct. 16. The new shares began trading the next day on the NASDAQ Capital Market under the symbol PBHC.

“The offering is part of our strategic planning that began in 1999 to evolve from the savings-bank model to a more diversified community bank that serves not just Oswego County but Central New York,” Thomas W. Schneider, president and CEO, says in an interview. “Just in the past decade, the bank has allocated substantial resources toward building a commercial-lending infrastructure. The numbers confirm the new direction: In 2003, commercial lending (real estate and loans) was 22.8 percent of our loan portfolio; at the end of 2013, it was 41.8 percent. Just in the last 12 months, loans are up 10.8 percent and deposits are up 6 percent. The bank projects that 70 percent of our loan growth over the next four years will come from the commercial side. Commercial deposits have also jumped during this period from 5.6 percent of the total to 13.3 [percent]. Our growth far exceeds the area’s GDP, which means we are winning business away from our competitors.”

Schneider says Pathfinder netted $25 million after expenses from the offering. He uses a 10x yardstick to anticipate the growth in projected assets. “We should grow Pathfinder’s assets by another $250 million over the next four years,” asserts Schneider. “After all, just in the past five years, we have seen annual [compounded] growth of 8.5 percent.”

The bank was incorporated in 1859 as the Oswego City Savings Bank. In 1995, it became a stock-held institution through an initial public offering by Pathfinder Bancorp, MHC, a mutual-holding company also formed in 1995. Oswego City Savings Bank changed its name in 2000 to Pathfinder Bank. 

“Pathfinder surpassed the $500 million in total assets last year and is on track to post more than $570 million (including receipts from the public offering) by year-end,” notes the CEO, who has held the helm for the past 14 years. “Today, the bank employs 115 people plus another seven in the FitzGibbons [Insurance] Agency, acquired (51 percent) in 2013 by our subsidiary, Pathfinder Risk Management, Inc. We have eight full-service offices in Oswego and Onondaga counties, a drive-through office in the city of Oswego, plus a commercial office in downtown Syracuse designed primarily for commercial-loan production with limited retail services. 

“The Syracuse office opened in September in the Pike Block, located in the center of the city. Pathfinder has 54.7 percent of the deposits in the city of Oswego and more than 30 percent in the county (as of June 30). With that degree of market penetration, we expect our growth to come from Onondaga County. Our first office [in Onondaga County] opened in Cicero in 2011, where we now have more than $51 million in deposits (June 30), up more than $10 million from last year (same period). Pathfinder posted annual revenue in 2013 of $22.3 million and is on track to exceed that number in 2014,” Schneider continues.

Syracuse strategy
Pathfinder’s rationale for focusing its growth in Syracuse and the surrounding suburbs is clear. “This area shows steady, upward growth,” notes Schneider. “The [upward] curve is gentle and sustainable. We like the stability or, conversely, the lack of volatility. The area’s primary industries are health care and higher education, both of which are expected to continue growing. Micro-economies develop around the major industries driven by entrepreneurs and small, specialized manufacturers and [the concomitant] retail growth, producing a diversified climate. We look for growth with a minimum of risk exposure. Our experience with the Cicero branch has confirmed our belief that the Pathfinder model has appeal beyond the boundaries of Oswego County.

“Having said that, we are not unaware that the area is often referred to as ‘over-banked,’” continues Schneider. “The Greater Syracuse area is very competitive with money-center, super-regional, regional, and community banks. On the retail side, we also compete against strong credit unions such as AmeriCU and Empower. 

Then there are the ‘shadow-banks’ such as Walmart, which are very strong competitors in the payment system but are not competitors in the loan area,” he says. 

Schneider says Pathfinder’s success stems from its “ability to make local decisions and the active support we give our [respective] communities. The people who make the decisions at the bank know the customer — they’re not in some other location where the only contact is a spread sheet and supporting documents. The Pathfinder culture also means donating dollars and volunteer time to make our communities stronger. The bottom line: Our success is tied directly to the welfare of the communities we serve.”

Growing profitably in today’s financial-services market is not limited to competing with banks, credit unions, and shadow banks. “The industry is grappling with escalating costs due to regulation/compliance, technology demands, and the increasing need for cybersecurity,” laments Schneider. “Since 2010 (passage of the Dodd-Frank Act), Pathfinder has added three people just to deal with compliance. Four years later, the agencies responsible for oversight are still writing regulations based on the original legislation and this does not include anticipated regulation from the newly established Consumer Financial Protection Bureau. For banks with less than $250 million in assets, this is a real burden.

“Technology is another cost driver,” stresses Pathfinder’s CEO, looking back nostalgically to 1906 when the bank bought its first Burroughs adding machine and 1911 with the purchase of its first typewriter. 

“Our IT department today has a staff of four to monitor … [our digital operations]. The annual investment just for the IT platform and upgrades is $500,000. With a mobile society demanding 24/7 access to their accounts, we are rushing to keep up with a rapidly changing, technology environment. Banks are also required by law to be cops and monitor their customers’ transactions for money-laundering. This requires running analytics and reporting to the appropriate oversight agencies.

“But the thing that really keeps me up at night is protecting our customers against cybersecurity breaches,” asserts Schneider. “The public is constantly reminded of them with front-page stories on major incidents at retailers like Target and Home Depot and banks like JPMorgan Chase. The fundamental reason that our customers choose to bank with us is the trust we have established over 155 years. That’s our brand — our greatest asset. In addition to the potential for damaging our brand through cyber intrusions, remember that there is also a substantial expense borne by banks when a retailer has a breach, because banks pick up the cost of issuing new credit [and debit] cards.”

Schneider assumes these costs are manageable as Pathfinder pursues its aggressive growth strategy. “We project that much of our asset growth will come organically,” he notes, “but we are always looking for acquisition opportunities. The eastside office (Oswego), Fulton, and Lacona were all branch acquisitions, and we are always interested in branches the larger banks may decide to divest. But we are also looking at diversifying our revenue [streams] further. We’re very pleased with the FitzGibbons acquisition and have established a future date to acquire 100 percent of the agency. The bank is studying the possibility of adding other insurance agencies. We are also enhancing our wealth accumulation and retirement department to provide broader and more sophisticated services as we market to more business owners and professionals.” Pathfinder uses Cadaret, Grant & Co. as its registered broker.

While Pathfinder’s CEO notes the importance of the bank’s brand, he readily credits the employees and the board of directors for their contribution to the bank’s ongoing success. “We have always preferred to promote from within the bank,” avers Schneider. “Since the recent recession and the resulting tight job market, we have been fortunate to recruit highly educated and motivated graduates into entry-level positions, many from SUNY Oswego. This gives us a workforce with the ability to move up the corporate ladder and pursue a career path here at the bank. Because of the complexity of financial services today, we need employees who are committed to lifelong learning, which includes internal training in areas such as product knowledge and sales culture and at Cayuga Community College for specialized courses.”

Schneider lauds the board of directors for providing … “excellent guidance and governance. The board has been very involved in the long-term strategy of the bank to ensure that it maximizes growth and minimizes risk,” posits Schneider. “The members have also focused on succession planning both for the board itself, where the mandatory retirement age is 70, and for senior management. Each department has anticipated its succession requirements and prepared a detailed plan to ensure a smooth transition and no disruption of operations.”

Schneider, 53, grew up in the New York City metro area and attended Cortland State University (SUNY Cortland). He graduated with a bachelor’s degree in economics in 1983. He earned his M.B.A. from Fairfield University in Connecticut in 2003. Schneider began his career in financial services in 1985 at J. Henry Schroeder Bank and Trust Co. in New York before moving to Merrill Lynch (New York City) and American Express in Utica (1987). 

Pathfinder hired Schneider in April 1988. He served as the company’s controller and then vice president and CFO, before being appointed president & CEO in 2000. 

Since 2008, Schneider has served as an adjunct professor at SUNY Oswego, teaching an M.B.A. course in the “Management of Financial Institutions.” His current professional and community service includes vice chairman of the New York Bankers Association, immediate past-chair of Oswego Health, and a board member of the Shineman Foundation. Past service includes the Small Business Program at the Cornell Cooperative Extension, Home Aides of Central New York, the Greater Oswego–Fulton Chamber of Commerce, the Oswego YMCA, and as the audit committee chairman of the Oswego Port Authority, a position appointed by the governor.

It took the predecessor of Pathfinder 35 years to accumulate $1 million in assets. Schneider expects to reach more than $800 million in assets by 2018. 

“There’s no magic or secret sauce to reaching our goal,” muses Schneider. “We have a community-centric philosophy, and we listen to our customers. That’s how we stay ahead of the competition. Pathfinder has all of the advanced conveniences of the megabanks without the hassles, headaches, and distractions of mismanagement. We feel that the oversubscription to our recent offering is confirmation that we’re on the right track.”       

Contact Poltenson at npoltenson@cnybj.com