Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Indicate by check mark whether the registrant has submitted electronically Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this Chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). YES ☐ NO ☒

As of August ~~12, 2020,~~13, 2021, there were ~~4,753,883~~4,562,301 shares outstanding of the registrant’s Voting common stock and 1,380,283 shares outstanding of the registrant’s Series A Non-Voting common stock.

	June 30,			December 31,			June 30,			December 31,
(In thousands, except share and per share data)	2020			2019			2021			2020
ASSETS:
Cash and due from banks (including restricted balances of $1,600 and $0, respectively)	$	19,320		$	8,284
Cash and due from banks (including restricted balances of $1,600 and $1,600, respectively)							$	13,006		$	14,906
Interest-earning deposits (including restricted balances of $0 and $0, respectively)		25,803			11,876			28,148			28,558
Total cash and cash equivalents		45,123			20,160			41,154			43,464
Available-for-sale securities, at fair value		116,131			111,134			157,559			128,261
Held-to-maturity securities, at amortized cost (fair value of $143,140 and $124,148, respectively)		141,298			122,988
Held-to-maturity securities, at amortized cost (fair value of $165,997 and $174,935, respectively)								162,432			171,224
Marketable equity securities, at fair value		1,564			534			2,133			1,850
Federal Home Loan Bank stock, at cost		4,091			4,834			4,487			4,390
Loans		806,009			745,516			834,239			823,969
Loans held-for-sale ⁽¹⁾		-			35,935			713			1,526
Less: Allowance for loan losses		10,553			8,669			14,603			12,777
Loans receivable, net		795,456			772,782			820,349			812,718
Premises and equipment, net		22,311			22,699			22,195			22,264
Operating lease right-of-use assets		2,312			2,386			2,172			2,240
Accrued interest receivable		4,973			3,712			4,539			4,549
Foreclosed real estate		26			88
Intangible assets, net		141			149			125			133
Goodwill		4,536			4,536			4,536			4,536
Bank owned life insurance		17,625			17,403			23,117			17,864
Other assets		11,437			10,402			14,893			13,950
Total assets	$	1,167,024		$	1,093,807		$	1,259,691		$	1,227,443

LIABILITIES AND SHAREHOLDERS' EQUITY:
Deposits:
Interest-bearing	$	810,455		$	774,392		$	848,010		$	833,850
Noninterest-bearing		160,138			107,501			183,660			162,057
Total deposits		970,593			881,893			1,031,670			995,907
Short-term borrowings		10,158			25,138			2,000			4,020
Long-term borrowings		65,239			67,987			81,734			78,030
Subordinated loans		15,145			15,128			29,482			39,400
Accrued interest payable		276			396			145			193
Operating lease liabilities		2,587			2,650			2,467			2,525
Other liabilities		10,419			9,946			8,661			9,646
Total liabilities		1,074,417			1,003,138			1,156,159			1,129,721
Shareholders' equity:
Preferred stock, par value $0.01 per share; no liquidation preference; 10,000,000 and 10,000,000 shares authorized, respectively; 1,155,283 and 1,155,283 shares issued and outstanding, respectively		12			12
Common stock, par value $0.01; 25,000,000 authorized shares; 4,753,883 and 4,709,238 shares issued and outstanding, respectively		48			47
Preferred stock, par value $0.01 per share; 0 liquidation preference; 10,000,000 shares authorized; 0 and 1,380,283 shares issued and outstanding, respectively								-			14
Voting common stock, par value $0.01; 25,000,000 authorized shares; 4,562,301 and 4,531,383 shares issued and outstanding, respectively								45			45
Non-Voting common stock, par value $0.01; 1,505,283 authorized shares; 1,380,283 and 0 shares issued and outstanding, respectively								14			-
Additional paid in capital		49,747			49,362			50,451			50,024
Retained earnings		47,660			44,839			54,545			50,284
Accumulated other comprehensive loss		(4,387	)		(2,971	)		(1,235	)		(2,236	)
Unearned ESOP		(765	)		(855	)		(585	)		(675	)
Total Pathfinder Bancorp, Inc. shareholders' equity		92,315			90,434			103,235			97,456
Noncontrolling interest		292			235			297			266
Total equity		92,607			90,669			103,532			97,722
Total liabilities and shareholders' equity	$	1,167,024		$	1,093,807		$	1,259,691		$	1,227,443

The accompanying notes are an integral part of the consolidated financial statements.


	For the three months ended,						For the six months ended					For the three months ended					For the six months ended
(In thousands, except per share data)	June 30, 2020			June 30, 2019			June 30, 2020			June 30, 2019		June 30, 2021		June 30, 2020			June 30, 2021		June 30, 2020
Interest and dividend income:
Loans, including fees	$	8,832		$	8,222		$	18,074		$	15,797	$	9,784	$	8,832		$	18,631	$	18,074
Debt securities:
Taxable		1,549			1,655			3,241			3,454		2,152		1,549			4,128		3,241
Tax-exempt		52			51			59			159		42		52			71		59
Dividends		64			74			134			151		87		64			174		134
Federal funds sold and interest earning deposits		17			106			49			216		1		17			4		49
Total interest and dividend income		10,514			10,108			21,557			19,777		12,066		10,514			23,008		21,557
Interest expense:
Interest on deposits		2,204			2,740			4,760			5,085		1,144		2,204			2,671		4,760
Interest on short-term borrowings		39			58			96			225		3		39			6		96
Interest on long-term borrowings		439			387			884			780		296		439			591		884
Interest on subordinated loans		192			217			398			434		408		192			965		398
Total interest expense		2,874			3,402			6,138			6,524		1,851		2,874			4,233		6,138
Net interest income		7,640			6,706			15,419			13,253		10,215		7,640			18,775		15,419
Provision for loan losses		1,146			610			2,213			754		929		1,146			1,957		2,213
Net interest income after provision for loan losses		6,494			6,096			13,206			12,499		9,286		6,494			16,818		13,206
Noninterest income:
Service charges on deposit accounts		303			348			659			630		357		303			689		659
Earnings and gain on bank owned life insurance		106			101			222			222		129		106			254		222
Loan servicing fees		79			60			128			87		11		79			101		128
Net gains on sales and redemptions of investment securities		1,023			32			1,049			111		51		1,023			51		1,049
(Losses) gains on marketable equity securities		(722	)		16			(916	)		57
Gains (losses) on marketable equity securities													49		(722	)		283		(916	)
Net gains on sales of loans and foreclosed real estate		97			13			769			5		39		97			159		769
Net gains on sale of premises and equipment													-		-			201		-
Debit card interchange fees		205			187			368			331		241		205			462		368
Insurance agency revenue		185			218			522			461		234		185			514		522
Other charges, commissions & fees		255			244			478			408		323		255			565		478
Total noninterest income		1,531			1,219			3,279			2,312		1,434		1,531			3,279		3,279
Noninterest expense:
Salaries and employee benefits		2,972			3,454			6,219			7,104		3,501		2,972			6,842		6,219
Building and occupancy		707			632			1,461			1,287		870		707			1,663		1,461
Data processing		552			587			1,152			1,162		654		552			1,330		1,152
Professional and other services		301			380			617			716		451		301			868		617
Advertising		261			242			437			481		259		261			505		437
FDIC assessments		150			130			339			241		232		150			430		339
Audits and exams		125			100			250			200		177		125			379		250
Insurance agency expense		212			229			404			428		194		212			400		404
Community service activities		12			144			119			282		34		12			122		119
Foreclosed real estate expenses		5			59			35			296		16		5			22		35
Other expenses		461			582			970			1,053		457		461			920		970
Total noninterest expense		5,758			6,539			12,003			13,250		6,845		5,758			13,481		12,003
Income before income taxes		2,267			776			4,482			1,561		3,875		2,267			6,616		4,482
Provision for income taxes		439			175			894			426		851		439			1,400		894
Net income attributable to noncontrolling interest and Pathfinder Bancorp, Inc.		1,828			601			3,588			1,135		3,024		1,828			5,216		3,588
Net (loss) income attributable to noncontrolling interest		(13	)		(6	)		57			14
Net income (loss) attributable to noncontrolling interest													15		(13	)		53		57
Net income attributable to Pathfinder Bancorp Inc.	$	1,841		$	607		$	3,531		$	1,121	$	3,009	$	1,841		$	5,163	$	3,531
Convertible preferred stock dividends		69			69			138			69
Warrant dividends		7			8			15			8
Undistributed earnings allocated to participating securities		322			38			612			41
Net income available to common shareholders	$	1,443		$	492		$	2,766		$	1,003

Earnings per common share - basic	$	0.31		$	0.11		$	0.60		$	0.23
Earnings per common share - diluted	$	0.31		$	0.11		$	0.60		$	0.23
Dividends per common share	$	0.06		$	0.06		$	0.12		$	0.12
Voting Earnings per common share - basic												$	0.50	$	0.31		$	0.87	$	0.60
Voting Earnings per common share - diluted												$	0.50	$	0.31		$	0.87	$	0.60
Series A Non-Voting Earnings per common share- basic												$	0.51	$	-		$	0.87	$	-
Series A Non-Voting Earnings per common share - diluted												$	0.51	$	-		$	0.87	$	-
Dividends per common share (Voting and Series A Non-Voting)												$	0.07	$	0.06		$	0.14	$	0.12

The accompanying notes are an integral part of the consolidated financial statements.

	For the three months ended						For the six months ended						For the three months ended						For the six months ended
(In thousands)	June 30, 2020			June 30, 2019			June 30, 2020			June 30, 2019			June 30, 2021			June 30, 2020			June 30, 2021			June 30, 2020
Net Income	$	1,828		$	601		$	3,588		$	1,135		$	3,024		$	1,828		$	5,216		$	3,588

Other Comprehensive Income (Loss)

Retirement Plans:
Retirement plan net losses recognized in plan expenses		59			84			117			168			26			59			53			117

Unrealized holding gains (losses) on available-for-sale securities:
Unrealized holding (losses) gains arising during the period		4,393			1,759			760			3,748
Unrealized holding gains (losses) arising during the period														597			4,393			963			760
Reclassification adjustment for net gains included in net income		(873	)		(32	)		(899	)		(111	)		-			(873	)		-			(899	)
Net unrealized gains (losses) on available-for-sale securities		3,520			1,727			(139	)		3,637			597			3,520			963			(139	)

Derivatives and hedging activities:
Unrealized holding losses arising during the period		(184	)		-			(1,528	)		-
Net unrealized losses on derivatives and hedging activities		(184	)		-			(1,528	)		-
Unrealized holding gains (losses) arising during the period														93			(184	)		327			(1,528	)
Net unrealized gains (losses) on derivatives and hedging activities														93			(184	)		327			(1,528	)

Accretion of net unrealized loss on securities transferred to held-to- maturity⁽¹⁾		10			9			19			15			6			10			13			19

Other comprehensive income (loss), before tax		3,405			1,820			(1,531	)		3,820			722			3,405			1,356			(1,531	)
Tax effect		(715	)		(382	)		321			(802	)		(189	)		(715	)		(355	)		321
Other comprehensive income (loss) , net of tax		2,690			1,438			(1,210	)		3,018			533			2,690			1,001			(1,210	)
Comprehensive income	$	4,518		$	2,039		$	2,378		$	4,153		$	3,557		$	4,518		$	6,217		$	2,378
Comprehensive (loss) income, attributable to noncontrolling interest	$	(13	)	$	(6	)	$	57		$	14
Comprehensive income (loss), attributable to noncontrolling interest													$	15		$	(13	)	$	53		$	57
Comprehensive income attributable to Pathfinder Bancorp, Inc.	$	4,531		$	2,045		$	2,321		$	4,139		$	3,542		$	4,531		$	6,164		$	2,321

Tax Effect Allocated to Each Component of Other Comprehensive Income (Loss)
Retirement plan net losses recognized in plan expenses	$	(12	)	$	(18	)	$	(24	)	$	(37	)	$	(7	)	$	(12	)	$	(15	)	$	(24	)
Unrealized holding gains (losses) on available-for-sale securities arising during the period		(923	)		(369	)		(160	)		(785	)		(156	)		(923	)		(251	)		(160	)
Reclassification adjustment for net gains included in net income		183			7			189			23			-			183			-			189
Unrealized losses on derivatives and hedging arising during the period		39			-			321			-
Unrealized gains (losses) on derivatives and hedging arising during the period														(24	)		39			(85	)		321
Accretion of net unrealized loss on securities transferred to held-to- maturity⁽¹⁾		(2	)		(2	)		(5	)		(3	)		(2	)		(2	)		(4	)		(5	)
Income tax effect related to other comprehensive income (loss)	$	(715	)	$	(382	)	$	321		$	(802	)	$	(189	)	$	(715	)	$	(355	)	$	321

(1)

The accretion of the unrealized holding losses in accumulated other comprehensive loss at the date of transfer at September 30, 2013 partially offsets the amortization of the difference between the par value and the fair value of the investment securities at the date of transfer, and is an adjustment of yield.

~~The accompanying notes are an integral part of the consolidated financial statements.~~

Accumulated

Additional

Other Com-

Non-

Preferred

Common

Paid in

Retained

prehensive

Unearned

controlling

(In thousands, except share and per share data)

Stock

Stock

Capital

Earnings

Loss

ESOP

Interest

Total

Balance, March 31, 2020

$
12

$
47

$
49,659

$
46,174

$
(7,077
)

$
(809
)

$
305

$
88,311

Net income

-

-

-

1,841

-

-

(13
)

1,828

Other comprehensive income, net of tax

-

-

-

-

2,690

-

-

2,690

ESOP shares earned (6,110 shares)

-

-

15

-

-

44

-

59

Restricted stock units (13,437 shares)

-

-

-

-

-

-

-

-

Stock based compensation

-

-

73

-

-

-

-

73

Stock options exercised

-

1

-

-

-

-

-

1

Common stock dividends declared ($0.06 per share)

-

-

-

(279
)

-

-

-

(279
)
Preferred stock dividends declared ($0.06 per share)

-

-

-

(69
)

-

-

-

(69
)
Warrant dividends declared ($0.06 per share)

-

-

-

(7
)

-

-

-

(7
)
Balance, June 30, 2020

$
12

$
48

$
49,747

$
47,660

$
(4,387
)

$
(765
)

$
292

$
92,607

Balance, March 31, 2019

$
-

$
44

$
29,454

$
42,133

$
(4,462
)

$
(989
)

$
258

$
66,438

Net income

-

-

-

607

-

-

(6
)

601

Other comprehensive income, net of tax

-

-

-

-

1,438

-

-

1,438

Proceeds of common stock private placement,
net of expenses ⁽¹⁾

-

3

3,823

-

-

-

-

3,826

Proceeds of preferred stock private placement,
net of expenses ⁽¹⁾

12

-

15,358

-

-

-

-

15,370

Effect of warrant issued from private placement ⁽¹⁾

-

-

373

-

-

-

373

ESOP shares earned (6,110 shares)

-

-

44

-

-

45

-

89

Restricted stock units (13,436 shares)

-

-

-

-

-

-

-

-

Stock based compensation

-

-

73

-

-

-

-

73

Common stock dividends declared ($0.06 per share)

-

-

-

(274
)

-

-

-

(274
)
Preferred stock dividends declared ($0.06 per share)

-

-

-

(69
)

-

-

-

(69
)
Warrant dividends declared ($0.06 per share)

-

-

-

(8
)

-

-

-

(8
)
Distributions from affiliates

-

-

-

-

-

-

(13
)

(13
)
Balance, June 30, 2019

$
12

$
47

$
49,125

$
42,389

$
(3,024
)

$
(944
)

$
239

$
87,844

The accompanying notes are an integral part of the consolidated financial statements.

Accumulated

Additional

Other Com-

Non-

Preferred

Common

Paid in

Retained

prehensive

Unearned

controlling

(In thousands, except share and per share data)

Stock

Stock

Capital

Earnings

Loss

ESOP

Interest

Total

Balance, January 1, 2020

$
12

$
47

$
49,362

$
44,839

$
(2,971
)

$
(855
)

$
235

$
90,669

Net income

-

-

-

3,531

-

-

57

3,588

Reevaluation of deferred tax asset valuation allowance⁽¹⁾

-

-

-

-

(206
)

-

-

(206
)
Other comprehensive loss, net of tax

-

-

-

-

(1,210
)

-

-

(1,210
)
ESOP shares earned (12,221 shares)

-

-

52

-

-

90

-

142

Restricted stock units (13,437 shares)

-

-

-

-

-

-

-

-

Stock based compensation

-

-

139

-

-

-

-

139

Stock options exercised

-

1

194

-

-

-

-

195

Common stock dividends declared ($0.12 per share)

-

-

-

(557
)

-

-

-

(557
)
Preferred stock dividends declared ($0.12 per share)

-

-

-

(138
)

-

-

-

(138
)
Warrant dividends declared ($0.12 per share)

-

-

-

(15
)

-

-

(15
)
Balance, June 30, 2020

$
12

$
48

$
49,747

$
47,660

$
(4,387
)

$
(765
)

$
292

$
92,607

Balance, January 1, 2019

$
-

$
44

$
29,139

$
42,114

$
(6,042
)

$
(1,034
)

$
238

$
64,459

Net income

-

-

-

1,121

-

-

14

1,135

Other comprehensive income, net of tax

-

-

-

-

3,018

-

-

3,018

Proceeds of common stock private placement,
   net of expenses ⁽²⁾

-

3

3,823

-

-

-

-

3,826

Proceeds of preferred stock private placement,
   net of expenses ⁽²⁾

12

-

15,358

-

-

-

-

15,370

Effect of warrant issued from private placement ⁽²⁾

-

-

373

-

-

-

-

373

ESOP shares earned (12,221 shares)

-

-

86

-

-

90

-

176

Restricted stock units (13,436 shares)

-

-

-

-

-

-

-

-

Stock based compensation

-

-

146

-

-

-

-

146

Stock options exercised

-

-

200

-

-

-

-

200

Cumulative effect of change in measurement of
   operating leases ⁽³⁾

-

-

-

(239
)

-

-

-

(239
)
Common stock dividends declared ($0.12 per share)

-

-

-

(530
)

-

-

-

(530
)
Preferred stock dividends declared ($0.06 per share)

-

-

(69
)

-

-

-

(69
)
Warrant dividends declared ($0.06 per share)

-

-

-

(8
)

-

-

-

(8
)
Distributions from affiliates

-

-

-

-

-

-

(13
)

(13
)
Balance, June 30, 2019

$
12

$
47

$
49,125

$
42,389

$
(3,024
)

$
(944
)

$
239

$
87,844





(In thousands, except share and per share data)	Preferred Stock			Common Stock		Non-Voting Common Stock		Additional Paid in Capital		Retained Earnings			Accumulated Other Comprehensive Loss			Unearned ESOP			Non-controlling Interest			Total
Balance, March 31, 2021	$	14		$	45	$	-	$	50,258	$	52,020		$	(1,768	)	$	(630	)	$	304		$	100,243
Net income		-			-		-		-		3,009			-			-			15			3,024
Conversion of Preferred stock to Non-Voting common stock		(14	)		-		14		-		-			-			-			-			-
Other comprehensive income, net of tax		-			-		-		-		-			533			-			-			533
ESOP shares earned (6,110 shares)		-			-		-		47		-			-			45			-			92
Restricted stock units (13,436 shares issued)		-			-		-		-		-			-			-			-			-
Stock based compensation		-			-		-		55		-			-			-			-			55
Stock options exercised		-			-		-		58		-			-			-			-			58
Common stock dividends declared ($0.07 per share)		-			-		-		-		(314	)		-			-			-			(314	)
Non-Voting common stock dividends declared ($0.07 per share)		-			-		-		-		(97	)		-			-			-			(97	)
Warrant dividends declared ($0.07 per share)		-			-		-		-		(8	)		-			-			-			(8	)
Capital transfer from affiliates		-			-		-		-		-			-			-			-			-
Cumulative effect of affiliate capital allocation		-			-		-		33		(65	)		-			-			32			-
Distributions from affiliates		-			-		-		-		-			-			-			(54	)		(54	)
Balance, June 30, 2021	$	-		$	45	$	14	$	50,451	$	54,545		$	(1,235	)	$	(585	)	$	297		$	103,532

Balance, March 31, 2020	$	12		$	47	$	-	$	49,659	$	46,174		$	(7,077	)	$	(809	)	$	305		$	88,311
Net income		-			-		-		-		1,841			-			-			(13	)		1,828
Other comprehensive income, net of tax		-			-		-		-		-			2,690			-			-			2,690
ESOP shares earned (6,110 shares)		-			-		-		15		-			-			44			-			59
Restricted stock units (13,437 shares issued)		-			-		-		-		-			-			-			-			-
Stock based compensation		-			-		-		73		-			-			-			-			73
Stock options exercised		-			1		-		-		-			-			-			-			1
Common stock dividends declared ($0.06 per share)		-			-		-		-		(279	)		-			-			-			(279	)
Preferred stock dividends declared ($0.06 per share)		-			-		-		-		(69	)		-			-			-			(69	)
Warrant dividends declared ($0.06 per share)		-			-		-		-		(7	)		-			-			-			(7	)
Distributions from affiliates		-			-		-		-		-			-			-			-			-
Balance, June 30, 2020	$	12		$	48	$	-	$	49,747	$	47,660		$	(4,387	)	$	(765	)	$	292		$	92,607

The accompanying notes are an integral part of the consolidated financial statements.





(In thousands, except share and per share data)	Preferred Stock			Common Stock		Non-Voting Common Stock		Additional Paid in Capital		Retained Earnings			Accumulated Other Comprehensive Loss			Unearned ESOP			Non-controlling Interest			Total
Balance, January 1, 2021	$	14		$	45	$	-	$	50,024	$	50,284		$	(2,236	)	$	(675	)	$	266		$	97,722
Net income		-			-		-		-		5,163			-			-			53			5,216
Conversion of Preferred stock to Non-Voting common stock		(14	)		-		14		-		-			-			-			-			-
Other comprehensive income, net of tax		-			-		-		-		-			1,001			-			-			1,001
ESOP shares earned (12,221 shares)		-			-		-		84		-			-			90			-			174
Restricted stock units vested (13,436 shares issued)		-			-		-		-		-			-			-			-			-
Stock based compensation		-			-		-		148		-			-			-			-			148
Stock options exercised		-			-		-		162		-			-			-			-			162
Common stock dividends declared ($0.14 per share)		-			-		-		-		(626	)		-			-			-			(626	)
Non-Voting common stock dividends declared ($0.07 per share)		-			-		-		-		(97	)		-			-			-			(97	)
Preferred stock dividends declared ($0.07 per share)		-			-		-		-		(97	)		-			-			-			(97	)
Warrant dividends declared ($0.14 per share)		-			-		-		-		(17	)		-			-			-			(17	)
Cumulative effect of affiliate capital allocation		-			-		-		33		(65	)		-			-			32			-
Distributions from affiliates		-			-		-		-		-			-			-			(54	)		(54	)
Balance, June 30, 2021	$	-		$	45	$	14	$	50,451	$	54,545		$	(1,235	)	$	(585	)	$	297		$	103,532

Balance, January 1, 2020	$	12		$	47	$	-	$	49,362	$	44,839		$	(2,971	)	$	(855	)	$	235		$	90,669
Net income		-			-				-		3,531			-			-			57			3,588
Reevaluation of deferred tax asset valuation allowance⁽¹⁾		-			-		-		-		-			(206	)		-			-			(206	)
Other comprehensive loss, net of tax		-			-		-		-		-			(1,210	)		-			-			(1,210	)
ESOP shares earned (12,221 shares)		-			-		-		52		-			-			90			-			142
Restricted stock units (13,437 shares issued)		-			-		-		-		-			-			-			-			-
Stock based compensation		-			-		-		139		-			-			-			-			139
Stock options exercised		-			1		-		194		-			-			-			-			195
Common stock dividends declared ($0.12 per share)		-			-		-		-		(557	)		-			-			-			(557	)
Preferred stock dividends declared ($0.12 per share)		-			-		-		-		(138	)		-			-			-			(138	)
Warrant dividends declared ($0.12 per share)		-			-		-		-		(15	)		-			-						(15	)
Distributions from affiliates		-			-		-		-		-			-			-			-			-
Balance, June 30, 2020	$	12		$	48	$	-	$	49,747	$	47,660		$	(4,387	)	$	(765	)	$	292		$	92,607

For the six months ended June 30,

(In thousands)

2020

2019

OPERATING ACTIVITIES

Net income attributable to Pathfinder Bancorp, Inc.

$
3,531

$
1,121

Adjustments to reconcile net income to net cash flows from operating activities:

Provision for loan losses

2,213

754

Amortization of operating leases

11

15

Proceeds from sales of loans

40,498

48

Originations of loans held-for-sale

(3,790
)

(47
)
Realized losses (gains) on sales, redemptions and calls of:

Real estate acquired through foreclosure

4

-

Loans

(773
)

(5
)
Available-for-sale investment securities

(1,014
)

(111
)
Held-to-maturity investment securities

(35
)

-

Marketable equity securities

916

(57
)
Depreciation

824

744

Amortization of mortgage servicing rights

(298
)

2

Amortization of deferred loan costs

137

128

Amortization of deferred financing from subordinated debt

17

17

Earnings and gain on bank owned life insurance

(222
)

(222
)
Net amortization of premiums and discounts on investment securities

637

618

Amortization of intangible assets

8

8

Stock based compensation and ESOP expense

281

322

Net change in accrued interest receivable

(1,261
)

(271
)
Net change in other assets and liabilities

(1,363
)

14

Net cash flows from operating activities

40,321

3,078

INVESTING ACTIVITIES

Purchase of investment securities available-for-sale

(79,052
)

(12,280
)
Purchase of investment securities held-to-maturity

(39,552
)

(46,970
)
Purchase of Federal Home Loan Bank stock

(1,176
)

(2,605
)
Proceeds from redemption of Federal Home Loan Bank stock

1,919

4,099

Proceeds from maturities and principal reductions of investment securities
available-for-sale

47,457

12,044

Proceeds from maturities and principal reductions of investment securities
held-to-maturity

19,523

5,035

Proceeds from sales, redemptions and calls of:

Available-for-sale investment securities

24,768

63,486

Held-to-maturity investment securities

1,589

548

Real estate acquired through foreclosure

116

1,085

Net change in loans

(61,017
)

(73,419
)
Purchase of premises and equipment

(436
)

(2,368
)
Net cash flows from investing activities

(85,861
)

(51,345
)

(1)

In the first quarter of 2020, consistent with policy, management reviewed all facts and circumstances related to its deferred taxes and determined that based on the expected filings of future New York State tax returns, the valuation allowance created in 2019 was no longer needed. Therefore management elected to eliminate its New York State net deferred tax asset valuation allowance during the quarter ended March 31, 2020.

The accompanying notes are an integral part of the consolidated financial statements.

	For the six months ended June 30,
(In thousands)	2021			2020
OPERATING ACTIVITIES
Net income attributable to Pathfinder Bancorp, Inc.	$	5,163		$	3,531
Adjustments to reconcile net income to net cash flows from operating activities:
Provision for loan losses		1,957			2,213
Amortization of operating leases		10			11
Proceeds from sales of loans		4,634			40,498
Originations of loans held-for-sale		(3,662	)		(3,790	)
Realized losses (gains) on sales, redemptions and calls of:
Real estate acquired through foreclosure		0			4
Loans		(159	)		(773	)
Available-for-sale investment securities		0			(1,014	)
Held-to-maturity investment securities		(51	)		(35	)
Premises and equipment		(201	)		0
Marketable equity securities		(283	)		916
Depreciation		909			824
Amortization of mortgage servicing rights		(5	)		(298	)
Amortization of deferred loan costs		983			137
Amortization of deferred financing from subordinated debt		82			17
Earnings on bank owned life insurance		(254	)		(222	)
Net amortization of premiums and discounts on investment securities		1,310			637
Amortization of intangible assets		8			8
Stock based compensation and ESOP expense		322			281
Net change in accrued interest receivable		10			(1,261	)
Payment of executive deferred compensation and SERP contracts, expensed in prior periods		(571	)		0
Net change in other assets and liabilities		(1,617	)		(1,363	)
Net cash flows from operating activities		8,585			40,321
INVESTING ACTIVITIES
Purchase of investment securities available-for-sale		(72,642	)		(79,052	)
Purchase of investment securities held-to-maturity		(23,248	)		(39,552	)
Purchase of Federal Home Loan Bank stock		(3,562	)		(1,176	)
Proceeds from redemption of Federal Home Loan Bank stock		3,465			1,919
Proceeds from maturities and principal reductions of investment securities available-for-sale		42,083			47,457
Proceeds from maturities and principal reductions of investment securities held-to-maturity		30,753			19,523
Proceeds from sales, redemptions and calls of:
Available-for-sale investment securities		500			24,768
Held-to-maturity investment securities		1,112			1,589
Real estate acquired through foreclosure		0			116
Purchase of bank owned life insurance		(5,000	)		0
Net change in loans		(10,571	)		(61,017	)
Purchase of premises and equipment		(870	)		(436	)
Proceeds from sale of premises and equipment		231			0
Net cash flows from investing activities		(37,749	)		(85,861	)

FINANCING ACTIVITIES
Net change in demand deposits, NOW accounts, savings accounts, money management deposit accounts, MMDA accounts and escrow deposits		65,864			100,069
Net change in time deposits		(3,188	)		(39,454	)
Net change in brokered deposits		(26,913	)		28,085
Net change in short-term borrowings		(2,020	)		(14,980	)
Payments on long-term borrowings		(3,391	)		(18,060	)
Proceeds from long-term borrowings		7,095			15,312
Payments on sub-debt borrowings		(10,000	)		-
Proceeds from exercise of stock options		162			195
Cash dividends paid to common shareholders		(589	)		(567	)
Cash dividends paid to preferred shareholders		(180	)		(139	)
Cash dividends paid on warrants		(17	)		(15	)
Change in noncontrolling interest, net		31			57
Net cash flows from financing activities		26,854			70,503
Change in cash and cash equivalents		(2,310	)		24,963
Cash and cash equivalents at beginning of period		43,464			20,160
Cash and cash equivalents at end of period	$	41,154		$	45,123
CASH PAID DURING THE PERIOD FOR:
Interest	$	4,282		$	6,259
Income taxes		755			550
NON-CASH INVESTING ACTIVITY
Real estate acquired in exchange for loans		-			58
RESTRICTED CASH
Collateral deposits for hedge position included in cash and due from banks		1,600			1,600

The accompanying unaudited consolidated financial statements of Pathfinder Bancorp, Inc., (the “Company”), Pathfinder Bank (the “Bank”) and its other wholly owned subsidiaries have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information, the instructions for Form 10-Q and Article 8 of Regulation S-X. Accordingly, they do not include all of the information and footnotes necessary for a complete presentation of consolidated financial condition, results of operations and cash flows in conformity with generally accepted accounting principles. In the opinion of management, all adjustments, consisting of normal recurring accruals considered necessary for a fair presentation, have been included. Certain amounts in the ~~2019~~2020 consolidated financial statements may have been reclassified to conform to the current period presentation. These reclassifications had no effect on net income or comprehensive income as previously reported. Operating results for the three and six months ended June 30, ~~2020~~2021 are not necessarily indicative of the results that may be expected for the full year ending December 31, ~~2020~~2021 or any other interim period.

The Company's consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States and follow practices within the banking industry. Application of these principles requires management to make estimates, assumptions, and judgments that affect the amounts reported in the consolidated financial statements and accompanying notes. These estimates, assumptions, and judgments are based on information available as of the date of the consolidated financial statements; accordingly, as this information changes, the consolidated financial statements could reflect different estimates, assumptions, and judgments. Certain accounting policies inherently have a greater reliance on the use of estimates, assumptions, and judgments, and as such have a greater possibility of producing results that could be materially different than originally reported. Estimates, assumptions, and judgments are necessary when assets and liabilities are required to be recorded at fair value or when an asset or liability needs to be recorded contingent upon a future event. Carrying assets and liabilities at fair value inherently results in more financial statement volatility. The fair values and information used to record valuation adjustments for certain assets and liabilities are based on quoted market prices or are provided by unaffiliated third-party sources, when available. When third party information is not available, valuation adjustments are estimated in good faith by management.

Although the Company owns, through its subsidiary Pathfinder Risk Management Company, Inc., 51% of the membership interest in FitzGibbons Agency, LLC (“Agency”), the Company is required to consolidate 100% of the Agency within the consolidated financial statements. The 49% of which the Company does not own is accounted for separately as noncontrolling interests within the consolidated financial statements.

The Financial Accounting Standards Board (“FASB”) and, to a lesser extent, other authoritative rulemaking bodies promulgate generally accepted accounting principles (“GAAP”) to regulate the standards of accounting in the United States. From time to time, the FASB issues new GAAP standards, known as Accounting Standards Updates (“ASUs”) some of which, upon adoption, may have the potential to change the way in which the Company recognizes or reports within its consolidated financial statements. The following table provides a description of the accounting standards that are not currently effective, but could have an impact on the Company's consolidated financial statements upon adoption.

Standards ~~Not Yet~~ Adopted as of June 30, ~~2020~~

~~Standard~~

~~Description~~

~~Required Date~~

~~of Implementation~~

~~Effect on Consolidated Financial Statements~~

~~Measurement of Credit Losses on Financial Instruments~~ ~~(ASU 2016-13: Financial Instruments—Credit Losses [Topic 326]: Measurement of Credit Losses on Financial Instruments)~~

The amended guidance replaces the current incurred loss model for determining the allowance for credit losses. The guidance requires financial assets measured at amortized cost to be presented at the net amount expected to be collected. The allowance for credit losses will represent a valuation account that is deducted from the amortized cost basis of the financial assets to present their net carrying value at the amount expected to be collected. The income statement will reflect the measurement of credit losses for newly recognized financial assets as well as expected increases or decreases of expected credit losses that have taken place during the period. When determining the allowance, expected credit losses over the contractual term of the financial asset(s) (taking into account prepayments) will be estimated considering relevant information about past events, current conditions, and reasonable and supportable forecasts that affect the collectability of the reported amount. The amended guidance also requires recording an allowance for credit losses for purchased financial assets with a more-than-insignificant amount of credit deterioration since origination. The initial allowance for these assets will be added to the purchase price at acquisition rather than being reported as an expense. Subsequent changes in the allowance will be recorded through the income statement as an expense adjustment. In addition, the amended guidance requires credit losses relating to available-for-sale debt securities to be recorded through an allowance for credit losses. The calculation of credit losses for available-for-sale securities will be similar to how it is determined under existing guidance.

~~January 1, 2023 (early adoption permitted as of January 1, 2019)~~

The Company is assessing the new guidance to determine what modifications to existing credit estimation processes may be required. The new guidance is complex and management is still evaluating the preliminary output from models that have been developed during this evaluative phase. In addition, future levels of allowances will also reflect new requirements to include estimated credit losses on investment securities classified as held-to-maturity, if any. The Company has formed an Implementation Committee, whose membership includes representatives of senior management, to develop plans that will encompass: (1) internal methodology changes (2) data collection and management activities, (3) internal communication requirements, and (4) estimation of the projected impact of this guidance. It has been generally assumed that the conversion from the incurred loss model, required under current GAAP, to the current expected credit loss (CECL) methodology (as required upon implementation of this Update) will, more likely than not, result in increases to the allowances for credit losses at many financial institutions. However, the amount of any change in the allowance for credit losses resulting from the new guidance will ultimately be impacted by the provisions of this guidance as well as by the loan and debt security portfolios composition and asset quality at the adoption date, and economic conditions and forecasts at the time of adoption. The amendments in this Update should be applied on a modified retrospective basis by means of a cumulative-effect adjustment to the opening retained earnings balance in the statement of financial position as of the date that an entity adopted the amendments in Update 2016-13. The cumulative impact of the economic effects of the COVID-19 pandemic on the changes to the allowance for loan losses, that will be required upon the implementation of the CECL methodology, can not be estimated at this time.

Standard	Description	Required Date of Implementation	Effect on Consolidated Financial Statements
Income Taxes (ASU 2019-12- Simplifying the Accounting for Income Taxes)	The FASB Board is issuing this Update as part of its initiative to reduce complexity in accounting standards (the Simplification Initiative). The amendments in this Update simplify the accounting for income taxes by removing the following exceptions, among others not considered to be applicable to the Company: 1. Exception to the incremental approach for intraperiod tax allocation when there is a loss from continuing operations and income or a gain from other items (for example, discontinued operations or other comprehensive income) 2. Exception to the general methodology for calculating income taxes in an interim period when a year-to-date loss exceeds the anticipated loss for the year. The amendments in this Update also simplify the accounting for income taxes by doing the following: 1. Requiring that an entity recognize a franchise tax (or similar tax) that is partially based on income as an income-based tax and account for any incremental amount incurred as a non-income-based tax. 2. Requiring that an entity evaluate when a step up in the tax basis of goodwill should be considered part of the business combination in which the book goodwill was originally recognized and when it should be considered a separate transaction. 3. Specifying that an entity is not required to allocate the consolidated amount of current and deferred tax expense to a legal entity that is not subject to tax in its separate financial statements. However, an entity may elect to do so (on an entity-by-entity basis) for a legal entity that is both not subject to tax and disregarded by the taxing authority. 4. Requiring that an entity reflect the effect of an enacted change in tax laws or rates in the annual effective tax rate computation in the interim period that includes the enactment date. 5. Making minor Codification improvements for income taxes related to employee stock ownership plans and investments in qualified affordable housing projects accounted for using the equity method.	The amendments in this ASU are effective for fiscal years ending after December 15, 2020, for public business entities and for fiscal years ending after December 15, 2021, for all other entities. Early adoption of the amendments is permitted, including adoption in any interim period for (1) public business entities for periods for which financial statements have not yet been issued and (2) all other entities for periods for which financial statements have not yet been made available for issuance. An entity that elects to early adopt the amendments in an interim period should reflect any adjustments as of the beginning of the annual period that includes that interim period. Additionally, an entity that elects early adoption must adopt all the amendments in the same period.	The adoption of this ASU had no material impact to the Company's consolidated statements of condition or income.
Standard	Description	Required Date of Implementation	Effect on Consolidated Financial Statements
Reference Rate Reform (ASU 2020-04- Facilitation of the Effects of Reference Rate Reform on Financial Reporting)	The amendments provide optional expedients and exceptions for applying generally accepted accounting principles (GAAP) to contracts, hedging relationships, and other transactions affected by reference rate reform. The amendments apply only to contracts, hedging relationships, and other transactions that reference LIBOR or another reference rate expected to be discontinued because of reference rate reform. The amendments (1) apply to contract modifications that replace a reference rate affected by reference rate reform, (2) provide exceptions to existing guidance related to changes to the critical terms of a hedging relationship due to reference rate reform (3) provide optional expedients for fair value hedging relationships, cash flow hedging relationships, and net investment hedging relationships, and (4) provide a onetime election to sell, transfer, or both sell and transfer debt securities classified as held to maturity that reference a rate affected by reference rate reform and that are classified as held to maturity before January 1, 2020.	The amendments in this Update ~~related~~are effective for all entities as of March 12, 2020 through December 31, 2022.	The adoption of this ASU had no material impact to ~~separate financial~~the Company's consolidated statements of ~~legal entities~~condition or income.

Standards Not Yet Adopted as of June 30, 2021

Standard

Description

Required Date

of Implementation

Effect on Consolidated Financial Statements

Measurement of Credit Losses on Financial Instruments (ASU 2016-13: Financial Instruments—Credit Losses [Topic 326]: Measurement of Credit Losses on Financial Instruments)

The amended guidance replaces the current incurred loss model for determining the allowance for credit losses. The guidance requires financial assets measured at amortized cost to be presented at the net amount expected to be collected. The allowance for credit losses will represent a valuation account that ~~are~~is deducted from the amortized cost basis of the financial assets to present their net carrying value at the amount expected to be collected. The income statement will reflect the measurement of credit losses for newly recognized financial assets as well as expected increases or decreases of expected credit losses that have taken place during the period. When determining the allowance, expected credit losses over the contractual term of the financial asset(s) (taking into account prepayments) will be estimated considering relevant information about past events, current conditions, and reasonable and supportable forecasts that affect the collectability of the reported amount. The amended guidance also requires recording an allowance for credit losses for purchased financial assets with a more-than-insignificant amount of credit deterioration since origination. The initial allowance for these assets will be added to the purchase price at acquisition rather than being reported as an expense. Subsequent changes in the allowance will be recorded through the income statement as an expense adjustment. In addition, the amended guidance requires credit losses relating to available-for-sale debt securities to be recorded through an allowance for credit losses. The calculation of credit losses for available-for-sale securities will be similar to how it is determined under existing guidance.

January 1, 2023 (early adoption was permitted as of January 1, 2019)

The Company is assessing the new guidance to determine what modifications to existing credit estimation processes may be required. The new guidance is complex and management is still evaluating the preliminary output from models that have been developed during this evaluative phase. In addition, future levels of allowances will also reflect new requirements to include estimated credit losses on investment securities classified as held-to-maturity, if any. The Company has formed an Implementation Committee, whose membership includes representatives of senior management, to develop plans that will encompass: (1) internal methodology changes (2) data collection and management activities, (3) internal communication requirements, and (4) estimation of the projected impact of this guidance. It has been generally assumed that the conversion from the incurred loss model, required under current GAAP, to the current expected credit loss (CECL) methodology (as required upon implementation of this Update) will, more likely than not, ~~subject~~result in increases to ~~tax should~~the allowances for credit losses at many financial institutions. However, the amount of any change in the allowance for credit losses resulting from the new guidance will ultimately be ~~applied on a retrospective basis for all periods presented.~~impacted by the provisions of this guidance as well as by the loan and debt security portfolios composition and asset quality at the adoption date, and economic conditions and forecasts at the time of adoption. The amendments ~~related to changes~~ in ~~ownership of foreign equity method investments or foreign subsidiaries~~this Update should be applied on a modified retrospective basis ~~through~~by means of a cumulative-effect adjustment to the opening retained earnings balance in the statement of financial position as of the date that an entity adopted the amendments in Update 2016-13. The cumulative impact of the economic effects of the COVID-19 pandemic on the changes to the allowance for loan losses, that will be required upon the implementation of the CECL methodology, cannot be estimated at this time.

Standard

Description

Required Date

of Implementation

Effect on Consolidated Financial Statements

Transition Relief for the Implementation of ASU-2016-13 (ASU 2019-5: Financial Instruments—Credit Losses [Topic 326]: Targeted Transition Relief)

The amendments in this ASU provide entities that have certain instruments within the scope of Subtopic 326-20, Financial Instruments—Credit Losses—Measured at Amortized Cost, with an option to irrevocably elect the fair value option in Subtopic 825-10, Financial Instruments—Overall, applied on an instrument-by-instrument basis for eligible instruments, upon adoption of Topic 326. The fair value option election does not apply to held-to-maturity debt securities. An entity that elects the fair value option should subsequently apply the guidance in Subtopics 820-10, Fair Value Measurement—Overall, and 825-10. General guidance for the use of the fair value option is contained in Subtopic 825-10. The irrevocable election of the fair value option must be applied on an instrument-by-instrument basis for eligible instruments, whose characteristics are within the scope of Subtopic 326-20. Upon adoption of Topic 326, for items measured at fair value in accordance with paragraph 326-10-65-1(i), the difference between the carrying amount and the fair value shall be recorded by means of a cumulative-effect adjustment to the opening retained earnings balance as of the beginning of the ~~fiscal year of adoption. The amendments~~first reporting period that an entity has adopted ASU 2016-13. Those differences may include, but are not limited to: (1) unamortized deferred costs, fees, premiums, and discounts (2) valuation allowances (for example, allowance for loan losses), or (3) accrued interest.

See comments above related to ~~franchise taxes that are partially based on income should be applied on either a retrospective basis for all periods presented or a modified retrospective basis through a cumulative-effect adjustment~~ASU 2016-13.

See comments above related to retained earnings as of the beginning of the fiscal year of adoption. All other amendments should be applied on a prospective basis. The Company does not expect the new guidance will have a material impact to its consolidated statements of condition or income.ASU 2016-13.

Standard

Description

Required Date

of Implementation

Effect on Consolidated Financial Statements

Financial Instruments—Credit Losses (ASU 2019-11- Codification Improvements to Topic 326)

On June 16, 2016, the FASB issued Accounting Standards Update No. 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, which introduced an expected credit loss model for the impairment of financial assets measured at amortized cost basis. That model replaces the probable, incurred loss model for those assets. Through the amendments in that Update, the Board added Topic 326, Financial ~~Instruments��~~Instruments—Credit Losses, and made several consequential amendments to the Codification. The Board has an ongoing project on its agenda for improving the Codification or correcting its unintended application. The items addressed in that project generally are not expected to have a significant effect on current accounting practice or create a significant administrative cost for most entities. The amendments in this Update are similar to those items. However, the Board decided to issue a separate Update for improvements to the amendments in Update 2016-13 to increase stakeholder awareness of those amendments and to expedite the improvement process. The amendments include items brought to the Board's attention by stakeholders.

The amendments in this Update clarify or address stakeholders' specific issues about certain aspects of the amendments in Update 2016-13 as described below:

1. Expected Recoveries for Purchased Financial Assets with Credit Deterioration (PCDs): The amendments clarify that the allowance for credit losses for PCD assets should include in the allowance for credit losses expected recoveries of amounts previously written off and expected to be written off by the entity and should not exceed the aggregate of amounts of the amortized cost basis previously written off and expected to be written off by an entity. In addition, the amendments clarify that when a method other than a discounted cash flow method is used to estimate expected credit losses, expected recoveries should not include any amounts that result in an acceleration of the noncredit discount. An entity may include increases in expected cash flows after acquisition.

2. Transition Relief for Troubled Debt Restructurings (TDRs): The amendments provide transition relief by permitting entities an accounting policy election to adjust the effective interest rate on existing TDRs using prepayment assumptions on the date of adoption of Topic 326 rather than the prepayment assumptions in effect immediately before the restructuring.

3. Disclosures Related to Accrued Interest Receivables: The amendments extend the disclosure relief for accrued interest receivable balances to additional relevant disclosures involving amortized cost basis.

4. Financial Assets Secured by Collateral Maintenance Provisions: The amendments clarify that an entity should assess whether it reasonably expects the borrower will be able to continually replenish collateral securing the financial asset to apply the practical expedient. The amendments clarify that an entity applying the practical expedient should estimate expected credit losses for any difference between the amount of the amortized cost basis that is greater than the fair value of the collateral securing the financial asset (that is, the unsecured portion of the amortized cost basis). An entity may determine that the expectation of nonpayment for the amount of the amortized cost basis equal to the fair value of the collateral securing the financial asset is zero.

5. Conforming Amendment to Subtopic 805-20: The amendment to Subtopic 805-20, Business Combinations—Identifiable Assets and Liabilities, and Any Noncontrolling Interest, clarifies the guidance by removing the cross-reference to Subtopic 310-30 in paragraph 805-20-50-1 and replacing it with a cross-reference to the guidance on PCD assets in Subtopic 326-20.

January 1, 2023 (early adoption was permitted as of January 1, 2019). The effective dates and transition requirements for the amendments are the same as the effective dates and transition requirements in Update 2016-13.

The Company is assessing the new guidance to determine what modifications to existing credit estimation processes may be required. The new guidance is complex and management is still evaluating the preliminary output from models that have been developed during this evaluative phase. In addition, future levels of allowances will also reflect new requirements to include estimated credit losses on investment securities classified as held-to-maturity, if any. The Company has formed an Implementation Committee, whose membership includes representatives of senior management, to develop plans that will encompass: (1) internal methodology changes (2) data collection and management activities, (3) internal communication requirements, and (4) estimation of the projected impact of this guidance. It has been generally assumed that the conversion from the incurred loss model, required under current GAAP, to the CECL methodology will, more likely than not, result in increases to the allowances for credit losses at many financial institutions. However, the amount of any change in the allowance for credit losses resulting from the new guidance will ultimately be impacted by the provisions of this guidance as well as by the loan and debt security portfolios composition and asset quality at the adoption date, and economic conditions and forecasts at the time of adoption. The amendments in this Update should be applied on a modified retrospective basis by means of a cumulative-effect adjustment to the opening retained earnings balance in the statement of financial position as of the date that an entity adopted the amendments in Update 2016-13.

Standard	Description	Required Date of Implementation	Effect on Consolidated Financial Statements
~~Reference Rate Reform~~ Earnings Per Share, Debt Modifications and Extinguishments, Stock Compensation, and Derivatives and Hedging- Contacts in Entity's own Equity (ASU ~~2020-04- Facilitation of the Effects of Reference Rate Reform on Financial Reporting)~~2011-04)	The amendments provide optional expedients and exceptions for applying generally accepted accounting principles (GAAP) to contracts, hedging relationships, and other transactions affected by reference rate reform. The amendments apply only to contracts, hedging relationships, and other transactionsin this Update affect all entities that reference LIBOR or another reference rate expected to be discontinued because of reference rate reform. The amendments (1) apply to contract modifications that replace a reference rate affected by reference rate reform, (2) provide exceptions to existing guidance related to changes to the critical terms of a hedging relationship due to reference rate reform (3) provide optional expedients for fair value hedging relationships, cash flow hedging relationships, and net investment hedging relationships, and (4) provide a onetime election to sell, transfer, or both sell and transfer debt securities classified as held to maturity that reference a rate affected by reference rate reform andissue freestanding written call options that are classified ~~as held~~in equity. Specifically, the amendments affect those entities when a freestanding equity-classified written call option is modified or exchanged and remains equity classified after the modification or exchange. The amendments that relate to ~~maturity before January 1, 2020.~~the recognition and measurement of EPS for certain modifications or exchanges of freestanding equity-classified written call options affect entities that present EPS in accordance with the guidance in Topic 260, Earnings Per Share. The amendments in this Update do not apply to modifications or exchanges of financial instruments that are within the scope of another Topic. That is, accounting for those instruments continues to be subject to the requirements in other Topics. The amendments in this Update do not affect a holder‘s accounting for freestanding call options.	The amendments in this Update are effective for all entities asfor fiscal years beginning after December 15, 2021, including interim periods within those fiscal years. An entity should apply the amendments prospectively to modifications or exchanges occurring on or after the effective date of ~~March 12, 2020 through December 31, 2022.~~	~~The~~the amendments. Early adoption is permitted for all entities, including adoption in an interim period. If an entity elects to early adopt the amendments ~~for contract modifications can be elected to be applied as of any date from the beginning of~~in this Update in an interim period, that includes or is subsequent to March 12, 2020, or prospectively from a date within an interim period that includes or is subsequent to March 12, 2020. The amendments for existing hedging relationships can be elected tothe guidance should be applied as of the beginning of the ~~interim period~~fiscal year that includes ~~March 12, 2020 and~~that interim period.	The adoption of this ASU is expected to ~~new eligible hedging relationships entered into after~~have no material impact to the ~~beginning~~Company's consolidated statements of condition or income as the ~~interim period that includes March 12, 2020. The~~ Company does not ~~expect~~have any freestanding equities with a written call option.
Standard	Description	Required Date of Implementation	Effect on Consolidated Financial Statements
Leases- Topic 842 (ASU 2021-05)	The amendments in this Update affect lessors with lease contracts that (1) have variable lease payments that do not depend on a reference index or a rate and (2) would have resulted in the ~~guidance will~~recognition of a selling loss at lease commencement if classified as sales-type or direct financing. The amendment requires that a lessor determine whether a lease should be classified as a sales-type lease or a direct financing lease at lease commencement on the basis of specified classification criteria (see paragraphs 842-10-25-2 through 25-3). Under ASC 842, a lessor is not permitted to estimate most variable payments and must exclude variable payments that are not estimated and do not depend on a reference index or a rate from the lease receivable. Subsequently, those excluded variable payments are recognized entirely as lease income when the changes in facts and circumstances on which those variable payments are based occur. Consequently, the net investment in the lease for a sales-type lease or a direct financing lease with variable payments of a certain magnitude that do not depend on a reference index or a rate may be less than the carrying amount of the underlying asset derecognized at lease commencement. As a result, the lessor recognizes a selling loss at lease commencement (hereinafter referred to as a day-one loss) even if the lessor expects the arrangement to be profitable overall. The amendments in this Update address stakeholders' concerns by amending the lease classification requirements for lessors to align them with practice under ASC 840. Lessors should classify and account for a lease with variable lease payments that do not depend on a reference index or a rate as an operating lease if both of the following criteria are met: (1) The lease would have been classified as a sales-type lease or a direct financing lease in accordance with the classification criteria in paragraphs 842-10-25-2 through 25-3 and (2) The lessor would have otherwise recognized a day-one loss. When a lease is classified as operating, the lessor does not recognize a net investment in the lease, does not derecognize the underlying asset, and, therefore, does not recognize a selling profit or loss. The leased asset continues to be subject to the measurement and impairment requirements under other applicable GAAP before and after the lease transaction.	The amendments in this Update amend Topic 842, which has different effective dates for public business entities and most entities other than public business entities. The amendments are effective for fiscal years beginning after December 15, 2021, for all entities, and interim periods within those fiscal years for public business entities and interim periods within fiscal years beginning after December 15, 2022, for all other entities.	The adoption of this ASU is currently not expected to have a material ~~effect on its on its~~impact to the Company's consolidated statements of condition or income.

Following shareholder approval received on June 4, 2021, the Company converted 1,380,283 shares of its Series B Convertible Perpetual Preferred Stock to an equal number of shares of its newly-created Series A Non-Voting Common Stock. The conversion, which was effective on June 28, 2021, represented 100% of the Company's Convertible Perpetual Preferred Stock outstanding at the time of the conversion and retired the Convertible Perpetual Preferred Stock in perpetuity.

The Company ~~entered into a securities purchase agreement with Castle Creek Capital Partners VII, L.P. on May 8, 2019, pursuant to which the Company sold: (i) 37,700 shares of the Company’s~~has voting common stock, par value $0.01 per share, at a purchase price of $14.25 per share; (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; and (iii) a warrant, with an approximate fair value of $373,000, to purchase 125,000 shares ofnon-voting common stock of the Company at an exercise price equal to $14.25 per share, in a private placement transaction (the “Private Placement”) for gross proceeds of approximately $17.0 million. As a result of the securities purchase agreement, the Company has common stock, preferred stock and a warrant that are all eligible to participate in dividends equal to the voting common stock dividends on a per share basis. Securities that participate in dividends, such as the Company’s ~~preferred~~non-voting common stock and warrant, are considered “participating securities.” The Company calculates net income available to voting common shareholders using the two-class method required for capital structures that include participating securities.

In applying the two-class method, basic net income per share was calculated by dividing net income (less any dividends on participating securities) by the weighted average number of shares of voting common stock and participating securities outstanding for the period. Diluted earnings per share may include the additional effect of other securities, if dilutive, in which case the dilutive effect of such securities is calculated by applying either the two-class method or the Treasury Stock method to the assumed exercise or vesting of potentially dilutive common shares. The method yielding the more dilutive result is ultimately reported for the applicable period. Potentially dilutive common stock equivalents primarily consist of employee stock options and restricted stock units. Unallocated common shares held by the ESOP are not included in the weighted average number of common shares outstanding for purposes of calculating earnings per common share until they are committed to be released to plan participants.

Anti-dilutive shares are common stock equivalents with average exercise prices in excess of the weighted average market price for the period presented. Anti-dilutive stock options, not included in the computation below, were ~~256,145 for the three months ended June 30, 2020 and 128,073 for the six months ended June 30, 2020 and were~~ -0- for the three and six months ended June 30, ~~2019.~~2021 and were 256,145 and $128,073 for the three and six months ended June 30, 2020, respectively.

The following table sets forth the calculation of basic and diluted earnings per ~~share.~~ share.

Three months ended

Six months ended

June 30,

June 30,

(In thousands, except per share data)

2020

2019

2020

2019

Net income attributable to Pathfinder Bancorp, Inc.

$
1,841

$
607

$
3,531

$
1,121

Convertible preferred stock dividends

69

69

138

69

Warrant dividends

7

8

15

8

Undistributed earnings allocated to participating securities

322

38

612

41

Net income available to common shareholders

$
1,443

$
492

$
2,766

$
1,003

Basic weighted average common shares outstanding

4,639

4,443

4,623

4,344

Effect of assumed exercise of stock options and
unvested restricted stock units

-

-

-

-

Diluted weighted average common shares outstanding

4,639

4,443

4,623

4,344

Basic earnings per common share

$
0.31

$
0.11

$
0.60

$
0.23

Diluted earnings per common share

$
0.31

$
0.11

$
0.60

$
0.23

	Three months ended				Six months ended
	June 30,				June 30,
(In thousands, except per share data)	2021		2020		2021		2020
Net income attributable to Pathfinder Bancorp, Inc.	$	3,009	$	1,841	$	5,163	$	3,531
Convertible preferred stock dividends		83		69		180		138
Series A Non-Voting Common Stock dividends		14		-		14		-
Warrant dividends		9		7		17		15
Undistributed earnings allocated to participating securities		653		322		1,093		612
Net income available to common shareholders- Voting	$	2,250	$	1,443	$	3,859	$	2,766

Net income attributable to Pathfinder Bancorp, Inc.	$	3,009	$	-	$	5,163	$	-
Convertible preferred stock dividends		83		-		180		-
Voting Common Stock dividends		314		-		626		-
Warrant dividends		8		-		17		-
Undistributed earnings allocated to participating securities		2,504		-		4,254		-
Net income available to common shareholders- Series A Non-Voting	$	100	$	-	$	86	$	-


Basic weighted average common shares outstanding- Voting		4,464		4,639		4,453		4,623
Basic weighted average common shares outstanding- Series A Non-Voting		197		-		99		-
Diluted weighted average common shares outstanding- Voting		4,464		4,639		4,453		4,623
Diluted weighted average common shares outstanding- Series A Non-Voting		197		-		99		-

Basic earnings per common share- Voting	$	0.50	$	0.31	$	0.87	$	0.60
Basic earnings per common share- Series A Non-Voting	$	0.51	$	-	$	0.87	$	-
Diluted earnings per common share- Voting	$	0.50	$	0.31	$	0.87	$	0.60
Diluted earnings per common share- Series A Non-Voting	$	0.51	$	-	$	0.87	$	-

Supplemental information:	June 30, 2021		December 31, 2020		June 30, 2020
Voting Common Stock shares outstanding at period end		4,562		4,531		4,754
Series A Non-Voting Common Stock shares outstanding at period end		1,380		-		-
Series B Convertible Preferred Stock shares outstanding at period end		-		1,380		1,155
Total shares of all classes of stock outstanding at period end		5,942		5,911		5,909

The amortized cost and estimated fair value of investment securities are summarized as follows:

	June 30, 2020									June 30, 2021
			Gross		Gross			Estimated				Gross		Gross			Estimated
	Amortized		Unrealized		Unrealized			Fair		Amortized		Unrealized		Unrealized			Fair
(In thousands)	Cost		Gains		Losses			Value		Cost		Gains		Losses			Value
Available-for-Sale Portfolio
Debt investment securities:
US Treasury, agencies and GSEs	$	21,584	$	4	$	(26	)	$	21,562	$	18,261	$	18	$	(25	)	$	18,254
State and political subdivisions		13,167		-		(26	)		13,141		22,548		1,203		0			23,751
Corporate		11,124		131		(19	)		11,236		12,830		486		(41	)		13,275
Asset backed securities		13,079		1		(279	)		12,801		14,279		30		(15	)		14,294
Residential mortgage-backed - US agency		14,845		279		-			15,124		22,765		406		0			23,171
Collateralized mortgage obligations - US agency		25,243		166		(528	)		24,881		27,311		105		(427	)		26,989
Collateralized mortgage obligations - Private label		17,316		234		(370	)		17,180		37,263		401		(45	)		37,619
Total		116,358		815		(1,248	)		115,925		155,257		2,649		(553	)		157,353
Equity investment securities:
Common stock - financial services industry		206		-		-			206		206		0		0			206
Total		206		-		-			206		206		0		0			206
Total available-for-sale	$	116,564	$	815	$	(1,248	)	$	116,131	$	155,463	$	2,649	$	(553	)	$	157,559

Held-to-Maturity Portfolio
Debt investment securities:
US Treasury, agencies and GSEs	$	1,000	$	9	$	-		$	1,009	$	0	$	0	$	0		$	0
State and political subdivisions		10,676		418		(19	)		11,075		16,912		489		(149	)		17,252
Corporate		24,776		817		(269	)		25,324		44,673		1,406		(50	)		46,029
Asset backed securities		22,804		9		(735	)		22,078		13,959		186		(92	)		14,053
Residential mortgage-backed - US agency		11,909		623		-			12,532		10,714		408		0			11,122
Collateralized mortgage obligations - US agency		23,713		893		(14	)		24,592		13,312		580		(4	)		13,888
Collateralized mortgage obligations - Private label		46,420		183		(73	)		46,530		62,862		902		(111	)		63,653
Total held-to-maturity	$	141,298	$	2,952	$	(1,110	)	$	143,140	$	162,432	$	3,971	$	(406	)	$	165,997

	December 31, 2019									December 31, 2020
			Gross		Gross			Estimated				Gross		Gross			Estimated
	Amortized		Unrealized		Unrealized			Fair		Amortized		Unrealized		Unrealized			Fair
(In thousands)	Cost		Gains		Losses			Value		Cost		Gains		Losses			Value
Available-for-Sale Portfolio
Debt investment securities:
US Treasury, agencies and GSEs	$	16,850	$	-	$	(30	)	$	16,820	$	6,428	$	12	$	(24	)	$	6,416
State and political subdivisions		1,735		1		-			1,736		23,235		538		(20	)		23,753
Corporate		12,347		230		(23	)		12,554		12,393		275		0			12,668
Asset backed securities		13,190		61		(19	)		13,232		8,572		39		(4	)		8,607
Residential mortgage-backed - US agency		19,012		56		(88	)		18,980		24,856		355		0			25,211
Collateralized mortgage obligations - US agency		31,320		35		(570	)		30,785		26,776		149		(461	)		26,464
Collateralized mortgage obligations - Private label		16,767		97		(43	)		16,821		24,662		384		(110	)		24,936
Total		111,221		480		(773	)		110,928		126,922		1,752		(619	)		128,055
Equity investment securities:
Common stock - financial services industry		206		-		-			206		206		0		0			206
Total		206		-		-			206		206		0		0			206
Total available-for-sale	$	111,427	$	480	$	(773	)	$	111,134	$	127,128	$	1,752	$	(619	)	$	128,261

Held-to-Maturity Portfolio
Debt investment securities:
US Treasury, agencies and GSEs	$	1,998	$	2	$	-		$	2,000	$	1,000	$	2	$	0		$	1,002
State and political subdivisions		8,534		124		(4	)		8,654		16,482		527		(58	)		16,951
Corporate		25,779		584		(29	)		26,334		36,441		1,101		(7	)		37,535
Asset backed securities		23,099		101		(115	)		23,085		18,414		217		(176	)		18,455
Residential mortgage-backed - US agency		13,715		247		(3	)		13,959		11,807		475		0			12,282
Collateralized mortgage obligations - US agency		19,607		300		(29	)		19,878		24,482		850		(1	)		25,331
Collateralized mortgage obligations - Private label		30,256		35		(53	)		30,238		62,598		902		(121	)		63,379
Total held-to-maturity	$	122,988	$	1,393	$	(233	)	$	124,148	$	171,224	$	4,074	$	(363	)	$	174,935

The amortized cost and estimated fair value of debt investments at June 30, ~~2020~~2021 by contractual maturity are shown below. Expected maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without penalties.

The Company’s investment securities’ gross unrealized losses and fair value, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position, are as follows:

	June 30, 2020																					June 30, 2021
	Less than Twelve Months							Twelve Months or More							Total							Less than Twelve Months							Twelve Months or More							Total
	Number of							Number of							Number of							Number of							Number of							Number of
	Individual		Unrealized			Fair		Individual		Unrealized			Fair		Individual		Unrealized			Fair		Individual		Unrealized			Fair		Individual		Unrealized			Fair		Individual		Unrealized			Fair
(Dollars in thousands)	Securities		Losses			Value		Securities		Losses			Value		Securities		Losses			Value		Securities		Losses			Value		Securities		Losses			Value		Securities		Losses			Value
Available-for-Sale Portfolio
US Treasury, agencies and GSE's		-	$	-		$	-		1	$	(26	)	$	4,951		1	$	(26	)	$	4,951
US Treasury, agencies and GSEs																							1	$	(3	)	$	1,975		1	$	(22	)	$	4,957		2	$	(25	)	$	6,932
State and political subdivisions		4		(26	)		11,480		-		-			-		4		(26	)		11,480		0		0			0		0		0			0		0		0			0
Corporate		4		(19	)		2,505		-		-			-		4		(19	)		2,505		1		(41	)		713		0		0			0		1		(41	)		713
Asset backed securities		8		(273	)		11,220		1		(6	)		262		9		(279	)		11,482		1		(4	)		3,000		2		(11	)		2,062		3		(15	)		5,062
Residential mortgage-backed - US agency		-		-			-		-		-			-		-		-			-		0		0			0		0		0			0		0		0			0
Collateralized mortgage obligations - US agency		1		(30	)		2,085		2		(498	)		6,538		3		(528	)		8,623		3		(151	)		8,713		3		(276	)		6,957		6		(427	)		15,670
Collateralized mortgage obligations - Private label		4		(31	)		2,565		4		(339	)		2,908		8		(370	)		5,473		3		(40	)		4,676		1		(5	)		953		4		(45	)		5,629
Totals		21	$	(379	)	$	29,855		8	$	(869	)	$	14,659		29	$	(1,248	)	$	44,514		9	$	(239	)	$	19,077		7	$	(314	)	$	14,929		16	$	(553	)	$	34,006
Held-to-Maturity Portfolio
State and political subdivisions		3	$	(19	)	$	3,368		-	$	-		$	-		3	$	(19	)	$	3,368		4	$	(149	)	$	5,315		0	$	0		$	0		4	$	(149	)	$	5,315
Corporate		9		(269	)		9,880		-		-			-		9		(269	)		9,880		8		(50	)		7,311		0		0			0		8		(50	)		7,311
Asset backed securities		9		(528	)		12,984		2		(207	)		3,978		11		(735	)		16,962		0		0			0		2		(92	)		2,104		2		(92	)		2,104
Residential mortgage-backed - US agency		-		-			-		-		-			-		-		-			-		0		0			0		0		0			0		0		0			0
Collateralized mortgage obligations - US agency		1		(6	)		2,043		1		(8	)		1,587		2		(14	)		3,630		1		(4	)		1,293		0		0			0		1		(4	)		1,293
Collateralized mortgage obligations - Private label		4		(72	)		5,706		1		(1	)		309		5		(73	)		6,015		2		(110	)		4,000		1		(1	)		532		3		(111	)		4,532
Totals		26	$	(894	)	$	33,981		4	$	(216	)	$	5,874		30	$	(1,110	)	$	39,855		15	$	(313	)	$	17,919		3	$	(93	)	$	2,636		18	$	(406	)	$	20,555

	December 31, 2019																					December 31, 2020
	Less than Twelve Months							Twelve Months or More							Total							Less than Twelve Months							Twelve Months or More							Total
	Number of							Number of							Number of							Number of							Number of							Number of
	Individual		Unrealized			Fair		Individual		Unrealized			Fair		Individual		Unrealized			Fair		Individual		Unrealized			Fair		Individual		Unrealized			Fair		Individual		Unrealized			Fair
(Dollars in thousands)	Securities		Losses			Value		Securities		Losses			Value		Securities		Losses			Value		Securities		Losses			Value		Securities		Losses			Value		Securities		Losses			Value
Available-for-Sale Portfolio
US Treasury, agencies and GSE's		4	$	(30	)	$	16,820		-	$	-		$	-		4	$	(30	)	$	16,820		0	$	0		$	0		1	$	(24	)	$	4,954		1	$	(24	)	$	4,954
State and political subdivisions																							1		(20	)		2,521		0		0			0		1		(20	)		2,521
Corporate		1		(23	)		786		-		-			-		1		(23	)		786		0		0			0		0		0			0		0		0			0
Asset backed securities		3		(7	)		5,211		1		(12	)		594		4		(19	)		5,805		2		(2	)		2,487		1		(2	)		80		3		(4	)		2,567
Residential mortgage-backed - US agency		10		(77	)		10,709		4		(11	)		2,543		14		(88	)		13,252		0		0			0		0		0			0		0		0			0
Collateralized mortgage obligations - US agency		10		(67	)		15,791		10		(503	)		10,034		20		(570	)		25,825		2		(45	)		6,974		2		(416	)		5,683		4		(461	)		12,657
Collateralized mortgage obligations - Private label		2		(7	)		3,818		5		(36	)		3,959		7		(43	)		7,777		3		(78	)		8,071		4		(32	)		2,574		7		(110	)		10,645
Totals		30	$	(211	)	$	53,135		20	$	(562	)	$	17,130		50	$	(773	)	$	70,265		8	$	(145	)	$	20,053		8	$	(474	)	$	13,291		16	$	(619	)	$	33,344
Held-to-Maturity Portfolio
US Treasury, agencies and GSE's																							0	$	0		$	0		0	$	0		$	0		0	$	0		$	0
State and political subdivisions		1	$	(4	)	$	3,027		-	$	-		$	-		1	$	(4	)	$	3,027		3		(58	)		7,063		0		0			0		3		(58	)		7,063
Corporate		2		(29	)		2,974		-		-			-		2		(29	)		2,974		4		(7	)		3,775		0		0			0		4		(7	)		3,775
Asset backed securities		6		(115	)		11,091		-		-			-		6		(115	)		11,091		4		(36	)		4,209		3		(140	)		4,683		7		(176	)		8,892
Residential mortgage-backed - US agency		-		-			-		1		(3	)		198		1		(3	)		198		0		0			0		0		0			0		0		0			0
Collateralized mortgage obligations - US agency		2		(29	)		4,907		-		-			-		2		(29	)		4,907		1		(1	)		1,496		0		0			0		1		(1	)		1,496
Collateralized mortgage obligations - Private label		6		(49	)		9,396		2		(4	)		1,132		8		(53	)		10,528		4		(115	)		6,442		1		(6	)		780		5		(121	)		7,222
Totals		17	$	(226	)	$	31,395		3	$	(7	)	$	1,330		20	$	(233	)	$	32,725		16	$	(217	)	$	22,985		4	$	(146	)	$	5,463		20	$	(363	)	$	28,448

Excluding the effects of changes in the characteristics of individual debt securities that potentially give rise to other-than-temporary impairment (“OTTI”), as described below, the fair market value of a debt security as of a particular measurement date is highly dependent upon prevailing market and economic environmental factors at the measurement date relative to the prevailing market and economic environmental factors present at the time the debt security was acquired. The most significant market and environmental factors include, but are not limited to (1) the general level of interest rates, (2) the relationship between shorter-term interest rates and longer-term interest rates (referred to as the “slope” of the interest rate yield curve), (3) general bond market liquidity, (4) the recent and expected near-term volume of new issuances of similar debt securities, and (5) changes in the market values of individual loan collateral underlying mortgage-backed debt securities. Changes in interest rates affect the fair market values of debt securities by influencing the discount rate applied to the securities’ future expected cash flows. The higher the discount rate, the lower the resultant security price. Conversely, the lower the discount rate, the higher the resultant security price. In addition, the cumulative amount and timing of undiscounted cash flows of debt securities may be also affected by changes in interest rates. For any given level of movement in the general market and economic environmental factors described above, the magnitude of any particular debt security’s price changes will also depend heavily upon security-specific factors such as (1) the

duration of the security, (2) imbedded optionality contractually granted to the issuer of the security with respect to principal prepayments, and (3) changes in the level of market premiums demanded by investors for securities with imbedded credit risk (where applicable).

The Company conducts a formal review of investment securities on a quarterly basis for the presence of OTTI. The Company assesses whether OTTI is present when the fair value of a debt security is less than its amortized cost basis at the statement of condition date. Under these circumstances, OTTI is considered to have occurred (1) if we intend to sell the security; (2) if it is “more likely than not” we will be required to sell the security before recovery of its amortized cost basis; or (3) the present value of expected cash flows is not anticipated to be sufficient to recover the entire amortized cost basis. The guidance requires that credit-related OTTI is recognized in earnings while non-credit-related OTTI on securities not expected to be sold is recognized in other comprehensive income (“OCI”). Non-credit-related OTTI is based on other factors, including illiquidity and changes in the general interest rate environment. Presentation of OTTI is made in the consolidated statement of income on a gross basis, including both the portion recognized in earnings as well as the portion recorded in OCI. The gross OTTI would then be offset by the amount of non-credit-related OTTI, showing the net as the impact on earnings.

Management does not believe any individual unrealized loss in securities within the portfolio as of June 30, ~~2020~~2021 represents OTTI. At June 30, ~~2020,~~2021, the Bank had the following securities, in a loss position for 12 months or more relative to their amortized historical cost, which were deemed to have no credit impairment, thus, the disclosed unrealized losses relate directly to changes in interest rates subsequent to the acquisition of the individual securities. The Company does not intend to sell these securities, nor is it more likely than not that the Company will be required to sell these securities prior to the recovery of the amortized cost.

Of the total of 1210 securities in an unrealized loss position for 12 months or more at June 30, ~~2020, four~~2021, 4 securities, representing ~~62.9%~~67.9% of the unamortized cost of the total securities in an unrealized loss position for 12 months or more, are issued by United States agencies or ~~GSE’s~~Government Sponsored Enterprises (GSEs) and consist of mortgage-backed securities, collateralized mortgage obligations and direct agency financings. These positions in USU.S. government agency and ~~GSE’s~~GSEs are deemed to have no credit impairment, thus, the disclosed unrealized losses relate primarily to changes in prepayment assumptions related to significantly lower general interest rates resulting from the economic effects of the pandemic.

In addition to these four securities, the Company held the following ~~eight non-government-issued/~~six non-government or GSE-issued/backed securities that were in an unrealized loss position for 12 or more months at June 30, ~~2020:~~2021:

•

NaN privately-issued asset-backed security, categorized as available-for-sale, and collateralized by rail car leases, with an aggregate amortized historical cost of $2.0 million (unrealized loss of $11,000, or 0.6%). This security maintains a credit rating established by one or more NRSRO above the minimum level required to be considered as investment grade. Therefore, no credit-related OTTI is deemed to be present.

One privately-issued asset-backed security, categorized as available-for-sale, with an amortized historical cost of $268,000 and an aggregate market value of $262,000 (unrealized loss of $6,000 or -2.1%). This security maintains a credit rating established by one or more NRSRO above the minimum level required to be considered as investment grade and therefore, no credit-related OTTI is deemed to be present.

Four privately-issued collateralized mortgage obligation securities, categorized as available-for-sale, with an aggregate amortized historical cost of $3.2 million and an aggregate market value of $2.9 million (unrealized aggregate loss of $339,000 or -11.6 %). These securities were not rated at the time of their issuances by any NRSRO but each security remains significantly collateralized through subordination and other credit enhancements. Therefore, no credit-related OTTI is deemed to be present.

•

NaN privately-issued collateralized mortgage obligation security, collateralized by commercial mortgage loans and categorized as available-for-sale, with an aggregate amortized historical cost of $958,000 and an aggregate market value of $953,000 (unrealized aggregate loss of $5,000 or -0.5%). This security was not rated at the time of its issuance by any NRSRO but remains significantly collateralized through subordination and other credit enhancements. Therefore, no credit-related OTTI is deemed to be present.

One privately-issued asset-backed securities, categorized as held-to-maturity and collateralized by privately-issued student loans, with an aggregate amortized historical cost of $2.1 million and an aggregate market value of $2.0 million (aggregate unrealized loss of $154,000 or -7.1%). This security was not rated at the time of its issuance by any NRSRO but remains significantly collateralized through subordination. Therefore, no credit-related OTTI is deemed to be present.

•

NaN privately-issued asset-backed security, collateralized by small business installment loans, and categorized as held-to-maturity, with an aggregate amortized historical cost of $486,000 and a market value of $479,000 (unrealized loss of $7,000 or -1.4%). This security maintains a credit rating established by one or more NRSRO above the minimum level required to be considered as investment grade. Therefore, no credit-related OTTI is deemed to be present.

One privately-issued asset-backed security, categorized as held-to-maturity and collateralized by federally-insured student loans, with an aggregate amortized historical cost of $2.0 million and an aggregate market value of $2.0 million (aggregate unrealized loss of $53,000 or -2.6%). This security maintains a current investment grade rating by one or more NRSROPs and remains significantly collateralized through subordination. Therefore, no credit-related OTTI is deemed to be present.
•
NaN privately-issued asset-backed security, collateralized by private-issue student loans and categorized as held-to-maturity, with an aggregate amortized historical cost of $1.7 million and an aggregate market value of $1.6 million (unrealized loss of $85,000 or -5.0%). This security was unrated at issuance but remains sufficiently collateralized through subordination. Therefore, no credit-related OTTI is deemed to be present.

•

NaN privately-issued collateralized mortgage obligation security, collateralized by residential mortgage loans and categorized as held-to-maturity, with an aggregate amortized historical cost of $532,000 and a market value of $531,000 (unrealized loss of less than $1,000). This security maintains a credit rating established by one or more NRSRO above the minimum level required to be considered as investment grade. Therefore, no credit-related OTTI is deemed to be present.

One privately-issued collateralized mortgage obligation security, categorized as held-to-maturity, with an aggregate amortized historical cost of $310,000 and an aggregate market value of $309,000 (aggregate unrealized loss of $1,000 or -0.33%). This security was not rated at the time of its issuance by any NRSRO but remains significantly collateralized through subordination and other credit enhancements. Therefore, no credit-related OTTI is deemed to be present.

All other securities with market values less than their amortized historical costs for twelve or more months are issued by United States agencies or government sponsored enterprises and consist of mortgage-backed securities, collateralized mortgage obligations and direct agency financings. These positions in US government agency and government-sponsored enterprises are deemed to have no credit impairment, thus, the disclosed unrealized losses relate directly to changes in interest rates subsequent to the acquisition of the individual securities. The Company does not intend to sell these securities, nor is it more likely than not that the Company will be required to sell these securities prior to the recovery of the amortized cost.

In determining whether OTTI has occurred for equity securities, the Company considers the applicable factors described above and the length of time the equity security’s fair value has been below the carrying amount. The Company had no equity investment securities that were impaired at June 30, ~~2020~~2021 or December 31, ~~2019.~~2020.

Gross realized gains (losses) on sales and redemptions of securities for the indicated periods are detailed below:

As of June 30, ~~2020~~2021 and December 31, ~~2019,~~2020, securities with a fair value of ~~$98.5~~$109.5 million and ~~$92.4~~$96.4 million, respectively, were pledged to collateralize certain municipal deposit relationships. As of the same dates, securities with a fair value of ~~$15.0~~$11.9 million and ~~$21.3~~$13.2 million, respectively, were pledged against certain borrowing arrangements.

Management has reviewed its loan and mortgage-backed securities portfolios and determined that, to the best of its knowledge, only minimal exposure exists to sub-prime or other high-risk residential mortgages. With limited exceptions in the Company’s investment portfolio involving the most senior tranches of securitized bonds, the Company is not in the practice of investing in, or originating, these types of investments or loans.

The Company has a noncontributory defined benefit pension plan covering most employees. The plan provides defined benefits based on years of service and final average salary. On May 14, 2012, the Company informed its employees of its decision to freeze participation and benefit accruals under the plan, primarily to reduce some of the volatility in earnings that can accompany the maintenance of a defined benefit plan. The plan was frozen on June 30, 2012. Compensation earned by employees up to June 30, 2012 is used for purposes of calculating benefits under the plan but there are no future benefit accruals after this date. Participants as of June 30, 2012 will continue to earn vesting credit with respect to their frozen accrued benefits as they continue to work. In addition, the Company provides certain health and life insurance benefits for a limited number of eligible retired employees. The healthcare plan is contributory with participants’ contributions adjusted annually; the life insurance plan is noncontributory. Employees with less than 14 years of service as of January 1, 1995, are not eligible for the health and life insurance retirement benefits.

The composition of net periodic pension plan and postretirement plan costs for the indicated periods is as follows:

The Company will evaluate the need for further contributions to the defined benefit pension plan during ~~2020.~~2021. The prepaid pension asset is recorded in other assets on the statement of condition as of June 30, ~~2020~~2021 and December 31, ~~2019.~~2020.

Although the Bank may sometimes purchase or fund loan participation interests outside of its primary market areas, the Bank generally originates residential mortgage, commercial, and consumer loans largely to customers throughout Oswego and Onondaga counties. Although the Bank has a diversified loan portfolio, a substantial portion of its borrowers’ abilities to honor their loan contracts is dependent upon the counties’ employment and economic conditions.

AsThe Bank acquires diversified pools of loans, originated by unrelated third parties, as part of the Company’s overall balance sheet management ~~strategies~~strategies. These acquisitions occurred in 10 separate transactions commencing in 2019 and the management’s ongoing efforts to profitably deploy its increased capital position following the equity sales transactions completed in May 2019, the Bank acquired seven diverse pools of loans, originated by unrelated third parties, in sixcontinuing through 2021, including 2 separate transactions during ~~2019.~~ the six months ended June 30, 2021.

The purchase of participations in loans that are originated by third parties only occurs after the completion of thorough pre-acquisition due diligence. Loans in which the Company acquires a participating interest are determinedfollowing table sets forth certain information related to meet, in all material respects, the Company’s internal underwriting policies, including credit and collateral suitability thresholds, prior to acquisition. In addition, the financial condition of the originating entity, which are generally retained as the ongoingthese loan servicing provider for participations acquired by the Bank, are analyzed prior to the acquisition of the participating interests and monitored on a regular basis thereafter for the life of those interests.transactions:

	June 30,			December 31,
(In thousands, except number of loans)	2021			2020
Purchased residential real estate loans
Original Balance	$	4,300		$	4,300
Current Balance	$	4,200		$	4,300
Unamortized Premium (Discount)	$	265		$	273
Percent Owned		100	%		100	%
Number of Loans	51			51
Maturity range	17-24 years			17-25 years
Cumulative net charge-offs	$	-		$	-

Purchased other commercial and industrial loans
Original Balance	$	6,800		$	6,800
Current Balance	$	4,800		$	5,500
Unamortized Premium (Discount)	$	-		$	-
Percent Owned		100	%		100	%
Number of Loans	37			39
Maturity range	4-8 years			5-9 years
Cumulative net charge-offs	$	-		$	-

Purchased home equity lines of credit:
Original Balance	$	21,900		$	21,900
Current Balance	$	10,900		$	13,900
Unamortized Premium (Discount)	$	274		$	309
Percent Owned		100	%		100	%
Number of Loans	226			275
Maturity range	3-28 years			3-29 years
Cumulative net charge-offs	$	-		$	-

Purchased automobile loans:
Original Balance	$	50,400		$	50,400
Current Balance	$	12,500		$	17,000
Unamortized Premium (Discount)	$	457		$	602
Percent Owned		90	%		90	%
Number of Loans		1,041			1,257
Maturity range	0-5 years			0-6 years
Cumulative net charge-offs	$	231		$	230
Purchased unsecured consumer loan pool 1:
Original Balance	$	5,400		$	5,400
Current Balance	$	3,000		$	3,600
Unamortized Premium (Discount)	$	-		$	-
Percent Owned		100	%		100	%
Number of Loans	70			76
Maturity range	3-5 years			3-6 years
Cumulative net charge-offs	$	-		$	-

	June 30,			December 31,
(In thousands, except number of loans)	2021			2020
Purchased unsecured consumer loan pool 2:
Original Balance	$	26,600		$	26,600
Current Balance	$	10,400		$	15,400
Unamortized Premium (Discount)	$	45		$	63
Percent Owned		59	%		59	%
Number of Loans		1,878			2,246
Maturity range	1-3 years			2-4 years
Cumulative net charge-offs	$	-		$	-

Purchased unsecured consumer loan pool 3:
Original Balance	$	10,300		$	10,300
Current Balance	$	3,600		$	5,500
Unamortized Premium (Discount)	$	101		$	138
Percent Owned		100	%		100	%
Number of Loans		2,127			2,958
Maturity range	0-6 years			0-6 years
Cumulative net charge-offs	$	6		$	-

Purchased secured consumer loan pool 1:
Original Balance	$	14,500		$	14,500
Current Balance	$	13,800		$	14,500
Unamortized Premium (Discount)	$	(1,943	)	$	(2,124	)
Percent Owned		68	%		68	%
Number of Loans		599			619
Maturity range	25 years			25 years
Cumulative net charge-offs	$	-		$	-

Purchased secured consumer loan pool 2:
Original Balance	$	24,400		$	-
Current Balance	$	21,700		$	-
Unamortized Premium (Discount)	$	(633	)	$	-
Percent Owned		100	%		0	%
Number of Loans		797			-
Maturity range	10-24 years				-
Cumulative net charge-offs	$	-		$	-

Purchased commercial line of credit:
Original Balance	$	11,600		$	-
Current Balance	$	4,100		$	-
Unamortized Premium (Discount)	$	32		$	-
Percent Owned		12	%		0	%
Number of Loans		1			-
Maturity range	3 years				-
Cumulative net charge-offs	$	-		$	-

The following table presents details regarding the purchased loan pools:

June 30,

December 31,

(In thousands, except number of loans)

2020

2019

Purchased residential real estate loans

Original Balance

$
2,100

$
2,100

Current Balance

2,000

2,100

Unamortized Premium

131

135

Percent Owned

100
%

100
%
Number of Loans

25

25

Maturity range

22-24 years

22-24 years

Cumulative net charge-offs

-

-

Purchased other commercial and industrial loans

Original Balance

6,800

6,800

Current Balance

6,100

6,600

Unamortized Premium

-

-

Percent Owned

100
%

100
%
Number of Loans

41

43

Maturity range

4-10 years

4-10 years

Cumulative net charge-offs

-

-

Purchased home equity lines of credit:

Original Balance

21,900

21,900

Current Balance

17,300

20,100

Unamortized Premium

347

390

Percent Owned

100
%

100
%
Number of Loans

335

376

Maturity range

4-30 years

4-30 years

Cumulative net charge-offs

-

-

Purchased automobile loans:

Original Balance

50,400

50,400

Current Balance

22,300

27,200

Unamortized Premium

768

930

Percent Owned

90
%

90
%
Number of Loans

1,484

1,657

Maturity range

2-6 years

2-6 years

Cumulative net charge-offs

212

196

Purchased unsecured consumer loan pool 1:

Original Balance

5,400

5,400

Current Balance

4,300

5,000

Unamortized Premium

-

-

Percent Owned

100
%

100
%
Number of Loans

82

87

Maturity range

4-10 years

4-10 years

Cumulative net charge-offs

-

-

Purchased unsecured consumer loan pool 2:

Original Balance

26,600

26,600

Current Balance

21,200

25,800

Unamortized Premium

86

114

Percent Owned

59
%

59
%
Number of Loans

2,535

2,768

Maturity range

3-5 years

3-5 years

Cumulative net charge-offs

219

-

As of June 30, ~~2020~~2021 and December 31, ~~2019,~~2020, residential mortgage loans with a carrying value of ~~$107.7~~$120.4 million and ~~$136.9~~$115.6 million, respectively, have been pledged by the Company to the Federal Home Loan Bank of New York (“FHLBNY”) under a blanket collateral agreement to secure the Company’s line of credit and term borrowings.

The Company’s lending policies and procedures are presented in Note 5 to the audited consolidated financial statements included in the ~~2019~~2020 Annual Report on Form 10-K filed with the Securities and Exchange Commission on March ~~23, 2020~~30, 2021 and have not changed. As part of the execution of the Company’s overall balance sheet management strategies, the Bank will acquire participating interests in loans originated by unrelated third parties on a sporadic basis. The purchase of participations in loans that are originated by third parties only occurs after the completion of thorough pre-acquisition due diligence. Loans in which the Company acquires a participating interest are determined to meet, in all material respects, the Company’s internal underwriting policies, including credit and collateral suitability thresholds, prior to acquisition. In addition, the financial condition of the originating financial institutions, which are generally retained as the ongoing loan servicing provider for participations acquired by the Bank, are analyzed prior to the acquisition of the participating interests and monitored on a regular basis thereafter for the life of those interests.

To develop and document a systematic methodology for determining the allowance for loan losses, the Company has divided the loan portfolio into ~~three~~3 portfolio segments, each with different risk characteristics but with similar methodologies for assessing risk. Each portfolio segment is broken down into loan classes where appropriate. Loan classes contain unique measurement attributes, risk characteristics, and methods for monitoring and assessing risk that are necessary to develop the allowance for loan losses. Unique characteristics such as borrower type, loan type, collateral type, and risk characteristics define each class.

The following table illustrates the portfolio segments and classes for the Company’s loan portfolio:

Portfolio Segment	Class

Residential Mortgage Loans	1-4 family first-lien residential mortgages
	Construction

Commercial Loans	Real estate
	Lines of credit
	Other commercial and industrial
	Tax exempt loans

Consumer Loans	Home equity and junior liens
	Other consumer

The following tables present the classes of the loan portfolio, not including net deferred loan costs, summarized by the aggregate pass rating and the classified ratings of special mention, substandard and doubtful within the Company's internal risk rating system as of the dates indicated:

	As of June 30, 2020										As of June 30, 2021
			Special										Special
(In thousands)	Pass		Mention		Substandard		Doubtful		Total		Pass		Mention		Substandard		Doubtful		Total
Residential mortgage loans:
1-4 family first-lien residential mortgages	$	208,783	$	1,295	$	1,609	$	1,054	$	212,741	$	222,785	$	661	$	2,724	$	726	$	226,896
Construction		3,678		-		-		-		3,678		8,133		0		0		0		8,133
Loans held-for-sale		-		-		-		-		-		713		0		0		0		713
Total residential mortgage loans		212,461		1,295		1,609		1,054		216,419		231,631		661		2,724		726		235,742
Commercial loans:
Real estate		243,749		9,150		7,218		707		260,824		267,369		13,523		10,198		588		291,678
Lines of credit		46,241		4,297		2,971		-		53,509		51,881		4,981		3,107		128		60,097
Other commercial and industrial		72,499		8,689		1,940		39		83,167		62,711		3,860		6,810		1,035		74,416
Paycheck Protection Program loans		73,774		-		-		-		73,774		53,611		0		0		0		53,611
Tax exempt loans		7,644		-		-		-		7,644		6,554		0		0		0		6,554
Total commercial loans		443,907		22,136		12,129		746		478,918		442,126		22,364		20,115		1,751		486,356
Consumer loans:
Home equity and junior liens		41,725		221		367		274		42,587		33,632		108		647		262		34,649
Other consumer		69,619		101		195		-		69,915		79,876		86		220		87		80,269
Total consumer loans		111,344		322		562		274		112,502		113,508		194		867		349		114,918
Total loans	$	767,712	$	23,753	$	14,300	$	2,074	$	807,839	$	787,265	$	23,219	$	23,706	$	2,826	$	837,016

	As of December 31, 2019										As of December 31, 2020
			Special										Special
(In thousands)	Pass		Mention		Substandard		Doubtful		Total		Pass		Mention		Substandard		Doubtful		Total
Residential mortgage loans:
1-4 family first-lien residential mortgages	$	205,554	$	1,093	$	1,731	$	1,181	$	209,559	$	222,386	$	1,151	$	3,196	$	452	$	227,185
Construction		3,963		-		-		-		3,963		6,681		0		0		0		6,681
Loans held-for-sale		35,790		-		-		-		35,790		1,526		0		0		0		1,526
Total residential mortgage loans		245,307		1,093		1,731		1,181		249,312		230,593		1,151		3,196		452		235,392
Commercial loans:
Real estate		238,288		12,473		3,194		302		254,257		267,736		9,541		8,615		379		286,271
Lines of credit		50,396		7,945		276		-		58,617		40,733		5,132		3,154		84		49,103
Other commercial and industrial		72,653		8,473		923		43		82,092		65,441		4,770		8,153		265		78,629
Paycheck Protection Program loans												60,643		0		0		0		60,643
Tax exempt loans		8,067		-		-		-		8,067		7,166		0		0		0		7,166
Total commercial loans		369,404		28,891		4,393		345		403,033		441,719		19,443		19,922		728		481,812
Consumer loans:
Home equity and junior liens		45,414		191		477		307		46,389		37,926		54		411		233		38,624
Other consumer		82,252		167		188		-		82,607		70,502		104		218		81		70,905
Total consumer loans		127,666		358		665		307		128,996		108,428		158		629		314		109,529
Total loans	$	742,377	$	30,342	$	6,789	$	1,833	$	781,341	$	780,740	$	20,752	$	23,747	$	1,494	$	826,733

Management has reviewed its loan portfolio and determined that, to the best of its knowledge, no material exposure exists to sub-prime or other high-risk residential mortgages. The Company is not in the practice of originating these types of loans.

Loans are placed on nonaccrual when the contractual payment of principal and interest has become 90 days past due or management has serious doubts about further collectability of principal or interest, even though the loan may be currently performing.

Loans are considered past due if the required principal and interest payments have not been received within thirty days of the payment due date.

An age analysis of past due loans, not including net deferred loan costs, segregated by portfolio segment and class of loans, as of June 30, ~~2020~~2021 and December 31, ~~2019,~~2020, are detailed in the following tables:

	As of June 30, 2020												As of June 30, 2021

	30-59 Days		60-89 Days		90 Days		Total				Total Loans		30-59 Days		60-89 Days		90 Days		Total				Total Loans
(In thousands)	Past Due		Past Due		and Over		Past Due		Current		Receivable		Past Due		Past Due		and Over		Past Due		Current		Receivable
Residential mortgage loans:
1-4 family first-lien residential mortgages	$	988	$	130	$	1,038	$	2,156	$	210,585	$	212,741	$	771	$	205	$	871	$	1,847	$	225,049	$	226,896
Construction		-		-		-		-		3,678		3,678		0		0		0		0		8,133		8,133
Loans held-for-sale		-		-		-		-		-		-		0		0		0		0		713		713
Total residential mortgage loans		988		130		1,038		2,156		214,263		216,419		771		205		871		1,847		233,895		235,742
Commercial loans:
Real estate		74		2,000		4,034		6,108		254,716		260,824		3,331		390		3,160		6,881		284,797		291,678
Lines of credit		1,299		1,844		430		3,573		49,936		53,509		572		1,654		172		2,398		57,699		60,097
Other commercial and industrial		6,645		4,076		1,992		12,713		70,454		83,167		2,749		3,008		1,257		7,014		67,402		74,416
Paycheck Protection Program loans		-		-		-		-		73,774		73,774		0		0		0		0		53,611		53,611
Tax exempt loans		-		-		-		-		7,644		7,644		0		0		0		0		6,554		6,554
Total commercial loans		8,018		7,920		6,456		22,394		456,524		478,918		6,652		5,052		4,589		16,293		470,063		486,356
Consumer loans:
Home equity and junior liens		222		-		344		566		42,021		42,587		156		0		291		447		34,202		34,649
Other consumer		323		126		196		645		69,270		69,915		535		235		419		1,189		79,080		80,269
Total consumer loans		545		126		540		1,211		111,291		112,502		691		235		710		1,636		113,282		114,918
Total loans	$	9,551	$	8,176	$	8,034	$	25,761	$	782,078	$	807,839	$	8,114	$	5,492	$	6,170	$	19,776	$	817,240	$	837,016

	As of December 31, 2019												As of December 31, 2020

	30-59 Days		60-89 Days		90 Days		Total				Total Loans		30-59 Days		60-89 Days		90 Days		Total				Total Loans
(In thousands)	Past Due		Past Due		and Over		Past Due		Current		Receivable		Past Due		Past Due		and Over		Past Due		Current		Receivable
Residential mortgage loans:
1-4 family first-lien residential mortgages	$	947	$	744	$	1,613	$	3,304	$	206,255	$	209,559	$	1,250	$	570	$	1,098	$	2,918	$	224,267	$	227,185
Construction		-		-		-		-		3,963		3,963		0		0		0		0		6,681		6,681
Loans held-for-sale		-		-		-		-		35,790		35,790		0		0		0		0		1,526		1,526
Total residential mortgage loans		947		744		1,613		3,304		246,008		249,312		1,250		570		1,098		2,918		232,474		235,392
Commercial loans:
Real estate		953		100		2,271		3,324		250,933		254,257		480		913		2,511		3,904		282,367		286,271
Lines of credit		4,464		25		68		4,557		54,060		58,617		734		1,870		194		2,798		46,305		49,103
Other commercial and industrial		2,747		315		591		3,653		78,439		82,092		441		1,717		1,691		3,849		74,780		78,629
Paycheck Protection Program loans														170		0		0		170		60,473		60,643
Tax exempt loans		-		-		-		-		8,067		8,067		0		0		0		0		7,166		7,166
Total commercial loans		8,164		440		2,930		11,534		391,499		403,033		1,825		4,500		4,396		10,721		471,091		481,812
Consumer loans:
Home equity and junior liens		315		130		480		925		45,464		46,389		248		78		473		799		37,825		38,624
Other consumer		335		50		151		536		82,071		82,607		443		252		187		882		70,023		70,905
Total consumer loans		650		180		631		1,461		127,535		128,996		691		330		660		1,681		107,848		109,529
Total loans	$	9,761	$	1,364	$	5,174	$	16,299	$	765,042	$	781,341	$	3,766	$	5,400	$	6,154	$	15,320	$	811,413	$	826,733

The following table summarizes nonaccrual loans by category and status at June 30, 2021:

Loan Type	Collateral Type	Number of Loans		Loan Balance		Average Loan Balance		Weighted LTV at Origination/ Modification			Status
Secured residential mortgage:
	Real Estate		33	$	2,881	$	87		88	%	Under active resolution management by the Bank.

Secured commercial real estate:
	Private Museum		1		1,385		1,385		79	%	The Bank is working on a modification with the borrower. The borrower has substantial deposits with the Bank.
	Recreational		1		1,234		1,234		50	%	The loan is currently classified as a Troubled Debt Restructuring (TDR). Next payment is due August 1, 2021.
	All Others		14		2,210		158		79	%	Under active resolution management by the Bank.

Commercial lines of credit			4		172		43	N/A			Under active resolution management by the Bank.

Commercial and industrial:
	Real Estate		1		4,485		4,485		41	%	The Bank modified the loan and the next payment is due August 1, 2021. Repayment is expected from operations, pledges and collateral value.
	All Others		11		2,317		211	N/A			Under active resolution management by the Bank.

Consumer loans			31		1,310		42	N/A			Under active resolution management by the Bank.
			96	$	15,994

The Company is required to disclose certain activities related to Troubled Debt Restructurings (“TDR”) in accordance with accounting guidance. Certain loans have been modified in a TDR where economic concessions have been granted to a borrower who is experiencing, or expected to experience, financial difficulties. These economic concessions could include a reduction in the loan interest rate, extension of payment terms, reduction of principal amortization, or other actions that it would not otherwise consider for a new loan with similar risk characteristics.

The Company is required to disclose new TDRs for each reporting period for which an income statement is being presented. The pre-modification outstanding recorded investment is the principal loan balance less the provision for loan losses before the loan was modified as a TDR. The post-modification outstanding recorded investment is the principal balance less the provision for loan losses after the loan was modified as a TDR. Additional provision for loan losses is the change in the allowance for loan losses between the pre-modification outstanding recorded investment and post-modification outstanding recorded investment.

The Company had no0 loans that were modified as TDRs for the three months ended June 30, 2021.

The table below details loans that had been modified as TDRs for the six months ended June 30, 2021.

	For the three months ended June 30, 2021
(In thousands)	Number of loans		Pre-modification outstanding recorded investment			Post-modification outstanding recorded investment			Additional provision for loan losses
Commercial loans	2	$		961	$		967	$		6
Residential real estate loans	2	$		389	$		389	$		12
Home equity and junior liens	1	$		200	$		504	$		219

The loans evaluated for impairment for the six months ended June 30, 2021 have been classified as TDRs due to economic concessions granted, which consisted of a reduction in the stated interest rate, a significant delay in the timing of the payment or an extended maturity date that will result in a significant delay in payment from the original terms.

The Company had 0 loans that were modified as TDRs for the three months ended June 30, 2020.

The Company had no0 loans that were modified as TDRs for the six months ended June 30, 2020.

~~The table below details one loan that was modified as a TDR for the three months ended June 30, 2019.~~

The TDR evaluated for impairment for the three months ended June 30, 2019 was classified as a TDR due to economic concessions granted, which consisted of additional funds advanced without associated increases in collateral and an extended maturity date that will result in a delay in payment from the original contractual maturity.

~~The table below details one loan that was modified as a TDR for the six months ended June 30, 2019.~~

The TDR evaluated for impairment for the six months ended June 30, 2019 was classified as a TDR due to economic concessions granted, which consisted of additional funds advanced without associated increases in collateral and an extended maturity date that will result in a delay in payment from the original contractual maturity.

The Company is required to disclose loans that have been modified as TDRs within the previous 12 months in which there was payment default after the restructuring. The Company defines payment default as any loans 90 days past due on contractual payments.

The Company had no0 loans that were modified as TDRs during the twelve months prior to June 30, 2021, which had subsequently defaulted during the six months ended June 30, 2021.

The Company had 0 loans that were modified as TDRs during the twelve months prior to June 30, 2020, which had subsequently defaulted during the six months ended June 30, 2020.

~~The Company had no loans that were modified as TDRs during the twelve months prior to June 30, 2019, which had subsequently defaulted during the six months ended June 30, 2019.~~

The United States has been operating under a state of emergency related to the Coronavirus Disease 2019 (“COVID-19”) pandemic since March 13, 2020. The direct and indirect effects of the COVID-19 pandemic have resulted in a dramatic reduction in economic activity that has severely hampered the ability for businesses and consumers to meet their current repayment obligations. The Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”), signed into law on March 27, 2020, in addition to providing financial assistance to both businesses and consumers, creates a forbearance program for federally-backed mortgage loans, protects borrowers from negative credit reporting due to loan accommodations related to the national emergency, and provides financial institutions the option to temporarily suspend certain requirements under GAAP related to troubled debt restructurings for a limited period of time to account for the effects of COVID-19. The banking regulatory agencies have likewise issued guidance encouraging financial institutions to work prudently with borrowers who are, or may be, unable to meet their contractual payment obligations because of the effects of COVID-19. That guidance, with concurrence of the Financial Accounting Standards Board, and provisions of the CARES Act allow modifications made on a good faith basis in response to COVID-19 to borrowers who were generally current with their payments prior to any relief, to not be treated as troubled debt restructurings. Modifications may include payment deferrals, fee waivers, extensions of repayment term, or other delays in payment. Through July 7, 2020, the Bank granted payment deferral requests primarily for 90 days, on 556 loans representing approximately $145.6 million of existing loan balances. To the extent that such modifications meet the criteria previously described, such modifications are not expected to be classified as troubled debt restructurings.

When the Company modifies a loan within a portfolio segment that is individually evaluated for impairment, a potential impairment is analyzed either based on the present value of the expected future cash flows discounted at the interest rate of the original loan terms or the fair value of the collateral less costs to sell. If it is determined that the value of the loan is less than its recorded investment, ~~then~~ impairment is recognized as a component of the provision for loan losses, by an associated increase to the allowance for loan losses or as a charge-off to the allowance for loan losses in the current period.

The following table summarizes impaired loan information by portfolio class at the indicated ~~dates:~~dates:

	June 30, 2020						December 31, 2019						June 30, 2021						December 31, 2020
			Unpaid						Unpaid						Unpaid						Unpaid
	Recorded		Principal		Related		Recorded		Principal		Related		Recorded		Principal		Related		Recorded		Principal		Related
(In thousands)	Investment		Balance		Allowance		Investment		Balance		Allowance		Investment		Balance		Allowance		Investment		Balance		Allowance
With no related allowance recorded:
1-4 family first-lien residential mortgages	$	680	$	680	$	-	$	1,027	$	1,027	$	-	$	1,006	$	1,006	$	-	$	665	$	665	$	-
Commercial real estate		4,217		4,294		-		3,996		4,067		-		4,841		4,929		-		11,053		11,136		-
Commercial lines of credit		80		80		-		86		86		-		100		100		-		0		0		-
Other commercial and industrial		333		353		-		69		77		-		4,881		4,881		-		5,114		5,132		-
Home equity and junior liens		77		77		-		40		40		-		72		72		-		75		75		-
Other consumer		85		85		-		55		55		-		79		79		-		81		81		-

With an allowance recorded:
1-4 family first-lien residential mortgages		918		918		153		584		584		97		493		493		80		1,182		1,182		205
Commercial real estate		444		444		64		450		450		78		2,105		2,105		222		1,729		1,729		231
Commercial lines of credit		98		98		98		98		98		98		904		904		904		925		925		925
Other commercial and industrial		729		729		563		866		866		406		2,385		2,385		1,852		1,864		1,864		1,278
Home equity and junior liens		142		142		142		180		180		150		506		506		223		142		142		142
Other consumer		-		-		-		36		36		1		0		0		0		0		0		0
Total:
1-4 family first-lien residential mortgages		1,598		1,598		153		1,611		1,611		97		1,499		1,499		80		1,847		1,847		205
Commercial real estate		4,661		4,738		64		4,446		4,517		78		6,946		7,034		222		12,782		12,865		231
Commercial lines of credit		178		178		98		184		184		98		1,004		1,004		904		925		925		925
Other commercial and industrial		1,062		1,082		563		935		943		406		7,266		7,266		1,852		6,978		6,996		1,278
Home equity and junior liens		219		219		142		220		220		150		578		578		223		217		217		142
Other consumer		85		85		-		91		91		1		79		79		0		81		81		0
Totals	$	7,803	$	7,900	$	1,020	$	7,487	$	7,566	$	830	$	17,372	$	17,460	$	3,281	$	22,830	$	22,931	$	2,781

At June 30, 2020, the Company had outstanding balances of $12.1 million of commercial loans categorized as substandard under the Company’s internal classification policies. Of the $12.1 million in commercial loans categorized as substandard, $6.2 million represent loans that were accruing interest and $5.9 million represent loans that were in nonaccrual status at June 30, 2020. At June 30, 2020, the Company had a total of $6.8 million in nonaccrual commercial loans of which $900,000 were rated special mention or better. Per the Company’s policy, a commercial loan is measured for impairment if: (1) the loan is rated substandard or worse, (2) is on nonaccrual, and (3) above our TRC threshold balance of $100,000 or classified as a TDR. See the Application of Critical Accounting Policies in Item 2 for further details. Internal classifications were determined at June 30, 2020 based on the Company’s evaluation of individual loans considering all factors in evidence as of the evaluation date. Due to the currently high degree of economic uncertainty, related primarily to the ongoing COVID-19 pandemic, loan classifications and estimates of future loan losses may be subject to significant changes in future periods.

The following table presents the average recorded investment in impaired loans for the periods indicated:

The following table presents the cash basis interest income recognized on impaired loans for the periods indicated:

Management extensively reviews recent trends in historical losses, qualitative factors, including concentrations of loans to related borrowers and concentrations of loans by collateral type, and specific reserve needs on loans individually evaluated for impairment in its determination of the adequacy of the allowance for loan losses. We recorded ~~$1.1 million~~$929,000 in provision for loan losses for the three month period ended June 30, ~~2020,~~2021, as compared to ~~$610,000~~$1.1 million for the three month period ended June 30, 2019. The $536,000 increase in the provision for loan losses in the second quarter of 2020, as compared to the same quarter in 2019, resulted from year-over-year increases in: (1) the qualitative factors used in determining the adequacy of the allowance for loan losses, (2) the size of the loan portfolio, and (3) delinquent and nonaccrual loans. The increase in the quantitative factors used in determining the provision for loan losses reflects the substantial increase in economic uncertainty and the resultant potential for increased credit losses in future periods as a consequence of the COVID-19 pandemic. Outstanding loan balances increased $113.2 million, or 16.3%, in the quarter ended June 30, 2020, as compared to the same quarter in the previous year, and therefore required a corresponding increase in the estimable and probable loan losses inherent in the loan portfolio. Finally, the provision for loan losses in the quarter ended June 30, 2020 was further increased, as compared to the same quarter in 2019, by the effects of an increase in the ratio of delinquent loans to total loans, which increased to 3.19% at June 30, 2020 as compared to 2.45% at June 30, 2019, coupled with an increase in nonaccrual loans that increased $4.6 million to $8.4 million at June 30, 2020 as compared to $3.8 million at June 30, 2019.

2020. For the first six months of ~~2020,~~2021, we recorded ~~$2.2~~$2.0 million in provision for loan losses as compared to ~~$754,000~~$2.2 million in the same prior year six month period. ~~This $1.5 million increase~~The provisioning in ~~the provision for~~2021 and 2020 reflects management’s determination of prudent additions to reserves considering loan ~~losses resulted from year-over-year increases in: (1) the qualitative~~mix changes, concentrations of loans in certain business sectors, factors ~~used in determining the adequacy of the allowance for~~related to loan ~~losses, (2) the size of the loan portfolio,~~quality metrics, and ~~(3) delinquent and nonaccrual loans.~~continued COVID-19 related economic uncertainty. The ~~increase in the quantitative factors used in determining the provision for loan losses reflects the substantial increase in economic uncertainty~~credit-sensitive portfolios continue to be carefully monitored, and the ~~resultant potential for increased credit losses in future periods as a consequence~~Bank will consistently apply its proven conservative loan classification and reserve building methodologies to the analysis of ~~the COVID-19 pandemic.~~ these portfolios.

Summarized in the tables below are changes in the allowance for loan losses for the indicated periods and information pertaining to the allocation of the allowance for loan losses, balances of the allowance for loan losses, loans receivable based in individual, and collective impairment evaluation by loan portfolio class. An allocation of a portion of the allowance to a given portfolio class does not limit the Company’s ability to absorb losses in another portfolio class.

	For the three months ended June 30, 2020																For the three months ended June 30, 2021
	1-4 family																1-4 family
	first-lien			Residential								Other			Paycheck		first-lien			Residential									Other			Paycheck
	residential			construction		Commercial			Commercial			commercial			Protection		residential			construction			Commercial			Commercial			commercial			Protection
(In thousands)	mortgage			mortgage		real estate			lines of credit			and industrial			Program		mortgage			mortgage			real estate			lines of credit			and industrial			Program
Allowance for loan losses:
Beginning Balance	$	731		$	-	$	4,243		$	1,218		$	1,758		$	-	$	975		$	0		$	5,721		$	1,916		$	3,016		$	0
Charge-offs		(99	)		-		-			(48	)		(9	)		-		(20	)		0			(6	)		0			0			0
Recoveries		-			-		-			-			-			-		0			0			0			62			0			0
Provisions		124			-		15			38			317			-		(80	)		0			405			(168	)		432			0
Ending balance	$	756		$	-	$	4,258		$	1,208		$	2,066		$	-	$	875		$	0		$	6,120		$	1,810		$	3,448		$	0
Ending balance: related to loans individually evaluated for impairment	$	153		$	-	$	64		$	98		$	563		$	-	$	80		$	0		$	222		$	904		$	1,852		$	0
Ending balance: related to loans collectively evaluated for impairment	$	603		$	-	$	4,194		$	1,110		$	1,503		$	-	$	795		$	0		$	5,898		$	906		$	1,596		$	0
Loans receivables:
Ending balance	$	212,741		$	3,678	$	260,824		$	53,509		$	83,167		$	73,774	$	226,896		$	8,133		$	291,678		$	60,097		$	74,416		$	53,611
Ending balance: individually evaluated for impairment	$	1,598		$	-	$	4,661		$	178		$	1,062		$	-	$	1,499		$	0		$	6,946		$	1,004		$	7,266		$	0
Ending balance: collectively evaluated for impairment	$	211,143		$	3,678	$	256,163		$	53,331		$	82,105		$	73,774	$	225,397		$	8,133		$	284,732		$	59,093		$	67,150		$	53,611

				Home equity		Other														Home equity			Other
	Tax exempt			and junior liens		Consumer			Unallocated			Total					Tax exempt			and junior liens			Consumer			Unallocated			Total
Allowance for loan losses:
Beginning Balance	$	1		$	611	$	846		$	198			9,606				$	1		$	827		$	1,237		$	0		$	13,693
Charge-offs		-			-		(52	)		-			(208	)				0			0			(76	)		0			(102	)
Recoveries		-			-		9			-			9					0			0			21			0			83
Provisions		-			33		252			367			1,146					0			(22	)		68			294			929
Ending balance	$	1		$	644	$	1,055		$	565		$	10,553				$	1		$	805		$	1,250		$	294		$	14,603
Ending balance: related to loans individually evaluated for impairment	$	-		$	142	$	-		$	-		$	1,020				$	0		$	223		$	0		$	0		$	3,281
Ending balance: related to loans collectively evaluated for impairment	$	1		$	502	$	1,055		$	565		$	9,533				$	1		$	582		$	1,250		$	294		$	11,322
Loans receivables:
Ending balance	$	7,644		$	42,587	$	69,915		$	-		$	807,839				$	6,554		$	34,649		$	80,269		$	713		$	837,016
Ending balance: individually evaluated for impairment	$	-		$	219	$	85		$	-		$	7,803				$	0		$	578		$	79		$	0		$	17,372
Ending balance: collectively evaluated for impairment	$	7,644		$	42,368	$	69,830		$	-		$	800,036				$	6,554		$	34,071		$	80,190		$	713		$	819,644

	For the three months ended June 30, 2019															For the six months ended June 30, 2021
	1-4 family															1-4 family
	first-lien			Residential									Other			first-lien			Residential								Other			Paycheck
	residential			construction			Commercial			Commercial			commercial			residential			construction		Commercial			Commercial			commercial			Protection
(In thousands)	mortgage			mortgage			real estate			lines of credit			and industrial			mortgage			mortgage		real estate			lines of credit			and industrial			Program
Allowance for loan losses:
Beginning Balance	$	722		$	-		$	3,370		$	802		$	1,560		$	931		$	0	$	4,776		$	1,670		$	2,992		$	0
Charge-offs		(11	)		-			-			(24	)		(1	)		(20	)		0		(6	)		0			(100	)		0
Recoveries		1			-			-			-			-			0			0		0			63			0			0
Provisions		12			-			82			367			143			(36	)		0		1,350			77			556			0
Ending balance	$	724		$	-		$	3,452		$	1,145		$	1,702		$	875		$	0	$	6,120		$	1,810		$	3,448		$	0
Ending balance: related to loans individually evaluated for impairment	$	104		$	-		$	108		$	204		$	287
Ending balance: related to loans collectively evaluated for impairment	$	620		$	-		$	3,344		$	941		$	1,415
Loans receivables:
Ending balance	$	239,422		$	3,966		$	225,794		$	56,569		$	79,590
Ending balance: individually evaluated for impairment	$	1,633		$	-		$	4,461		$	370		$	1,146
Ending balance: collectively evaluated for impairment	$	237,789		$	3,966		$	221,333		$	56,199		$	78,444


				Home equity			Other												Home equity		Other
	Tax exempt			and junior liens			Consumer			Unallocated			Total			Tax exempt			and junior liens		consumer			Unallocated			Total
Allowance for loan losses:
Beginning Balance	$	1		$	430		$	399		$	-		$	7,284		$	1		$	739	$	1,123		$	545		$	12,777
Charge-offs		-			-			(40	)		-			(76	)		0			0		(119	)		0			(245	)
Recoveries		-			-			6			-			7			0			0		51			0			114
Provisions (credits)		-			(44	)		50			-			610
Provisions																	0			66		195			(251	)		1,957
Ending balance	$	1		$	386		$	415		$	-		$	7,825		$	1		$	805	$	1,250		$	294		$	14,603
Ending balance: related to loans individually evaluated for impairment	$	-		$	136		$	6		$	-		$	845
Ending balance: related to loans collectively evaluated for impairment	$	1		$	250		$	409		$	-		$	6,980
Loans receivables:
Ending balance	$	8,803		$	26,214		$	52,508		$	-		$	692,866
Ending balance: individually evaluated for impairment	$	-		$	247		$	97		$	-		$	7,954
Ending balance: collectively evaluated for impairment	$	8,803		$	25,967		$	52,411		$	-		$	684,912

	For the six months ended June 30, 2019															For the three months ended June 30, 2020
	1-4 family															1-4 family
	first-lien			Residential									Other			first-lien			Residential								Other			Paycheck
	residential			construction			Commercial			Commercial			commercial			residential			construction		Commercial			Commercial			commercial			Protection
(In thousands)	mortgage			mortgage			real estate			lines of credit			and industrial			mortgage			mortgage		real estate			lines of credit			and industrial			Program
Allowance for loan losses:
Beginning Balance	$	766		$	-		$	3,578		$	730		$	1,285		$	731		$	0	$	4,243		$	1,218		$	1,758		$	0
Charge-offs		(11	)		-			-			(131	)		(2	)		(99	)		0		0			(48	)		(9	)		0
Recoveries		1			-			-			-			-			0			0		0			0			0			0
Provisions (credits)		(32	)		-			(126	)		546			419
Provisions																	124			0		15			38			317			0
Ending balance	$	724		$	-		$	3,452		$	1,145		$	1,702		$	756		$	0	$	4,258		$	1,208		$	2,066		$	0
Ending balance: related to loans individually evaluated for impairment																$	153		$	0	$	64		$	98		$	563		$	0
Ending balance: related to loans collectively evaluated for impairment																$	603		$	0	$	4,194		$	1,110		$	1,503		$	0
Loans receivables:
Ending balance																$	212,741		$	3,678	$	260,824		$	53,509		$	83,167		$	73,774
Ending balance: individually evaluated for impairment																$	1,598		$	0	$	4,661		$	178		$	1,062		$	0
Ending balance: collectively evaluated for impairment																$	211,143		$	3,678	$	256,163		$	53,331		$	82,105		$	73,774

				Home equity			Other												Home equity		Other
	Tax exempt			and junior liens			consumer			Unallocated			Total			Tax exempt			and junior liens		Consumer			Unallocated			Total
Allowance for loan losses:
Beginning Balance	$	1		$	409		$	385		$	152		$	7,306		$	1		$	611	$	846		$	198			9,606
Charge-offs		-			-			(107	)		-			(251	)		0			0		(52	)		0			(208	)
Recoveries		-			-			15			-			16			0			0		9			0			9
Provisions (credits)		-			(23	)		122			(152	)		754
Provisions																	0			33		252			367			1,146
Ending balance	$	1		$	386		$	415		$	-		$	7,825		$	1		$	644	$	1,055		$	565		$	10,553
Ending balance: related to loans individually evaluated for impairment																$	0		$	142	$	0		$	0		$	1,020
Ending balance: related to loans collectively evaluated for impairment																$	1		$	502	$	1,055		$	565		$	9,533
Loans receivables:
Ending balance																$	7,644		$	42,587	$	69,915		$	0		$	807,839
Ending balance: individually evaluated for impairment																$	0		$	219	$	85		$	0		$	7,803
Ending balance: collectively evaluated for impairment																$	7,644		$	42,368	$	69,830		$	0		$	800,036

	For the six months ended June 30, 2020
	1-4 family
	first-lien			Residential									Other			Paycheck
	residential			construction			Commercial			Commercial			commercial			Protection
(In thousands)	mortgage			mortgage			real estate			lines of credit			and industrial			Program
Allowance for loan losses:
Beginning Balance	$	580		$	0		$	4,010		$	1,195		$	1,645		$	0
Charge-offs		(125	)		0			0			(48	)		(9	)		0
Recoveries		1			0			0			2			0			0
Provisions (credits)		300			0			248			59			430			0
Ending balance	$	756		$	0		$	4,258		$	1,208		$	2,066		$	0

				Home equity			Other
	Tax exempt			and junior liens			consumer			Unallocated			Total
Allowance for loan losses:
Beginning Balance	$	1		$	553		$	413		$	272		$	8,669
Charge-offs		0			(28	)		(185	)		0			(395	)
Recoveries		0			29			34			0			66
Provisions (credits)		0			90			793			293			2,213
Ending balance	$	1		$	644		$	1,055		$	565		$	10,553

The Company’s methodology for determining its allowance for loan losses includes an analysis of qualitative factors that are added to the historical loss rates in arriving at the total allowance for loan losses needed for this general pool of loans. The qualitative factors include:

~~Changes in national and local economic trends;~~

•

Changes in national and local economic trends;

~~The rate of growth in the portfolio;~~

•

The rate of growth in the portfolio;

~~Trends of delinquencies and nonaccrual balances;~~

•

Trends of delinquencies and nonaccrual balances;

~~Changes in loan policy; and~~

•

Changes in loan policy; and

~~Changes in lending management experience and related staffing.~~

•

Changes in lending management experience and related staffing.

Each factor is assigned a value to reflect improving, stable or declining conditions based on management’s best judgment using relevant information available at the time of the evaluation. These qualitative factors, applied to each product class, make the evaluation inherently subjective, as it requires material estimates that may be susceptible to significant revision as more information becomes available. Adjustments to the factors are supported through documentation of changes in conditions in a narrative accompanying the allowance for loan losses analysis and calculation.

The allocation of the allowance for loan losses summarized on the basis of the Company’s calculation methodology was as follows:

	June 30, 2020										June 30, 2021
	1-4 family										1-4 family
	first-lien		Residential						Other		first-lien		Residential						Other
	residential		construction		Commercial		Commercial		commercial		residential		construction		Commercial		Commercial		commercial
(In thousands)	mortgage		mortgage		real estate		lines of credit		and industrial		mortgage		mortgage		real estate		lines of credit		and industrial
Specifically reserved	$	153	$	-	$	64	$	98	$	563	$	80	$	0	$	222	$	904	$	1,852
Historical loss rate		71		-		99		152		61		85		0		1		33		38
Qualitative factors		532		-		4,095		958		1,442		710		0		5,897		873		1,558
Total	$	756	$	-	$	4,258	$	1,208	$	2,066	$	875	$	0	$	6,120	$	1,810	$	3,448

			Home equity		Other								Home equity		Other
	Tax exempt		and junior liens		consumer		Unallocated		Total		Tax exempt		and junior liens		consumer		Unallocated		Total
Specifically reserved	$	-	$	142	$	-	$	-	$	1,020	$	0	$	223	$	0	$	0	$	3,281
Historical loss rate		-		211		805		-		1,399		0		325		992		0		1,474
Qualitative factors		1		291		250		-		7,569		1		257		258		0		9,554
Other		-		-		-		565		565		0		0		0		294		294
Total	$	1	$	644	$	1,055	$	565	$	10,553	$	1	$	805	$	1,250	$	294	$	14,603

	June 30, 2019										June 30, 2020
	1-4 family										1-4 family
	first-lien		Residential						Other		first-lien		Residential						Other
	residential		construction		Commercial		Commercial		commercial		residential		construction		Commercial		Commercial		commercial
(In thousands)	mortgage		mortgage		real estate		lines of credit		and industrial		mortgage		mortgage		real estate		lines of credit		and industrial
Specifically reserved	$	104	$	-	$	108	$	204	$	287	$	153	$	0	$	64	$	98	$	563
Historical loss rate		64		-		89		35		28		71		0		99		152		61
Qualitative factors		556		-		3,255		906		1,387		532		0		4,095		958		1,442
Total	$	724	$	-	$	3,452	$	1,145	$	1,702	$	756	$	0	$	4,258	$	1,208	$	2,066

			Home equity		Other								Home equity		Other
	Tax exempt		and junior liens		consumer		Unallocated		Total		Tax exempt		and junior liens		consumer		Unallocated		Total
Specifically reserved	$	-	$	136	$	6	$	-	$	845	$	0	$	142	$	0	$	0	$	1,020
Historical loss rate		-		1		144		-		361		0		211		805		0		1,399
Qualitative factors		1		249		265		-		6,619		1		291		250		0		7,569
Other												-		-		-		565		565
Total	$	1	$	386	$	415	$	-	$	7,825	$	1	$	644	$	1,055	$	565	$	10,553

The Company is required to disclose the carrying amount of foreclosed residential real estate properties held as a result of obtaining physical possession of the property at each reporting period.

The Company had 0 foreclosed residential real estate at June 30, 2021 and December 31, 2020. At June 30, ~~2020~~2021 and December 31, ~~2019,~~2020, the Company reported ~~$685,000~~$891,000 and ~~$341,000,~~$182,000, respectively, in residential real estate loans in the process of ~~foreclosure.~~foreclosure.

The Company does not issue any guarantees that would require liability recognition or disclosure, other than its standby letters of credit. Generally, all letters of credit, when issued have expiration dates within one year. The credit risks involved in issuing letters of credit isare essentially the same as those that are involved in extending loan facilities to customers. The Company generally holds collateral and/or personal guarantees supporting these commitments. The Company had ~~$2.3~~$2.6 million of standby letters of credit as of June 30, ~~2020.~~2021. Management believes that the proceeds obtained through a liquidation of collateral and the enforcement of guarantees would be sufficient to cover the potential amount of future payments required under the corresponding guarantees. The fair value of standby letters of credit was not significant to the Company’s consolidated financial statements.

Accounting guidance related to fair value measurements and disclosures specifies a hierarchy of valuation techniques based on whether the inputs to those valuation techniques are observable or unobservable. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect the Company’s market assumptions. These two types of inputs have created the following fair value hierarchy:

Level 1 – Quoted prices (unadjusted) for identical assets or liabilities in active markets that the entity has the ability to access as of the measurement date.

Level 2 – Quoted prices for similar assets and liabilities in active markets; quoted prices for identical or similar assets or liabilities in markets that are not active; and model-derived valuations in which all significant inputs and significant value drivers are observable in active markets.

Level 3 – Model-derived valuations in which one or more significant inputs or significant value drivers are unobservable.

An asset’s or liability’s level within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement.

In determining fair value, the Company utilizes valuation techniques that maximize the use of observable inputs, minimize the use of unobservable inputs, to the extent possible, and considers counterparty credit risk in its assessment of fair value.

The Company used the following methods and significant assumptions to estimate fair value:

Investment securities: The fair values of available-for-sale and marketable equity securities are obtained from an independent third party and are based on quoted prices on nationally recognized securities exchanges, where available (Level 1). If quoted prices are not available, fair values are measured by utilizing matrix pricing, which is a mathematical technique used widely in the industry to value debt securities without relying exclusively on quoted prices for specific securities but rather by relying on the securities’ relationship to other benchmark quoted securities (Level 2). Management made no adjustment to the fair value quotes that were received from the independent third party pricing service. Level 3 securities are assets whose fair value cannot be determined by using observable measures, such as market prices or pricing models. Level 3 assets are typically very illiquid, and fair values can only be calculated using estimates or risk-adjusted value ranges. Management applies known factors, such as currently applicable discount rates, to the valuation of those investments in order to determine fair value at the reporting date.

The Company holds one corporate investment security, categorized based on its net asset value (NAV), with an amortized historical cost of $2.6 million and ~~an aggregate~~a fair market value of ~~$2.7~~$2.8 million as of June 30, ~~2020.~~2021. This security has a valuation that is determined using published net asset values (NAV) derived by ~~an analysis~~analyses of the security’s underlying assets. This security is comprised primarily of broadly-diversified real estate properties whose fair values are determined by appraisals and ~~adjustable-rate senior secured business loans and are traded in secondary markets~~other discounted cash flow evaluation methods on an infrequent basis. While ~~these securities are~~this security is redeemable at least annually through tender offers made by ~~their~~its respective ~~issuers,~~issuer, the liquidation value of the ~~securities~~security may be below ~~their~~its stated NAVs and also subject to restrictions as to the amount of securities that can be redeemed at any single scheduled redemption. The Company anticipates that ~~these~~

~~securities~~this security will be redeemed by ~~their~~its respective issuers on indeterminate future dates as a consequence of the ultimate liquidation strategies employed by the management of ~~these investments.~~

investments, with an aggregate value of ~~$1.6~~$2.1 million at June 30, ~~2020,~~2021, valued utilizing readily available market pricing (Level 1) observed from active trading on major national stock exchanges.

Interest rate derivatives: The fair value of the interest rate derivatives, characterized as either fair value or cash flow hedges, are calculated based on a discounted cash flow model. All future floating rate cash flows are projected and both floating rate and fixed rate cash flows are discounted to the valuation date. The benchmark interest rate curve utilized for projecting cash flows and applying appropriate discount rates is built by obtaining publicly available third party market quotes for various swap maturity terms.

Impaired loans: Impaired loans are those loans in which the Company has measured impairment based on the fair value of the loan’s collateral or the discounted value of expected future cash flows. Fair value is generally determined based upon market value evaluations by third parties of the properties and/or estimates by management of working capital collateral or discounted cash flows based upon expected proceeds. These appraisals may include up to three approaches to value: the sales comparison approach, the income approach (for income-producing property), and the cost approach. Management modifies the appraised values, if needed, to take into account recent developments in the market or other factors, such as, changes in absorption rates or market conditions from the time of valuation and anticipated sales values considering management’s plans for disposition. Such modifications to the appraised values could result in lower valuations of such collateral. Estimated costs to sell are based on current amounts of disposal costs for similar assets. These measurements are classified as Level 3 within the valuation hierarchy. Impaired loans are subject to nonrecurring fair value adjustment upon initial recognition or subsequent impairment. A portion of the allowance for loan losses is allocated to impaired loans if the value of such loans is deemed to be less than the unpaid balance.

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. Values are derived from appraisals, similar to impaired loans, of underlying collateral or discounted cash flow analysis. Subsequent to foreclosure, valuations are updated periodically and assets are marked to current fair value, not to exceed the initial cost basis. In the determination of fair value subsequent to foreclosure, management also considers other factors or recent developments, such as, changes in absorption rates and market conditions from the time of valuation and anticipated sales values considering management’s plans for disposition. Either change could result in adjustment to lower the property value estimates indicated in the appraisals. These measurements are classified as Level 3 within the fair value hierarchy.

The following tables summarize assets measured at fair value on a recurring basis as of the indicated dates, segregated by the level of valuation inputs within the hierarchy utilized to measure fair value:

	June 30, 2020										June 30, 2021
								Total Fair										Total Fair
(In thousands)	Level 1		Level 2			Level 3		Value			Level 1		Level 2			Level 3		Value
Available-for-Sale Portfolio
Debt investment securities:
US Treasury, agencies and GSEs	$	-	$	21,562		$	-	$	21,562		$	0	$	18,254		$	0	$	18,254
State and political subdivisions		-		13,141			-		13,141			0		23,751			0		23,751
Corporate		-		8,542			-		8,542			0		10,450			0		10,450
Asset backed securities		-		12,801			-		12,801			0		14,294			0		14,294
Residential mortgage-backed - US agency		-		15,124			-		15,124			0		23,171			0		23,171
Collateralized mortgage obligations - US agency		-		24,881			-		24,881			0		26,989			0		26,989
Collateralized mortgage obligations - Private label		-		17,180			-		17,180			0		37,619			0		37,619
Total				113,231					113,231					154,528					154,528
Corporate measured at NAV		-		-			-		2,694			-		-			-		2,825
Total available-for-sale securities	$	-	$	113,231		$	-	$	115,925		$	0	$	154,528		$	0	$	157,353

Marketable equity securities	$	1,564	$	-		$	-	$	1,564		$	2,133	$	0		$	0	$	2,133

Interest rate swap derivative fair value hedge	$	-	$	(149	)	$	-	$	(149	)
Interest rate swap derivative fair value hedges											$	0	$	878		$	0	$	878

Interest rate swap derivative cash flow hedges	$	-	$	(1,528	)	$	-	$	(1,528	)	$	0	$	(981	)	$	0	$	(981	)

	December 31, 2019										December 31, 2020
								Total Fair										Total Fair
(In thousands)	Level 1		Level 2			Level 3		Value			Level 1		Level 2			Level 3		Value
Available-for-Sale Portfolio
Debt investment securities:
US Treasury, agencies and GSEs											$	0	$	6,416		$	0	$	6,416
State and political subdivisions		-		1,736			-		1,736			0		23,753			0		23,753
Corporate		-		7,631			-		7,631			0		9,943			0		9,943
Asset backed securities		-		13,232			-		13,232			0		8,607			0		8,607
Residential mortgage-backed - US agency		-		18,980			-		18,980			0		25,211			0		25,211
Collateralized mortgage obligations - US agency		-		30,785			-		30,785			0		26,464			0		26,464
Collateralized mortgage obligations - Private label		-		16,821			-		16,821			0		24,936			0		24,936
Total		-		106,005			-		106,005			0		125,330			0		125,330
Corporate measured at NAV		-		-			-		4,923			-		-			-		2,725
Total available-for-sale securities	$	-	$	106,005		$	-	$	110,928		$	0	$	125,330		$	0	$	128,055

Marketable equity securities	$	-	$	534		$	-	$	534		$	1,850	$	0		$	0	$	1,850

Interest rate swap derivative fair value hedge	$	-	$	(92	)	$	-	$	(92	)				136					136

Interest rate swap derivative fair value hedge											$	0	$	(1,308	)	$	0	$	(1,308	)

Pathfinder Bank had the following assets measured at fair value on a nonrecurring basis as of June 30, ~~2020~~2021 and December 31, ~~2019:~~2020:

The following table presents additional quantitative information about assets measured at fair value on a nonrecurring basis and for which Level 3 inputs were used to determine fair value at the indicated dates.

		Quantitative Information about Level 3 Fair Value Measurements
	Valuation	Unobservable	Range
	Techniques	Input	(Weighted Avg.)
At June 30, ~~2020~~2021
Impaired loans	Appraisal of collateral	Appraisal Adjustments	5% - 25% ~~(10%~~(16%)
	(Sales Approach)	Costs to Sell	7% - ~~13% (11%~~14% (5%)
	Discounted Cash Flow

~~Foreclosed real estate~~	~~Appraisal of collateral~~	~~Appraisal Adjustments~~	~~15% - 15% (15%)~~
	~~(Sales Approach)~~	~~Costs to Sell~~	~~6% - 9% (8%)~~

		Quantitative Information about Level 3 Fair Value Measurements
	Valuation	Unobservable	Range
	Techniques	Input	(Weighted Avg.)
At December 31, ~~2019~~2020
Impaired loans	Appraisal of collateral	Appraisal Adjustments	5% - ~~20% (9%~~25% (18%)
	(Sales Approach)	Costs to Sell	7% - 13% ~~(11%~~(12%)
	Discounted Cash Flow

~~The Company’s two equity security investments, with~~There have been no transfers of assets into or out of any fair ~~values determined using Level 1 inputs at~~value measurement level during the three or six months ended June 30, 2020 were restructured and consequently listed on major national stock exchanges in the second quarter of 2020. The fair value of one of the investments was $918,000 at June 30, 2020 and its fair values, determined using NAV methodologies, at March 31, 2020 and December 31, 2019 were $2.1 million and $2.1 million, respectively. The fair value of the other investment was $645,000 at June 30, 2020 and its fair values, determined using Level 2 inputs, at March 31, 2020 and December 31, 2019 were $340,000 and $534,000, respectively.2021.

Required disclosures include fair value information of financial instruments, whether or not recognized in the consolidated statement of condition, for which it is practicable to estimate that value. In cases where quoted market prices are not available, fair values are based on estimates using present value or other valuation techniques. Those techniques are significantly affected by the assumptions used, including the discount rate and estimates of future cash flows. In that regard, the derived fair value estimates cannot be substantiated by comparison to independent markets and, in many cases, could not be realized in immediate settlement of the instrument.

The Company has various processes and controls in place to ensure that fair value is reasonably estimated. The Company performs due diligence procedures over third-party pricing service providers in order to support their use in the valuation process.

While the Company believes its valuation methods are appropriate and consistent with other market participants, the use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different estimate of fair value at the reporting date.

Management uses its best judgment in estimating the fair value of the Company’s financial instruments; however, there are inherent weaknesses in any estimation technique. Therefore, for substantially all financial instruments, the fair value estimates herein are not necessarily indicative of the amounts the Company could have realized in a sales transaction on the dates indicated. The estimated fair value amounts have been measured as of their respective period-ends, and have not been re-evaluated or updated for purposes of these financial statements subsequent to those respective dates. As such, the estimated fair values of these financial instruments subsequent to the respective reporting dates may be different than the amounts reported at each period-end.

FASB ASC Topic 820 for Fair Value Measurements and Disclosures, the financial assets and liabilities were valued at a price that represents the Company’s exit price or the price at which these instruments would be sold or transferred.

The following information should not be interpreted as an estimate of the fair value of the entire Company since a fair value calculation is only provided for a limited portion of the Company’s assets and liabilities. Due to a wide range of valuation

techniques and the degree of subjectivity used in making the estimates, comparisons between the Company’s disclosures and those of other companies may not be meaningful. The Company, in estimating its fair value disclosures for financial instruments, used the following methods and assumptions:

Cash and cash equivalents – The carrying amounts of these assets approximate their fair value and are classified as Level 1.

Federal Home Loan Bank stock – The carrying amount of these assets approximates their fair value and are classified as Level 2.

Net loans – For variable-rate loans that re-price frequently, fair value is based on carrying amounts. The fair value of other loans (for example, fixed-rate commercial real estate loans, mortgage loans, and commercial and industrial loans) is estimated using discounted cash flow analysis, based on interest rates currently being offered in the market for loans with similar terms to borrowers of similar credit quality. Loan value estimates include judgments based on expected prepayment rates. The measurement of the fair value of loans, including impaired loans, is classified within Level 3 of the fair value hierarchy.

Accrued interest receivable and payable – The carrying amount of these assets approximates their fair value and are classified as Level 1.

Deposits – The fair values disclosed for demand deposits (e.g., interest-bearing and noninterest-bearing checking, passbook savings and certain types of money management accounts) are, by definition, equal to the amount payable on demand at the reporting date (i.e., their carrying amounts) and are classified within Level 1 of the fair value hierarchy. Fair values for fixed-rate certificates of deposit are estimated using a discounted cash flow calculation that applies interest rates currently being offered in the market on certificates of deposits to a schedule of aggregated expected monthly maturities on time deposits. Measurements of the fair value of time deposits are classified within Level 2 of the fair value hierarchy.

Borrowings – Fixed/variable term “bullet” structures are valued using a replacement cost of funds approach. These borrowings are discounted to the FHLBNY advance curve. Option structured borrowings’ fair values are determined by the FHLB for borrowings that include a call or conversion option. If market pricing is not available from this source, current market indications from the FHLBNY are obtained and the borrowings are discounted to the FHLBNY advance curve less an appropriate spread to adjust for the option. These measurements are classified as Level 2 within the fair value hierarchy.

Subordinated loans – The Company secures quotes from its pricing service based on a discounted cash flow methodology or utilizes observations of recent highly-similar transactions which result in a Level 2 classification.

The carrying amounts and fair values of the Company’s financial instruments as of the indicated dates are presented in the following table:

		June 30, 2020				December 31, 2019					June 30, 2021				December 31, 2020
	Fair Value	Carrying		Estimated		Carrying		Estimated		Fair Value	Carrying		Estimated		Carrying		Estimated
(In thousands)	Hierarchy	Amounts		Fair Values		Amounts		Fair Values		Hierarchy	Amounts		Fair Values		Amounts		Fair Values
Financial assets:
Cash and cash equivalents	1	$	45,123	$	45,123	$	20,160	$	20,160	1	$	41,154	$	41,154	$	43,464	$	43,464
Investment securities - available-for-sale	2		113,231		113,231		106,005		106,005	2		154,528		154,528		125,330		125,330
Investment securities - available-for-sale	NAV		2,694		2,694		4,923		4,923	NAV		2,825		2,825		2,725		2,725
Investment securities - marketable equity	1		1,564		1,564		-		-	1		2,133		2,133		1,850		1,850
Investment securities - marketable equity	2		-		-		534		534
Investment securities - held-to-maturity	2		141,298		143,140		122,988		124,148	2		162,432		165,997		171,224		174,935
Federal Home Loan Bank stock	2		4,091		4,091		4,834		4,834	2		4,487		4,487		4,390		4,390
Net loans	3		795,456		798,815		772,782		767,654	3		820,349		824,686		812,718		816,626
Accrued interest receivable	1		4,973		4,973		3,712		3,712	1		4,539		4,539		4,549		4,549
Interest rate swap derivative fair value hedges										2		878		878		191		191

Financial liabilities:
Demand Deposits, Savings, NOW and MMDA	1	$	560,273	$	560,273	$	460,293	$	460,293	1	$	668,156	$	668,156	$	598,683	$	598,683
Time Deposits	2		410,320		413,167		421,600		422,409	2		363,514		364,192		397,224		398,863
Borrowings	2		75,397		78,088		93,125		93,643	2		83,734		84,710		82,050		84,065
Subordinated loans	2		15,145		14,379		15,128		14,921	2		29,482		31,184		39,400		39,416
Accrued interest payable	1		276		276		396		396	1		145		145		193		193
Interest rate swap derivative fair value hedge	2		149		149		92		92
Interest rate swap derivative fair value hedges										2		0		0		55		55
Interest rate swap derivative cash flow hedges	2		1,528		1,528		-		-	2		981		981		1,308		1,308

The Company is exposed to certain risks from both its business operations and changes in economic conditions. As part of managing interest rate risk, the Company enters into standardized interest rate derivative contracts (designated as hedging agreements) to modify the repricing characteristics of certain portions of the Company’s portfolios of earning assets and interest-bearing liabilities. The Company designates interest rate hedging agreements utilized in the management of interest rate risk as either fair value hedges or cash flow hedges. Interest rate hedging agreements are generally entered into with counterparties that meet established credit standards and the agreements contain master netting, collateral and/or settlement provisions protecting the at-risk party. Based on adherence to the Company’s credit standards and the presence of the netting, collateral or settlement provisions, the Company believes that the credit risk inherent in these contracts was not material at June 30, ~~2020.~~2021. Interest rate hedging agreements are recorded at fair value as other assets or liabilities. The Company had no derivative contracts not designated as hedging agreements at June 30, ~~2020~~2021 or December 31, ~~2019.~~2020.

As a result of interest rate fluctuations, fixed-rate assets and liabilities will appreciate or depreciate in fair value. When effectively hedged, this appreciation or depreciation will generally be offset by fluctuations in the fair value of derivative instruments that are linked to the hedged assets and liabilities. This strategy is referred to as a fair value hedge. In a fair value hedge, the fair value of the derivative (the interest rate hedging agreement) and changes in the fair value of the hedged item are recorded in the Company’s consolidated balance sheet with the corresponding gain or loss recognized in current earnings. The difference between changes in the fair value of the interest rate hedging agreements and the hedged items represents hedge ineffectiveness and is recorded as an adjustment to the interest income or interest expense of the respective hedged item.

Cash flows related to floating rate assets and liabilities will fluctuate with changes in the underlying rate index. When effectively hedged, the increases or decreases in cash flows related to the floating-rate asset or liability will generally be offset by changes in cash flows of the derivative instruments designated as a hedge. This strategy is referred to as a cash flow hedge. In a cash flow hedge, the effective portion of the derivative’s gain or loss is initially reported as a component of other comprehensive income and subsequently reclassified into earnings when the forecasted transaction affects earnings. The ineffective portion of the derivative’s gain or loss on cash flow hedges is accounted for similar to that associated with fair value hedges.

Among the array of interest rate hedging contracts, potentially available to the Company, are interest rate swap and interest rate cap (or floor) contracts. The Company uses interest rate swaps, cap or floor contracts as part of its interest rate risk management strategy. Interest rate swaps involve the receipt of variable amounts from a counterparty in exchange for the Company making fixed payments over the life of the agreements without the exchange of the underlying notional amount. An interest rate cap is a type of interest rate derivative in which the buyer receives payments at the end of each contractual period in which the index interest rate exceeds the contractually agreed upon strike price rate. The purchaser of a cap contract will continue to benefit from any rise in interest rates above the strike price. Similarly, an interest rate floor is a derivative contract in which the buyer receives payments at the end of each period in which the interest rate is below the agreed strike price. The purchaser of a floor contract will continue to benefit from any rise in interest rates above the strike price.

The Company ~~entered into a pay-fixed/receive variable interest rate swap with a notional amount~~records various hedges in the Consolidated Statement of ~~$9.2 million in April 2019, which was designated as a~~Condition at fair value. The Company’s accounting treatment for these derivative instruments is based on the instruments hedge designation determined at the inception of each derivative instrument's contractual term. The following tables show the Company’s outstanding fair value hedge, associated with specific pools within the Company’s fixed-rate consumer loan portfolio. The swap contract will be in force from April 2019 to April 2021 and the Company will be required to pay 2.39% to the swap counterparty, while receiving 3-month LIBOR indexed payments from the same counterparty, with both payments calculated on the notional amount.

~~As of~~hedges at June 30, ~~2020~~2021 and December 31, ~~2019, the following amounts were recorded on the balance sheet related to the cumulative basis adjustments for fair value hedges:~~2021:

~~(1)~~

⁽¹⁾

These amounts include the amortized historical cost basis of a specific loan pool designated as the ~~hedged portfolio used to designate~~underlying asset for the hedging relationship in which the hedged item is the ~~remaining~~underlying asset's amortized cost ~~of the last layer expected~~(last layer) projected to be remaining at the end of the contractual term of the hedging ~~contract term. At~~instrument. The hedging instrument matured in April of 2021 and is no longer a component of the Company's Consolidated Statement of Condition at June 30, 2020 and December 31, 2019, the amortized cost of the basis of the closed portfolio used in the hedging relationship was $16.4 million and $19.3 million, the cumulative basis adjustment associated with the hedging relationship was $149,000 and $75,000, and the2021. The amount of the designated hedged item was $9.2 million and ~~$9.2~~the fair value of the hedging instrument resulted in a net liability position of $55,000, recorded by the Company in other liabilities at December 31, 2020. The Company’s participation in the fair value hedge had an immaterial effect on recorded interest income for the three and six months ended June 30, 2021 and 2020.

⁽²⁾

These amounts represent the amortized cost basis of specifically identified municipal securities designated as the underlying assets for the hedging relationship. The notional amount of the designated hedged item was $16.3 million ~~respectively.~~at both June 30, 2021 and December 31, 2020. At June 30, 2021, the fair value of the derivative resulted in a net asset position of $831,000, recorded by the Company in other assets. At December 31, 2020, the fair value of the derivative resulted in a net asset position of $191,000 recorded by the Company in other assets. The Company's participation in the fair value hedge had an immaterial effect on recorded interest income for the three and six months ended June 30, 2021 and 2020.

⁽³⁾

These amounts include the amortized cost of a specific loan pool designated as the underlying asset for the hedging relationship in which the hedged item is the underlying asset's amortized cost (last layer) projected to be remaining at the end of the contractual term of the hedging instrument. The amount of the designated hedged item was $12.2 million at June 30, 2021. The Company did not have this derivative agreement in place at December 31, 2020. At June 30, 2021, the fair value of the derivative resulted in a net asset position of $47,000, recorded by the Company in other assets. The Company’s participation in the fair value hedge had an immaterial effect on recorded interest income for the three and six months ended June 30, 2021 and 2020.

The following table shows the pre-tax losses of the Company’s derivatives designated as cash flow hedges in other comprehensive income at June 30, ~~2020~~2021 and December 31, 2019, the fair value of the fair value derivative resulted in a net liability position of $157,000 and $92,000 under the agreement, respectively, recorded by the Company in other liabilities. The Company’s participation in the swap contract reduced total loan interest income, recognized in consolidated earnings, by $72,000 and $88,000 for three and six months ended June 30, 2020, respectively.

In February 2020, the Company entered into an interest rate cap contract in the notional amount of $40.0 million, intended to reduce the Company’s exposure to potential rising interest rates. This contractual agreement has been designated as a cash flow hedge with changes in the fair value of the contract, net of changes in the fair value of the designated hedged liability (certain short-term certificates of deposit with rates of interest that are highly correlated to the 3-month LIBOR index) being accounted for through other comprehensive income. The term of the cap contract commenced on May 1, 2020 and expire on May 1, 2023. The Company paid $228,000 in a one-time premium for the cap contract and has no further contractual obligations to the counterparty over the three-year life of the contract. The premium will be amortized ratably over the contractual term of the cap contract with an annual average cost to the Company of approximately 19 basis points relative to the notional amount. The Company will potentially benefit during the term of this cap contract, in the manner described above, for the period of time that the 3-month LIBOR index exceeds 1.85% (the strike price). The cap contract had no effect on recorded interest expense in the three or six months ended June 30, 2020.

In March 2020, the Company entered into an interest rate swap contract in the notional amount of $40.0 million, intended to reduce the Company’s exposure to potential rising interest rates. This contractual agreement has been designated as a

cash flow hedge with changes in the fair value of the contract, net of changes in the fair value of the designated hedged liability (certain short-term certificates of deposit with rates of interest that are highly correlated to the 3-month LIBOR index) being accounted for through other comprehensive income. The term of the swap contract commenced on May 15, 2020 and expire on May 15, 2023. Under the terms of the swap contract, the Company will be obligated to pay the contractual counterparty an annual rate of 1.39% (the strike price) times the notional amount of the contract. Simultaneously, for the duration of the swap contract, the counterparty will be obligated to pay the Company the annual rate of the 3-month LIBOR index, as determined each calendar quarter, times the notional contractual amount. The swap contract had no effect on recorded interest expense in the three or six months ended June 30, 2020.2021:

The amounts of hedge ineffectiveness, recognized during the ~~quarter~~three and six months ended June 30, 2021 and 2020 for cash flow hedges were not material to the Company’s consolidated results of operations. ~~The Company had no hedged positions at June 30, 2019. Some~~A portion of, or the entire amount included in accumulated other comprehensive loss would be reclassified into current earnings should a portion of, or the entire hedge, no longer be considered ~~effective, but at this time, management expects~~effective. Management believes that the ~~hedge to~~hedges will remain fully effective during the remaining term of the ~~swap.~~ respective hedging contracts. The changes in the fair values of the interest rate hedging agreements ~~and the hedged items~~ primarily result from the effects of changing index interest ~~rates and spreads.~~rates.

The Company manages its potential credit exposure on interest rate swap transactions by entering into a bilateral credit support agreements with each contractual counterparty. These agreements require collateralization of credit exposures beyond specified minimum threshold amounts. ~~The~~At June 30, 2021, the Company posted cash, held in an interest-bearing refundable escrow arrangement, in the amount of $1.6 million ~~under collateral arrangements~~

in order to satisfy collateral requirements associated with ~~the interest rate swap contract at June 30, 2020.~~its hedging contracts.

Changes in the components of accumulated other comprehensive income (loss) (“AOCI”), net of tax, for the periods indicated are summarized in the tables below.

The following table presents the amounts reclassified out of each component of AOCI for the indicated period:

(1)	Amounts in parentheses indicates debits in net income.

(2)	These items are included in net periodic pension cost.

The Company has included the following table regarding the Company’s noninterest income for the periods presented.

	For the three months					For the six months					For the three months					For the six months
	ended June 30,					ended June 30,					ended June 30,					ended June 30,
(In thousands)	2020			2019		2020			2019		2021		2020			2021		2020
Service fees
Insufficient funds fees	$	148		$	272	$	423		$	480	$	208	$	148		$	398	$	423
Deposit related fees		117			53		172			105		96		117			194		172
ATM fees		38			23		64			45		53		38			97		64
Total service fees		303			348		659			630		357		303			689		659
Fee Income
Insurance commissions		184			216		519			451		232		184			511		519
Investment services revenue		81			97		149			145		163		81			246		149
ATM fees surcharge		56			59		109			105		59		56			110		109
Banking house rents collected		71			33		142			68		62		71			125		142
Total fee income		392			405		919			769		516		392			992		919
Card income
Debit card interchange fees		205			187		368			331		241		205			462		368
Merchant card fees		15			22		31			38		15		15			31		31
Total card income		220			209		399			369		256		220			493		399
Mortgage fee income and realized gain on sale of loans and foreclosed real estate
Loan servicing fees		79			60		128			87		11		79			101		128
Net gain on sales of loans and foreclosed real estate		97			13		769			5
Net gains on sales of loans and foreclosed real estate												39		97			159		769
Total mortgage fee income and realized gain on sale of loans and foreclosed real estate		176			73		897			92		50		176			260		897
Total		1,091			1,035		2,874			1,860		1,179		1,091			2,434		2,874
Earnings and gain on bank owned life insurance		106			101		222			222		129		106			254		222
Net gains on sales and redemptions of investment securities		1,023			32		1,049			111		51		1,023			51		1,049
(Losses)/gains on marketable equity securities		(722	)		16		(916	)		57
Gains/(losses) on marketable equity securities												49		(722	)		283		(916	)
Net gains on sale of premises and equipment												-		-			201		-
Other miscellaneous income		33			35		50			62		26		33			56		50
Total noninterest income	$	1,531		$	1,219	$	3,279		$	2,312	$	1,434	$	1,531		$	3,279	$	3,279

The following is a discussion of key revenues within the scope of the new revenue guidance:

~~Service fees –~~ Revenue is earned through insufficient funds fees, customer initiated activities or passage of time for deposit related fees, and ATM service fees. Transaction-based fees are recognized at the time the transaction is executed, which is the same time the Company’s performance obligation is satisfied. Account maintenance fees are earned over the course of the month as the monthly maintenance performance obligation to the customer is satisfied.
•
Service fees – Revenue is earned through insufficient funds fees, customer initiated activities or passage of time for deposit related fees, and ATM service fees. Transaction-based fees are recognized at the time the transaction is executed, which is the same time the Company’s performance obligation is satisfied. Account maintenance fees are earned over the course of the month as the monthly maintenance performance obligation to the customer is satisfied.

•

Fee income – Revenue is earned through commissions on insurance and securities sales, ATM surcharge fees, and banking house rents collected. The Company earns investment advisory fee income by providing investment management services to customers under investment management contracts. As the direction of investment management accounts is provided over time, the performance obligation to investment management customers is satisfied over time, and therefore, revenue is recognized over time.

•

Card income – Card income consists of interchange fees from consumer debit card networks and other related services. Interchange rates are set by the card networks. Interchange fees are based on purchase volumes and other factors and are recognized as transactions occur.

•

Mortgage fee income and realized gain on sale of loans and foreclosed real estate – Revenue from mortgage fee income and realized gain on sale of loans and foreclosed real estate is earned through the origination of residential and commercial mortgage loans, sales of one-to-four family residential mortgage loans, sales of government guarantees portions of ~~SBA~~Small Business Administration (“SBA”) loans, and sales of foreclosed real estate, and is earned as the transaction occurs.

The Company has operating and finance leases for certain banking offices and land under noncancelable agreements. Our leases have remaining lease terms that vary from less than ~~one year~~two years up to 3129 years, some of which include options to extend the leases for various renewal periods. All options to renew are included in the current lease term when we believe it is reasonably certain that the renewal options will be exercised.

The Company owns certain properties that it leases to unaffiliated third parties at market rates. Lease rental income was ~~$71,000~~$62,000 and ~~$34,000~~$71,000 for the three months ended June 30, ~~2020~~2021 and ~~2019,~~2020, respectively. Lease rental income was ~~$142,000~~$125,000 and ~~$68,000~~$142,000 for the six months ended June 30, ~~2020~~2021 and ~~2019,~~2020, respectively. All lease agreements, in which the Company is the lessor, are accounted for as operating leases.

~~In early January 2020, the~~The World Health Organization issued an alert that a novel coronavirus outbreak was emanating from Wuhan, Hubei Province in China. Over the course of the next several weeks, the outbreak continued to spread to various regions of the world prompting the World Health Organization to declare(the “WHO) declared COVID-19 a global pandemic on March 11, 2020. In the United States, by the end of March 2020, the rapid spread of the COVID-19 virus invoked various Federal and New York State authorities to make emergency declarations and issue executive orders to limit the spread of the disease. Measures included severe restrictions on international and domestic travel, limitations on public gatherings, implementation of social distancing and sanitization protocols, school closings, orders to shelter in place and mandates to close all non-essential businesses to the public. To ~~widely~~ varying degrees, ~~largely dependent upon the level of local and regional outbreaks and the resultant levels of strain on locally-available medical resources,~~ these very substantial mandated curtailments of social and economic activity ~~have~~had been progressively relaxed ~~globally and~~ in the United ~~States. However, there is virtually no locality within~~States during the ~~United States~~first and second quarters of 2021. This relaxation of the social and economic restrictions followed the increasingly wide-spread availability of vaccines that ~~has returned~~were first made available to ~~substantively normal business~~the most vulnerable population segments in late 2020. These vaccines are generally considered to be effective in reducing the severity of the infection, if contracted, and ~~social activities at~~in slowing the ~~time of this filing and the spread~~ rate of ~~the coronavirus remains extremely high in many regions~~spread of the ~~country.~~ coronavirus.

June 30, 2021, the Bank’s offices and branches were ~~limited to drive-thru transactions whenever possible, teleconferencing and in-branch “appointments only” services. The Bank’s branches are now~~ fully accessible to the public but remain in strict compliance with all applicable social distancing and sanitization guidelines. Since the start of the pandemic, transactional volume has also increased through the Bank’s telephone and internet banking channels.public. We will take further actions, ~~for~~focused on safety, as may be required in the future by government authorities or that we determine to be in the best interests of our employees, customers and business partners.

Concerns about the spread of the disease and its anticipated negative impact on economic activity severely disrupted both domestic and international financial markets, prompting the world’s central banks to inject significant amounts of monetary stimulus into their respective economies. In the United States, the Federal Reserve System’s Federal Open Market Committee swiftly cut the target Federal Funds rate to a range of 0% to 0.25%, ~~including~~where it remains as of the date of this filing. The reductions in the Fed funds target rate included a 50 basis point reduction in the target federal funds rate on March 3, 2020 and an additional 100 basis point reduction on March 15, 2020. In addition, the Federal Reserve initiated various market support programs to ease the stress on financial markets. This significant reduction in short-term interest rates has reduced, and will continue to reduce, the Bank’s cost of funds and interest earning-asset ~~yields.~~yields, as long as these central bank monetary policies remain in effect. The long-term effects of the current interest rate environment, ~~that has resulted~~resulting from government and central bank responses to the pandemic, on the Bank’s net interest ~~margins~~margin cannot be predicted with certainty at this time. However, it is likely that a prolonged period of the current monetary policy will result in the reduction of the Company’s net interest margin in future periods, primarily as a result of declines in interest earning-asset yields over time.

The Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”), signed into law on March 27, 2020, ~~provides~~provided financial assistance in various forms to both businesses and ~~consumers.~~consumers, including the establishment and funding of the Paycheck Protection Program (“PPP”). In addition, the CARES Act also created many directives affecting the operations of financial services providers, such as the Company, including a forbearance program for federally-backed mortgage loans and protections for borrowers from negative credit reporting due to loan accommodations related to the national emergency. The banking regulatory agencies ~~have~~ likewise issued guidance encouraging financial institutions to work prudently with borrowers who ~~are,~~were, or may be, unable to meet their contractual payment obligations because of the effects of COVID-19. The Company has worked to assist its business and ~~individual~~consumer customers affected by COVID-19. ~~Through June 30,~~While the CARES Act is widely-considered to have been beneficial to the economic recovery and supportive of the Company’s business activities, the long-term effect of this legislation on the operations of the Company cannot be determined with certainty at this time.

On December 27, 2020, following passage by the United States Congress, President Donald J. Trump signed into law the Consolidated Appropriations Act, 2021 which included the Coronavirus Response and Relief Supplemental Appropriations Act (“CRRSAA”). The intent of this legislation was to provide another round of Economic Impact Payments to eligible individuals and families, renew the PPP to support small businesses and their employees, ensure needed access to unemployment benefits for Americans who had lost their jobs due to COVID-19, and provide additional funding for schools, vaccine distribution, and other important sectors of the economy. While CRRSSA is widely considered to have been beneficial to the economic recovery and supportive of the Company’s business activities, the long-term effect of this legislation on the operations of the Company cannot be determined with certainty at this time.

On March 11, 2021, President Joseph R. Biden signed into law the American Rescue Plan Act of 2021. The intent of this legislation was to provide additional new funding for rural hospitals and health care providers for COVID-19 relief, to increase federal subsidies for COBRA coverage, and make changes to the Medicare wage index. The legislation also included provisions to bolster the nation’s COVID-19 health care response with additional resources for vaccines, treatment, personal protective equipment (PPE), testing, contact tracing and workforce development. In addition, non-health care specific provisions provide financial support for families and small businesses, and both extended and expanded support for housing, child care, food and the education system. While The American Rescue Plan Act of 2021 is expected to benefit the economic recovery and be supportive of the Company’s business activities, the effect of this legislation on the operations of the Company cannot be determined with certainty at this time.

As of the date of this filing, a new variant of the coronavirus, generally referred to as the “Delta” variant, has emerged in the United States and remains a significant concern in some regions and potentially, throughout the country. This variant is believed to be significantly more contagious than earlier variants of the coronavirus. Certain previously-relaxed social distancing and safety protocols have been reinstated in some areas of the country and it is possible that such protocols will be reinstated broadly in the future. The economic effects of these varying protocol reinstatement actions on the Company’s operations cannot be determined with certainty at this time.

~~Borrowers that were delinquent in their~~the initial 90- to 180-day deferral periods. Typically, scheduled interest payments placed into deferred status have been added to ~~the Bank, prior to requesting a COVID-19 related financial hardship payment deferral were reviewed on a case by case basis for troubled debt restructure classification~~future scheduled payments and ~~non-performing~~

loan status. In the instances where the Company granted a payment deferral to a delinquent borrower because of COVID-19, the borrower’s delinquency status was frozen as of February 29, 2020, and their loans will continueare expected to be ~~reported as delinquent during~~collected in total at the deferment period based on their delinquency status as of that date. The Company anticipates that the number and amount of COVID-19 financial hardship payment deferral requests will continue to remain elevated in the second half of 2020 and, possibly, significantly longer. The long-term collectability of deferred loan payments will depend on many factors, including the future progressionoriginal maturity date of the pandemic, potential medical breakthroughs in therapeutic treatments and/or vaccines, further economic stimulus from government authorities, the rate at which governmental restrictions on business activities are relaxed and the adequacy and sustainability of other sources of repayment such as loan collateral. Consistent with industry regulatory guidance, borrowers that were granted COVID-19 related deferrals but were otherwise current on loan payments will continue to have their loans reported as current loans during the agreed upon deferral period, accrue interest and not be accounted for as troubled debt restructurings.

The future performance of the Company’s loan portfolios with respect to credit losses will be highly dependent upon the course and duration, both nationally and within the Company’s market area, of the public health and economic factors related to the pandemic, as well as the concentrations in the Company’s loan portfolio. Concentrations of loans within a portfolio that are made to a singular borrower, to a related groups of borrowers, or to a limited number of industries, are generally considered to be additional risk factors in estimating future credit losses. Therefore, the Company monitors all of its credit relationships to ensure that the total loan amounts extended to one borrower, or to a related group of borrowers, does not exceed the maximum permissible levels defined by applicable regulation or the Company’s generally more restrictive internal policy limits.

Loans to a single borrower, or to a related group of borrowers, are referred to as total related credits. Total related credits encompass all related or affiliated borrower loan balances, including available unused lines of credit, for both personal and business loans. At June 30, 2020, the Company had 26 total related credit relationships, comprised of 210 individual loans, with outstanding balances in excess of $5.0 million. These total related credits ranged from $5.0 million to $13.2 million at June 30, 2020 with aggregate balances of $207.2 million. Of the $207.2 million in total related credits, $189.8 million was secured by various collateral assets, primarily commercial real estate, $11.3 million was unsecured, and $6.1 million were PPP loans.

In addition, the future credit-related performance of a loan portfolio generally depends upon the types of loans within the portfolio, concentrations by type of loan and the quality of the collateral securing the loans. The following table details the Company's loan portfolio by collateral type within major categories asloan. As of June 30, ~~2020:~~

(Dollars in thousands)

Balance

Number
of Loans

Average Loan Balance

Minimum/
Maximum
Loan Balance

Allowance for Loan Losses

Percent of Total Loans

Residential Mortgage Loans

$
216,419

2,101

$
103

$
1

-
$
1,566

$
756

27
%

Commercial Real Estate:

Mixed Use

$
41,179

50

$
824

$
26

-
$
7,433

$
672

5
%
Multi-Family Residential

39,952

57

701

27

-

6,009

652

5
%
Hotels and Motels

33,258

10

3,326

226

-

11,500

543

4
%
Office

32,035

58

552

12

-

4,902

523

4
%
Retail

22,720

52

437

1

-

5,217

371

3
%
1-4 Family Residential

18,433

146

126

10

-

1,250

301

2
%
Automobile Dealership

16,497

10

1,650

173

-

6,629

269

2
%
Recreation/Golf Course/Marina

10,812

14

772

32

-

3,150

177

1
%
Warehouse

10,790

15

719

8

-

2,678

176

1
%
Manufacturing/Industrial

6,625

15

442

3

-

1,438

108

1
%
Restaurant

6,346

25

254

10

-

1,311

104

1
%
Automobile Repair

4,829

10

483

61

-

2,342

79

1
%
Not-For-Profit & Community Service
Real Estate

3,378

3

1,126

109

-

1,679

55

0
%
Land

3,418

5

684

76

-

2,000

56

0
%
Skilled Nursing Facility

3,503

1

3,503

3,503

-

3,503

57

1
%
All Other

7,049

36

196

17

-

745

115

1
%
Total Commercial Real Estate Loans

$
260,824

507

$
514

$
4,258

32
%

Commercial and Industrial:

Secured Term Loans

$
63,672

360

$
177

$
0

-
$
6,035

$
1,525

8
%
Unsecured Term Loans

19,494

131

149

0

-

1,647

467

3
%
Secured Lines of Credit

42,370

288

147

0

-

5,000

1,015

5
%
Unsecured Lines of Credit

11,140

143

78

0

-

2,999

267

1
%
Total Commercial and Industrial
Loans

$
136,676

922

$
148

$
3,274

17
%

Tax Exempt Loans

$
7,644

24

$
319

$
9

-
$
2,425

$
1

1
%

Paycheck Protection Loans

$
73,774

641

$
115

$
1

-
$
3,000

$
-

9
%

Consumer:

Home Equity Lines of Credit

$
42,587

1,077

$
40

$
0

-
$
417

$
644

5
%
Automobile

31,569

1,994

16

1

-

368

476

4
%
Consumer Secured

4,302

82

52

23

-

146

65

1
%
Consumer Unsecured

32,075

6,539

5

1

-

116

484

4
%
All Others

1,969

1,002

2

0

-

60

30

0
%
Total Consumer Loans

$
112,502

10,694

$
11

$
1,699

14
%

Net deferred loan fees

(1,830
)

-

-

-

-

-

Unallocated allowance for loan losses

-

-

-

-

565

-

Total Loans

$
806,009

14,889

$
54

$
10,553

100
%

~~Including~~2021, the ~~potential effects of the COVID-19 outbreak~~Bank had no loans on the Company’s loan portfolios, the ongoing and dynamic nature of the pandemic and the resultant, potentially severe and long-lasting, economic dislocations, it is difficult to predict the full impact of the COVID-19 outbreak on our business. The extent of such impact will depend on future

developments, which are highly uncertain, including when the coronavirus can be controlled and abated and when and how the economy may be reopened. As the result of the COVID-19 pandemic and the related adverse local and national economic consequences, we could be subject to any of the following risks, any of which could have a material, adverse effect on our business, financial condition, liquidity, and results of operations:

Moreover, our future success and profitability substantially depends on the management skills of our executive officers and directors, many of whom have held officer and director positions with us for many years. The unanticipated loss or unavailability of key employees due to the outbreak could harm our ability to operate our business or execute our business strategy. We may not be successful in finding and integrating suitable successors in the event of key employee loss or unavailability.active pandemic-related deferral.

~~Any one or a combination of the factors identified above could negatively impact our business, financial condition and results of operations and prospects.~~

Item 2 - Management's Discussion and Analysis of ~~Financial~~Financial Condition and Results of Operations (Unaudited)

The Company is a Maryland corporation headquartered in Oswego, New York. The Company is 100% owned by public shareholders. The primary business of the Company is its investment in Pathfinder Bank (the "Bank"), a New York State chartered commercial bank, which is 100% owned by the Company. The Bank has two wholly owned operating subsidiaries, Pathfinder Risk Management Company, Inc. (“PRMC”) and Whispering Oaks Development Corp. All significant inter-company accounts and activity have been eliminated in consolidation. Although the Company owns, through its subsidiary PRMC, 51% of the membership interest in FitzGibbons Agency, LLC (“Agency”), the Company is required to consolidate 100% of FitzGibbons within the consolidated financial statements. The 49% of which the Company does not own is accounted for separately as noncontrolling interests within the consolidated financial statements. At June 30, ~~2020,~~2021, the Company and subsidiaries had total consolidated assets of ~~$1.2~~$1.3 billion, total consolidated liabilities of ~~$1.1~~$1.2 billion and shareholders' equity of ~~$92.0~~$103.2 million plus noncontrolling interest of ~~$292,000,~~$297,000, which represents the 49% of FitzGibbons not owned by the Company.

The following discussion reviews the Company's financial condition at June 30, ~~2020~~2021 and the results of operations for the three and six month periods ended June 30, ~~2020~~2021 and ~~2019.~~2020. Operating results for the three and six months ended June 30, ~~2020~~2021 are not necessarily indicative of the results that may be expected for the year ending December 31, ~~2020~~2021 or any other period.

The following material under the heading "Management's Discussion and Analysis of Financial Condition and Results of Operations" is written with the presumption that the users of the interim financial statements have read, or have access to, the Company's latest audited financial statements and notes thereto, together with Management's Discussion and Analysis of Financial Condition and Results of Operations included in the ~~2019~~2020 Annual Report on Form 10-K filed with the Securities and Exchange Commission on March ~~23, 2020~~30, 2021 (“the consolidated annual financial statements”) as of December 31, ~~2019~~2020 and ~~2018~~2019 and for the two years then ended. Therefore, only material changes in financial condition and results of operations are discussed in the remainder of Item 2.

Certain statements contained herein are “forward looking statements” within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. This report contains forward-looking statements that are based on assumptions and may describe future plans, strategies and expectations of the Company. These forward-looking statements are generally identified by use of the words “believe,” “expect,” “intend,” “anticipate,” “estimate,” “project” or similar expressions. The Company’s ability to predict results or the actual effect of future plans or strategies is inherently uncertain. Factors which could have a material adverse effect on the operations of the Company and its subsidiaries include, but are not limited to:

~~Credit quality and the effect of credit quality on the adequacy of our allowance for loan losses;~~

•

Credit quality and the effect of credit quality on the adequacy of our allowance for loan losses;

~~Deterioration in financial markets that may result in impairment charges relating to our securities portfolio;~~

•

Deterioration in financial markets that may result in impairment charges relating to our securities portfolio;

~~Competition in our primary market areas;~~

•

Competition in our primary market areas;

~~Changes in interest rates and national or regional economic conditions;~~

•

Changes in interest rates and national or regional economic conditions;

~~Changes in monetary and fiscal policies of the U.S. Government, including policies of the U.S. Treasury and the Federal Reserve Board;~~

•

Changes in monetary and fiscal policies of the U.S. Government, including policies of the U.S. Treasury and the Federal Reserve Board;

~~Significant government regulations, legislation and potential changes thereto;~~

•

Significant government regulations, legislation and potential changes thereto;

~~A reduction in our ability to generate or originate revenue-producing assets as a result of compliance with heightened capital standards;~~

•

A reduction in our ability to generate or originate revenue-producing assets as a result of compliance with heightened capital standards;

~~Increased cost of operations due to greater regulatory oversight, supervision and examination of banks and bank holding companies, and higher deposit insurance premiums;~~

•

Increased cost of operations due to greater regulatory oversight, supervision and examination of banks and bank holding companies, and higher deposit insurance premiums;

~~Cyberattacks, computer viruses and other technological threats that may breach the security of our websites or other systems;~~

•

Cyberattacks, computer viruses and other technological threats that may breach the security of our websites or other systems;

~~Technological changes that may be more difficult or expensive than expected;~~

•

Technological changes that may be more difficult or expensive than expected;

~~Limitations on our ability to expand consumer product and service offerings due to anticipated stricter consumer protection laws and regulations; and~~

•

Limitations on our ability to expand consumer product and service offerings due to anticipated stricter consumer protection laws and regulations; and

~~Other risks described herein and in the other reports and statements we file with the SEC.~~

•

Other risks described herein and in the other reports and statements we file with the SEC.

In addition to the risk factors enumerated above, the continuing economic impact of the COVID-19 outbreak could adversely affect our financial condition and results of operations. The COVID-19 pandemic ~~has~~ caused significant economic dislocation in the United States as many state and local governments ~~have~~ ordered non-essential businesses to close and residents to ~~social distance. This has resulted~~shelter in ~~an unprecedented slow-down in~~place. While certain restrictions have started to ease, particularly with the recent widespread availability of novel vaccines, the pace at which the economic ~~activity~~recovery unfolds and ~~a related increase in unemployment.~~the sustainability of that recovery cannot be predicted with certainty at this time.

Given the ongoing and dynamic nature of the circumstances, it is difficult to predict the full impact of the COVID-19 outbreak on our business. The extent of such impact will depend on future developments, which are highly uncertain, including when the coronavirus can be controlled and abated and when and how the economy may be reopened. As the result of the COVID-19 pandemic and the related adverse local and national economic consequences, we could be subject to any of the following additional risks, any of which could have a material, adverse effect on our business, financial condition, liquidity, and results of operations:

~~Demand for our products and services may decline, making it difficult to grow assets and income;~~

•

Demand for our products and services may decline, making it difficult to grow assets and income;

If the economy is unable to substantially reopen, and high levels of unemployment continue for an extended period of time, loan delinquencies, problem assets, and foreclosures may increase, resulting in increased charges and reduced income;

•

~~Collateral for loans, especially real estate, may decline in value, which could cause loan losses to increase;~~

•

Collateral for loans, especially real estate, may decline in value, which could cause loan losses to increase;

~~Our allowance for loan losses may have to be increased if borrowers experience financial difficulties beyond forbearance periods, which will adversely affect our net income;~~

•

Our allowance for loan losses may have to be increased if borrowers experience financial difficulties beyond forbearance periods, which will adversely affect our net income;

~~The net worth and liquidity of loan guarantors may decline, impairing their ability to honor commitments to us;~~

•

The net worth and liquidity of loan guarantors may decline, impairing their ability to honor commitments to us;

As the result of the decline in the Federal Reserve Board’s target federal funds rate to near 0%, the yield on our assets may decline to a greater extent than the decline in our cost of interest-bearing liabilities, reducing our net interest margin and spread and reducing net income;

•

~~A material decrease in net income or a net loss over several quarters could result in a decrease in the rate of our quarterly cash dividend;~~

•

A material decrease in net income or a net loss over several quarters could result in a decrease in the rate of our quarterly cash dividend;

~~Our cyber security risks are increased as the result of an increase in the number of employees working remotely;~~

•

Our cyber security risks are increased as the result of an increase in the number of employees working remotely;

~~We rely on third party vendors for certain services and the unavailability of a critical service due to the COVID-19 outbreak could have an adverse effect on us; and~~

•

We rely on third party vendors for certain services and the unavailability of a critical service due to the COVID-19 outbreak could have an adverse effect on us; and

~~Federal Deposit Insurance Corporation premiums may increase if the agency experiences additional resolution costs.~~

•

Federal Deposit Insurance Corporation premiums may increase if the agency experiences additional resolution costs.

Any one or a combination of the factors identified above could negatively impact our business, financial condition and results of operations and prospects.

These risks and uncertainties should be considered in evaluating forward-looking statements and undue reliance should not be placed on such statements. Except as required by applicable law or regulation, the Company does not undertake, and specifically disclaims any obligation, to release publicly the result of any revisions that may be made to any forward-looking statements to reflect events or circumstances after the date of the statements or to reflect the occurrence of anticipated or unanticipated events.

~~In early January 2020, the~~The World Health Organization issued an alert that a novel coronavirus outbreak was emanating from Wuhan, Hubei Province in China. Over the course of the next several weeks, the outbreak continued to spread to various regions of the world prompting the World Health Organization to declare(the “WHO) declared COVID-19 a global pandemic on March 11, 2020. In the United States, by the end of March 2020, the rapid spread of the COVID-19 virus invoked various Federal and New York State authorities to make emergency declarations and issue executive orders to limit the spread of the disease. Measures included severe restrictions on international and domestic travel, limitations on public gatherings, implementation of social distancing and sanitization protocols, school closings, orders to shelter in place and mandates to close all non-essential businesses to the public. To ~~widely~~ varying degrees ~~largely dependent upon the level of local and regional outbreaks and the resultant levels of strain on locally-available medical resources,~~ these very substantial mandated curtailments of social and economic activity ~~have~~had been progressively relaxed ~~globally and~~ in the United ~~States.~~States during the first and second quarters of 2021. This relaxation of the social and economic restrictions followed the increasingly wide-spread availability of vaccines that were first made available to the most vulnerable population segments in late 2020. These vaccines are generally considered to be effective in reducing the severity of the infection, if contracted, and in slowing the rate of spread of the coronavirus. However, ~~there is virtually no locality within~~the percentage of unvaccinated people in the United States, ~~that has returned to substantively normal business and social activities at the time of this filing~~ and the ~~spread rate~~potential for future mutations of the coronavirus, ~~remains extremely high in many regions of the country.~~ remain significant long-term public health and economic concerns.

As a result of the initial and continuing outbreak, and governmental ~~response~~responses thereto, the spread of the coronavirus has caused us to modify our business practices, including employee travel, employee work locations, and cancellation of physical participation in meetings, events and conferences. ~~The~~During the most restrictive periods during the pandemic, the Company ~~has~~had many of its employees working remotely and ~~has also~~significantly reduced physical customer contact with employees and other customers ~~significantly by limiting branch activities. Initially, branch activities~~until the second quarter of 2021, when New York State relaxed the majority of its safety mandates. At June 30, 2021, the Bank’s offices and branches were ~~limited to drive-thru transactions whenever possible, teleconferencing and in-branch “appointments only” services. The Bank’s branches are now~~ fully accessible to the public but remain in strict compliance with all applicable social distancing and sanitization guidelines. Since the start of the pandemic, transactional volume has also increased through the Bank’s telephone and internet banking channels.public. We will take further actions, ~~for~~focused on safety, as may be required in the future by government authorities or that we determine to be in the best interests of our employees, customers and business partners.

Concerns about the spread of the disease and its anticipated negative impact on economic activity, severely disrupted both domestic and international financial markets prompting the world’s central banks to inject significant amounts of monetary stimulus into their respective economies. In the United States, the Federal Reserve System’s Federal Open Market Committee, swiftly cut the target Federal Funds rate to a range of 0% to 0.25%, ~~including~~where it remains as of the date of this filing. The reductions in the Fed funds target rate included a 50 basis point reduction in the target federal funds rate on March 3, 2020 and an additional 100 basis point reduction on March 15, 2020. In addition, the Federal Reserve initiated various market support programs to ease the stress on financial markets. This significant reduction in short-term interest rates has reduced, and will continue to reduce, the Bank’s cost of funds and interest earning-asset ~~yields.~~yields, as long as these central bank monetary policies remain in effect. The long-term effects of the current interest rate environment, ~~that has resulted~~resulting from government and central bank responses to the pandemic, on the Bank’s net interest ~~margins~~margin cannot be predicted with certainty at this time. However, it is likely that a prolonged period of the current monetary policy will result in the reduction of the Company’s net interest margin in future periods, primarily as a result of declines in interest earning-asset yields over time.

beneficial to the economic recovery and supportive of the Company’s business activities, the long-term effect of this legislation on the operations of the Company cannot be determined with certainty at this time.

On March 11, 2021, President Joseph R. Biden, signed into law the American Rescue Plan Act of 2021. The intent of this legislation was to provide additional new funding for rural hospitals and health care providers for COVID-19 relief, to increase federal subsidies for COBRA coverage, and make changes to the Medicare wage index. The legislation also included provisions to bolster the nation’s COVID-19 health care response with additional resources for vaccines, treatment, personal protective equipment (PPE), testing, contact tracing and workforce development. In addition, non-health care specific provisions provide financial support for families and small businesses, and both extended and expanded support for housing, child care, food and the education system. While The American Rescue Plan Act of 2021 is expected to benefit the economic recovery and be supportive of the Company’s business activities, the effect of this legislation on the operations of the Company cannot be determined with certainty at this time.

During the most restrictive periods of the pandemic, the Bank granted loan payment deferrals to the substantial majority of commercial and consumer customers who had made requests for such accommodations. These deferrals were granted following individual discussions with each borrower and were generally for periods of 90 or 180 days at the outset. Following discussions with certain borrowers, additional loan payment deferral ~~requests primarily for~~periods of up to 90 days were granted following the expiration of the initial 90- to 180-day deferral periods. Typically, scheduled interest payments placed into deferred status have been added to future scheduled payments and are expected to be collected in total at the original maturity date of the loan. As of June 30, 2021, the Bank had no loans on 556 loans representing approximately $145.6 million of existing loan balances. For more information on the Bank’s loan concentrations, please see Note 15 to the Unaudited Consolidated Financial Statements above.active pandemic-related deferral.

The Bank participated in all rounds of the ~~Paycheck Protection Program (“PPP”), a $650 billion specialized low-interest loan program~~PPP funded by the U.S. Treasury Department and administered by the U.S. ~~Small Business Administration (“SBA”)~~SBA pursuant to the CARES Act and subsequent legislation. PPP loans have an interest rate of 1.0%, and a two-year or five-year loan term to ~~maturity, and principal and interest payments deferred until the lender receives the applicable forgiven amount or 10 months after the period the business has used such funds.~~maturity. The SBA guarantees 100% of the PPP loans made to eligible borrowers. The entire principal amount of the borrower’s PPP loan, including any accrued interest, is eligible to be

reduced by the loan forgiveness amount under the PPP so long as employee and compensation levels of the business are maintained and ~~60% of~~ the loan proceeds are used for ~~payroll expenses, with the remaining 40% of the loan proceeds used for other~~ qualifying expenses. ~~Through June 30, 2020, the Bank has submitted~~Information related to ~~and received approval from the SBA for 680 loans totaling approximately $73.8 million through this program.~~

~~The COVID-19 crisis is expected to continue to impact~~ the Company’s ~~financial results, as well as demand for its services and products during~~PPP loans are included in the remainder of 2020 and potentially beyond. The short- and long-term implications of the COVID-19 crisis on the Company’s future revenues, earnings results, the allowance for loan losses, capital reserves, and liquidity are unknown at this time.following tables:

	For the three months ended				For the six months ended,
(In thousands, except number of loans)	June 30, 2021		June 30, 2020		June 30, 2021		June 30, 2020
Number of PPP loans originated in the period		57		674		478		674
Funded balance of PPP loans originated in the period	$	1,882	$	75,040	$	36,369	$	75,040
Number of PPP loans forgiven in the period	143			-	349			-
Average balance of PPP loans in the period	$	68,927	$	48,029	$	69,410	$	24,015
Balance of PPP loans forgiven in the period	$	23,985	$	-	$	42,566	$	-
Deferred PPP fee income recognized in the period	$	735	$	289	$	1,147	$	289

		June 30, 2021				June 30, 2020
Unearned PPP deferred fee income at end of period		$	1,720			$	2,236

	Number		Balance
Total PPP loans originated since inception		1,177	$	111,721
Total PPP loans forgiven since inception		479	$	58,110
Total PPP loans remaining at June 30, 2021		698	$	53,611

The Company's consolidated ~~annual~~quarterly financial statements are prepared in accordance with accounting principles generally accepted in the United States and follow practices within the banking industry. Application of these principles requires management to make estimates, assumptions, and judgments that affect the amounts reported in the consolidated ~~annual~~quarterly financial statements and accompanying notes. These estimates, assumptions, and judgments are based on information available as of the date of the financial statements; accordingly, as this information changes, the financial statements could reflect different estimates, assumptions, and judgments. Certain accounting policies inherently have a greater reliance on the use of estimates, assumptions, and judgments and, as such, have a greater possibility of producing results that could be materially different than originally reported. Estimates, assumptions, and judgments are necessary when assets and liabilities are required to be recorded at fair value or when an asset or liability needs to be recorded contingent upon a future event. Carrying assets and liabilities at fair value inherently results in more financial statement volatility. The fair values and information used to record valuation adjustments for certain assets and liabilities are based on quoted market prices or are provided by unaffiliated third-party sources, when available. When third party information is not available, valuation adjustments are estimated in good faith by management.

The most significant accounting policies followed by the Company are presented in Note 1 to the annual audited consolidated financial statements. These policies, along with the disclosures presented in the other financial statement notes and in this discussion, provide information on how significant assets and liabilities are valued in the consolidated ~~annual~~quarterly financial statements and how those values are determined. 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 taxes, pension obligations, the evaluation of investment securities for other than temporary impairment, the estimation of fair values for accounting and disclosure purposes, and the evaluation of goodwill for impairment to be the accounting areas that require the most subjective and complex judgments. These areas could be the most subject to revision as new information becomes available.

The allowance for loan losses represents management's estimate of probable loan losses inherent in the loan portfolio. 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 consideration of current economic trends and conditions, all of which may be susceptible to significant change.

Our Allowance for Loan and Lease Losses policy establishes criteria for selecting loans to be measured for impairment based on the following:

~~All loans rated substandard or worse, on nonaccrual, and above our total related credit (“TRC”) threshold balance of $300,000.~~

•

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~~

•

All Troubled Debt Restructured Loans

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All loans rated substandard or worse, on nonaccrual, and above our TRC threshold balance of $100,000.

~~All loans rated substandard or worse, on nonaccrual, and above our TRC threshold balance of $100,000.~~

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. For all other loans and leases, the Company uses the general allocation methodology that establishes an allowance to estimate the probable incurred loss for each risk-rating category.

Deferred income tax assets and liabilities are determined using the liability method. Under this method, the net deferred tax asset or liability is recognized for the future tax consequences. This is attributable to the differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases as well as net operating

and capital loss carry forwards. Deferred tax assets and liabilities are measured using enacted tax rates applied to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income tax expense in the period that includes the enactment date. If current available evidence about the future raises doubt about the likelihood of a deferred tax asset being realized, a valuation allowance is established. The judgment about the level of future taxable income, including that which is considered capital, is inherently subjective and is reviewed on a continual basis as regulatory and business factors change.

Effective in January 2018, the Company adopted a modification methodology that was at the time newly made available ~~following changes to~~under the New York State tax code, affecting how the Company’s state income tax liability is computed. Under this adopted methodology, management determined in the first quarter of 2019, it iswas unlikely that the Company ~~will~~would pay material income taxes to New York State in future periods ~~and it is therefore probable that the Company’s deferred tax assets related to New York State income taxes are unlikely to further reduce the Company’s state~~under then-existing income tax ~~rate~~laws in the ~~future. Accordingly, a valuation allowance against~~State, and therefore in the ~~value of those deferred tax assets was established to reduce the net deferred tax asset related to New York income taxes to $0. Therefore, as of January 1,~~quarter ended March 31, 2019, the Company established, through a charge to earnings, a valuation allowance in the amount of $136,000 in order to reserve against deferred tax assets related to New York State income taxes.

InThis valuation allowance against the quarter ended March 31, 2020, Management determined that the Company, under the current New York State (“NYS”) tax code, was highly unlikely to incur a material NYS tax liability in the foreseeable future. As a result, certain net current andvalue of those deferred tax assets ~~related~~was established to ~~GAAP vs. tax timing differences under previous NYS tax law, were no longer going to provide any future tax benefit. The substantial majority of these~~reduce the net deferred tax assets were offset by a related valuation allowance established in prior periods. Upon analysis of all factors related to the expected future filings of NYS tax returns, the Company eliminated its remaining NYS net deferred tax asset balances and the related valuation allowance on January 1, 2020. The effect of these eliminations required an adjustment to other comprehensive income of $206,000 and had no effect on first half 2020 reported earnings. At June 30, 2019, the Company had a valuation allowance of $61,000 established against the future projected benefits of deferred tax assets related to New York State income taxes to $0. Management is continuously monitoring its future tax ~~obligations.~~consequences to determine if the Company’s deferred taxes are properly stated. In the first quarter of 2020, consistent with policy, management reviewed all facts and circumstances related to its deferred taxes and determined that based on the expected filings of future New York State tax returns, the valuation allowance created in 2019 was no longer needed. Therefore management elected to eliminate its New York State net deferred tax asset valuation allowance during the quarter ended March 31, 2020.

On April 7, 2021, the New York State Legislature approved comprehensive tax legislation as part of the State’s 2022 Fiscal Year budget. The legislation includes increased taxes on businesses and high-income individuals among other tax law revisions. Other provisions include amendments to the real estate transfer tax.

The legislation increases the corporate franchise tax rate to 7.25% from 6.5% for tax years beginning on or after January 1, 2021 and before January 1, 2024 for taxpayers with a business income base greater than $5.0 million. In addition, the previously scheduled phase-out of the capital base tax has been delayed. The rate of the capital base was to have been reduced to 0% starting in 2021. The legislation imposes the tax at the rate of 0.1875% for tax years beginning on or after January 1, 2021 and before January 1, 2024, with the 0% rate to take effect in 2024. Management is evaluating the projected impact on the Company’s financial condition and results of operations and believes that these provisions may increase the Company’s income tax expense in the future. However, these potential increases in New York State income taxes are not expected to be material to the future results of the Company’s operations.

The Company’s effective tax rate typically differs from the 21% federal statutory tax rate due primarily to tax-exempt income from specific types of investment securities and loans, bank owned life insurance, and, to a much lesser degree, the utilization of low income housing tax credits, as well as a the effects of transitional adjustments related to state income taxes and certain taxes payable to states other than New York. The effective tax rate was ~~20.5%~~21.5% for the six month period ended June 30, ~~2020.~~2021.

We maintain a noncontributory defined benefit pension plan covering most employees. The plan provides defined benefits based on years of service and final average salary. On May 14, 2012, we informed our employees of our decision to freeze participation and benefit accruals under the plan, primarily to reduce some of the volatility in earnings that can accompany the maintenance of a defined benefit plan. Pension and post-retirement benefit plan liabilities and expenses are based upon actuarial assumptions of future events; including fair value of plan assets, interest rates, and the length of time the Company will have to provide those benefits. The assumptions used by management are discussed in Note 14 to the consolidated annual financial statements.

The Company carries all of its available-for-sale investments at fair value with any unrealized gains or losses reported, net of tax, as an adjustment to shareholders' equity and included in accumulated other comprehensive income (loss), except for the credit-related portion of debt securities impairment losses and ~~OTTI~~other-than-temporary impairment (“OTTI”) of equity securities which are charged to

earnings. The Company's ability to fully realize the value of its investments in various securities, including corporate debt securities, is dependent on the underlying creditworthiness of the issuing organization. In evaluating the debt securities (both available-for-sale and held-to-maturity) portfolio for other-than-temporary impairment losses, management considers (1) if we intend to sell the security; (2) if it is “more likely than not” we will be required to sell the security before recovery of its amortized cost basis; or (3) if the present value of expected cash flows is

not sufficient to recover the entire amortized cost basis. When the fair value of a held-to-maturity or available-for-sale security is less than its amortized cost basis, an assessment is made as to whether OTTI is present. The Company considers numerous factors when determining whether a potential OTTI exists and the period over which the debt security is expected to recover. The principal factors considered are (1) the length of time and the extent to which the fair value has been less than the amortized cost basis, (2) the financial condition of the issue and (guarantor, if any) and adverse conditions specifically related to the security, industry or geographic area, (3) failure of the issuer of the security to make scheduled interest or principal payments, (4) any changes to the rating of the security by a ~~NRSRO,~~nationally recognized statistical rating organization (“NRSRO”), and (5) the presence of credit enhancements, if any, including the guarantee of the federal government or any of its agencies.

The estimation of fair value is significant to several of our assets; including ~~loans,~~ available-for-sale and marketable equity investment securities, intangible assets, foreclosed real estate, and the value of loan collateral when valuing ~~impaired~~ loans. These are all recorded at either fair value, or the lower of cost or fair value. Fair values are determined based on third party sources, when available. Furthermore, accounting principles generally accepted in the United States require disclosure of the fair value of financial instruments as a part of the notes to the annual audited consolidated financial statements. Fair values on our available-for-sale securities may be influenced by a number of factors; including market interest rates, prepayment speeds, discount rates, and the shape of yield curves.

Fair values for securities available-for-sale are obtained from unaffiliated third party pricing services. Where available, fair values are based on quoted prices on a nationally recognized securities exchange. If quoted prices are not available, fair values are measured using quoted market prices for similar benchmark securities. Management made no adjustments to the fair value quotes that were provided by the pricing sources. Fair values for marketable equity securities are based on quoted prices on a nationally recognized securities exchange for similar benchmark securities. 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.

Management performs an annual evaluation of our goodwill for possible impairment at each of our reporting units. Based on the results of the December 31, ~~2019~~2020 evaluation, management has determined that the carrying value of goodwill was not impaired as of that date. Management will continuously evaluate all relevant economic and operational factors potentially affecting the Bank or the fair value of its assets, including goodwill. Should the current pandemic, or the future economic consequences thereof, require a significant and sustained change in the operations of the Bank, re-evaluations of the Bank’s goodwill valuation will be conducted on a more frequent basis. The evaluation approach is described in Note 10 of the consolidated annual financial statements. Further information on the estimation of fair values can be found in Note 22 to the consolidated annual financial statements.

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. 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. 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.

On June ~~30, 2020,~~28, 2021, the Company announced that the Board of Directors declared a quarterly cash dividend of ~~$0.06~~$0.07 per voting common and ~~preferred~~non-voting common share and a cash dividend of ~~$0.06~~$0.07 per notional share for the issued ~~common stock~~ warrant. The dividends are payable on August ~~14, 2020~~13, 2021 to shareholders of record on July ~~17, 2020.~~16, 2021.

The following represents the significant highlights of the Company’s operating results between the second quarter of ~~2020~~2021 and the second quarter of ~~2019.~~2020.

~~Net income increased $1.2 million, or 203.0%, to $1.8 million.~~

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Net income increased $1.2 million, or 65.4%, to $3.0 million.

~~Basic and diluted earnings per share were both $0.31 per share and increased $0.20 per share.~~

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Basic and diluted earnings per voting common share were both $0.50 per share and increased $0.19 per share.

~~Return on average assets increased 38 basis points to 0.63% as the increase in income outpaced the increase in average assets.~~

~~Net interest margin decreased by 15 basis points to 2.75%, primarily as a result of a $50.0 million increase in the~~ ~~average balance of time deposits, coupled with a 77 basis point decrease in the average rate paid on time deposits.~~

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Net interest income, after provision for loan losses, increased $2.8 million, or 43.0%, to $9.3 million. Excluding the provision, net interest income increased $2.6 million, or 33.7%, to $10.2 million. The increase in net interest income after provision for loan losses was primarily due to a decrease in total interest expense, combined with an increase in the average balances of interest-earning assets.

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Net interest margin increased by 67 basis points to 3.42% and reflects both a 25 basis point increase in the average yield for interest-earning assets, and a 49 basis point decline in the average cost for interest-bearing liabilities.

The effective income tax rate decreased 3.1% to 19.1% for the three months ended June 30, 2020 as compared to 22.2% for the same three month period in 2019. The decrease in the tax rate in the second quarter of 2020, as compared to the same quarter in 2019, was primarily related to immaterial nonrecurring adjustments made to income tax expense in the second quarter of 2019 related to New York State taxes.

The following represents significant highlights of the Company’s operating results between the first six months of ~~2020~~2021 and the first six months of ~~2019.~~2020.

•Net income increased ~~$2.4~~$1.6 million, or ~~215.0%~~45.4%, to ~~$3.5~~$5.2 million.

~~Basic and diluted earnings per share were both $0.60 per share and increased $0.37 per share.~~

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Basic and diluted earnings per voting common share were both $0.87 per share and increased $0.27 per share.

~~Return on average assets increased 39 basis points to 0.62% as the increase in income outpaced the increase in average assets.~~

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Return on average assets increased 19 basis points to 0.81% as the increase in income outpaced the increase in average assets.

~~Net interest income, after provision for loan losses, increased by $707,000, or 5.7%, to $13.2 million.~~ This increase in net interest income after provision for loan losses was primarily due to the increase in average balances of interest-earning assets, offset by a significant increase in the provision for loan losses, which is reflective of an increase in average loan balances. Additional provisioning for loan losses was also applied as a reflection of the substantial increase in economic uncertainty and the resultant ~~potential for increased credit losses in future periods as a consequence of the COVID-19 pandemic~~.

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Net interest income, after provision for loan losses, increased by $3.6 million, or 27.4%, to $16.8 million. This increase in net interest income after provision for loan losses was primarily due to the decrease in total interest expense, combined with an increase in the average balances of interest-earning assets.

Net interest margin decreased by three basis points to 2.88%, primarily as a result of a $65.5 million increase in the average balance of time deposits, coupled with a 51 basis point decrease in the average rate paid on time deposits.

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Net interest margin increased by 25 basis points to 3.13%, primarily the result of a 50 basis point decline in the average cost for interest-bearing liabilities, partially offset by a 19 basis point decrease in the average yield for interest-earning assets.

~~The effective income tax rate~~ ~~decreased 7.3% to 20.5% for the six months ended June 30, 2020 as compared to 27.8% for the same six month period in 2019.~~ This decrease was primarily related to the 2019 nonrecurring establishment, through a charge to earnings, of a $136,000 valuation allowance to reserve against deferred tax assets related to New York State income taxes.

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The effective income tax rate increased 1.0% to 21.5% for the six months ended June 30, 2021 as compared to 20.5% for the same six month period in 2020. The increase in the tax rate in the first six months of 2021, as compared to the same period in 2020, was primarily related to increases in accruals for New York State related taxes and the timing of certain potential deductions related to New York State taxable income.

The following reflects the significant changes in financial condition between December 31, ~~2019~~2020 and June 30, ~~2020.~~2021. In addition, the following reflects significant changes in asset quality metrics between June 30, ~~2019~~2020 and June 30, ~~2020.~~2021.

~~Total assets increased $73.2 million, or 6.7% to $1.2~~
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Total assets increased $32.2 million, or 2.6% to $1.3 billion at June 30, 2021, as compared to December 31, 2020, primarily due to increases in loans and investment securities. These increases were funded largely by increases in deposits, including brokered deposits, as well as the cash flow from maturities and principal reductions of investment securities.

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The Bank’s asset quality metrics, as measured by net loan charge-offs to average loans, remained stable for second quarter 2021. Net loan charge-offs to average loans were 0.03% for the second quarter 2021, compared with 0.08% for the second quarter of 2020 and 0.05% for the quarter ended March 31, 2021.

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Nonperforming loans to total loans were 1.92% at June 30, 2021, a decrease of 66 basis points compared to 2.58% at December 31, 2020. The decrease in nonperforming loans at June 30, 2021, as compared to December 31, 2020 was primarily the result of one commercial real estate loan, with an outstanding balance of $7.4 million, being returned to accruing status as of June 30, 2021 following six months of timely principal and interest payments. Management is monitoring all nonaccrual loans closely and has incorporated our current estimate of the ultimate collectability of these loans into the reported allowance for loan losses at June 30, 2021.

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The Company had net income of $3.0 million for the three months ended June 30, ~~2020, as~~2021 compared to ~~December 31, 2019, primarily due to increases in loans, cash and cash equivalents, and investment securities.These increases were funded largely by increases in deposits, including brokered deposits, as well as the cash flow from the sale and maturity of investment securities.~~

~~The Company had~~ net income of $1.8 million for the three months ended June 30, ~~20120 compared to net income of $607,000 for the three months ended June 30, 2019.~~2020. The $1.2 million increase in net income was due primarily to a

~~$781,000 decrease in noninterest expense, a $528,000 decrease in interest expense, a $406,000~~ $1.6 million increase in interest and dividend income, a $1.0 million decrease in interest expense and a ~~$312,000 increase~~$217,000 decrease in ~~noninterest income.~~provision for loan losses. These ~~fluctuations~~increases were partially offset by a ~~$536,000~~$1.1 million increase in ~~the provision for loan losses~~noninterest expense and a ~~$264,000~~$412,000 increase in income tax expense.

Net interest income before the provision for loan losses increased ~~$934,000,~~$2.6 million, or ~~13.9%~~33.7%, to ~~$7.6~~$10.2 million for the three months ended June 30, ~~2020~~2021 as compared to ~~$6.7~~$7.6 million for the same three month period in ~~2019.~~2020. The increase was primarily the result of ~~the~~an increase in average interest-earning asset balances ~~due~~as well as increases in the average yields of both loan and investment securities portfolios. These increases resulted in a 25 basis point increase to ~~increases among all interest earning~~4.03% in interest-earning asset ~~categories. The positive effects of increased average interest-earning assets~~yields for the three months ended June 30, ~~2020,~~2021 as compared to ~~the same three month period in 2019, were partially offset by a decrease in the average yield of interest-earning assets of 58 basis points to~~ 3.78% ~~for the three months ended June 30, 2020 from 4.36%~~ for the same three month period of the previous year. ~~Further, this increase in net~~Net interest income was ~~partially offset by an increase of $115.8 million in the average balance of interest bearing liabilities, which was partially offset~~further enhanced by a 4449 basis point decrease in the average cost of interest-bearing liabilities ~~between~~in the ~~year-over-year~~ second quarter ~~periods.~~ of 2021, as compared to the same quarter in 2020, partially offset by a $47.7 million increase in the average balance of interest-bearing liabilities.

The ~~$312,000,~~$97,000, or ~~25.6%~~6.3%, ~~increase~~decrease in noninterest income in the quarter ended June 30, ~~2020,~~2021, as compared to the same quarterly period in ~~2019,~~2020, was primarily the result of a ~~$253,000 increase~~decrease of $972,000 in ~~income from the combined investment related activities of (1)~~ net gains on sales and redemptions of investment securities and (2) net losses on equity securities. During the second quarter of 2020, net gains on sales and redemptions of investment securities increased $991,000, as compared to the previous year period, and this increase was partially offset by a ~~$738,000 decline~~$771,000 increase in net gains on equity ~~securities, compared to the second quarter of 2019.~~securities. Further contributing to the ~~increase~~decrease in noninterest income was a net ~~increase~~decrease of ~~$84,000~~$58,000 in net gains on sales of loans and foreclosed real estate for the current ~~period.~~period, as compared to the same three-month period in 2020. All other noninterest income categories ~~decreased~~increased by ~~$25,000,~~$104,000, or ~~2.2%~~6.8%, in the three months ended June 30, ~~2020,~~2021, as compared to the same period in the prior year, ~~period. The overall~~primarily driven by increases in ~~noninterest income were significantly muted in the second quarter of 2020 by reduced customer transactional activity levels~~other charges, commissions and ~~the Bank’s~~fees and services charges on deposit accounts, which increased ~~levels of fee waivers~~$68,000 and ~~other forbearances in response to the local economic effects of the COVID-19 pandemic.~~$54,000, respectively.

The increase in net gains on sales and redemptions of investment securities of $991,000 in the second quarter of 2020, as compared to the same quarter of 2019, was comprised of net gains on sale of $908,000 related to available-for-sale fixed-income securities and $115,000 related to the sale of a portion of the Company’s previously-held equity investment in an otherwise unaffiliated financial institution. During the current quarter, the Company sold 18 fixed-income investment securities, with an aggregate amortized historical cost of $23.8$1.1 million and recognized net gains of $908,000 on those sales. These securities were sold in order to improve the expected future total returns within the investment portfolio, particularly in light of potentially increased prepayment activity, related to the sharp decline in general interest rates, and/or potential credit downgrade concerns following the onset of the COVID-19 pandemic.

Since 2016, the Company held a passive equity investment, acquired for $534,000, in an otherwise unaffiliated financial institution. The issuer of that common stock was acquired in June 2020 by another financial institution. The acquisition resulted in the Company receiving total consideration of $911,000 for its equity investment, based on the closing stock price of the acquiring institution on June 30, 2020. The Company surrendered its original equity investment and received $265,000 in cash as well as shares in the acquiring institution valued at $646,000 at June 30, 2020. As a result, during the second quarter of 2020, the Company recorded a net gain on sales and redemptions of investment securities of $115,000 and a gain on equity securities of $438,000. The Company retained a position in the acquiring bank valued at $646,000 at June 30, 2020 and has the ability to hold the investment indefinitely.

Finally, the Company held a fixed-income, previously non-traded investment, categorized as available-for-sale, which was managed since its purchase in 2017 by an external party. The investment was previously reported at its stated net asset value, which was $2.1 million at March 31, 2020. The investment, was substantially restructured and subsequently listed on June 17, 2020 as a publically-traded common stock on the New York Stock Exchange. Due to what management believes were technical factors related to the listing itself, and the almost universal pricing pressure on publically-traded assets of this type in the current uncertain economic environment, the closing stock price at June 30, 2020 was significantly below the historical amortized cost of the investment on that date. Therefore, the restructuring and listing events caused the Company to recognize an unrealized loss in the second quarter of 2020 of $1.2 million, which was measured by the difference between its closing stock price at June 30, 2020 and its net asset value at March 31, 2020. As an equity security, the fair value of this investment is now required, under generally accepted accounting principles

(GAAP), to be recorded at its readily determinable market value with changes in market value recorded as an adjustment to current earnings in the period incurred. Accordingly, the Company recorded the reduction in the fair value of the investment as a charge to pretax net income in the quarter ended June 30, 2020 and the investment’s fair value was $918,000 at that date. The Company’s management believes that the investment is fundamentally sound, will sustainably generate significant dividend income in the future and that the Company has the ability to hold the security indefinitely.

~~The $781,000 decrease~~increase in noninterest expense in the quarter ended June 30, ~~2020,~~2021, as compared to the same quarterly period in ~~2019,~~2020, was due primarily toas a ~~decrease~~result of ~~$482,000, or 14.0%,~~an increase in salaries and employee benefits ~~expense.~~expense, building and occupancy costs, professional and other services, data processing costs, the FDIC assessment, and audits and exams costs of $529,000, $163,000, $150,000, $102,000, $82,000, and $52,000, respectively. The ~~decrease~~increase in salaries and employee benefit expense was primarily due to a ~~$359,000 decrease~~$401,000 increase in net salaries expense and a ~~$170,000 decrease~~$144,000 increase in ~~employee benefits~~commissions’ expense. The ~~decrease~~increase in net salaries expense was partially the result of ~~a significant absorption of these expenses into~~increased PPP loan originations in 2020 and the ~~unamortized cost of the originated PPP loans as required under GAAP. During the second quarter, the Bank originated $73.8 million in PPP loans and deferrals~~deferral of employee-related expenses related to those ~~originations resulted in an overall net decrease of $331,000 in employee-related expenses for the current quarter, as compared to the second quarter 2019.~~originations. All other employee-related expenses declined an aggregate ~~$299,000~~$18,000 in the second quarter of ~~2020,~~2021, as compared to the same quarterly period in ~~2019. All~~2020. Building and occupancy costs increased as a result of an increase in maintenance costs and depreciation expense of $122,000 and $27,000, respectively. These increases are consistent with the Company’s recent refurbishments of certain branch and administrative locations and the relative timing of certain maintenance activities. Professional and other ~~noninterest expenses unrelated to personnel expenses declined primarily~~services costs increased due to ~~reductions~~increased use of third party services. Data processing costs increased due to increases in ~~expenditures~~internet banking costs and processing costs. These increases are consistent with the Company’s customer and operational growth. The increases in audits and exams expense are primarily related to the Bank’s first year of increased internal controls testing under FDICIA requirements for ~~community service activities, training,~~institutions with assets greater than $1 billion and ~~meals and entertainment of $132,000, $93,000 and $44,000, respectively. These~~additional expenses ~~were substantially curtailed in~~for the ~~period~~Company as a result of the ~~significant restrictions placed on many business activities as a result of the~~COVID-19 pandemic.

Management extensively reviews recent trends in changes in the size and composition of the loan portfolio, historical loss experience, qualitative factors, and specific reserve needs on loans individually evaluated for impairment, in its determination of the adequacy of the allowance for loan losses. For the three months ended June 30, ~~2020,~~2021, we recorded ~~$1.1 million~~$929,000 in provision for loan losses as compared to ~~$610,000~~$1.1 million in the same prior year three month period. ~~This $536,000 increase~~The provision is reflective of (1) the qualitative factors used in determining the adequacy of the allowance for loan losses, (2) the size of the loan portfolio, and (3) delinquent and nonaccrual loans. The second quarter provision for loan losses ~~was primarily due~~reflects a prudent addition to ~~economic uncertainty~~reserves considering loan growth and asset quality metrics. The credit-sensitive portfolios continue to be carefully monitored, and the ~~resultant potential for increased credit losses in future periods, as a result of the COVID-19 pandemic. Additionally, the provision reflects an increase in outstanding~~Bank will consistently apply its proven conservative loan ~~balances of $113.2 million, or 16.3%, in the second quarter of 2020, compared~~classification and reserve building methodologies to the ~~same quarter in the previous year, as well as an increase in the non-performing loans to period end loans as a result~~analysis of ~~four commercial loan relationships.~~

In comparing the year-over-year second quarter periods, the Company’s return on average assets increased 3832 basis points to ~~0.63%~~0.95% due to the combined effects of the increase in net income (the numerator in the ratio) and the increase in average assets (the denominator in the ratio). Average assets increased due to increases in average ~~loans~~investment securities and average ~~federal funds sold and interest earning deposits~~

loans of ~~$129.8~~$74.6 million and ~~$54.0~~$60.1 million, respectively, in the second quarter of ~~2020~~2021 as compared to the same quarter of ~~2019.~~2020. Average interest-bearing deposits increased ~~$100.0~~$29.5 million in the second quarter of ~~2020,~~2021, as compared with the same quarter in ~~2019.~~2020. The increase in deposits was due to growth in retail and commercial relationship deposits as a result of the Bank’s participation in the PPP lending ~~program, along~~program. Average time deposits decreased $45.9 million as compared with ~~brokered deposit inflows, as a result of~~ the ~~Bank’s efforts to significantly increase cash and cash equivalent balances~~same quarter in ~~response to the COVID-19 pandemic.~~2020.

The Company had net income of $5.2 million for the six months ended June 30, 2021 compared to net income of $3.6 million for the six months ended June 30, ~~2020 compared to net income of $1.1 million for the six months ended June 30, 2019.~~2020. The ~~$2.5~~$1.6 million increase in net income was due primarily to a ~~$2.2~~$3.4 million increase in net interest income and a ~~$967,000 increase in noninterest income and $1.2 million~~$256,000 decrease in ~~noninterest expense.~~provision for loan losses. These fluctuations were partially offset by an increase of $1.5 million in ~~the provision for loan losses~~noninterest expense and a ~~$468,000~~$506,000 increase in income tax expense.

Net interest income before the provision for loan losses increased ~~$2.2~~$3.4 million to ~~$15.4~~$18.8 million for the six months ended June 30, ~~2020,~~2021, as compared to ~~$13.3~~$15.4 million for the same six month period in ~~2019.~~2020. The increase was due principally to a ~~$1.8~~$1.5 million, or ~~9.0%~~6.7%, increase in interest and dividend income that was a result of growth in average interest-earning assets of ~~$157.4~~$130.0 million compared to the prior year six month period. Average loans for the first six months of ~~2020~~2021 increased by ~~$128.5~~$74.3 million, or ~~19.8%~~9.5%, over the prior year period, ~~primarily the result of growth in the commercial loan portfolios and in particular PPP loans,~~ while the average interest ~~rate~~yield earned on ~~interest-earning assets~~average loans decreased by 3127 basis points. ~~Average interest-bearing liabilities increased by $107.6~~In addition, interest expense decreased $1.9 million ~~or 13.78%,~~to $4.2 million for the six months ended June 30, ~~2020~~2021 as compared to the prior year ~~period; however, the~~period. The average interest rate paid on interest-bearing liabilities decreased by 2950 basis ~~points.~~

~~The $967,000, or 41.8%, increase in noninterest income~~points for the six months ended June 30, ~~2020,~~2021 as compared to the prior year period; however, average interest-bearing liabilities increased by $75.7 million, or 8.5%.

Noninterest income remained consistent for the six months ended June 30, 2021, when compared to the same six month period in ~~2019, was primarily the result of an increase of $938,000 in net~~2020. Net gains on ~~sales~~marketable equity securities increased $1.2 million and ~~redemptions~~

~~of investment securities, and~~was offset by a ~~$764,000 increase~~decrease in net gains on the sales and redemptions of investment securities of $998,000. Net gains on the sale of loans and foreclosed real ~~estate. The investment securities sales were part of the Company’s portfolio optimization and liquidity management strategies. The increased gain on the sales of loans and~~ ~~foreclosed real~~ estate was primarily the result of the sale of $35.9 million in seasoned, conforming residential mortgage loans that was completed in January 2020 and resulted in the recognition of a gain of $659,000. Also contributingalso decreased $610,000 when compared to the ~~increase~~same period in ~~noninterest income was other charges, commissions and fees, insurance agency revenue, debit~~2020. Debit card interchange fees, ~~loan servicing~~other charges, commission and fees, earnings on bank owned life insurance and service charges on deposit accounts ~~which~~ increased ~~$70,000, $61,000, $37,000, $41,000,~~$94,000, $87,000, $32,000 and ~~$29,000,~~$30,000, respectively. The net increase in these categories of noninterest income were in part due to the Company’s increased strategic focus on improving recurring noninterest income. However, as noted above, overall increases in noninterest income were significantly muted in the second quarter of 2020 by reduced customer activity levels and the Bank’s increased levels of fee waivers and forbearances in response to the local economic effects of the COVID-19 pandemic. These net increases in noninterest income were partially offset by a $973,000 increase in net losses on equity securities, as discussed above.

Total noninterest expense for the six month period of ~~2020~~2021 was ~~$12.0~~$13.5 million, ~~a decrease~~an increase of ~~$1.2~~$1.5 million, or ~~9.4%~~12.3%, compared with ~~$13.2~~$12.0 million for the prior year period. The ~~reduced noninterest~~increase was primarily a result of higher salaries and benefit expense, for the six month period ended June 30, 2020, as compared to the same period in 2019, was principally driven by a decrease of $885,000 in personnel expenses, a $261,000 decrease in foreclosed real estateprofessional and other services, building and occupancy, data processing expenses, and ~~a $163,000 reduction in community service activities expenses.~~audits and exams expense of $623,000, $251,000, $202,000, $178,000, and $129,000, respectively. The ~~decrease in personnel expenses in the first six months of 2020, as compared to the same six month period in 2019, was primarily due to a $470,000 decrease in net salaries expense. This reduction~~increase in net salaries expense ~~primarily resulted from~~was partially the result of increased PPP loan originations in 2020 and the deferral of these expenses into the unamortized cost of the loans originated in the first six months of 2020. The increased volume of loans originated in the first six months of 2020, as compared to the same period in 2019, was due primarily to the PPP loan volume originated in the second quarter of 2020, as discussed above. In addition, personnel expenses declined in the six months ended June 30, 2020, as compared to the same period in 2019, due primarily to decreases of $319,000 in employee benefits. The decrease in other employee benefits for the six months ended June 30, 2020, as compared to the same six month period in 2019, was primarily due to decreases in pension, employee medical and other employee benefits expenses of $144,000, $76,000 and $49,000, respectively. Pension expense decreased $144,000 primarily due to the higher market value of pension assets held in trust at January 1, 2020 as compared to the same date in 2019. The higher market values for pension assets resulted from market value appreciation of those assets in 2019. Medical expenses declined primarily due to reduced employee utilization of elective medical services and increased cost sharing of certain medical costs with employees in 2020, as compared to the previous year. The decrease in other employee benefitsemployee-related expenses related to ~~reduced levels~~those originations. The increases in professional and other services fees, and audits and exams expense were primarily related to the Bank’s first year of increased internal controls testing under FDICIA requirements for institutions with assets greater than $1 billion and additional expenses for the Company as a result of the COVID-19 pandemic. Building and occupancy costs increased as a result of an increase in maintenance costs and depreciation expense of $168,000 and $51,000, respectively. These increases are consistent with the Company’s recent refurbishments of certain ~~training, employee recognition~~branch and ~~other employee-related activities~~administrative locations and the relative timing of certain maintenance activities. Data processing costs increased due ~~primarily~~ to ~~restrictions on such activities resulting from~~increases in internet banking costs and processing costs. These increases are consistent with the ~~pandemic.~~

For the first six months of ~~2020,~~2021, we recorded ~~$2.2~~$2.0 million in provision for loan losses as compared to ~~$754,000~~$2.2 million in the same prior year six month period. ~~This $1.5 million increase in the~~The provision ~~for loan losses resulted from year-over-year increases in:~~is reflective of (1) the qualitative factors used in determining the adequacy of the allowance for loan losses, (2) the size of the loan portfolio, and (3) delinquent and nonaccrual loans. The ~~increase in~~credit sensitive portfolios continue to be carefully monitored, and the ~~quantitative factors used in determining~~Bank will consistently apply its proven conservative loan classification and reserve building methodologies to the ~~provision~~analysis of these portfolios. Please refer to the asset quality section below for a further discussion of asset quality as it relates to the allowance for loan losses reflected the substantial increase in economic uncertainty and the resultant potential for increased credit losses in future periods as a consequence of the COVID-19 pandemic. Outstanding loan balances increased $113.2 million, or 16.3%, in the quarter ended June 30, 2020, as compared to the same quarter in the previous year, and therefore required a corresponding increase in the estimable and probable loan losses inherent in the loan portfolio. Finally, the provision for loan losses in the six months ended June 30, 2020 was further increased, as compared to the same period in 2019, by the effects of an increase in the ratio of delinquent loans to total loans, which increased to 3.19% at June 30, 2020 as compared to 2.45% at June 30, 2019, coupled with an increase in nonaccrual loans that increased $4.6 million to $8.4 million at June 30, 2020 ~~as compared to $3.8 million at June 30, 2019.~~.

Return on average assets increased 3919 basis points to ~~0.62%~~0.81% between the year-over-year six month periods as the ~~change~~increase in net income in the six month period ended June 30, ~~2020~~2021 (the numerator of the ratio) increased by a higher percentage than the rate at which average assets (the denominator of the ratio) grew during the period.

Average assets increased due to increases in average loans and investment securities of $74.3 million and $73.0 million, respectively, in the six months

period ended June 30, 2021 as compared to the same period of ~~Contents~~2020. Average interest-bearing liabilities increased $75.7 million in the six month ended June 30 2021, as compared with the same period in 2020. The increase in deposits was due to growth in retail and commercial relationship deposits as a result of the Bank’s participation in the PPP lending program. Average time deposits decreased $25.0 million as compared with the same period in 2020.

Net interest income is the Company's primary source of operating income for payment of operating expenses and providing for loan losses. It is the amount by which interest earned on loans, interest-earning deposits, and investment securities, exceeds the interest paid on deposits and other interest-bearing liabilities. Changes in net interest income and net interest margin result from the interaction between the volume and composition of interest-earning assets, interest-bearing liabilities, related yields, and associated funding costs.

The following tables set forth information concerning average interest-earning assets and interest-bearing liabilities and the average yields and rates thereon for the periods indicated. Interest income and resultant yield information in the tables has not been adjusted for tax equivalency. Averages are computed on the daily average balance for each month in the period divided by the number of days in the period. Yields and amounts earned include loan fees. Nonaccrual loans have been included in interest-earning assets for purposes of these calculations.


	For the three months ended June 30,																For the three months ended June 30,
	2020								2019								2021								2020
						Average								Average								Average								Average
	Average					Yield /			Average					Yield /			Average					Yield /			Average					Yield /
(Dollars in thousands)	Balance			Interest		Cost			Balance			Interest		Cost			Balance			Interest		Cost			Balance			Interest		Cost
Interest-earning assets:
Loans	$	796,267		$	8,832		4.44	%	$	666,428		$	8,222		4.93	%	$	856,380		$	9,784		4.57	%	$	796,267		$	8,832		4.44	%
Taxable investment securities		230,943			1,613		2.79	%		228,506			1,729		3.03	%		303,858			2,239		2.95	%		230,943			1,613		2.79	%
Tax-exempt investment securities		9,552			52		2.18	%		9,383			51		2.17	%		11,226			42		1.50	%		9,552			52		2.18	%
Fed funds sold and interest-earning deposits		76,203			17		0.09	%		22,222			106		1.91	%		24,948			1		0.02	%		76,203			17		0.09	%
Total interest-earning assets		1,112,965			10,514		3.78	%		926,539			10,108		4.36	%		1,196,412			12,066		4.03	%		1,112,965			10,514		3.78	%
Noninterest-earning assets:
Other assets		73,721								67,935								80,159								73,721
Allowance for loan losses		(10,076	)							(7,372	)							(14,016	)							(10,076	)
Net unrealized losses on available-for-sale securities		(1,804	)							(1,685	)
Net unrealized gains on available-for-sale securities																		1,872								(1,804	)
Total assets	$	1,174,806							$	985,417							$	1,264,427							$	1,174,806
Interest-bearing liabilities:
NOW accounts	$	80,712		$	35		0.17	%	$	67,380		$	28		0.17	%	$	92,412		$	74		0.32	%	$	80,712		$	35		0.17	%
Money management accounts		15,826			4		0.10	%		13,415			5		0.15	%		15,988			4		0.10	%		15,826			4		0.10	%
MMDA accounts		202,136			355		0.70	%		177,284			395		0.89	%		238,791			241		0.40	%		202,136			355		0.70	%
Savings and club accounts		94,684			22		0.09	%		85,283			25		0.12	%		121,584			40		0.13	%		94,684			22		0.09	%
Time deposits		418,722			1,788		1.71	%		368,708			2,287		2.48	%		372,807			785		0.84	%		418,722			1,788		1.71	%
Subordinated loans		15,139			192		5.07	%		15,102			217		5.75	%		32,643			408		5.00	%		15,139			192		5.07	%
Borrowings		87,415			478		2.19	%		71,701			445		2.48	%		88,109			299		1.36	%		87,415			478		2.19	%
Total interest-bearing liabilities		914,634			2,874		1.26	%		798,873			3,402		1.70	%		962,334			1,851		0.77	%		914,634			2,874		1.26	%
Noninterest-bearing liabilities:
Demand deposits		156,001								101,675								187,877								156,001
Other liabilities		12,828								10,395								11,598								12,828
Total liabilities		1,083,463								910,943								1,161,809								1,083,463
Shareholders' equity		91,343								74,474								102,618								91,343
Total liabilities & shareholders' equity	$	1,174,806							$	985,417							$	1,264,427							$	1,174,806
Net interest income				$	7,640							$	6,706							$	10,215							$	7,640
Net interest rate spread							2.52	%							2.66	%							3.26	%							2.52	%
Net interest margin							2.75	%							2.90	%							3.42	%							2.75	%
Ratio of average interest-earning assets to average interest-bearing liabilities							121.68	%							115.98	%							124.32	%							121.68	%

	For the six months ended June 30,																For the six months ended June 30,
	2020								2019								2021								2020
						Average								Average								Average								Average
	Average					Yield /			Average					Yield /			Average					Yield /			Average					Yield /
(Dollars in thousands)	Balance			Interest		Cost			Balance			Interest		Cost			Balance			Interest		Cost			Balance			Interest		Cost
Interest-earning assets:
Loans	$	778,709		$	18,074		4.64	%	$	650,169		$	15,797		4.86	%	$	852,972		$	18,631		4.37	%	$	778,709		$	18,074		4.64	%
Taxable investment securities		239,297			3,375		2.82	%		226,586			3,605		3.18	%		306,278			4,302		2.81	%		239,297			3,375		2.82	%
Tax-exempt investment securities		5,458			59		2.16	%		13,903			159		2.29	%		11,495			71		1.24	%		5,458			59		2.16	%
Fed funds sold and interest-earning deposits		45,943			49		0.21	%		21,390			216		2.02	%		28,660			4		0.03	%		45,943			49		0.21	%
Total interest-earning assets		1,069,407			21,557		4.03	%		912,048			19,777		4.34	%		1,199,405			23,008		3.84	%		1,069,407			21,557		4.03	%
Noninterest-earning assets:
Other assets		75,263								66,878								81,248								75,263
Allowance for loan losses		(9,390	)							(7,324	)							(13,539	)							(9,390	)
Net unrealized losses on available for sale securities		(843	)							(2,468	)							1,595								(843	)
Total assets	$	1,134,437							$	969,134							$	1,268,709							$	1,134,437
Interest-bearing liabilities:
NOW accounts	$	78,247		$	65		0.17	%	$	68,819		$	56		0.16	%	$	93,598		$	130		0.28	%	$	78,247		$	65		0.17	%
Money management accounts		15,005			9		0.12	%		13,820			10		0.14	%		15,794			8		0.10	%		15,005			9		0.12	%
MMDA accounts		198,298			756		0.76	%		180,907			829		0.92	%		237,050			496		0.42	%		198,298			756		0.76	%
Savings and club accounts		90,901			48		0.11	%		84,792			50		0.12	%		116,479			72		0.12	%		90,901			48		0.11	%
Time deposits		410,967			3,882		1.89	%		345,486			4,140		2.40	%		385,918			1,965		1.02	%		410,967			3,882		1.89	%
Subordinated loans		15,135			398		5.26	%		15,097			434		5.75	%		36,009			965		5.36	%		15,135			398		5.26	%
Borrowings		87,217			980		2.25	%		79,200			1,005		2.54	%		86,598			597		1.38	%		87,217			980		2.25	%
Total interest-bearing liabilities		895,770			6,138		1.37	%		788,121			6,524		1.66	%		971,446			4,233		0.87	%		895,770			6,138		1.37	%
Noninterest-bearing liabilities:
Demand deposits		134,179								101,480								184,180								134,179
Other liabilities		12,446								9,383								11,769								12,446
Total liabilities		1,042,395								898,984								1,167,395								1,042,395
Shareholders' equity		92,042								70,150								101,314								92,042
Total liabilities & shareholders' equity	$	1,134,437							$	969,134							$	1,268,709							$	1,134,437
Net interest income				$	15,419							$	13,253							$	18,775							$	15,419
Net interest rate spread							2.66	%							2.68	%							2.97	%							2.66	%
Net interest margin							2.88	%							2.91	%							3.13	%							2.88	%
Ratio of average interest-earning assets to average interest-bearing liabilities							119.38	%							115.72	%							123.47	%							119.38	%

As indicated in the above tables, net interest income, before provision for loan losses, increased ~~$934,000,~~$2.6 million, or ~~13.9%~~33.7%, to ~~$7.6~~$10.2 million for the three months ended June 30, ~~2020~~2021 as compared to ~~$6.7~~$7.6 million for the same prior year period. This increase was due principally to the ~~$186.4~~$83.4 million, or ~~20.1%~~7.5%, increase in the average balance of interest-earning assets, ~~and a decrease~~combined with an increase of 5825 basis points on the average yield earned on those assets. These positive factors on net interest income were partially offset by an increase in the average balance of interest-bearing liabilities of ~~$115.8~~$47.7 million, or ~~14.5%~~5.2%, ~~and~~but with a decrease of 4449 basis points on the average interest rate paid on those liabilities. In total, net interest margin ~~decreased 15~~increased 67 basis points to ~~2.75%~~3.42% due largely to the ~~decrease~~increase in average yields earned on average interest-earning assets, ~~as noted above.~~and an 87 and 83 basis point decrease in the average rate paid on time deposits and borrowings, respectively. The following analysis should also be viewed in conjunction with the table below which reports the changes in net interest income attributable to rate and volume.

Interest and dividend income increased ~~$406,000,~~$1.6 million, or ~~4.0%~~14.8%, to ~~$10.5~~$12.1 million for the three months ended June 30, ~~2020~~2021 compared to ~~$10.1~~$10.5 million for the same three month period in ~~2019.~~2020. The increase in interest income was due principally to the increase in average interest-earning assets (primarily taxable investment securities, tax exempt investment securities and loans)~~, which increased between the year-over-year second quarter periods by 20.1%~~. The increase in interest income on ~~loans~~taxable investment securities was due principally to the increase in the ~~in the~~ average ~~balances~~balance of ~~loans,~~those securities, which increased ~~19.5%, between~~31.6% in the year-over-year second quarter periods. The average balance of loans increased by ~~$129.8 million.~~$60.1 million, while the average yield earned on those loans increased by 13 basis points. The increase

~~continued success in its expansion within the greater Syracuse, New York market and the Company’s participation~~purchased loan growth. The increase in the average yield earned on loans was due to the recognition of deferred PPP fee income recognized in the period due to the increased levels of forgiveness in the three month ended June 30, 2021. Please refer to the PPP tables above for the full impact of PPP loans on average loan ~~program.~~yields.

Interest expense for the three months ended June 30, ~~2020~~2021 decreased ~~$528,000~~$1.0 million or ~~15.5%~~35.6%, to ~~$2.9~~$1.9 million when compared to the same prior year period. Deposit interest expense decreased ~~$536,000,~~$1.1 million, or ~~19.6%~~48.1%, to ~~$2.2~~$1.1 million due primarily to a 4554 basis point decrease in the annualized rate paid on deposits to 0.54% for the three months ended June 30, 2021, as compared to 1.09% for the three months ended June 30, ~~2020, as compared to 1.54% for the three months ended June 30, 2019.~~2020. This was partially offset by a ~~$100.0~~$29.5 million increase in the average balance of interest-bearing deposits during the same time periods. This decrease in the average cost of deposits was primarily due to ~~a 77~~an 87 basis point decrease in the average ~~rates~~rate paid on time deposits during the three months ended June 30, ~~2020~~2021 as compared to the same three month period in ~~2019~~2020 due to the general decline in market interest rates during the second quarter of ~~2020. In 2019, the average rates paid on time deposits reflected the competitive environment for such deposits within the Company’s marketplace.~~2021.

For the six month period ended June 30, ~~2020,~~2021, net interest income, before the provision for loan losses, increased ~~$2.2~~$3.4 million, or ~~16.3%~~21.8%, to ~~$15.4~~$18.8 million compared to ~~$13.3~~$15.4 million for the six months ended June 30, ~~2019.~~2020. Interest and dividend income increased ~~$1.8~~$1.5 million, or ~~9.0%~~6.7%, to ~~$21.6~~$23.0 million for the six months ended June 30, ~~2020~~2021 from ~~$19.8~~$21.6 million for the same six month period in ~~2019.~~2020. The increase in interest income was due principally to the increase in average balances of loans and taxable investment securities. The increase in the average balance of loans reflected continued success in its expansion within the greater Syracuse, New York market and purchased loan growth. The increase in the average balance of securities reflected increased purchases in 2021 compared to 2020. These increases were offset by a reduction of the average balance of federal funds sold and interest-earning deposits, ~~and loans,~~ which ~~increased 114.8% and 19.8%, respectively, between~~decreased 37.6% in the ~~year-over-year~~year over-year six month periods. The ~~increase~~decrease in the average balance of federal funds sold and interest-earning deposits in 2021 was aprimarily the result of the effects of the COVID-19 pandemic. The Bank substantially increased ~~the~~its on-hand liquidity ~~of its balance sheet~~in 2020 to support the potential needs of the customers and the communities it ~~serves. The increase~~serves during the six month period ended June 30, 2020. This level of liquidity was not considered necessary in the average balance of loans reflected the Company’s continued success in its expansion within the greater Syracuse market and the Company’s participation in the PPP loan program. Further contributing to the increase in net interest income was a $386,000 decrease in interest expense, primarily due to a $325,000 decrease in deposit expense.2021.

Interest expense for the six months ended June 30, ~~2020~~2021 decreased ~~$386,000,~~$1.9 million, or ~~5.9%~~31.0%, to ~~$6.1~~$4.2 million as compared to ~~$6.5~~$6.1 million for the six months ended June 30, ~~2019.~~2020. The decrease in interest expense was due principally to a 2950 basis point decrease in the average rate paid on interest-bearing liabilities to ~~1.37%~~0.87%, partially offset by a ~~$107.6~~$75.7 million increase in the average balance of these liabilities. The decrease in interest expense was due to a ~~$325,000~~$2.1 million decrease in deposit interest expense and a ~~$36,000~~$383,000 decrease in borrowings expense. These decreases were partially offset by a $567,000 increase in subordinated loan expense ~~and a $25,000 decrease~~due to the increase in ~~borrowings expense.~~the average balance of those subordinated loans period over period. The average balance of interest-bearing deposits, which include brokered deposits, increased ~~$113.4~~$55.4 million between the year-over-year six month periods. The average rate paid on ~~interest- bearing~~interest-bearing deposits decreased 3057 basis points to ~~1.20%~~0.63% for the six months ended June 30, ~~2020~~2021 as compared with the same six month period in ~~2019.~~2020. This decrease was primarily due to ~~a 51~~an 87 basis point decrease in the average rate paid on time deposits, during the six months ended June 30, ~~2020~~2021 as compared to the same time period in ~~2019.~~2020. The decrease in the average rates paid on those deposits reflected the general decline in market interest rates during the first half of ~~2020.~~2021.

Net interest income can also be analyzed in terms of the impact of changing interest rates on interest-earning assets and interest-bearing liabilities and changes in the volume or amount of these assets and liabilities. The following table represents the extent to which changes in interest rates and changes in the volume of interest-earning assets and interest-bearing liabilities have affected the Company’s interest income and interest expense during the periods indicated. Information is provided in each category with respect to: (i) changes attributable to changes in volume (change in volume multiplied by prior rate); (ii) changes attributable to changes in rate (changes in rate multiplied by prior volume); and (iii) total increase or decrease. Changes attributable to both rate and volume have been allocated ratably. Please refer to the PPP table in the previous section for information on PPP loans and the impact on loan income for the three and six months ended June 30, 2021 and 2020.

	Three months ended June 30,								Six months ended June 30,									Three months ended June 30,									Six months ended June 30,
	2020 vs. 2019								2020 vs. 2019									2021 vs. 2020									2021 vs. 2020
	Increase/(Decrease) Due to								Increase/(Decrease) Due to									Increase/(Decrease) Due to									Increase/(Decrease) Due to
						Total									Total									Total									Total
						Increase									Increase									Increase									Increase
(In thousands)	Volume		Rate			(Decrease)			Volume			Rate			(Decrease)			Volume			Rate			(Decrease)			Volume			Rate			(Decrease)
Interest Income:
Loans	$	4,776	$	(4,166	)	$	610		$	4,161		$	(1,884	)	$	2,277		$	2,285		$	(2,270	)	$	15		$	5,110		$	(2,840	)	$	2,270
Taxable investment securities		115		(231	)		(116	)		465			(695	)		(230	)		867			(417	)		450			524			(964	)		(440	)
Tax-exempt investment securities		1		-			1			(92	)		(8	)		(100	)		70			(93	)		(23	)		(31	)		(30	)		(61	)
Interest-earning deposits		517		(606	)		(89	)		340			(507	)		(167	)		(5	)		(9	)		(14	)		222			(457	)		(235	)
Total interest income		5,409		(5,003	)		406			4,874			(3,094	)		1,780			3,217			(2,789	)		428			5,825			(4,291	)		1,534
Interest Expense:
NOW accounts		6		1			7			8			1			9			7			15			22			15			4			19
Money management accounts		4		(5	)		(1	)		2			(3	)		(1	)		-			-			-			2			(3	)		(1	)
MMDA accounts		251		(291	)		(40	)		176			(249	)		(73	)		294			(394	)		(100	)		149			(427	)		(278	)
Savings and club accounts		13		(16	)		(3	)		8			(10	)		(2	)		4			7			11			11			(16	)		(5	)
Time deposits		1,578		(2,077	)		(499	)		1,534			(1,792	)		(258	)		(80	)		(530	)		(610	)		1,436			(2,725	)		(1,289	)
Subordinated loans		4		(29	)		(25	)		3			(39	)		(36	)		341			24			365			3			(64	)		(61	)
Borrowings		296		(263	)		33			204			(229	)		(25	)		(12	)		(168	)		(180	)		145			(268	)		(123	)
Total interest expense		2,152		(2,680	)		(528	)		1,935			(2,321	)		(386	)		554			(1,046	)		(492	)		1,761			(3,499	)		(1,738	)
Net change in net interest income	$	3,257	$	(2,323	)	$	934		$	2,939		$	(773	)	$	2,166		$	2,663		$	(1,743	)	$	920		$	4,064		$	(792	)	$	3,272

We establish a provision for loan losses, which is charged to operations, at a level management believes is appropriate to absorb probable incurred credit losses in the loan portfolio. In evaluating the level of the allowance for loan losses, management considers historical loss experience, the types of loans and the amount of loans in the loan portfolio, adverse situations that may affect the borrower’s ability to repay, estimated value of any underlying collateral, and prevailing economic conditions. 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.~~ level.

Management extensively reviews recent trends in historical losses, qualitative factors and specific reserve needs on loans individually evaluated for impairment in its determination of the adequacy of the allowance for loan losses. We recorded ~~$1.1 million~~$929,000 in provision for loan losses for the three month period ended June 30, ~~2020,~~2021, as compared to ~~$610,000~~$1.1 million for the three month period ended June 30, 2019. The $536,000 increase in the provision for loan losses for the second quarter of 2020, as compared to the same quarter in 2019, resulted from year-over-year increases in: (1) the qualitative factors used in determining the adequacy of the allowance for loan losses, (2) the size of the loan portfolio, and (3) delinquent and nonaccrual loans. The increase in the quantitative factors used in determining the provision for loan losses reflects the substantial increase in economic uncertainty and the resultant potential for increased credit losses in future periods as a consequence of the COVID-19 pandemic. Outstanding loan balances increased $113.2 million, or 16.3%, in the quarter ended June 30, 2020, as compared to the same quarter in the previous year, and therefore required a corresponding increase in the estimable and probable loan losses inherent in the loan portfolio. Finally, the provision for loan losses in the quarter ended June 30, 2020 was further increased, as compared to the same quarter in 2019, by the effects of an

increase in the ratio of delinquent loans to total loans, which increased to 3.19% at June 30, 2020 as compared to 2.45% at June 30, 2019, coupled with an increase in nonaccrual loans that increased $4.6 million to $8.4 million at June 30, 2020 as compared to $3.8 million at June 30, 2019.

The Company measures delinquency based on the amount of past due loans as a percentage of total loans. The ratio of delinquent loans to total loans increased to ~~3.19%~~2.36% at June 30, ~~2020~~2021 as compared to ~~2.09%~~1.85% at December 31, ~~2019.~~2020. Delinquent loans (numerator) increased ~~$9.5~~$4.5 million while total loan balances (denominator) increased ~~$26.5~~$5.8 million at June 30, ~~2020,~~2021, as compared to December 31, ~~2019.~~2020. The increase in past due loans was primarily driven by an increase of ~~$6.8~~$4.3 million ~~in loans delinquent 60-89 days, an increase of $2.9 million in loans delinquent more than 90 days, partially offset by a $210,000 decrease in~~ loans delinquent 30-59 ~~days. The increase in loans 60-89~~ days, ~~past due at June 30, 2020 as compared~~of which $3.4 million relate to ~~December 31, 2019 was primarily due to the addition of nine~~a single commercial loans totaling $6.6 million. The increase in loans delinquent 90 days or more at June 30, 2020 as compared to December 31, 2019 was primarily due to the addition of six commercial loans totaling $3.2 million. borrower.

At June 30, ~~2020,~~2021, there were ~~$25.8~~$19.8 million in loans past due including ~~$9.6~~$8.1 million in loans 30-59 days past due, ~~$8.2~~$5.5 million in loans 60-89 days past due and ~~$8.0~~$6.2 million in loans 90 or more days past due. At December 31, ~~2019,~~2020, there were ~~$16.3~~$15.3 million in loans past due including ~~$9.7~~$3.8 million in loans 30-59 days past due, ~~$1.4~~$5.4 million in loans 60-89 days past due and ~~$5.2~~$6.1 million in loans 90 or more days past due.

The Company's noninterest income is primarily comprised of fees on deposit account balances and transactions, loan servicing, commissions, including insurance agency commissions, and net gains on sales of securities, loans, and foreclosed real estate.

The following table sets forth certain information on noninterest income for the periods indicated:

	Three months ended June 30,										Six months ended June 30,										For the three months ended										For the six months ended,
(Dollars in thousands)	2020			2019		Change					2020			2019		Change					June 30, 2021		June 30, 2020			Change					June 30, 2021		June 30, 2020			Change
Service charges on deposit accounts	$	303		$	348	$	(45	)	-12.9	%	$	659		$	630	$	29		4.6	%	$	357	$	303		$	54		17.8	%	$	689	$	659		$	30			4.6	%
Earnings and gain on bank owned life insurance		106			101		5		5.0	%		222			222		-		0.0	%		129		106			23		21.7	%		254		222			32			14.4	%
Loan servicing fees		79			60		19		31.7	%		128			87		41		47.1	%		11		79			(68	)	-86.1	%		101		128			(27	)		-21.1	%
Debit card interchange fees		205			187		18		9.6	%		368			331		37		11.2	%		241		205			36		17.6	%		462		368			94			25.5	%
Insurance agency revenue		185			218		(33	)	-15.1	%		522			461		61		13.2	%		234		185			49		26.5	%		514		522			(8	)		-1.5	%
Other charges, commissions and fees		255			244		11		4.5	%		478			408		70		17.2	%		323		255			68		26.7	%		565		478			87			18.2	%
Noninterest income before gains (losses)		1,133			1,158		(25	)	-2.2	%		2,377			2,139		238		11.1	%		1,295		1,133			162		14.3	%		2,585		2,377			208			8.8	%
Net gains on sales and redemptions of investment securities		1,023			32		991		3096.9	%		1,049			111		938		845.0	%		51		1,023			(972	)	-95.0	%		51		1,049			(998	)		-95.1	%
(Losses) gains on marketable equity securities		(722	)		16		(738	)	-4612.5	%		(916	)		57		(973	)	-1707.0	%
Gains/(losses) on marketable equity securities																						49		(722	)		771		106.8	%		283		(916	)		1,199			-130.9	%
Net gains on sales of loans and foreclosed real estate		97			13		84		-646.2	%		769			5		764		15280.0	%		39		97			(58	)	-59.8	%		159		769			(610	)		-79.3	%
Gains on sale of premises and equipment																						-		-			-		-			201		-			201		>100%
Total noninterest income	$	1,531		$	1,219	$	312		25.6	%	$	3,279		$	2,312	$	967		41.8	%	$	1,434	$	1,531		$	(97	)	-6.3	%	$	3,279	$	3,279		$	-			0.0	%

compared to the second quarter of ~~2019.~~2020. Further contributing to the ~~increase~~decrease in noninterest income was a net ~~increase~~decrease of ~~$84,000~~$58,000 in net gains on sales of loans and foreclosed real estate for the current period.

Excluding the effects of the quarter over quarter fluctuations discussed above, all other noninterest income categories ~~decreased~~increased by ~~$25,000,~~$162,000, or ~~2.2%~~14.3%, in the three months ended June 30, ~~2020,~~2021, as compared to the same prior year period. ~~The overall increases in noninterest~~Noninterest income ~~were~~was significantly muted in the second quarter of 2020 by reduced customer transactional activity levels and the Bank’s increased levels of fee waivers and other forbearances in response to the local economic effects of the COVID-19 pandemic.

~~The $967,000, or 41.8%, increase in noninterest~~Noninterest income remained consistent for the six months ended June 30, ~~2020,~~2021, when compared to the same six month period in ~~2019,~~2020. Net gains on marketable equity securities increased $1.2 million and was ~~primarily the result of an increase of $938,000~~partially offset by a decrease in net gains on the sales and redemptions of investment securities ~~and a $764,000 increase in net~~of $998,000. Net gains on the ~~sales~~sale of loans and foreclosed real ~~estate. The investment securities sales were part of the Company’s portfolio optimization and liquidity management strategies. The increased gain on the sales of loans and~~ ~~foreclosed real~~ estate ~~was primarily the result of the sale of $35.9 million in seasoned, conforming residential mortgage loans that was completed in January 2020 and resulted in the recognition of a gain of $659,000.~~ ~~These increases in noninterest income were partially offset by a $973,000 increase in net losses on equity securities, as discussed above.~~

~~Excluding the effects of the period over period fluctuations discussed above all other noninterest income categories increased in the aggregate by $238,000, or 11.1%,~~also decreased $610,000 when compared to ~~$2.4 million in the six months ended June 30, 2020 as compared with $2.1 million in~~ the same ~~six month~~ period ~~of 2019. This $238,000 period over period increase~~ in ~~noninterest income was due primarily to increases in other charges, commissions and fees, insurance agency revenue, debit~~2020. Debit card interchange fees, ~~loan servicing~~other charges,

commission and fees, earnings on bank owned life insurance and ~~service~~services charges on deposit accounts ~~which~~ increased ~~$70,000, $61,000, $37,000, $41,000,~~$94,000, $87,000, $32,000 and ~~$29,000,~~$30,000, respectively. The net increase in these categories of noninterest income were in part due to the Company’s increased strategic focus on improving recurring noninterest income. However, as noted above, overall increases in noninterest income were significantly muted in the second quarter of 2020 by reduced customer activity levels and the Bank’s increased levels of fee waivers and forbearances in response to the local economic effects of the COVID-19 pandemic.

The following table sets forth certain information on noninterest expense for the periods indicated:

	Three months ended June 30,									Six months ended June 30,									For the three months ended									For the six months ended,
(Dollars in thousands)	2020		2019		Change					2020		2019		Change					June 30, 2021		June 30, 2020		Change					June 30, 2021		June 30, 2020		Change
Salaries and employee benefits	$	2,972	$	3,454	$	(482	)	-14.0	%	$	6,219	$	7,104	$	(885	)	-12.5	%	$	3,501	$	2,972	$	529		17.8	%	$	6,842	$	6,219	$	623		10.0	%
Building and occupancy		707		632		75		11.9	%		1,461		1,287		174		13.5	%		870		707		163		23.1	%		1,663		1,461		202		13.8	%
Data processing		552		587		(35	)	-6.0	%		1,152		1,162		(10	)	-0.9	%		654		552		102		18.5	%		1,330		1,152		178		15.5	%
Professional and other services		301		380		(79	)	-20.8	%		617		716		(99	)	-13.8	%		451		301		150		49.8	%		868		617		251		40.7	%
Advertising		261		242		19		7.9	%		437		481		(44	)	-9.1	%		259		261		(2	)	-0.8	%		505		437		68		15.6	%
FDIC assessments		150		130		20		15.4	%		339		241		98		40.7	%		232		150		82		54.7	%		430		339		91		26.8	%
Audits and exams		125		100		25		25.0	%		250		200		50		25.0	%		177		125		52		41.6	%		379		250		129		51.6	%
Insurance agency expense		212		229		(17	)	-7.4	%		404		428		(24	)	-5.6	%		194		212		(18	)	-8.5	%		400		404		(4	)	-1.0	%
Community service activities		12		144		(132	)	-91.7	%		119		282		(163	)	-57.8	%		34		12		22		183.3	%		122		119		3		2.5	%
Foreclosed real estate expenses		5		59		(54	)	-91.5	%		35		296		(261	)	-88.2	%		16		5		11		220.0	%		22		35		(13	)	-37.1	%
Other expenses		461		582		(121	)	-20.8	%		970		1,053		(83	)	-7.9	%		457		461		(4	)	-0.9	%		920		970		(50	)	-5.2	%
Total noninterest expenses	$	5,758	$	6,539	$	(781	)	-11.9	%	$	12,003	$	13,250	$	(1,247	)	-9.4	%	$	6,845	$	5,758	$	1,087		18.9	%	$	13,481	$	12,003	$	1,478		12.3	%

The ~~$781,000,~~$1.1 million, or ~~11.9%~~18.9%, ~~decrease~~increase in noninterest expense between the year-over-year second quarter periods was ~~principally due to~~primarily a ~~decrease~~result of higher salaries and employee benefit expense, building and occupancy costs, professional and other services, and data processing expenses. The detail of the components of the overall increase in noninterest expense is as follows:

•

The increase in salaries and employee benefits expense was primarily due to a $401,000 increase in net salaries and employee benefits expense and a $144,000 increase in commissions’ expense. The year-over-year increase in salaries and employee benefit expense was partially attributable to factors related to PPP loan originations, as discussed below.

•

The $163,000, $150,000, and $102,000 increases in building occupancy expenses, professional and other services, and data processing expenses, respectively, are consistent with the Company’s customer and operational growth and with the additional factors discussed below.

•

All other noninterest expenses increased in aggregate in the year-over-year three-month periods by a total of $143,000, or 2.5%.

The increase in salaries and employee benefit expense was primarily due to a $401,000 increase in net salaries and benefits expense ~~of $482,000, or 14.0%. All other noninterest expenses~~and a $144,000 increase in ~~aggregate increased $299,000, or 9.7%, for~~commissions’ expense. The $401,000 increase in net salaries and benefits expense in the three months ended June 30, ~~2020~~2021, as compared to the same three month period in ~~2019. The detail of the components of the overall decrease in noninterest expense is as follows:~~

The ~~$1.2~~$1.5 million, or ~~9.4%~~12.3%, ~~decrease~~increase in noninterest expenses between the six month period ended June 30, ~~2020~~2021 and the same six month period in the prior year was principally due to ~~a decrease~~an increase in salaries and employee benefits expense, ~~foreclosed real estate expense,~~professional and ~~community service activities.~~other services, building and occupancy costs, data processing expenses, and audits and exams expense. The detail of the components of the overall ~~decrease~~increase in noninterest expense is as follows:

The $885,000 decrease in salaries and employee benefits expense in the first six months of 2020, as compared to the same six month period in 2019, primarily resulted from the increased deferral of these expenses into the unamortized cost of the loans originated in the first six months of 2020. The increased volume of loans originated in the first six months of 2020, as compared to the same period in 2019, was due primarily to the PPP loan volume originated in the second quarter of 2020, as discussed above. In addition, personnel expenses declined in the six months ended June 30, 2020, as compared to the same period in 2019, due primarily to decreases of $319,000 in employee benefits. The decrease in other employee benefits for the six months ended June 30, 2020, as compared to the same six month period in 2019, was primarily due to decreases in pension, employee medical and other employee benefits expenses of $144,000, $76,000 and $49,000, respectively. Pension expense decreased $144,000 primarily due to the higher market value of pension assets held in trust at January 1, 2020 as compared to the same date in 2019. The higher market values for pension assets resulted from market value appreciation of those assets in 2019. Medical expenses declined primarily due to reduced employee utilization of elective medical services and increased cost sharing of certain medical costs with employees in 2020, as compared to the previous year. The decrease in other employee benefits expenses related to reduced levels of certain training, employee recognition and other employee-related activities due primarily to restrictions on such activities resulting from the pandemic.

•

The $623,000 increase in salaries and employee benefits expense in the first six months of 2021, as compared to the same six month period in 2020, was primarily the result of an increase in net salaries expense and commissions expense of $410,000 and $237,000, respectively. The $410,000 increase in net salaries and benefits expense in the six months ended June 30, 2021, as compared to the same six month period in 2020, was partially the result of reduced PPP loan origination-related salary expense deferrals in the amount of $132,000 in 2021, as compared to the previous year, as PPP loan origination volume declined from $75.0 million in the first half of 2020 to $36.4 million in the first half of 2021. Commissions’ expense increased primarily due to the resumption of accruals related to employee and officer incentive programs in the first half of 2021. These accruals were substantially reduced in the first half of 2020 in response to the uncertainties presented by the pandemic. All other employee-related expenses decreased in aggregate by $25,000 in the first half of 2021, as compared to the same six month period in 2020.

~~Foreclosed real estate expenses decreased $261,000 as a result of a foreclosed property that the Bank paid taxes on in 2019. This foreclosed property was sold in February 2019.~~

•

The $251,000 increase in professional and other services and the $129,000 increase in audits and exams expense was primarily related to the Bank’s first year of increased internal controls testing under FDICIA requirements for institutions with assets greater than $1 billion and additional expenses incurred by the Company as a result of the COVID-19 pandemic.

The $163,000 decrease in community service activities was a result of significant restrictions placed on many business activities as a result of the pandemic and an associated decrease in community-sponsored events and activities.

•

Building and occupancy costs increased primarily as a result of an increase in maintenance costs and depreciation expense of $168,000 and $51,000, respectively. These increases are consistent with the Company’s recent refurbishments of certain branch and administrative locations and the relative timing of certain maintenance activities.

•

Data processing costs increased due to increases in internet banking costs and processing costs. These increases are consistent with the Company’s customer growth and operational growth, and the costs of increased functionality now being offered to business customers as well as generally increased utilization of the Company’s electronic product and service delivery channels.

~~All other noninterest expenses increased in aggregate in the year-over-year six month periods by a total of $62,000, or 1.1%, due to a broad range of individually immaterial variances.~~

At June 30, ~~2020,~~2021, the Bank serviced ~~476~~518 residential mortgage loans in the aggregate amount of ~~$48.8~~$54.3 million that have been sold on a non-recourse basis to FNMA. FNMA is the only unrelated third-party that has acquired loans originated by the Bank. On an infrequent basis, loans previously sold to FNMA that subsequently default may be found to have underwriting defects that place the loans out of compliance with the representations and warranties made by the Bank. This can occur at any time while the loan is outstanding. In such cases, the Bank is required to repurchase the defaulted loans from FNMA. Repurchase losses sustained by the Bank include all costs incurred by FNMA as part of the foreclosure process, including items such as delinquent property taxes and legal fees. No such claims against the Bank were made by FNMA in the three or six month periods ended in either June 30, 2021 or June 30, 2020. Management continues to monitor the underwriting standards applied to all residential mortgage loan originations and subsequent sales through its quality control processes and considers these occurrences and their related expenses to be isolated instances.

During the most restrictive periods following the inception of ~~Contents~~the Covid-19 pandemic, which began in March 2020, the Company experienced material declines in substantially all forms of noninterest expenses. These reductions in noninterest expenses were the result of the curtailment or elimination of a significant portion of non-critically-essential business and business development activities during that time. These activities were reduced or eliminated for the duration of the substantial restrictions imposed by governmental officials and as a consequence of the internal safety and social distancing protocols initiated by the Company and/or its customers. These effects were most pronounced in the second and third quarters of 2020 and extended, to lessening degrees, at least through the end of the first quarter of 2021. Accordingly, as the Company progressively returned to less restricted operations, noninterest expenses progressively returned to the levels considered by its management to be prudent for the effective long-term management of the Company. Management has elected to provide a supplemental comparison between 2021 noninterest expenses and the same three and six month periods in 2019, which were the most recent three and six month periods not affected by the pandemic. The following table details the components of noninterest expense for the three and six months ended June 30, 2021 and 2019:

	For the three months ended									For the six months ended,
(Dollars in thousands)	June 30, 2021		June 30, 2019		Change					June 30, 2021		June 30, 2019		Change
Salaries and employee benefits	$	3,501	$	3,454	$	47		1.4	%	$	6,842	$	7,104	$	(262	)	-3.7	%
Building and occupancy		870		632		238		37.7	%		1,663		1,287		376		29.2	%
Data processing		654		587		67		11.4	%		1,330		1,162		168		14.5	%
Professional and other services		451		380		71		18.7	%		868		716		152		21.2	%
Advertising		259		242		17		7.0	%		505		481		24		5.0	%
FDIC assessments		232		130		102		78.5	%		430		241		189		78.4	%
Audits and exams		177		100		77		77.0	%		379		200		179		89.5	%
Insurance agency expense		194		229		(35	)	-15.3	%		400		428		(28	)	-6.5	%
Community service activities		34		144		(110	)	-76.4	%		122		282		(160	)	-56.7	%
Foreclosed real estate expenses		16		59		(43	)	-72.9	%		22		296		(274	)	-92.6	%
Other expenses		457		582		(125	)	-21.5	%		920		1,053		(133	)	-12.6	%
Total noninterest expenses	$	6,845	$	6,539	$	306		4.7	%	$	13,481	$	13,250	$	231		1.7	%

Income tax expense increased ~~$264,000~~$412,000 to ~~$439,000,~~$851,000, with an effective tax rate of 19.2%, for the quarter ended June 30, ~~2020,~~2021, as compared to ~~$175,000,~~$439,000, with an effective tax rate of ~~22.2%~~19.2%, for the same three month period in ~~2019.~~2020. Income tax expense increased $506,000 to $1.4 million, with an effective tax rate of 21.5% for the six months ended June 30, 2021 as compared to $894,000, with an effective tax rate of 20.5%, for the same six month period in 2020. The increase in income tax expense in the current quarter and year to date, as compared to the same quarter and period in ~~2019,~~2020, was primarily attributable to the year-over-year second quarter and six month increase in pre-tax net income.

Income tax expense increased $468,000 to $894,000, with an effective tax rate of 20.5% for the six months ended June 30, 2020 as compared to $426,000, with an effective tax rate of 27.8%, for the same six month period in 2019. Effective in January 2018, the Company adopted a modification methodology that was at the time newly made available under the New York State tax code, affecting how ~~the Company~~ the Company’s state income tax liability is computed. Under this adopted methodology, management determined in the first quarter of 2019, it iswas unlikely that the Company ~~will~~would pay material income taxes to New York State in future ~~periods. It was~~periods under then-existing income tax laws in the State, and therefore ~~determined~~in the quarter ended March 31, 2019, the Company established, through a charge to ~~be probable that~~earnings, a valuation allowance in the ~~Company’s~~ amount of $136,000 in order to reserve against deferred tax assets related to New York State income ~~taxes were unlikely to further reduce the Company’s state income tax rate in the future. Accordingly, a~~taxes. This valuation allowance against the value of those deferred tax assets was established to reduce the net deferred tax asset related to New York State income taxes to $0. ~~As a result, in the quarter ended March 31, 2019, the Company established, through a charge~~Management is continuously monitoring its future tax consequences to ~~earnings, a valuation allowance in the amount of $136,000. This charge to earnings increased~~determine if the Company’s ~~effective tax rate by 18.3% in that period.~~deferred taxes are properly stated. In the first quarter ~~ended March 31,~~of 2020, consistent with policy, management ~~further evaluated~~reviewed all ~~factors~~facts and circumstances related to its deferred taxes and determined that based on the expected filings of future New York State tax returns, ~~and~~the valuation allowance created in 2019 was no longer needed. Therefore management elected to eliminate its ~~remaining~~ New York State net deferred tax asset ~~balances and the related and offsetting~~ valuation allowance during the quarter ended March 31, 2020.

The legislation increases the corporate franchise tax rate to 7.25% from 6.5% for tax years beginning on or after January 1, ~~2020.~~2021 and before January 1, 2024 for taxpayers with a business income base greater than $5.0 million. In addition, the previously scheduled phase-out of the capital base tax has been delayed. The rate of the capital base was to have been reduced to 0% starting in 2021. The legislation imposes the tax at the rate of 0.1875% for tax years beginning on or after January 1, 2021 and before January 1, 2024, with the 0% rate to take effect ~~of these eliminations required an adjustment to other comprehensive income balances and had no effect~~in 2024. Management is evaluating the projected impact on the ~~first six months~~Company’s financial condition and results of ~~2020 reported earnings. At June 30, 2020~~operations and ~~June 30, 2019,~~believes that these provisions may increase the Company’s ~~net deferred~~income tax ~~asset related to~~expense in the future. However, these potential increases in New York State income taxes ~~was $0.~~are not expected to be material to the future results of the Company’s operations.

The Company’s effective tax rate typically differs from the 21% federal statutory ~~federal~~ tax rate ~~of 21%~~ due primarily to tax-exempt income from specific types of investment securities and loans, bank owned life insurance, and, to a much lesser degree, the utilization of ~~low-income~~low income housing ~~credits.~~tax credits, as well as the effects of transitional adjustments related to state income taxes and certain taxes payable to states other than New York. In addition, the tax effects of certain incentive stock option activity may also reduce the Company’s effective tax rate on a sporadic basis. During the six months ended June 30, 2020, these effects reduced the Company’s effective tax rate by 0.2%. Excluding the nonrecurring charge related to the deferred tax asset valuation allowance, income tax expense in the first half of 2020 would have been $604,000 more than the same prior year period. The increase in income tax expense, as compared to the previous year’s same period, was primarily attributable to the year-over-year first half increase in pre-tax net income.

Basic and diluted earnings per voting common share were ~~$0.31~~$0.50 per share for the second quarter of ~~2020,~~2021, as compared to ~~$0.11~~$0.31 per basic and diluted share for the same quarter of ~~2019.~~2020.

Basic and diluted earnings per voting common share were ~~$0.60~~$0.87 for the six month period ended June 30, ~~2020,~~2021, as compared to ~~$0.23~~$0.60 for the same prior year period. The increase in earnings per share between these two periods was due to the increase in net income between these two time periods. Further information on earnings per share can be found in Note 3 of this Form 10-Q.

Total assets increased ~~$73.2~~$32.2 million, or ~~6.7%~~2.6%, to $1.3 billion at June 30, 2021 as compared to $1.2 billion at ~~June 30, 2020 as compared to $1.1 billion at~~ December 31, ~~2019.~~2020. This increase was due primarily to increases in loans ~~cash and cash equivalents,~~ and investment securities.

Total net loans receivable increased ~~$22.7~~$7.6 million, or ~~2.9%~~0.9%, to ~~$795.5~~$820.3 million at June 30, ~~2020~~2021 from ~~$772.8~~$812.7 million at December 31, ~~2019.~~2020. The increase was primarily the result of an increase of ~~$75.9~~$5.4 million in commercial loans between these two dates, partially offset by decreases in residential mortgage loans and consumer loans of $32.9 million and $16.5 million, respectively. Commercial loans increased primarily due to increases of $73.8 million in PPP loans and $6.6 million in commercial real estate loans. This was reflective of high levels of participation in the government relief program, organic loan growth and the Company’s continued success in its expansion within the greater Syracuse, New

York market. The decrease in the residential mortgage loans was primarily the result of the sale of $35.9 million in seasoned conforming residential mortgage loans in the first quarter of 2020, which generated a $680,000 gain. The decrease in consumer loans ~~was primarily due to general amortization.~~and a $4.5 million increase in commercial loans.

Cash and cash equivalents ~~increased $25.0~~decreased $2.3 million, or ~~123.8%~~5.3%, to ~~$45.1~~$41.2 million at June 30, ~~2020,~~2021, as compared to ~~$20.2~~$43.5 million at December 31, 2019. The $25.0 million increase in cash and cash equivalents was primarily due to the ongoing COVID-19 pandemic; as a result, the Bank has substantially increased the liquidity of its balance sheet to support the potential needs of its customers and communities.2020. Total restricted cash was $1.6 million ~~and -$0-~~ at both June 30, ~~2020~~2021 and December 31, ~~2019, respectively.~~2020.

Investment securities increased ~~$24.3~~$20.8 million, or ~~10.4%~~6.9%, to ~~$259.0~~$322.1 million at June 30, ~~2020,~~2021, as compared to ~~$234.7~~$301.3 million at December 31, ~~2019,~~2020, due principally to purchases of securities during the first six months of ~~2020.~~2021.

Total liabilities increased ~~$71.3~~$26.4 million, or ~~7.1%~~2.3%, to $1.2 billion at June 30, 2021 compared to $1.1 billion at ~~June 30, 2020 compared~~December 31, 2020. Deposits increased $35.8 million, or 3.6%, to $1.0 billion at June 30, 2021, compared to $995.9 million at December 31, ~~2019. Deposits increased $88.7 million, or 10.1%, to $970.6~~2020. Noninterest-bearing deposits totaled $183.7 million at June 30, 2021, an increase of $21.6 million, or 13.3%, from the 2020 year end, and an increase of $23.5 million, or 14.7%, compared to ~~$881.9 million at December 31, 2019.~~June 30, 2020. The increase in noninterest-bearing deposits was due to growth in retail and commercial relationship deposits along with brokered deposit inflows, as a result of the Bank’s efforts to significantly increase cash and cash equivalent balances in response to the COVID-19 pandemic. Noninterest-bearing deposits were $160.1 million at quarter end, compared with $107.5 million on December 31, 2019. Second quarter noninterest-bearing deposits increased by $46.6 million from March 31, 2020, primarily as a result of the Bank’s participation in the PPP, ~~lending program,~~ as well as ongoing growth in business banking relationships. Interest-bearing deposits totaled $848.0 million at June 30, 2021, an increase of $14.2 million, or 1.7%, for the 2020 year end. Interest-bearing deposit growth was a result of municipal deposit inflows related to seasonal tax collections, as well as increases in retail and commercial deposits. Borrowed funds balances from the FHLB-NY ~~decreased $17.7~~increased $1.7 million, or ~~19.0%~~2.1%, to ~~$75.4~~$83.7 million at June 30, ~~2020~~2021 from ~~$93.1~~$82.1 million at December 31, ~~2019.~~

2020. Subordinated loans were $29.5 million at June 30, 2021, a 25.2% decrease from $39.4 million as of the 2020 year end. The Company exercised its option to redeem $10.0 million of the loans that were outstanding at June 30, 2021 on April 1, 2021. This redemption of outstanding debt prospectively reduces interest expense after April 1, 2021 by $625,000 annually.

The Company’s shareholders’ equity, exclusive of the noncontrolling interest, increased ~~$1.9~~$5.8 million, or ~~2.1%~~5.9%, to ~~$92.3~~$103.2 million at June 30, ~~2020,~~2021, from ~~$90.4~~$97.5 million at December 31, ~~2019.~~2020. This increase was principally due to a ~~$2.8~~$4.3 million increase in retained earnings, a ~~$385,000~~$427,000 increase in additional paid in capital, ~~and~~ a $90,000 increase in ESOP shares earned ~~offset by~~and a ~~$1.4~~$1.0 million ~~decrease~~increase in comprehensive income. Comprehensive income ~~decreased~~increased primarily as the result of ~~losses~~increases in the unrealized gain on ~~derivatives and hedging activities~~the available-for sale investment portfolio during the six month period. The increase in retained earnings resulted from ~~$3.6~~$5.2 million in net income recorded in the first six months of ~~2020.~~2021. Partially offsetting this increase in retained earnings were ~~$557,000~~$626,000 for cash dividends declared on our common stock, ~~$138,000~~$97,000 for cash dividends declared on our Non-Voting common stock, $97,000 for cash dividends declared on our preferred stock, ~~and $15,000~~$17,000 for cash dividends declared on our issued ~~warrant.~~warrant, and $65,000 in cumulative effect of our affiliate capital allocation.

During the second quarter of 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. Neither the previously-issued Series B 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. 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.

Capital adequacy is evaluated primarily by the use of ratios which measure capital against total assets, as well as against total assets that are weighted based on defined risk characteristics. The Company’s goal is to maintain a strong capital position, consistent with the risk profile of its banking operations. This strong capital position serves to support growth and expansion activities while at the same time exceeding regulatory standards. At June 30, ~~2020,~~2021, the Bank met the regulatory definition of a “well-capitalized” institution, i.e. a leverage capital ratio exceeding 5%, a Tier 1 risk-based capital ratio exceeding 8%, Tier 1 common equity exceeding 6.5%, and a total risk-based capital ratio exceeding 10%.

In addition to establishing the minimum regulatory capital requirements, the regulations limit capital distributions and certain discretionary bonus payments to management if the institution does not hold a “capital conservation buffer” consisting of 2.5% of common equity Tier 1 capital to risk-weighted assets above the amount necessary to meet its minimum risk-based capital requirements. The buffer is separate from the capital ratios required under the Prompt Corrective Actions (“PCA”) standards. In order to avoid these restrictions, the capital conservation buffer effectively increases the minimum levels of the following capital to risk-weighted assets ratios: (1) Core Capital, (2) Total Capital and (3) Common Equity. The capital conservation buffer requirement is now fully implemented at 2.5% of risk-weighted assets. At June 30, ~~2020,~~2021, the Bank exceeded all regulatory required minimum capital ratios, including the capital buffer requirements.

As a result of the recently enacted Economic Growth, Regulatory Relief, and Consumer Protection Act, the federal banking agencies developed a “Community Bank Leverage Ratio” (the ratio of a bank's tier 1 capital to average total consolidated assets) for financial institutions with assets of less than $10 billion. A “qualifying community bank” that exceeds this ratio will be deemed to be in compliance with all other capital and leverage requirements, including the capital requirements to be considered “well capitalized” under Prompt Corrective Action statutes. The federal banking agencies may consider a financial institution's risk profile when evaluating whether it qualifies as a community bank for purposes of the capital ratio requirement. The federal banking agencies have set the Community Bank Leverage Ratio at 9%. Pursuant to the CARES Act, the federal banking agencies in April 2020 issued interim final rules to set the Community Bank Leverage Ratio at 8% beginning in the second quarter of 2020 through the end of 2020. Beginning in 2021, the Community Bank Leverage Ratio ~~will increase~~increased to 8.5% for the calendar year. Community banks will have until January 1, 2022, before the Community Bank Leverage Ratio requirement will return to 9%. A financial institution can elect to be subject to this new definition. The ~~new rule took effect on January 1, 2020. The~~ Bank did not elect to become subject to the Community Bank Leverage Ratio.

Pathfinder Bank’s capital amounts and ratios as of the indicated dates are presented in the following ~~tables:~~table:

	Actual					Minimum For Capital Adequacy Purposes					Minimum To Be "Well-Capitalized" Under Prompt Corrective Provisions					Minimum For Capital Adequacy with Buffer					Actual					Minimum For Capital Adequacy Purposes					Minimum To Be "Well-Capitalized" Under Prompt Corrective Provisions					Minimum For Capital Adequacy with Buffer
(Dollars in thousands)	Amount		Ratio			Amount		Ratio			Amount		Ratio			Amount		Ratio			Amount		Ratio			Amount		Ratio			Amount		Ratio			Amount		Ratio
As of June 30, 2020:
As of June 30, 2021:
Total Core Capital (to Risk-Weighted Assets)	$	105,603		12.64	%	$	66,848		8.00	%	$	83,561		10.00	%	$	87,739		10.50	%	$	120,708		14.82	%	$	65,174		8.00	%	$	81,468		10.00	%	$	85,541		10.50	%
Tier 1 Capital (to Risk-Weighted Assets)	$	95,157		11.39	%	$	50,136		6.00	%	$	66,848		8.00	%	$	71,026		8.50	%	$	110,470		13.56	%	$	48,881		6.00	%	$	65,174		8.00	%	$	69,247		8.50	%
Tier 1 Common Equity (to Risk-Weighted Assets)	$	95,157		11.39	%	$	37,602		4.50	%	$	54,314		6.50	%	$	58,492		7.00	%	$	110,470		13.56	%	$	36,660		4.50	%	$	52,954		6.50	%	$	57,027		7.00	%
Tier 1 Capital (to Assets)	$	95,157		8.17	%	$	46,607		4.00	%	$	58,259		5.00	%	$	58,259		5.00	%	$	110,470		8.83	%	$	50,046		4.00	%	$	62,557		5.00	%	$	62,557		5.00	%
As of December 31, 2019:
As of December 31, 2020
Total Core Capital (to Risk-Weighted Assets)	$	95,093		12.28	%	$	61,934		8.00	%	$	77,418		10.00	%	$	81,289		10.50	%	$	115,289		13.13	%	$	70,270		8.00	%	$	87,838		10.00	%	$	92,230		10.50	%
Tier 1 Capital (to Risk-Weighted Assets)	$	86,424		11.16	%	$	46,451		6.00	%	$	61,934		8.00	%	$	65,805		8.50	%	$	104,287		11.87	%	$	52,703		6.00	%	$	70,270		8.00	%	$	74,662		8.50	%
Tier 1 Common Equity (to Risk-Weighted Assets)	$	86,424		11.16	%	$	34,838		4.50	%	$	50,322		6.50	%	$	54,192		7.00	%	$	104,287		11.87	%	$	39,527		4.50	%	$	57,095		6.50	%	$	61,487		7.00	%
Tier 1 Capital (to Assets)	$	86,424		8.20	%	$	42,175		4.00	%	$	52,719		5.00	%	$	52,719		5.00	%	$	104,287		8.63	%	$	48,314		4.00	%	$	60,392		5.00	%	$	60,392		5.00	%

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. Under Regulation G, companies making public disclosures containing non-GAAP financial measures must also disclose, along with each non-GAAP financial measure, certain additional information, including a reconciliation of the non-GAAP financial measure to the closest comparable GAAP financial measure (if a comparable GAAP measure exists) and a statement of the Company’s reasons for utilizing the non-GAAP financial measure as part of its financial disclosures. The SEC has exempted from the definition of “non-GAAP financial measures” certain commonly used financial measures that are not based on GAAP. When these exempted measures are included in public disclosures, supplemental information is not required. Financial institutions like the Company and its subsidiary bank are subject to an array of bank regulatory capital measures that are financial in nature but are not based on GAAP. The Company follows industry practice in disclosing its financial condition under these various regulatory capital measures, including period-end regulatory capital ratios for its subsidiary bank, in its periodic reports filed with the SEC. The Company provides, below, an explanation of the calculations, as supplemental information, for non-GAAP measures included in the consolidated annual financial statements. In addition, the Company provides a reconciliation of its subsidiary bank’s disclosed regulatory capital measures, below.

	June 30,				December 31,				June 30,				December 31,
(Dollars in thousands)	2020				2019				2021				2020
Regulatory Capital Ratios (Bank Only)
Total capital (to risk-weighted assets)
Total equity (GAAP)	$	95,447			$	88,138			$	113,896			$	106,720
Goodwill		(4,536	)			(4,536	)			(4,536	)			(4,536	)
Intangible assets		(141	)			(149	)			(125	)			(133	)
Addback: Accumulated other comprehensive income		4,387				2,971				1,235				2,236
Total Tier 1 Capital	$	95,157			$	86,424			$	110,470			$	104,287
Allowance for loan and lease losses		10,446				8,669				10,238				11,002
Total Tier 2 Capital	$	10,446			$	8,669			$	10,238			$	11,002
Total Tier 1 plus Tier 2 Capital (numerator)	$	105,603			$	95,093			$	120,708			$	115,289
Risk-weighted assets (denominator)		835,605				774,177				814,675				878,380
Total core capital to risk-weighted assets		12.64		%		12.28		%		14.82		%		13.13		%

Tier 1 capital (to risk-weighted assets)
Total Tier 1 capital (numerator)	$	95,157			$	86,424			$	110,470			$	104,287
Risk-weighted assets (denominator)		835,605				774,177				814,675				878,380
Total capital to risk-weighted assets		11.39		%		11.16		%		13.56		%		11.87		%

Tier 1 capital (to adjusted assets)
Total Tier 1 capital (numerator)	$	95,157			$	86,424			$	110,470			$	104,287
Total average assets		1,169,861				1,059,060				1,255,806				1,212,512
Goodwill		(4,536	)			(4,536	)			(4,536	)			(4,536	)
Intangible assets		(141	)			(149	)			(125	)			(133	)
Adjusted assets (denominator)	$	1,165,184			$	1,054,375			$	1,251,145			$	1,207,843
Total capital to adjusted assets		8.17		%		8.20		%		8.83		%		8.63		%

Tier 1 Common Equity (to risk-weighted assets)
Total Tier 1 capital (numerator)	$	95,157			$	86,424			$	110,470			$	104,287
Risk-weighted assets (denominator)		835,605				774,177				814,675				878,380
Total Tier 1 Common Equity to risk-weighted assets		11.39		%		11.16		%		13.56		%		11.87		%

The following table represents information concerning the aggregate amount of non-performing assets at the indicated dates:

Nonperforming assets include nonaccrual loans, nonaccrual troubled debt restructurings (“TDR”), and foreclosed real estate (‘‘FRE”). The Company generally places a loan on nonaccrual status and ceases accruing interest when loan payment performance is deemed unsatisfactory and the loan is past due 90 days or more. There are no loans that are past due 90 days or more and still accruing interest. Loans are considered modified in a TDR when, due to a borrower’s financial difficulties, the Company makes a concession(s) to the borrower that it would not otherwise consider. These modifications may include, among others, an extension of the term of the loan, and granting a period when interest-only payments can be made, with the principal payments made over the remaining term of the loan or at maturity. TDRs are included in the above table within the categories of nonaccrual loans or accruing TDRs. There was one nonaccruing TDR loan, with an aggregate carrying value of $74,000 included among the nonaccrual loans detailed in the table above at June 30, ~~2020.~~2021.

Pursuant to the CARES Act and as extended by the Consolidated Appropriations Act, 2021, financial institutions have the option to temporarily suspend certain requirements under U.S. generally accepted accounting principles related to troubled debt restructurings for a limited period of time to account for the effects of COVID-19. This provision allows a financial institution the option to not apply the guidance on accounting for troubled debt restructurings to loan modifications, such as extensions or deferrals, related to COVID-19 made between March 1, 2020 and the earlier of (i) ~~December 31, 2020~~January 1, 2022 or (ii) 60 days after the end of the COVID-19 national emergency. The relief can only be applied to modifications for borrowers that were not more than 30 days past due as of December 31, 2019. The Bank elected to adopt these provisions of the CARES Act.

As indicated in the table above, nonperforming assets at June 30, ~~2020~~2021 were ~~$8.4~~$16.0 million and were ~~$3.1~~$5.3 million ~~higher~~lower than the ~~$5.3~~$21.3 million reported at December 31, ~~2019,~~2020, which was due ~~primarily~~ to ~~an increase of $3.8~~a $6.2 million decrease in ~~nonperforming commercial and~~ commercial real estate nonaccrual loans. This ~~increase~~was primarily the result of one commercial real estate loan totaling $7.4 million being removed from nonaccrual as of June 30, 2021 due to the resumption of timely principal and interest payments for six consecutive months. This decrease was partially offset by ~~a decrease~~an increase of ~~$575,000 in nonperforming residential mortgage loans, a $91,000 decrease~~$563,000 in nonperforming consumer loans and a ~~$62,000 decrease~~$273,000 increase in ~~FRE~~

~~As indicated in the~~ nonperforming asset table above, FRE balances decreased $62,000 to $26,000 at June 30, 2020 from $88,000 at December 31, 2019, following two sales from the portfolio and two additions to the portfolio during the six-month period ended June 30, 2020. More information regarding foreclosed real estate can be found in Note 8 of this Form 10-Q.residential mortgage loans.

Fair values for commercial FRE are initially recorded based on market value evaluations by third parties, less costs to sell (“initial cost basis”). On a prospective basis, residential FRE assets will be initially recorded at the lower of the net amount of loan receivable or the real estate’s fair value less costs to sell. Any write-downs required when the related loan receivable is exchanged for the underlying real estate collateral at the time of transfer to FRE are charged to the allowance

for loan losses. Values are derived from appraisals, similar to impaired loans, of underlying collateral or discounted cash flow analysis. Subsequent to foreclosure, valuations are updated periodically and assets are marked to current fair value, not to exceed the initial cost basis for the FRE property.

The allowance for loan losses represents management’s estimate of the probable losses inherent in the loan portfolio as of the date of the statement of condition. The allowance for loan losses was ~~$10.6~~$14.6 million and ~~$8.7~~$12.8 million at June 30, ~~2020~~2021 and December 31, ~~2019,~~2020, respectively. The ratio of the allowance for loan losses to total loans increased 20 basis points to ~~1.31%~~1.75% at June 30, ~~2020~~2021 from ~~1.11%~~1.55% at December 31, ~~2019.~~2020. Management performs a quarterly evaluation of the allowance for loan losses based on quantitative and qualitative factors and has determined that the current level of the allowance for loan losses is adequate to absorb the losses in the loan portfolio as of June 30, ~~2020.~~2021.

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 measurement of impaired loans is generally based upon the fair value of the collateral, with a portion of the impaired loans measured based upon the present value of future cash flows discounted at the historical effective interest rate. A specific reserve is established for an impaired loan if its carrying value exceeds its estimated fair value. The estimated fair values of the majority of the Company’s impaired loans are measured based on the estimated fair value of the loan’s collateral. For loans secured by real estate, estimated fair values are determined primarily through third-party appraisals or broker price opinions. When a loan is determined to be impaired, the Bank will reevaluate the collateral which secures the loan. For real estate, the Company will obtain a new appraisal or broker’s opinion whichever is considered to provide the most accurate value in the event of sale. An evaluation of equipment held as collateral will be obtained from a firm able to provide such an evaluation. Collateral will be inspected not less than annually for all impaired loans and will be reevaluated not less than every two years. Appraised values and broker opinion values are discounted due to the market’s perception of a reduced price of Bank-owned property and the Bank’s desire to sell the property more quickly 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 June 30, ~~2020~~2021 and December 31, ~~2019,~~2020, the Company had ~~$7.8~~$17.3 million and ~~$7.5~~$22.8 million in loans, respectively, which were deemed to be impaired, having established specific reserves of ~~$1.0~~$3.3 million and ~~$830,000,~~$2.8 million, respectively, on these loans. The ~~increase~~decrease in impaired loans between these two dates was primarily driven by ~~increases~~decreases of ~~$215,000~~$5.8 million and ~~$127,000,~~$348,000, in impaired commercial real estate loans and ~~other commercial and industrial loans.~~residential real estate loans, respectively. The ~~$190,000~~$500,000 increase in specific reserves for impaired loans at June 30, ~~2020~~2021 as compared to December 31, ~~2019~~2020 was primarily due to a ~~$157,000~~$574,000 increase in specific reserves for other commercial and industrial ~~loans and a $56,000 increase in specific reserves for residential real estate~~ loans.

Management has identified potential credit problems which may result in the borrowers not being able to comply with the current loan repayment terms and which may result in those loans being included in future impaired loan reporting. Potential problem loans totaled ~~$32.3~~$32.4 million as of June 30, ~~2020,~~2021, an increase of ~~$847,000,~~$9.2 million, or ~~2.7%~~39.8%, as compared to ~~$31.5~~$23.2 million at December 31, ~~2019.~~2020. These loans have been internally classified as special mention, substandard, or doubtful, yet are not currently considered impaired. ~~Due to the adverse economic impacts of the COVID-19 pandemic on our market area and our customers, the Company expects that potential problem loans may increase during the course of fiscal 2020.~~

Appraisals are obtained at the time a real estate secured loan is originated. For commercial real estate held as collateral, the property is inspected every two years.

In the normal course of business, the Bank has infrequently 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 maintains a quality control program for closed loans and considers the risks and uncertainties associated with potential repurchase requirements to be minimal.

The future performance of the Company’s loan portfolios with respect to credit losses will be highly dependent upon the course and duration, both nationally and within the Company’s market area, of the public health and economic factors related to the pandemic, as well as the concentrations in the Company’s loan portfolio. Concentrations of loans within a portfolio that are made to a single borrower, to a related group of borrowers, or to a limited number of industries, are generally considered to be additional risk factors in estimating future credit losses. Therefore, the Company monitors all of its credit relationships to ensure that the total loan amounts extended to one borrower, or to a related group of borrowers, does not exceed the maximum permissible levels defined by applicable regulation or the Company’s generally more restrictive internal policy limits.

Loans to a single borrower, or to a related group of borrowers, are referred to as related credits. Total related credits encompass all related or affiliated borrower loan balances, including available unused lines of credit, for both personal and business loans. At June 30, 2021, the Company had 30 total related credit relationships, comprised of 273 individual loans, with outstanding balances in excess of $5.0 million. These total related credits ranged from $5.0 million to $15.0 million at June 30, 2021 with aggregate balances of $258.2 million. Of the $258.2 million in total related credits, $238.4 million was secured by various collateral assets, primarily commercial real estate, $9.5 million was unsecured, and $10.3 million were PPP loans.

(Dollars in thousands)	Balance			Number of Loans		Average Loan Balance		Minimum/ Maximum Loan Balance					Allowance for Loan Losses		Percent of Total Loans
Residential Mortgage Loans	$	235,742			2,104	$	112	$	0	-	$	1,529	$	875		0	%

Commercial Real Estate:
Mixed Use	$	50,280			56	$	898	$	39	-	$	11,341	$	1,055		6	%
Multi-Family Residential		44,043			59		746		24	-		6,269		924		5	%
Hotels and Motels		35,595			10		3,560		327	-		11,500		747		4	%
Office		33,921			62		547		-	-		4,799		712		4	%
Retail		23,614			46		513		31	-		5,092		495		3	%
1-4 Family Residential		19,639			152		129		3	-		1,207		412		2	%
Automobile Dealership		16,815			11		1,529		3	-		6,691		353		2	%
Skilled Nursing Facility		11,555			2		5,778		3,800	-		7,755		242		1	%
Recreation/ Golf Course/ Marina		11,286			15		752		13	-		3,150		237		1	%
Warehouse		9,836			13		757		71	-		2,664		206		1	%
Manufacturing/Industrial		7,592			16		475		89	-		1,402		159		1	%
Restaurant		6,131			24		255		40	-		1,231		129		1	%
Automobile Repair		6,098			29		210		15	-		737		128		1	%
Hospitals		4,671			11		425		45	-		2,288		98		1	%
Not-For-Profit & Community Service Real Estate		3,639			3		1,213		77	-		3,105		76		1	%
Land		3,421			3		1,140		105	-		1,758		72		1	%
All Other		3,542			6		590		67	-		2,000		74		0	%
Total Commercial Real Estate Loans	$	291,678			518	$	563						$	6,120		35	%

Commercial and Industrial:
Secured Term Loans	$	57,901			369	$	157	$	-	-	$	4,485	$	2,263		7	%
Unsecured Term Loans		16,515			114		145		3	-		2,244		646		2	%
Secured Lines of Credit		50,885			263		193		-	-		6,787		1,989		6	%
Unsecured Lines of Credit		9,212			142		65		-	-		4,052		360		1	%
Total Commercial and Industrial Loans	$	134,513			888	$	151						$	5,258		16	%

Tax Exempt Loans	$	6,554			20	$	328	$	6	-	$	2,248	$	1		1	%

Paycheck Protection Loans	$	53,611			698	$	77	$	-	-	$	2,628	$	-		6	%

Consumer:
Home Equity Lines of Credit	$	34,649			957	$	36	$	-	-	$	504	$	805		4	%
Vehicle		22,645			1,543		15		0	-		348		353		3	%
Consumer Secured		38,484			1,466		26		20	-		119		599		5	%
Consumer Unsecured		17,003			4,377		4		-	-		99		265		2	%
All Others		2,137			598		4		-	-		58		33		0	%
Total Consumer Loans	$	114,918			8,941	$	13						$	2,055		14	%

Net deferred loan fees		(2,064	)		-		-							-		-
Unallocated allowance for loan losses		-			-		-							294		-
Total Loans	$	834,952			13,169	$	63						$	14,603		100	%

Including the potential effects of the COVID-19 outbreak on the Company’s loan portfolios, the ongoing and dynamic nature of the pandemic and the resultant, potentially severe and long-lasting, economic dislocations, it is difficult to predict the full impact of the COVID-19 outbreak on our business. The extent of such impact will depend on future developments, which are highly uncertain, including when the coronavirus can be controlled and abated and when and how the economy may be reopened. As the result of the COVID-19 pandemic and the related adverse local and national economic consequences, we could be subject to any of the following risks, any of which could have a material, adverse effect on our business, financial condition, liquidity, and results of operations:

•

Demand for our products and services may decline, making it difficult to grow assets and income;

•

Collateral for loans, especially real estate, may decline in value, which could cause loan losses to increase;

•

Our allowance for loan losses may have to be increased if borrowers experience financial difficulties beyond forbearance periods, which will adversely affect our net income;

•

The net worth and liquidity of loan guarantors may decline, impairing their ability to honor commitments to us;

•

A material decrease in net income or a net loss over several quarters could result in a decrease in the rate of our quarterly cash dividend;

•

Our cyber security risks are increased as the result of an increase in the number of employees working remotely;

•

We rely on third party vendors for certain services and the unavailability of a critical service due to the COVID-19 outbreak could have an adverse effect on us; and

•

Federal Deposit Insurance Corporation premiums may increase if the agency experiences additional resolution costs.

Any one or a combination of the factors identified above could negatively impact our business, financial condition and results of operations and prospects.

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's primary sources of funds are deposits, borrowed funds, amortization and prepayment of loans and maturities of investment securities and other short-term investments, and earnings and funds provided from operations. While scheduled principal repayments on loans are a relatively predictable source of funds, deposit flows and loan prepayments are greatly influenced by general interest rates, economic conditions and competition. The Company manages the pricing of deposits to maintain a desired deposit composition and balance. In addition, the Company invests excess funds in short-term interest-earning and other assets, which provide liquidity to meet lending requirements.

The Company's liquidity has been enhanced by its ability to borrow from the Federal Home Loan Bank of New York (“FHLBNY”), whose competitive advance programs and lines of credit provide the Company with a safe, reliable, and convenient source of funds. A significant decrease in deposits in the future could result in the Company having to seek other sources of funds for liquidity purposes. Such sources could include, but are not limited to, additional borrowings, brokered deposits, negotiated time deposits, the sale of "available-for-sale" investment securities, the sale of securitized

loans, or the sale of whole loans. Such actions could result in higher interest expense and/or losses on the sale of securities or loans.

Through the first six months of ~~2020,~~2021, as indicated in the consolidated statement of cash flows, the Company reported net cash flows from operating activities of ~~$40.3~~$8.6 million and net cash outflows of ~~$85.9~~$37.7 million related to investing activities. The net cash outflows from investing activities primarily was due to a net ~~$61.0 million increase in loan balances, combined with a $24.8~~$20.8 million increase in all other investing activities in ~~aggregate.~~aggregate combined with a $9.5 million increase in loan balances. The Company reported net cash flows from financing activities of ~~$70.5~~$26.9 million generated principally by increased deposit balances of ~~$60.6~~$62.7 million, ~~and increased~~offset by decreased brokered deposits balances of ~~$28.1~~$26.9 million ~~partially offset by an aggregate decrease in~~and net cash outflow of ~~$17.6~~$8.3 million from all other financing sources ~~including~~and dividends paid to common shareholders of ~~$567,000.~~$590,000.

The Company has a number of existing credit facilities available to it. At June 30, ~~2020,~~2021, total credit available to the Company under the existing lines of credit was approximately ~~$137.7~~$147.4 million at FHLBNY, the Federal Reserve Bank, and two other correspondent banks. As of June 30, ~~2020,~~2021, the Company had ~~$75.4~~$83.7 million of the available lines of credit utilized on its existing lines of credit with ~~$62.3~~$63.7 million available.

The Asset Liability Management Committee of the Company is responsible for implementing the policies and guidelines for the maintenance of prudent levels of liquidity. As of June 30, ~~2020,~~2021, management reported to the Board of Directors that the Company is in compliance with its liquidity policy guidelines.

The Company is also a party to financial instruments with off-balance sheet risk in the normal course of business to meet the financing needs of its customers. These financial instruments include commitments to extend credit and standby letters of credit. At June 30, ~~2020,~~2021, the Company had ~~$159.3~~$196.4 million in outstanding commitments to extend credit and standby letters of credit.

A smaller reporting company is not required to provide the information relating to this item.

Under the supervision and with the participation of ~~the Company’s management, including~~ our Chief Executive Officer (“CEO”) and our Chief Financial Officer ~~the Company has evaluated~~(“CFO”) (the Company’s principal executive officer and principal financial officer), management conducted an evaluation of the effectiveness of the design and operation of ~~its~~our disclosure controls and procedures (as defined in Rule 13a-15(e) and 15d-15(e) under the Exchange Act) as of the end of the period covered by this quarterly report. Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that, as of the end of the period covered by this report, the Company’s disclosureJune 30, 2021. The term “disclosure controls and procedures,” under the Exchange Act, means controls and other procedures of a company that are ~~effective~~designed to ensure that information required to be disclosed by a company in the reports that ~~the Company~~it files or submits under the ~~Securities~~ Exchange Act ~~of 1934~~ is recorded, processed, summarized and reported, within the time periods specified in the ~~Securities and Exchange Commission’s~~SEC’s rules and forms. ~~There has been no change~~Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the ~~Company’s~~reports that it files or submits under the Exchange Act is accumulated and communicated to our management, including its principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure.

Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures.

Based on the evaluation of our disclosure controls and procedures as of June 30, 2021, our CEO and CFO concluded that, solely as a result of the material weaknesses in internal control over financial reporting described below, which continued to exist as of June 30, 2021, our disclosure controls and procedures were not effective as of June 30, 2021.

The Company disclosed in Item 8 – Financial Statements and Supplementary Data in its Annual Report on Form 10-K for the year ended December 31, 2020 two areas that, under applicable SEC accounting rules, each constituted a “material weakness.” The first material weakness identified ineffectiveness in the controls related to Related Party (as defined in applicable regulations) transactions that included procedural and documentary deficiencies related to underwriting risk ratings and the completeness of borrower reviews. The second identified area of material weakness related to loan authorization, disbursement and file maintenance controls. As a result of the material weaknesses described above, management has concluded that, as of June 30, 2021, our internal control over financial reporting was not effective.

In order to remediate the material weakness related to transactions with Related Parties, management has commenced to initiate enhanced training programs and revise internal operating procedures designed to identify, summarize and monitor all such transactions and relationships.

In order to remediate the material weakness related to loan authorization, disbursement and file maintenance controls, management has commenced the redesign of specific processes and controls associated with each of the loan operations and will increase staffing levels where appropriate, improve training, increase the use of certain automated productivity tools, and install enhanced process oversight and functional controls to ensure that these internal controls are effective.

Management is committed to maintaining a strong internal control environment and believes these remediation efforts will result in an improvement in existing controls. Management anticipates that the new controls, as implemented and when tested for a sufficient period of time, will remediate the material weaknesses. As we continue to evaluate and work to improve our internal control over financial reporting, we may determine to take additional measures to address control deficiencies or modify certain activities of the remediation measures described above.

There were no changes made in our internal controls during the ~~most recent fiscal~~ quarter ended June 30, 2021 that ~~has~~have materially affected, or ~~is reasonable~~are reasonably likely to materially affect, the Company’s internal control over financial ~~reporting.~~reporting.

At June 30, ~~2020,~~2021, the Company is not currently a named party in a legal proceeding, the outcome of which would have a material and adverse effect on the financial condition or results of operations of the Company.

A smaller reporting company is not required to provide the information relating to this item.

(1) On August 29, 2016, our Board of Directors authorized the repurchase of up to 217,692 shares of our common stock, or 5% of the Company’s shares outstanding as of that date.

Exhibit No.	Description

31.1	Rule 13a-14(a)/15d-14(a) Certification of the Chief Executive Officer
31.2	Rule 13a-14(a)/15d-14(a) Certification of the Chief Financial Officer
32	Section 1350 Certification of the Chief Executive Officer and Chief Financial Officer
101	Interactive data files pursuant to Rule 405 of Regulation S-T formatted in Extensible Business Reporting Language (XBRL): (i) the Consolidated Statements of Condition, (ii) the Consolidated Statements of Income (iii) the Consolidated Statements of Comprehensive Income, (iv) the Consolidated Statements of Changes in Shareholders’ Equity, (v) Consolidated Statements of Cash Flows, and (vi) the Notes to the Consolidated Financial Statements tagged as blocks of text.

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, $0.01 par value	PBHC	The NASDAQ Stock Market LLC

PART I - FINANCIAL INFORMATION		PAGE NO.

Item 1.	Consolidated Financial Statements (Unaudited)	3
	Consolidated Statements of Condition	3
	Consolidated Statements of Income	4
	Consolidated Statements of Comprehensive Income	5
	Consolidated Statements of Changes in Shareholders' Equity	6
	Consolidated Statements of Cash Flows	8
	Notes to Consolidated Financial Statements	10

Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations (Unaudited)	5356

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	7684

Item 4.	Controls and Procedures	7684

PART II - OTHER INFORMATION

Item 1.	Legal Proceedings	7786
Item 1A.	Risk Factors	7786
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	7786
Item 3.	Defaults upon Senior Securities	7786
Item 4.	Mine Safety Disclosures	7786
Item 5.	Other information	7786
Item 6.	Exhibits	7786

SIGNATURES		7887


										Accumulated
					Additional					Other Com-						Non-
	Preferred		Common		Paid in		Retained			prehensive			Unearned			controlling
(In thousands, except share and per share data)	Stock		Stock		Capital		Earnings			Loss			ESOP			Interest			Total
Balance, March 31, 2020	$	12	$	47	$	49,659	$	46,174		$	(7,077	)	$	(809	)	$	305		$	88,311
Net income		-		-		-		1,841			-			-			(13	)		1,828
Other comprehensive income, net of tax		-		-		-		-			2,690			-			-			2,690
ESOP shares earned (6,110 shares)		-		-		15		-			-			44			-			59
Restricted stock units (13,437 shares)		-		-		-		-			-			-			-			-
Stock based compensation		-		-		73		-			-			-			-			73
Stock options exercised		-		1		-		-			-			-			-			1
Common stock dividends declared ($0.06 per share)		-		-		-		(279	)		-			-			-			(279	)
Preferred stock dividends declared ($0.06 per share)		-		-		-		(69	)		-			-			-			(69	)
Warrant dividends declared ($0.06 per share)		-		-		-		(7	)		-			-			-			(7	)
Balance, June 30, 2020	$	12	$	48	$	49,747	$	47,660		$	(4,387	)	$	(765	)	$	292		$	92,607

Balance, March 31, 2019	$	-	$	44	$	29,454	$	42,133		$	(4,462	)	$	(989	)	$	258		$	66,438
Net income		-		-		-		607			-			-			(6	)		601
Other comprehensive income, net of tax		-		-		-		-			1,438			-			-			1,438
Proceeds of common stock private placement, net of expenses ⁽¹⁾		-		3		3,823		-			-			-			-			3,826
Proceeds of preferred stock private placement, net of expenses ⁽¹⁾		12		-		15,358		-			-			-			-			15,370
Effect of warrant issued from private placement ⁽¹⁾		-		-		373		-			-			-						373
ESOP shares earned (6,110 shares)		-		-		44		-			-			45			-			89
Restricted stock units (13,436 shares)		-		-		-		-			-			-			-			-
Stock based compensation		-		-		73		-			-			-			-			73
Common stock dividends declared ($0.06 per share)		-		-		-		(274	)		-			-			-			(274	)
Preferred stock dividends declared ($0.06 per share)		-		-		-		(69	)		-			-			-			(69	)
Warrant dividends declared ($0.06 per share)		-		-		-		(8	)		-			-			-			(8	)
Distributions from affiliates		-		-		-		-			-			-			(13	)		(13	)
Balance, June 30, 2019	$	12	$	47	$	49,125	$	42,389		$	(3,024	)	$	(944	)	$	239		$	87,844

~~Standard~~	~~Description~~	~~Required Date~~ ~~of Implementation~~	~~Effect on Consolidated Financial Statements~~
~~Transition Relief for the Implementation of ASU-2016-13~~ ~~(ASU 2019-5: Financial Instruments—Credit Losses [Topic 326]: Targeted Transition Relief)~~	~~The amendments in this ASU provide entities that have certain instruments within the scope of Subtopic 326-20,~~ ~~Financial Instruments—Credit Losses—Measured at Amortized Cost, with an option to irrevocably elect the fair value option in Subtopic 825-10,~~ ~~Financial Instruments—Overall~~, applied on an instrument-by-instrument basis for eligible instruments, upon adoption of Topic 326. The fair value option election does not apply to held-to-maturity debt securities. An entity that elects the fair value option should subsequently apply the guidance in Subtopics 820-10, ~~Fair Value Measurement—Overall~~, and 825-10. General guidance for the use of the fair value option is contained in Subtopic 825-10. The irrevocable election of the fair value option must be applied on an instrument-by-instrument basis for eligible instruments, whose characteristics are within the scope of Subtopic 326-20. Upon adoption of Topic 326, for items measured at fair value in accordance with paragraph 326-10-65-1(i), the difference between the carrying amount and the fair value shall be recorded by means of a cumulative-effect adjustment to the opening retained earnings balance as of the beginning of the first reporting period that an entity has adopted ASU 2016-13. Those differences may include, but are not limited to: (1) unamortized deferred costs, fees, premiums, and discounts (2) valuation allowances (for example, allowance for loan losses), or (3) accrued interest.	~~See comments above related to ASU 2016-13.~~	~~See comments above related to ASU 2016-13.~~2021
Standard	Description	Required Date of Implementation	Effect on Consolidated Financial Statements
Compensation (ASU 2018-14: Compensation - Retirement Benefits - Defined Benefit Plans - General [Subtopic 715 – 20]: Disclosure Framework - Changes to the Disclosure Requirements for Defined Benefit Plans)	The FASB is issuing the amendments in this ASU as part of the disclosure framework project. The amendments in this ASU modify the disclosure requirements for employers that sponsor defined benefit pension or other postretirement plans. The following disclosure requirements are removed from Subtopic 715-20: 1. The amounts in accumulated other comprehensive income expected to be recognized as components of net periodic benefit cost over the next fiscal year. 2. The amount and timing of plan assets expected to be returned to the employer. 3. Related party disclosures about the amount of future annual benefits covered by insurance and annuity contracts and significant transactions between the employer or related parties and the plan. 4. The effects of a one-percentage-point change in assumed health care cost trend rates on the (a) aggregate of the service and interest cost components of net periodic benefit costs and (b) benefit obligation for postretirement health care benefits. The following disclosure requirements are added to Subtopic 715-20: 1. The weighted-average interest crediting rates for cash balance plans and other plans with promised interest crediting rates. 2. An explanation of the reasons for significant gains and losses related to changes in the benefit obligation for the period. The amendments in this ASU also clarify the disclosure requirements in paragraph 715-20-50-3, which state that the following information for defined benefit pension plans should be disclosed: 1. The projected benefit obligation (PBO) and fair value of plan assets for plans with PBOs in excess of plan assets. 2. The accumulated benefit obligation (ABO) and fair value of plan assets for plans with ABOs in excess of plan assets.	The amendments in this ASU are effective for fiscal years ending after December 15, 2020, for public business entities and for fiscal years ending after December 15, 2021, for all other entities. Early adoption is permitted for all entities.	The ~~Company does not expect the new guidance will have a~~adoption of this ASU had no material impact to ~~its~~the Company's consolidated statements of condition or income.

	Available-for-Sale				Held-to-Maturity				Available-for-Sale				Held-to-Maturity
	Amortized		Estimated		Amortized		Estimated		Amortized		Estimated		Amortized		Estimated
(In thousands)	Cost		Fair Value		Cost		Fair Value		Cost		Fair Value		Cost		Fair Value
Due in one year or less	$	15,701	$	15,701	$	1,976	$	1,999	$	14,841	$	15,147	$	0	$	0
Due after one year through five years		8,462		8,535		17,572		17,804		4,669		4,787		14,553		15,231
Due after five years through ten years		15,309		15,257		20,392		20,801		14,946		14,969		39,601		40,605
Due after ten years		19,482		19,247		19,316		18,882		33,462		34,671		21,390		21,498
Sub-total		58,954		58,740		59,256		59,486		67,918		69,574		75,544		77,334
Residential mortgage-backed - US agency		14,845		15,124		11,909		12,532		22,765		23,171		10,714		11,122
Collateralized mortgage obligations - US agency		25,243		24,881		23,713		24,592		27,311		26,989		13,312		13,888
Collateralized mortgage obligations - Private label		17,316		17,180		46,420		46,530		37,263		37,619		62,862		63,653
Totals	$	116,358	$	115,925	$	141,298	$	143,140	$	155,257	$	157,353	$	162,432	$	165,997

	Pension Benefits						Postretirement Benefits						Pension Benefits						Postretirement Benefits						Pension Benefits						Postretirement Benefits						Pension Benefits						Postretirement Benefits
	For the three months ended June 30,												For the six months ended June 30,												For the three months ended June 30,												For the six months ended June 30,
(In thousands)	2020			2019			2020			2019			2020			2019			2020			2019			2021			2020			2021			2020			2021			2020			2021			2020
Service cost	$	-		$	-		$	-		$	-		$	-		$	-		$	-		$	-		$	-		$	-		$	-		$	-		$	-		$	-		$	-		$	-
Interest cost		117			123			3			5			233			247			8			11			111			117			2			3			221			233			6			8
Expected return on plan assets		(274	)		(233	)		-			-			(547	)		(467	)		-			-			(287	)		(274	)		-			-			(573	)		(547	)		-			-
Amortization of prior service credits		-			-			(1	)		(1	)		-			-			(2	)		(2	)		-			-			(1	)		(1	)		-			-			(2	)		(2	)
Amortization of net losses		57			82			3			3			114			164			5			6			25			57			2			3			50			114			4			5
Net periodic benefit plan (benefit) cost	$	(100	)	$	(28	)	$	5		$	7		$	(200	)	$	(56	)	$	11		$	15		$	(151	)	$	(100	)	$	3		$	5		$	(302	)	$	(200	)	$	8		$	11

(In thousands)		Carrying Amount of the Hedged Assets at June 30, 2020		Cumulative Amount of Fair Value Hedging Adjustment Included in The Carrying Amount of the Hedged Assets at June 30, 2020		Carrying Amount of the Hedged Assets at December 31, 2019		Cumulative Amount of Fair Value Hedging Adjustment Included in The Carrying Amount of the Hedged Assets at December 31, 2019			Carrying Amount of the Hedged Assets at June 30, 2021		Cumulative Amount of Fair Value Hedging Adjustment Included in the Carrying Amount of the Hedged Assets at June 30, 2021			Carrying Amount of the Hedged Assets at December 31, 2020		Cumulative Amount of Fair Value Hedging Adjustment Included in The Carrying Amount of the Hedged Assets at December 31, 2020
Line item on the balance sheet in which the hedged item is included:	Line item on the balance sheet in which the hedged item is included:									Line item on the balance sheet in which the hedged item is included:
Loans receivable ⁽¹⁾		$	16,428	$	149	$	19,254	$	75		$	-	$	-		$	12,944	$	53
Available-for-sale securities ⁽²⁾											$	16,369	$	(831	)	$	17,055	$	(191	)
Loans receivable ⁽³⁾											$	21,690	$	(47	)	$	-	$	-

	For the three months ended June 30, 2020
(In thousands)	Retirement Plans			Unrealized Gains and Losses on Available-for- Sale Securities			Unrealized Losses on Derivatives and Hedging Activities			Unrealized Loss on Securities Transferred to Held-to-Maturity			Total
Beginning balance	$	(2,859	)	$	(3,121	)	$	(1,062	)	$	(35	)	$	(7,077	)
Reevaluation of deferred tax asset valuation allowance ⁽¹⁾		0			0			0			0			0
Other comprehensive income before reclassifications		0			3,470			(145	)		8			3,333
Amounts reclassified from AOCI		47			(690	)		0			0			(643	)
Ending balance	$	(2,812	)	$	(341	)	$	(1,207	)	$	(27	)	$	(4,387	)

	Amount Reclassified							Amount Reclassified							Amount Reclassified						Amount Reclassified
	from AOCI ⁽¹⁾							from AOCI ⁽¹⁾							from AOCI ⁽¹⁾						from AOCI ⁽¹⁾
	(Unaudited)							(Unaudited)							(Unaudited)						(Unaudited)
(In thousands)	For the three months ended							For the six months ended							For the three months ended						For the six months ended
Details about AOCI ⁽¹⁾ components	June 30, 2020			June 30, 2019			Affected Line Item in the Statement of Income	June 30, 2020			June 30, 2019			Affected Line Item in the Statement of Income	June 30, 2021			June 30, 2020			June 30, 2021			June 30, 2020
Retirement plan items
Retirement plan net losses recognized in plan expenses ⁽²⁾	$	(59	)	$	(84	)	Salaries and employee benefits	$	(117	)	$	(168	)	Salaries and employee benefits	$	(26	)	$	(59	)	$	(53	)	$	(117	)
Tax effect		12			18		Provision for income taxes		24			37		Provision for income taxes		7			12			15			24
	$	(47	)	$	(66	)	Net Income	$	(93	)	$	(131	)	Net Income	$	(19	)	$	(47	)	$	(38	)	$	(93	)

Available-for-sale securities
Realized gain on sale of securities	$	873		$	32		Net gains on sales and redemptions of investment securities	$	899		$	111		Net gains on sales and redemptions of investment securities	$	0		$	873		$	0		$	899
Tax effect		(183	)		(7	)	Provision for income taxes		(189	)		(23	)	Provision for income taxes		0			(183	)		0			(189	)
	$	690		$	25		Net Income	$	710		$	88		Net Income	$	0		$	690		$	0		$	710

(In thousands, except lease term and discount rate)	June 30, 2020			December 31, 2019			June 30, 2021			December 31, 2020
Operating Leases:
Operating lease right-of-use assets	$	2,312		$	2,386		$	2,172		$	2,240
Operating lease liabilities	$	2,587		$	2,650		$	2,467		$	2,525

Finance Leases:
Financial Liability	$	583		$	578		$	592		$	587

Weighted Average Remaining Lease Term:
Operating Leases	19.33 years			19.58 years			18.79 years			19.08 years
Finance Leases	28.92 years			29.42 years			27.92 years			28.42 years

Weighted Average Discount Rate:
Operating Leases		3.72	%		3.71	%		3.72	%		3.73	%
Finance Leases		13.75	%		13.75	%		13.75	%		13.75	%

Twelve Months Ending June 30,
(In thousands)
2021	$	110
2022		95	$	95
2023		105		104
2024		114		114
2025		122		122
2026				130
Thereafter		2,624		2,494
Total minimum lease payments	$	3,170	$	3,059

Period	Total Number of Shares Purchased ⁽¹⁾		Average Price Paid Per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs		Maximum Number of Shares That May Yet Be Purchased Under the Plans or Programs
April 1, ~~2020~~2021 through April 30, ~~2020~~2021		-	$	-		-		74,292

May 1, ~~2020~~2021 through May 31, ~~2020~~2021		-	$	-		-		74,292

June 1, ~~2020~~2021 through June 30, ~~2020~~2021		-	$	-		-		74,292

August ~~13, 2020~~16, 2021	/s/ Thomas W. Schneider
	Thomas W. Schneider
	President and Chief Executive Officer

August ~~13, 2020~~16, 2021	/s/ Walter F. Rusnak
	Walter F. Rusnak
	Senior Vice President, Chief Financial Officer