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 November ~~12, 2021,~~9, 2022, there were ~~4,583,215~~4,620,822 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.

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

Note 2: New Accounting Pronouncements

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.

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~~Standards Adopted as of September 30, 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 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~~

~~Investments~~ (ASU 2020-01- Equity Securities [Topic 321], Investments—Equity Method and Joint Ventures [Topic 323], and Derivatives and Hedging [Topic 815]—Clarifying the Interactions between Topic 321, Topic 323, and Topic 815)

The amendments in this Update clarify the interaction of the accounting for equity securities under Topic 321 and investments accounted for under the equity method of accounting in Topic 323 and the accounting for certain forward contracts and purchased options accounted for under Topic 815. The amendments clarify that an entity should consider observable transactions that require it to either apply or discontinue the equity method of accounting for the purposes of applying the measurement alternative in accordance with Topic 321 immediately before applying or upon discontinuing the equity method. The amendments clarify that for the purpose of applying paragraph 815-10-15-141(a) an entity should not consider whether, upon the settlement of the forward contract or exercise of the purchased option, individually or with existing investments, the underlying securities would be accounted for under the equity method in Topic 323 or the fair value option in accordance with the financial instruments guidance in Topic 825. An entity also would evaluate the remaining characteristics in paragraph 815-10-15-141 to determine the accounting for those forward contracts and purchased options.

~~The adoption of this ASU had no material impact to the Company's consolidated statements of condition or income.~~

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~~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 are effective for all entities as of March 12, 2020 through December 31, 2022.~~	~~The adoption of this ASU had no material impact to the Company's consolidated statements of condition or income.~~

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~~Standard~~	~~Description~~	~~Required Date~~ ~~of Implementation~~	~~Effect on Consolidated Financial Statements~~
~~1. No. 2021-06 \| Presentation of Financial Statements (Topic 205), Financial Services—Depository and Lending (Topic 942), and Financial Services—Investment Companies (Topic 946)~~	This ASU requires applicable entities to disclose, as of each balance sheet date, in a footnote to the financial statements, the aggregate dollar amount of loans (exclusive of loans to any such persons which in the aggregate do not exceed $60,000 during the latest year) made by the registrant or any of its subsidiaries to directors, executive officers, or principal holders of equity securities of the registrant or any of its significant subsidiaries, or to any associate of such persons. For the latest fiscal year, an analysis of activity with respect to such aggregate loans to related parties should also be provided. The analysis should include the aggregate amount at the beginning of the period, new loans, repayments, and other changes. This disclosure need not be furnished when the aggregate amount of such loans at the balance sheet date (or with respect to the latest fiscal year, the maximum amount outstanding during the period) does not exceed 5 percent of stockholders equity as of that date. This ASU also requires depository and lending institutions to disclose if a significant portion of the aggregate amount of loans outstanding to related parties at the end of the fiscal year relates to loans that are disclosed as nonaccrual, past due, nonaccrual, or troubled debt restructurings in the consolidated financial statements along with such other information necessary to an understanding of the effects of the transactions on the financial statements. This ASU further requires depository and lending institutions to disclose if any loans were not made in the ordinary course of business during any period for which a statement of comprehensive income is required to be filed.	~~This ASU is effective immediately for all applicable entities.~~	This ASU requires additional disclosures to be provided in all reporting periods for which financial statements are presented, but otherwise does not affect the Company's reported statements of financial condition or results of operations.
Standards Not Yet Adopted as of September 30, ~~2021~~2022
Standard	Description	Required Date of Implementation
~~Standard~~	~~Description~~	~~Required Date~~ ~~of Implementation~~	Effect on Consolidated Financial Statements
~~Earnings Per Share, Debt Modifications and Extinguishments, Stock Compensation, and Derivatives and Hedging- Contacts in Entity's own Equity~~ ~~(ASU 2011-04)~~	The amendments in this Update affect all entities that issue freestanding written call options that are classified 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 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 for 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 the amendments. Early adoption is permitted for all entities, including adoption in an interim period. If an entity elects to early adopt the amendments in this Update in an interim period, the guidance should be applied as of the beginning of the fiscal year that includes that interim period.	The adoption of this ASU is expected to have no material impact to the Company's consolidated statements of condition or income as the Company does not have any freestanding equities with a written call option.

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~~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 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 impact to the Company's consolidated statements of condition or income.~~

- 14 -

~~Standard~~

~~Description~~

~~Required Date~~

~~of Implementation~~

~~Effect on Consolidated Financial Statements~~

Measurement of Credit Losses on Financial Instruments ~~(ASU~~(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 ~~was~~ permitted as of January 1, 2019)

The Company is assessing new guidance to determine what modifications to existing credit estimation processes may be required. The new guidance is complex and management is evaluating 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, and has developed plans that 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 will 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 of adoption.

- 11 -


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.	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, cannot be estimated at this time.

- 1512 - -

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.~~

- 16 -

~~Standard~~

~~Description~~

~~Required Date~~

~~of Implementation~~

~~Effect on Consolidated Financial Statements~~

~~Financial Instruments—Credit Losses~~ ~~(ASU~~(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—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~~will 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.

- 13 -


Standard	Description	Required Date of Implementation	Effect on Consolidated Financial Statements
Fair Value Measurement (Topic 820): Fair Value Measurement of Equity Securities Subject to Contractual Sale Restrictions (ASU 2022-03)	ASU 2022-03 provides clarification that a “contractual sale restriction prohibiting the sale of an equity security is a characteristic of the reporting entity holding the equity security” and is not included in the equity security's unit of account. Accordingly, an entity should not consider the contractual sale restriction when measuring the equity security’s fair value (i.e., the entity should not apply a discount related to the contractual sale restriction, as stated in ASC 820-10-35-36B as amended by the ASU). In addition, the ASU prohibits an entity from recognizing a contractual sale restriction as a separate unit of account. Under the existing guidance in ASC 820-10-35-6B, “although a reporting entity must be able to access the market, the reporting entity does not need to be able to sell the particular asset or transfer the particular liability on the measurement date to be able to measure fair value on the basis of the price in that market.” ASU 2022-03 clarifies that an entity should apply this existing guidance when measuring the fair value of equity securities that are subject to contractual sale restrictions (i.e., a contractual sale restriction on the reporting entity that prevents the sale of an equity security in the market does not prevent the entity from measuring the fair value of the equity security on the basis of the price in that principal market). In transition, all entities other than investment companies as defined in ASC 946 should apply the amendments in ASU 2022-03 prospectively and recognize in earnings on the adoption date any adjustments made as a result of adoption.	For public business entities, such as the Company, fiscal years beginning after December 15, 2023, and interim periods within those fiscal years, with early adoption permitted.	The Company is assessing the new guidance to determine the financial impact of this transition and does not expect that the guidance will have a material effect on its consolidated statements of financial condition or income.


Standard	Description	Required Date of Implementation	Effect on Consolidated Financial Statements
Derivatives and Hedging (Topic 815): Fair Value Hedging - Portfolio Layer Method (ASU 2022-01)	Under current guidance, the last-of-layer method enables an entity to apply fair value hedging to a stated amount of a closed portfolio of prepayable financial assets (or one or more beneficial interests secured by a portfolio of prepayable financial instruments) without having to consider prepayment risk or credit risk when measuring those assets. ASU 2022-01 expands the scope of this guidance to allow entities to apply the portfolio layer method to portfolios of all financial assets, including both prepayable and nonprepayable financial assets. This scope expansion is consistent with the FASB’s efforts to simplify hedge accounting and allows entities to apply the same method to similar hedging strategies. ASU 2022-01 expands and clarifies the current guidance on accounting for fair value hedge basis adjustments under the portfolio layer method for both single-layer and multiple-layer hedges. An entity should adjust the basis of the hedged item for the change in fair value that is attributable to changes in the hedged risk (i.e., interest rate risk) as of each reporting date. However, the hedged item (i.e., the hedged layer) in a portfolio layer method hedge is related to multiple assets within a closed portfolio, but it is not necessarily related to all of the assets within that portfolio. Accordingly, ASU 2022-01 clarifies that an entity would adjust the basis at the portfolio level and should not allocate it to individual assets within the portfolio. The ASU does not change an entity’s current requirement to allocate the portfolio-level basis adjustment to the individual assets within a closed portfolio upon a dedesignation of a hedging relationship. The entity must, however, 1. recognize the reversal of all basis adjustments associated with a breach in interest income and, 2. disclose the specific amount and cause of the breach. Companies are allowed to reclassify debt securities from held-to-maturity to available-for-sale upon adoption of the rules but only if they intend to apply portfolio layer method hedging to a closed portfolio that includes those debt securities. The decision of which securities to reclassify must be made within 30 days after the date of adoption, and the securities must be included in a closed portfolio that is designated in a portfolio layer method hedge within that 30-day period.	For public business entities, fiscal years beginning after December 15, 2022, and interim periods within those fiscal years. For all other entities, fiscal years beginning after December 15, 2023, and interim periods within those fiscal years. The guidance may be early adopted if an entity has adopted ASU 2017-12 for the corresponding period.	The Company has not yet determined which transition method will be applied to the extent that such transition adjustments are applicable. The Company does not expect that the guidance will have a material effect on its consolidated statements of financial condition or income.

- 14 -


Standard	Description	Required Date of Implementation	Effect on Consolidated Financial Statements
Financial Instruments - Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures ASU 2022-02	ASU 2022-02 supersedes the accounting guidance for TDRs for creditors in ASC 310-40 in its entirety and requires entities to evaluate all receivable modifications under ASC 310-20-35-9 through 35-11 to determine whether a modification made to a borrower results in a new loan or a continuation of the existing loan. The ASU also amends other subtopics to remove references to TDRs for creditors. In addition to the elimination of TDR guidance, an entity that has adopted ASU 2022-02 no longer considers renewals, modifications, and extensions that result from reasonably expected TDRs in their calculation of the allowance for credit losses in accordance with ASC 326-20. Due to the removal of the TDR accounting model, all loan modifications will be accounted for under the general loan modification guidance in Subtopic 310-20. On a prospective basis, entities will be subject to new disclosure requirements covering modifications of receivables to borrowers experiencing financial difficulty. Public entities within the scope of Topic 326 vintage disclosure requirements also will be required to prospectively disclose current-period gross write-off information by vintage, or year of origination. In lieu of the TDR accounting model, creditors now will apply the general loan modification guidance in Subtopic 310-20 to all loan modifications, including modifications made for borrowers experiencing financial difficulty. Under the general loan modification guidance, a modification is treated as a new loan only if the following two conditions are met: 1. The terms of the new loan are at least as favorable to the lender as the terms for comparable loans to other customers with similar collection risks. 2. Modifications to the terms of the original loan are more than minor. If either condition is not met, the modification is accounted for as the continuation of the old loan with any effect of the modification treated as a prospective adjustment to the loan’s effective interest rate. Whether a modification is a new loan or the continuation of the original loan will determine whether net deferred fees or costs from the original loan are recognized in earnings (new loan) or continue to be accreted or amortized (continuation of original loan).	For entities that have adopted the amendments in ASU 2016-13, the amendments in ASU 2022-02 are effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. For entities that have not yet adopted the amendments in ASU 2016-13, such as the Company, the effective dates for the amendments in ASU 2022-02 are the same as the effective dates in ASU 2016-13. The amendments in ASU 2022-02 will be applied prospectively, except as provided in the next sentence. For the transition method related to the recognition and measurement of TDRs, an entity has the option to apply a modified retrospective transition method, resulting in a cumulative-effect adjustment to retained earnings in the period of adoption.	The Company is assessing the new guidance to determine what modifications to existing TDRs may be required. The new guidance is being evaluated as part of the CECL methodology and will be considered in conjunction with the preliminary output from CECL models that have been developed during this evaluative phase. 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.

- 15 -

- 17 -

Note 3: Earnings per Common Share

Following shareholder approval received on June 4, 2021, the Company converted 1,380,283 shares of its Series B Convertible Perpetual Preferred Stock ("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 has voting common stock, non-voting common 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 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 ~~-0-~~-0- for the three and nine months ended September 30, ~~2021. Anti-dilutive stock options, not included in the computation below,were 256,145 for the three months ended~~2022, and September 30, ~~2020 and 170,763 for the nine months ended September 30, 2020.~~2021, respectively.

- 18 -

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

Three months ended

Nine months ended

September 30,

September 30,

(In thousands, except per share data)

2021

2020

2021

2020

Net income attributable to Pathfinder Bancorp, Inc.

$
3,365

$
1,474

$
8,528

$
5,005

Convertible preferred stock dividends

-

70

180

208

Series A Non-Voting Common Stock dividends

96

-

110

-

Warrant dividends

9

7

26

22

Undistributed earnings allocated to participating securities

739

241

1,833

853

Net income available to common shareholders- Voting

$
2,521

$
1,156

$
6,379

$
3,922

Net income attributable to Pathfinder Bancorp, Inc.

$
3,365

$
-

$
8,528

$
-

Convertible preferred stock dividends

-

-

180

-

Voting Common Stock dividends

315

-

941

-

Warrant dividends

9

-

26

-

Undistributed earnings allocated to participating securities

2,266

-

6,624

-

Net income available to common shareholders- Series A Non-Voting

$
775

$
-

$
757

$
-

Basic weighted average common shares outstanding- Voting

4,488

4,650

4,465

4,632

Basic weighted average common shares outstanding- Series A Non-Voting

1,380

-

531

-

Diluted weighted average common shares outstanding- Voting

4,488

4,650

4,465

4,632

Diluted weighted average common shares outstanding- Series A Non-Voting

1,380

-

531

-

Basic earnings per common share- Voting

$
0.56

$
0.25

$
1.43

$
0.85

Basic earnings per common share- Series A Non-Voting

$
0.56

$
-

$
1.43

$
-

Diluted earnings per common share- Voting

$
0.56

$
0.25

$
1.43

$
0.85

Diluted earnings per common share- Series A Non-Voting

$
0.56

$
-

$
1.43

$
-

Supplemental information:

September 30, 2021

December 31, 2020

September 30, 2020

Voting Common Stock shares outstanding at period end

4,576

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

5,956

5,911

5,909


	Three months ended				Nine months ended
	September 30,				September 30,
(In thousands, except share and per share data)	2022		2021		2022		2021
Net income attributable to Pathfinder Bancorp, Inc.	$	3,180	$	3,365	$	9,402	$	8,528
Convertible preferred stock dividends		-		-		-		180
Series A Non-Voting Common Stock dividends		125		96		373		110
Warrant dividends		11		9		34		26
Amount attributable to Series A Non-Voting Common Stock and participating warrants		653		739		1,930		1,833
Net income available to common shareholders-Voting	$	2,391	$	2,521	$	7,065	$	6,379

Net income attributable to Pathfinder Bancorp, Inc.	$	3,180	$	3,365	$	9,402	$	8,528
Convertible preferred stock dividends		-		-		-		180
Voting Common Stock dividends		411		315		1,231		941
Warrant dividends		11		9		34		26
Amount attributable to Voting Common Stock and participating warrants		2,034		2,266		5,994		6,624
Net income available to common shareholders-Series A Non-Voting	$	724	$	775	$	2,143	$	757

Basic and diluted weighted average common shares outstanding-Voting		4,564		4,488		4,550		4,465
Basic and diluted weighted average common shares outstanding-Series A Non-Voting		1,380		1,380		1,380		531

Basic and diluted earnings per common share-Voting	$	0.52	$	0.56	$	1.55	$	1.43
Basic and diluted earnings per common share-Series A Non-Voting	$	0.52	$	0.56	$	1.55	$	1.43

- 16 -

19 -

Note 4: Investment Securities

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


	September 30, 2021									September 30, 2022
			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	$	33,329	$	19	$	(305	)	$	33,043	$	32,979	$	44	$	(3,543	)	$	29,480
State and political subdivisions		27,577		1,333		0			28,910		47,695		56		(5,026	)		42,725
Corporate		13,620		560		(25	)		14,155		11,814		723		(524	)		12,013
Asset backed securities		12,520		33		(57	)		12,496		16,651		-		(575	)		16,076
Residential mortgage-backed - US agency		23,567		268		(229	)		23,606		18,383		-		(1,611	)		16,772
Collateralized mortgage obligations - US agency		15,043		56		(291	)		14,808		13,354		-		(1,331	)		12,023
Collateralized mortgage obligations - Private label		48,070		412		(183	)		48,299		66,227		-		(4,016	)		62,211
Total		173,726		2,681		(1,090	)		175,317		207,103		823		(16,626	)		191,300
Equity investment securities:
Common stock - financial services industry		206		0		0			206		206		-		-			206
Total		206		0		0			206		206		-		-			206
Total available-for-sale	$	173,932	$	2,681	$	(1,090	)	$	175,523	$	207,309	$	823	$	(16,626	)	$	191,506

Held-to-Maturity Portfolio
Debt investment securities:
US Treasury, agencies and GSEs	$	0	$	0	$	0		$	0	$	3,862	$	-	$	(275	)	$	3,587
State and political subdivisions		17,393		507		(93	)		17,807		15,225		-		(2,418	)		12,807
Corporate		45,301		1,487		(37	)		46,751		45,095		-		(2,186	)		42,909
Asset backed securities		15,099		122		(136	)		15,085		19,585		51		(1,123	)		18,513
Residential mortgage-backed - US agency		10,103		369		0			10,472		7,622		4		(721	)		6,905
Collateralized mortgage obligations - US agency		12,173		483		(5	)		12,651		15,335		-		(1,191	)		14,144
Collateralized mortgage obligations - Private label		61,667		564		(101	)		62,130		89,206		-		(4,064	)		85,142
Total held-to-maturity	$	161,736	$	3,532	$	(372	)	$	164,896	$	195,930	$	55	$	(11,978	)	$	184,007

- 2017 - -


	December 31, 2021
			Gross		Gross			Estimated
	Amortized		Unrealized		Unrealized			Fair
(In thousands)	Cost		Gains		Losses			Value
Available-for-Sale Portfolio
Debt investment securities:
US Treasury, agencies and GSEs	$	32,669	$	17	$	(413	)	$	32,273
State and political subdivisions		37,860		1,383		(44	)		39,199
Corporate		13,603		562		(38	)		14,127
Asset backed securities		13,693		9		(89	)		13,613
Residential mortgage-backed - US agency		22,482		148		(466	)		22,164
Collateralized mortgage obligations - US agency		12,658		30		(403	)		12,285
Collateralized mortgage obligations - Private label		56,848		285		(402	)		56,731
Total		189,813		2,434		(1,855	)		190,392
Equity investment securities:
Common stock - financial services industry		206		-		-			206
Total		206		-		-			206
Total available-for-sale	$	190,019	$	2,434	$	(1,855	)	$	190,598

Held-to-Maturity Portfolio
Debt investment securities:
US Treasury, agencies and GSEs	$	-	$	-	$	-		$	-
State and political subdivisions		14,790		416		(140	)		15,066
Corporate		46,290		1,252		(102	)		47,440
Asset backed securities		14,636		67		(188	)		14,515
Residential mortgage-backed - US agency		9,740		277		(18	)		9,999
Collateralized mortgage obligations - US agency		11,362		367		(9	)		11,720
Collateralized mortgage obligations - Private label		64,105		222		(262	)		64,065
Total held-to-maturity	$	160,923	$	2,601	$	(719	)	$	162,805

December 31, 2020

Gross

Gross

Estimated

Amortized

Unrealized

Unrealized

Fair

(In thousands)

Cost

Gains

Losses

Value

Available-for-Sale Portfolio

Debt investment securities:

US Treasury, agencies and GSEs

$
6,428

$
12

$
(24
)

$
6,416

State and political subdivisions

23,235

538

(20
)

23,753

Corporate

12,393

275

0

12,668

Asset backed securities

8,572

39

(4
)

8,607

Residential mortgage-backed - US agency

24,856

355

0

25,211

Collateralized mortgage obligations - US agency

26,776

149

(461
)

26,464

Collateralized mortgage obligations - Private label

24,662

384

(110
)

24,936

Total

126,922

1,752

(619
)

128,055

Equity investment securities:

Common stock - financial services industry

206

0

0

206

Total

206

0

0

206

Total available-for-sale

$
127,128

$
1,752

$
(619
)

$
128,261

Held-to-Maturity Portfolio

Debt investment securities:

US Treasury, agencies and GSEs

$
1,000

$
2

$
0

$
1,002

State and political subdivisions

16,482

527

(58
)

16,951

Corporate

36,441

1,101

(7
)

37,535

Asset backed securities

18,414

217

(176
)

18,455

Residential mortgage-backed - US agency

11,807

475

0

12,282

Collateralized mortgage obligations - US agency

24,482

850

(1
)

25,331

Collateralized mortgage obligations - Private label

62,598

902

(121
)

63,379

Total held-to-maturity

$
171,224

$
4,074

$
(363
)

$
174,935

The amortized cost and estimated fair value of debt investments at September 30, ~~2021~~2022 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.


	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	$	5,892	$	6,219	$	6,320	$	6,416	$	4,569	$	5,286	$	-	$	-
Due after one year through five years		5,241		5,402		8,232		8,748		5,269		5,016		14,364		13,899
Due after five years through ten years		35,544		35,312		40,257		41,365		34,937		31,136		44,973		42,233
Due after ten years		40,369		41,671		22,984		23,114		64,364		58,856		24,430		21,684
Sub-total		87,046		88,604		77,793		79,643		109,139		100,294		83,767		77,816
Residential mortgage-backed - US agency		23,567		23,606		10,103		10,472		18,383		16,772		7,622		6,905
Collateralized mortgage obligations - US agency		15,043		14,808		12,173		12,651		13,354		12,023		15,335		14,144
Collateralized mortgage obligations - Private label		48,070		48,299		61,667		62,130		66,227		62,211		89,206		85,142
Totals	$	173,726	$	175,317	$	161,736	$	164,896	$	207,103	$	191,300	$	195,930	$	184,007

- 2118 - -

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:


	September 30, 2021																					September 30, 2022
	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		3	$	(305	)	$	31,799		0	$	0		$	0		3	$	(305	)	$	31,799		-	$	-		$	-		3	$	(3,543	)	$	26,001		3	$	(3,543	)	$	26,001
State and political subdivisions		0		0			0		0		0			0		0		0			0		28		(4,148	)		34,549		5		(878	)		5,898		33		(5,026	)		40,447
Corporate		2		(25	)		1,689		0		0			0		2		(25	)		1,689		7		(274	)		5,719		2		(250	)		1,454		9		(524	)		7,173
Asset backed securities		4		(57	)		9,489		0		0			0		4		(57	)		9,489		8		(284	)		11,492		2		(291	)		4,584		10		(575	)		16,076
Residential mortgage-backed - US agency		3		(229	)		13,440		0		0			0		3		(229	)		13,440		13		(753	)		6,320		3		(858	)		10,450		16		(1,611	)		16,770
Collateralized mortgage obligations - US agency		3		(45	)		6,821		2		(246	)		2,590		5		(291	)		9,411		7		(315	)		4,899		5		(1,016	)		7,124		12		(1,331	)		12,023
Collateralized mortgage obligations - Private label		11		(171	)		24,927		2		(12	)		1,579		13		(183	)		26,506		23		(2,309	)		32,923		11		(1,707	)		22,731		34		(4,016	)		55,654
Totals		26	$	(832	)	$	88,165		4	$	(258	)	$	4,169		30	$	(1,090	)	$	92,334		86	$	(8,083	)	$	95,902		31	$	(8,543	)	$	78,242		117	$	(16,626	)	$	174,144
Held-to-Maturity Portfolio
US Treasury, agencies and GSE's																							2	$	(275	)	$	3,587		-	$	-		$	-		2	$	(275	)	$	3,587
State and political subdivisions		3	$	(51	)	$	3,333		1	$	(42	)	$	2,034		4	$	(93	)	$	5,367		11		(1,115	)		8,667		4		(1,303	)		4,139		15		(2,418	)		12,806
Corporate		8		(37	)		5,963		0		0			0		8		(37	)		5,963		33		(1,739	)		32,356		7		(447	)		4,803		40		(2,186	)		37,159
Asset backed securities		3		(55	)		4,331		2		(81	)		1,856		5		(136	)		6,187		6		(486	)		10,202		2		(637	)		2,458		8		(1,123	)		12,660
Residential mortgage-backed - US agency																							10		(721	)		5,950		-		-			-		10		(721	)		5,950
Collateralized mortgage obligations - US agency		1		(5	)		1,209		0		0			0		1		(5	)		1,209		10		(1,171	)		13,219		1		(20	)		925		11		(1,191	)		14,144
Collateralized mortgage obligations - Private label		0		0			0		3		(101	)		4,191		3		(101	)		4,191		40		(3,654	)		62,865		2		(410	)		3,129		42		(4,064	)		65,994
Totals		15	$	(148	)	$	14,836		6	$	(224	)	$	8,081		21	$	(372	)	$	22,917		112	$	(9,161	)	$	136,846		16	$	(2,817	)	$	15,454		128	$	(11,978	)	$	152,300


	December 31, 2021
	Less than Twelve Months							Twelve Months or More							Total
	Number of							Number of							Number of
	Individual		Unrealized			Fair		Individual		Unrealized			Fair		Individual		Unrealized			Fair
(Dollars in thousands)	Securities		Losses			Value		Securities		Losses			Value		Securities		Losses			Value
Available-for-Sale Portfolio
US Treasury, agencies and GSE's		3	$	(413	)	$	31,195		-	$	-		$	-		3	$	(413	)	$	31,195
State and political subdivisions		3		(44	)		4,847		-		-			-		3		(44	)		4,847
Corporate		2		(5	)		1,162		1		(33	)		722		3		(38	)		1,884
Asset backed securities		5		(89	)		11,206		-		-			-		5		(89	)		11,206
Residential mortgage-backed - US agency		3		(466	)		13,090		-		-			-		3		(466	)		13,090
Collateralized mortgage obligations - US agency		3		(126	)		6,504		2		(277	)		2,204		5		(403	)		8,708
Collateralized mortgage obligations - Private label		18		(388	)		38,816		2		(14	)		1,539		20		(402	)		40,355
Totals		37	$	(1,531	)	$	106,820		5	$	(324	)	$	4,465		42	$	(1,855	)	$	111,285
Held-to-Maturity Portfolio
State and political subdivisions		4	$	(28	)	$	2,013		2	$	(112	)	$	3,988		6	$	(140	)	$	6,001
Corporate		9		(102	)		7,636		-		-			-		9		(102	)		7,636
Asset backed securities		2		(130	)		2,974		2		(58	)		1,610		4		(188	)		4,584
Residential mortgage-backed - US agency		1		(18	)		1,941		-		-			-		1		(18	)		1,941
Collateralized mortgage obligations - US agency		-		-			-		1		(9	)		1,109		1		(9	)		1,109
Collateralized mortgage obligations - Private label		6		(163	)		13,070		3		(99	)		3,820		9		(262	)		16,890
Totals		22	$	(441	)	$	27,634		8	$	(278	)	$	10,527		30	$	(719	)	$	38,161

December 31, 2020

Less than Twelve Months

Twelve Months or More

Total

Number of

Number of

Number of

Individual

Unrealized

Fair

Individual

Unrealized

Fair

Individual

Unrealized

Fair

(Dollars in thousands)

Securities

Losses

Value

Securities

Losses

Value

Securities

Losses

Value

Available-for-Sale Portfolio

US Treasury, agencies and GSE's

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

0

0

0

0

0

0

0

0

0

Asset backed securities

2

(2
)

2,487

1

(2
)

80

3

(4
)

2,567

Residential mortgage-backed - US agency

0

0

0

0

0

0

0

0

0

Collateralized mortgage obligations - US agency

2

(45
)

6,974

2

(416
)

5,683

4

(461
)

12,657

Collateralized mortgage obligations - Private label

3

(78
)

8,071

4

(32
)

2,574

7

(110
)

10,645

Totals

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

3

(58
)

7,063

0

0

0

3

(58
)

7,063

Corporate

4

(7
)

3,775

0

0

0

4

(7
)

3,775

Asset backed securities

4

(36
)

4,209

3

(140
)

4,683

7

(176
)

8,892

Collateralized mortgage obligations - US agency

1

(1
)

1,496

0

0

0

1

(1
)

1,496

Collateralized mortgage obligations - Private label

4

(115
)

6,442

1

(6
)

780

5

(121
)

7,222

Totals

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

- 19 -

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 an asset-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.~~fair value at the measurement date. Conversely, the lower the discount rate, the higher the resultant security ~~price.~~fair value at the measurement date. In addition, the cumulative amount and timing of undiscounted cash flows of debt securities may also 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

- 22 -

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 available-for-sale investment securities portfolio, with an aggregate amortized historical cost of $189.8 million, had an aggregate fair value that exceeded its aggregate amortized historical cost by $579,000, or 0.31%, at December 31, 2021. The available-for-sale investment securities portfolio, with an aggregate amortized historical cost of $214.4 million, had an aggregate fair value that was less than its aggregate amortized historical cost by $11.4 million, or 5.32%, at September 30, 2022. The resultant $12.0 million total decline in the fair value of the available-for-sale investment portfolio's aggregate fair value relative to its aggregate amortized historical cost, in the nine months ended September 30, 2022, was primarily due to the significant increase in general interest rates that occurred in that period and did not represent any other-than-temporary impairment within the portfolio at September 30, 2022.

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 unrealized losses in individual ~~unrealized loss in~~investment securities within the portfolio as of September 30, ~~2021 represents~~2022 represent OTTI. AtThere were a total of 31securities classified as available-for-sale (aggregate amortized historical cost of $86.8 million, unrealized aggregate loss of $8.5 million, or -9.84%) and 16 securities classified as held-to-maturity (aggregate amortized historical cost of $18.3 million, with an unrealized aggregate loss of $2.8 million, or -15.42%) that were in an unrealized loss position for 12 months or longer at September 30, ~~2021, the Bank had the following~~2022. In total, therefore, at September 30, 2022 there were 47 securities with an aggregate book value of $105.1 million and an aggregate fair value of $93.7 million, representing a loss of $11.4 million, or -10.81%, that were in aan unrealized loss position for 12 months or more ~~relative~~on that date.

Each security which has been in an unrealized loss position for 12 months or more has been analyzed and is not considered to be impaired. These securities have unrealized losses primarily due to fluctuations in market interest rates or changes in expected prepayments. In substantially all cases, price improvement in future periods will be realized as the securities approach maturity. Of the total of 47 securities in an unrealized loss position for 12 months or more at September 30, 2022, 12 securities, with aggregate amortized cost balances of $49.9 million and representing 47.5% of the aggregate amortized cost of all securities in an unrealized loss position for 12 months or more, are issued by the United States government or GSEs. These positions are deemed to have no credit impairment, thus, the disclosed unrealized losses relate primarily to changes in prevailing interest rates.

Of the total of 47 securities in an unrealized loss position for 12 months or more at September 30, 2022, 16 securities, with aggregate amortized cost balances of $27.5 million and representing 26.2% of the aggregate amortized cost of all securities in an unrealized loss position for 12 months or more, are currently rated by one of more NRSRO at or above the minimum

- 20 -

investment grade. These positions are deemed to have no credit impairment, thus, the disclosed unrealized losses relate primarily to changes in prevailing interest rates.

In addition to the 28 securities discussed above, representing 73.7% of all securities in a loss position greater than 12 months, the Company held 19 non-government-issued/backed securities that were in an unrealized loss position for 12 or more months at September 30, 2022 and are unrated by any NRSRO. All of these securities were unrated at issuance. These securities are primarily privately-issued asset-backed or mortgage-backed securities (including issuances backed by commercial real estate mortgages). Most of these securities have significant credit enhancements in place in the form of cash reserves or other overcollateralization and of these, the vast majority are the most senior tranche with respect to credit priority in the overall issuance structure for that particular security. Given the characteristics of the underlying loans supporting each of these securities and the credit enhancements in place, it is unlikely that any of the Company’s unrated securities, now in a loss position for 12 or more months, will experience any loss of principal in currently foreseeable economic environments prior to the security’s respective maturity dates.

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.

All other securities with fair market values less than their amortized historical ~~cost, which were~~costs for twelve or more months are issued by United States agencies or United States government sponsored enterprises and consist of mortgage-backed securities, collateralized mortgage obligations and direct agency financings. These positions in U.S. government agency and U.S. 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.

~~Of the total of 10 securities in an unrealized loss position for 12 months or more at September 30, 2021 2 securities, representing 21.1%~~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 GSEs and consist of mortgage-backed securities, collateralized mortgage obligations and direct agency financings. These positions in US government agency and 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.

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

•

~~NaN~~ privately-issued mortgaged-backed securities, categorized as available-for-sale, and collateralized by various forms of commercial mortgages, with an amortized historical cost of $1.6 million and an aggregate market value of $1.6 million (unrealized loss of $12,000 or -0.75%). These securities maintain a credit rating established by one or more nationally-recognized statistical rating organizations (NRSRO) above the minimum level required to be considered as investment grade and therefore, no credit-related OTTI is deemed to be present. 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 enhancement mechanisms. Therefore, no credit-related OTTI is deemed to be present.

•

NaN privately-issued collateralized mortgage obligation securities, categorized as held-to-maturity, with an aggregate amortized historical cost of $4.3 million and an aggregate market value of $4.2 million (unrealized aggregate loss of $101,000 or -2.4%). These securities each maintain 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.

•

NaN privately-issued asset-backed security, categorized as held-to-maturity and collateralized by small business loans with an aggregated amortized historical cost of $323,000 and an aggregate market value of $319,000 (aggregate unrealized loss of $4,000 or -1.2%). 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.

•

NaN privately-issued asset-backed security, categorized as held-to-maturity and collateralized by federally-insured student loans, with an aggregate amortized historical cost of $1.6 million and an aggregate market value of

- 23 -

~~$1.5 million (aggregate unrealized loss of $77,000~~ ~~or -4.8%). This security was unrated at the time of its issuance but remains significantly collateralized through subordination. Therefore, no credit-related OTTI is deemed to be present.~~

•

NaN municipal bond, categorized as held-to-maturity, with an aggregate amortized historical cost of $2.1 million and an aggregate market value of $2.0 million (aggregate unrealized loss of $42,000 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.

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

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


	For the three months						For the nine months						For the three months						For the nine months
	ended September 30,						ended September 30,						ended September 30,						ended September 30,
(In thousands)	2021			2020			2021			2020			2022			2021			2022			2021
Realized gains on investments	$	55		$	41		$	113		$	1,107		$	-		$	55		$	37		$	113
Realized losses on investments		(50	)		(14	)		(57	)		(31	)		(198	)		(50	)		(205	)		(57	)
	$	5		$	27		$	56		$	1,076		$	(198	)	$	5		$	(168	)	$	56

As of September 30, ~~2021~~2022 and December 31, ~~2020,~~2021, securities with a fair value of ~~$121.5~~$94.7 million and ~~$96.4~~$103.2 million, respectively, were pledged to collateralize certain municipal deposit relationships. As of the same dates, securities with a fair value of ~~$10.0~~$8.7 million and ~~$21.3~~$9.4 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.

Note 6: Loans

Major classifications of loans at the indicated dates are as follows:


	September 30,			December 31,			September 30,			December 31,
(In thousands)	2021			2020			2022			2021
Residential mortgage loans:
1-4 family first-lien residential mortgages	$	234,940		$	227,185		$	245,428		$	240,434
Construction		7,833			6,681			14,623			6,329
Loans held-for-sale		294			1,526			275			513
Total residential mortgage loans		243,067			235,392			260,326			247,276

Commercial loans:
Real estate		277,692			286,271			337,392			288,450
Lines of credit		57,128			49,103			80,717			61,884
Other commercial and industrial		72,241			78,629			74,641			69,135
Paycheck Protection Program loans		27,293			60,643			693			19,338
Tax exempt loans		5,956			7,166			4,344			5,811
Total commercial loans		440,310			481,812			497,787			444,618

Consumer loans:
Home equity and junior liens		32,988			38,624			33,746			31,737
Other consumer		73,352			70,905			95,331			110,108
Total consumer loans		106,340			109,529			129,077			141,845

Total loans		789,717			826,733			887,190			833,739
Net deferred loan fees		(1,569	)		(1,238	)		(984	)		(1,280	)
Less allowance for loan losses		14,065			12,777			13,632			12,935
Loans receivable, net	$	774,083		$	812,718		$	872,574		$	819,524

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.

~~The~~- 22 -

From time to time, the Bank acquires diversified pools of loans, originated by unrelated third parties, as part of the Company’s overall balance sheet management strategies. These acquisitions ~~occurred in ten~~took place with nine separate transactions ~~commencing~~that occurred between 2017 and 2019 with an additional six transactions occurring in ~~2019 and continuing through 2021, including two separate transactions during~~2021. The following tables detail the ~~nine months ended~~purchased loan pool positions held by the Bank at September 30, ~~2021.~~2022 and December 31, 2021 (the month/year of the earliest acquisition date is depicted in parentheses):


(In thousands, except number of loans)	September 30, 2022
	Original Balance		Current Balance		Unamortized Premium/ (Discount)			Number of Loans		Maturity Range	Cumulative net charge-offs
Automobile loans (1/2017)	$	50,400	$	5,100	$	161			605	0-5 years	$	238
Commercial and industrial loans (6/2019)		6,800		2,300		-			23	3-7 years		-
Home equity lines of credit (8/2019)		21,900		6,500		202			150	1-27 years		-
Unsecured consumer loan pool 2 (11/2019)		26,600		2,100		14			940	0-3 years		-
Residential real estate loans (12/2019)		4,300		3,900		244			49	16-23 years		-
Unsecured consumer loan pool 1 (12/2019)		5,400		1,800		-			53	1-4 years		-
Unsecured consumer installment loans pool 3 (12/2019)		10,300		1,100		45			503	0-10 years		14
Secured consumer installment loans pool 4 (12/2020)		14,500		11,500		(1,553	)		527	23-24 years		-
Unsecured consumer loans pool 5 (1/2021)		24,400		17,500		(507	)		690	8-24 years		-
Commercial Line of Credit 1 (3/2021)		11,600		9,800		17			1	0-1 year		-
Secured consumer installment loans (11/2021)		21,300		20,000		(3,319	)		856	18-25 years		-
Commercial Line of Credit 2 (11/2021)		10,500		15,000		26			1	0-1 year		-
Unsecured consumer loans pool 6 (11/2021)		22,200		20,700		(2,521	)		549	8-24 years		-
Total	$	230,200	$	117,300	$	(7,191	)		4,947		$	252

(In thousands, except number of loans)	December 31, 2021
	Original Balance		Current Balance		Unamortized Premium/ (Discount)			Number of Loans		Maturity Range	Cumulative net charge-offs
Automobile loans (1/2017)	$	50,400	$	8,800	$	301			855	0-5 years	$	239
Commercial and industrial loans (6/2019)		6,800		3,900		-			33	4-8 years		-
Home equity lines of credit (8/2019)		21,900		8,400		243			187	2-28 years		-
Unsecured consumer loan pool 2 (11/2019)		26,600		6,300		30			1,438	1-3 years		-
Residential real estate loans (12/2019)		4,300		4,100		257			51	17-23 years		-
Unsecured consumer loan pool 1 (12/2019)		5,400		2,600		-			66	3-5 years		-
Unsecured consumer installment loans pool 3 (12/2019)		10,300		2,200		74			1,356	0-6 years		30
Secured consumer installment loans pool 4 (12/2020)		14,500		12,600		(1,776	)		563	23-24 years		-
Unsecured consumer loans pool 5 (1/2021)		24,400		19,700		(583	)		756	8-24 years		-
Commercial Line of Credit 1 (3/2021)		11,600		7,100		26			1	0-1 year		-
Secured consumer installment loans (11/2021)		21,300		21,400		(3,642	)		900	19-25 years		-
Commercial Line of Credit 2 (11/2021)		10,500		9,300		35			1	0-1 year		-
Unsecured consumer loans pool 6 (11/2021)		22,200		22,100		(2,785	)		564	9-24 years		-
Total	$	230,200	$	128,500	$	(7,820	)		6,771		$	269

- 26 -

September 30,

December 31,

(In thousands, except number of loans)

2021

2020

Purchased residential real estate loans

Original Balance

$
4,300

$
4,300

Current Balance

$
4,158

$
4,300

Unamortized Premium (Discount)

$
261

$
273

Percent Owned

100
%

100
%
Number of Loans

51

51

Maturity range

17-23 years

17-25 years

Cumulative net charge-offs

$
-

$
-

Purchased other commercial and industrial loans

Original Balance

$
6,800

$
6,800

Current Balance

$
4,025

$
5,500

Unamortized Premium (Discount)

$
-

$
-

Percent Owned

100
%

100
%
Number of Loans

33

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

$
9,500

$
13,900

Unamortized Premium (Discount)

$
258

$
309

Percent Owned

100
%

100
%
Number of Loans

202

275

Maturity range

3-28 years

3-29 years

Cumulative net charge-offs

$
-

$
-

Purchased automobile loans:

Original Balance

$
50,400

$
50,400

Current Balance

$
10,491

$
17,000

Unamortized Premium (Discount)

$
392

$
602

Percent Owned

90
%

90
%
Number of Loans

946

1,257

Maturity range

0-5 years

0-6 years

Cumulative net charge-offs

$
240

$
230

Purchased unsecured consumer loan pool 1:

Original Balance

$
5,400

$
5,400

Current Balance

$
2,700

$
3,600

Unamortized Premium (Discount)

$
-

$
-

Percent Owned

100
%

100
%
Number of Loans

66

76

Maturity range

3-5 years

3-6 years

Cumulative net charge-offs

$
-

$
-

- 27 -

September 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

$
8,070

$
15,400

Unamortized Premium (Discount)

$
37

$
63

Percent Owned

59
%

59
%
Number of Loans

1,629

2,246

Maturity range

3 years

2-4 years

Cumulative net charge-offs

$
-

$
-

Purchased unsecured consumer loan pool 3:

Original Balance

$
10,300

$
10,300

Current Balance

$
2,836

$
5,500

Unamortized Premium (Discount)

$
86

$
138

Percent Owned

100
%

100
%
Number of Loans

1,764

2,958

Maturity range

0-6 years

0-6 years

Cumulative net charge-offs

$
21

$
-

Purchased secured consumer loan pool 1:

Original Balance

$
14,500

$
14,500

Current Balance

$
13,200

$
14,500

Unamortized Premium (Discount)

$
(1,859
)

$
(2,124
)
Percent Owned

68
%

68
%
Number of Loans

582

619

Maturity range

24-25 years

25 years

Cumulative net charge-offs

$
-

$
-

Purchased secured consumer loan pool 2:

Original Balance

$
24,400

$
-

Current Balance

$
20,700

$
-

Unamortized Premium (Discount)

$
(606
)

$
-

Percent Owned

100
%

0
%
Number of Loans

772

-

Maturity range

10-24 years

-

Cumulative net charge-offs

$
-

$
-

Purchased commercial line of credit:

Original Balance

$
11,600

$
-

Current Balance

$
6,800

$
-

Unamortized Premium (Discount)

$
29

$
-

Percent Owned

12
%

0
%
Number of Loans

1

-

Maturity range

3 years

-

Cumulative net charge-offs

$
-

$
-

As of September 30, ~~2021~~2022 and December 31, ~~2020,~~2021, residential mortgage loans with a carrying value of ~~$120.9~~$117.9 million and ~~$115.6~~$123.2 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.

Loan Origination / Risk Management

The Company’s lending policies and procedures are presented in Note 5 to the audited consolidated financial statements included in the ~~2020~~2021 Annual Report on Form 10-K filed with the Securities and Exchange Commission on March ~~30,~~

- 28 -

~~2021~~25, 2022 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 an occasional 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

- 23 -

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 3three 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

- 2924 - -

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 September 30, 2021										As of September 30, 2022
			Special										Special
(In thousands)	Pass		Mention		Substandard		Doubtful		Total		Pass		Mention		Substandard		Doubtful		Total
Residential mortgage loans:
1-4 family first-lien residential mortgages	$	232,084	$	455	$	1,904	$	497	$	234,940	$	243,871	$	502	$	431	$	624	$	245,428
Construction		7,833		0		0		0		7,833		14,623		-		-		-		14,623
Loans held-for-sale		294		0		0		0		294		275		-		-		-		275
Total residential mortgage loans		240,211		455		1,904		497		243,067		258,769		502		431		624		260,326
Commercial loans:
Real estate		253,976		12,594		10,542		580		277,692		316,994		8,825		11,209		364		337,392
Lines of credit		48,949		5,777		2,346		56		57,128		72,670		1,867		6,141		39		80,717
Other commercial and industrial		59,596		10,043		2,411		191		72,241		62,993		6,744		4,904		-		74,641
Paycheck Protection Program loans		27,293		0		0		0		27,293		693		-		-		-		693
Tax exempt loans		5,956		0		0		0		5,956		4,344		-		-		-		4,344
Total commercial loans		395,770		28,414		15,299		827		440,310		457,694		17,436		22,254		403		497,787
Consumer loans:
Home equity and junior liens		32,016		100		612		260		32,988		32,843		83		598		222		33,746
Other consumer		73,139		99		106		8		73,352		95,248		17		66		-		95,331
Total consumer loans		105,155		199		718		268		106,340		128,091		100		664		222		129,077
Total loans	$	741,136	$	29,068	$	17,921	$	1,592	$	789,717	$	844,554	$	18,038	$	23,349	$	1,249	$	887,190

	As of December 31, 2020										As of December 31, 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	$	222,386	$	1,151	$	3,196	$	452	$	227,185	$	238,823	$	269	$	811	$	531	$	240,434
Construction		6,681		0		0		0		6,681		6,329		-		-		-		6,329
Loans held-for-sale		1,526		0		0		0		1,526		513		-		-		-		513
Total residential mortgage loans		230,593		1,151		3,196		452		235,392		245,665		269		811		531		247,276
Commercial loans:
Real estate		267,736		9,541		8,615		379		286,271		267,388		9,879		10,604		579		288,450
Lines of credit		40,733		5,132		3,154		84		49,103		54,408		4,036		3,387		53		61,884
Other commercial and industrial		65,441		4,770		8,153		265		78,629		56,719		3,907		8,321		188		69,135
Paycheck Protection Program loans		60,643		0		0		0		60,643		19,338		-		-		-		19,338
Tax exempt loans		7,166		0		0		0		7,166		5,811		-		-		-		5,811
Total commercial loans		441,719		19,443		19,922		728		481,812		403,664		17,822		22,312		820		444,618
Consumer loans:
Home equity and junior liens		37,926		54		411		233		38,624		30,740		133		606		258		31,737
Other consumer		70,502		104		218		81		70,905		109,979		44		77		8		110,108
Total consumer loans		108,428		158		629		314		109,529		140,719		177		683		266		141,845
Total loans	$	780,740	$	20,752	$	23,747	$	1,494	$	826,733	$	790,048	$	18,268	$	23,806	$	1,617	$	833,739

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.

Nonaccrual and Past Due 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.

- 3025 - -

An age analysis of past due loans, not including net deferred loan costs, segregated by portfolio segment and class of loans, as of September 30, ~~2021~~2022 and December 31, ~~2020,~~2021, are detailed in the following tables:


	As of September 30, 2021												As of September 30, 2022

	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	$	906	$	197	$	647	$	1,750	$	233,190	$	234,940	$	1,678	$	333	$	666	$	2,677	$	242,751	$	245,428
Construction		0		0		0		0		7,833		7,833		-		-		-		-		14,623		14,623
Loans held-for-sale		0		0		0		0		294		294		-		-		-		-		275		275
Total residential mortgage loans		906		197		647		1,750		241,317		243,067		1,678		333		666		2,677		257,649		260,326
Commercial loans:
Real estate		5,348		1,088		3,429		9,865		267,827		277,692		1,175		3,474		4,476		9,125		328,267		337,392
Lines of credit		585		1,397		80		2,062		55,066		57,128		1,020		34		1,472		2,526		78,191		80,717
Other commercial and industrial		661		2,254		397		3,312		68,929		72,241		1,142		1,256		2,045		4,443		70,198		74,641
Paycheck Protection Program loans		0		0		0		0		27,293		27,293		-		-		-		-		693		693
Tax exempt loans		0		0		0		0		5,956		5,956		-		-		-		-		4,344		4,344
Total commercial loans		6,594		4,739		3,906		15,239		425,071		440,310		3,337		4,764		7,993		16,094		481,693		497,787
Consumer loans:
Home equity and junior liens		141		0		291		432		32,556		32,988		125		-		355		480		33,266		33,746
Other consumer		520		297		482		1,299		72,053		73,352		748		210		1,221		2,179		93,152		95,331
Total consumer loans		661		297		773		1,731		104,609		106,340		873		210		1,576		2,659		126,418		129,077
Total loans	$	8,161	$	5,233	$	5,326	$	18,720	$	770,997	$	789,717	$	5,888	$	5,307	$	10,235	$	21,430	$	865,760	$	887,190

	As of December 31, 2020												As of December 31, 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	$	1,250	$	570	$	1,098	$	2,918	$	224,267	$	227,185	$	960	$	416	$	891	$	2,268	$	238,166	$	240,434
Construction		0		0		0		0		6,681		6,681		-		-		-		-		6,329		6,329
Loans held-for-sale		0		0		0		0		1,526		1,526		-		-		-		-		513		513
Total residential mortgage loans		1,250		570		1,098		2,918		232,474		235,392		960		416		891		2,268		245,008		247,276
Commercial loans:
Real estate		480		913		2,511		3,904		282,367		286,271		1,735		1,029		4,379		7,143		281,307		288,450
Lines of credit		734		1,870		194		2,798		46,305		49,103		156		1,180		576		1,913		59,971		61,884
Other commercial and industrial		441		1,717		1,691		3,849		74,780		78,629		1,799		1,686		1,056		4,541		64,594		69,135
Paycheck Protection Program loans		170		0		0		170		60,473		60,643		-		-		-		-		19,338		19,338
Tax exempt loans		0		0		0		0		7,166		7,166		-		-		-		-		5,811		5,811
Total commercial loans		1,825		4,500		4,396		10,721		471,091		481,812		3,691		3,895		6,011		13,597		471,091		444,618
Consumer loans:
Home equity and junior liens		248		78		473		799		37,825		38,624		17		49		251		317		31,420		31,737
Other consumer		443		252		187		882		70,023		70,905		571		257		852		1,680		108,428		110,108
Total consumer loans		691		330		660		1,681		107,848		109,529		588		306		1,103		1,998		139,847		141,845
Total loans	$	3,766	$	5,400	$	6,154	$	15,320	$	811,413	$	826,733	$	5,239	$	4,617	$	8,006	$	17,862	$	815,877	$	833,739

- 3126 - -

Nonaccrual loans, segregated by class of loan, were as follows:


	September 30,		December 31,		September 30,		December 31,
(In thousands)	2021		2020		2022		2021
Residential mortgage loans:
1-4 family first-lien residential mortgages	$	1,830	$	2,608	$	848	$	891
		1,830		2,608		848		891
Commercial loans:
Real estate		4,830		11,286		4,488		4,407
Lines of credit		133		194		1,511		629
Other commercial and industrial		703		6,498		2,202		1,261
		5,666		17,978		8,201		6,297
Consumer loans:
Home equity and junior liens		803		473		355		252
Other consumer		486		274		1,221		852
Total consumer loans		1,289		747		1,576		1,104
Total nonaccrual loans	$	8,785	$	21,333	$	10,625	$	8,292

At September 30, 2022, the Bank's 48 nonperforming loans represented 1.20% of total loans, with an aggregate outstanding balance of $10.6 million, as compared to 53 loans with an aggregate outstanding balance of $11.7 million at June 30, 2022. This decrease of $1.1 million was the result of various commercial and residential loans that met criteria measurements for removal from nonaccrual status. The Bank's management is actively working with each of the nonaccrual loan borrowers and believes that the ultimate resolution of these loans will not have material effect on the results of the Company's operations in future periods.

At December 31, 2021, the Bank's 44 nonperforming loans represented 0.99% of total loans, with an aggregate outstanding balance of $8.3 million, as compared to 48 nonperforming loans with an aggregate outstanding balance of $10.6 million at September 30, 2022. The increase in provision for loan losses in the third quarter of 2022, as compared to the same three month period in 2021, primarily reflected required reserves related to year-over-year loan growth and management's decision to downgrade a specifically-identified commercial real estate and commercial loan combined borrower relationship with an aggregate total related outstanding balance of $7.2 million. This relationship is under active resolution management at September 30, 2022.

The Company is required to disclose certain activities related to Troubled Debt Restructurings (“TDR”) in accordance with accounting guidance. Certain loans have been modified inas 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 0no loans that were modified as TDRs ~~for~~during the three months ended September 30, ~~2021.~~2022.

The ~~Company had 5~~table below details two loans that ~~have been~~were modified as TDRs ~~for~~during the nine months ended September 30, ~~2021.~~2022.

- 27 -

For the nine months ended September 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


	For the nine months ended September 30, 2022
(In thousands, except number of loans)	Number of loans	Pre-modification outstanding recorded investment		Post-modification outstanding recorded investment		Additional provision for loan losses
Commercial real estate loans	2	$	373	$	367	$	-

The loans evaluated for impairment for the nine months ended September 30, ~~2021~~2022 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 0no loans that were modified as TDRs for the three months ended September 30, ~~2020.~~2021.

The Company had 0five loans that were modified as TDRs for the nine months ended September 30, ~~2020.~~2021.

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.

- 32 -

The Company had 0no loans that were modified as TDRs during the twelve months prior to September 30, 2022, which had subsequently defaulted during the nine months ended September 30, 2022.

The Company had no loans that were modified as TDRs during the twelve months prior to September 30, 2021, which had subsequently defaulted during the nine months ended September 30, 2021.

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

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, an associated increase to the allowance for loan losses or as a charge-off to the allowance for loan losses in the current period.

- 28 -

Impaired Loans

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


	September 30, 2021						December 31, 2020						September 30, 2022							December 31, 2021
			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	$	727	$	727	$	-	$	665	$	665	$	-	$	671	$	671		$	-	$	666	$	666	$	-
Commercial real estate		5,125		5,216		-		11,053		11,136		-		4,724		4,824			-		4,708		4,801		-
Commercial lines of credit		100		100		-		0		0		-		1,849		1,849			-		100		104		-
Other commercial and industrial		381		411		-		5,114		5,132		-		3,527		3,572			-		357		396		-
Home equity and junior liens		35		35		-		75		75		-		88		88			-		93		93		-
Other consumer		0		0		-		81		81		-

With an allowance recorded:
1-4 family first-lien residential mortgages		411		411		72		1,182		1,182		205		454		454			92		539		539		90
Commercial real estate		2,156		2,156		234		1,729		1,729		231		2,567		2,567			339		2,450		2,450		300
Commercial lines of credit		56		60		56		925		925		925		2,184		2,190			2,184		53		53		53
Other commercial and industrial		1,661		1,665		1,128		1,864		1,864		1,278		1,120		1,120			687		1,852		1,852		1,318
Home equity and junior liens		540		540		114		142		142		142		537		537			114		539		539		114
Other consumer		0		0		0		0		0		0
Total:
1-4 family first-lien residential mortgages		1,138		1,138		72		1,847		1,847		205		1,125		1,125			92		1,205		1,205		90
Commercial real estate		7,281		7,372		234		12,782		12,865		231		7,291		7,391			339		7,158		7,251		300
Commercial lines of credit		156		160		56		925		925		925		4,033		4,039	��		2,184		153		157		53
Other commercial and industrial		2,042		2,076		1,128		6,978		6,996		1,278		4,647		4,692			687		2,209		2,248		1,318
Home equity and junior liens		575		575		114		217		217		142		625		625			114		632		632		114
Other consumer		0		0		0		81		81		0
Totals	$	11,192	$	11,321	$	1,604	$	22,830	$	22,931	$	2,781	$	17,721	$	17,872		$	3,416	$	11,357	$	11,493	$	1,875

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


	For the three months ended				For the nine months ended				For the three months ended				For the nine months ended
	September 30,				September 30,				September 30,				September 30,
(In thousands)	2021		2020		2021		2020		2022		2021		2022		2021
1-4 family first-lien residential mortgages	$	1,319	$	1,586	$	1,498	$	1,597	$	1,133	$	1,319	$	1,165	$	1,498
Commercial real estate		7,114		4,991		10,133		4,714		7,124		7,114		7,130		10,133
Commercial lines of credit		580		255		761		219		2,089		580		1,120		761
Other commercial and industrial		4,654		1,724		5,750		1,316		3,302		4,654		2,750		5,750
Home equity and junior liens		577		219		487		219		627		577		629		487
Other consumer		40		84		63		87		-		40		-		63
Total	$	14,284	$	8,859	$	18,692	$	8,152	$	14,275	$	14,284	$	12,794	$	18,692

- 3329 - -

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


	For the three months ended				For the nine months ended
	September 30,				September 30,
(In thousands)	2022		2021		2022		2021
1-4 family first-lien residential mortgages	$	12	$	15	$	41	$	47
Commercial real estate		78		97		227		206
Commercial lines of credit		45		4		90		8
Other commercial and industrial		48		65		184		139
Home equity and junior liens		16		5		19		11
Other consumer		-		1		-		-
Total	$	199	$	187	$	561	$	411

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 ~~$104,000~~$710,000 in provision for loan losses for the three month period ended September 30, ~~2021,~~2022, as compared to ~~$1.7 million~~$104,000 for the three month period ended September 30, ~~2020.~~2021. For the first nine months of ~~2021,~~2022, we recorded ~~$2.1 million~~$871,000 in provision for loan losses as compared to ~~$3.9~~$2.1 million in the same prior year nine month period.The ~~provisioning~~increase in provision for loan losses in the third quarter of 2022, as compared to the same three month period in 2021, ~~and 2020 reflects management’s determination of prudent additions to~~primarily reflected required reserves ~~considering loan mix changes, concentrations of loans in certain business sectors, factors~~ related to year-over-year loan ~~quality metrics,~~growth and ~~continued COVID-19~~management's decision to downgrade a specifically-identified commercial real estate and commercial loan combined borrower relationship with an aggregate total related ~~economic uncertainty. The credit-sensitive~~outstanding balance of $7.2 million. Certain credit sensitive portfolios continue to be carefully monitored, and the Bank will consistently apply its ~~conservative~~ loan classification and reserve building methodologies to the 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.

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 inon 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 nine months ended September 30, 2021																For the three months ended September 30, 2022
	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	$	931		$	0	$	4,776		$	1,670		$	2,992		$	0	$	897		$	-		$	5,522		$	1,157		$	2,616		$	-
Charge-offs		(20	)		0		(7	)		(50	)		(677	)		0		-			-			-			-			(134	)		-
Recoveries		0			0		0			68			0			0		-			-			-			-			-			-
Provisions		5			0		458			(835	)		547			0
Provisions (credits)																		(85	)		-			234			2,212			(205	)		-
Ending balance	$	916		$	0	$	5,227		$	853		$	2,862		$	0	$	812		$	-		$	5,756		$	3,369		$	2,277		$	-
Ending balance: related to loans individually evaluated for impairment																	$	92		$	-		$	339		$	2,184		$	687		$	-
Ending balance: related to loans collectively evaluated for impairment																	$	720		$	-		$	5,417		$	1,185		$	1,590		$	-
Loans receivables:
Ending balance																	$	245,428		$	14,623		$	337,392		$	80,717		$	74,641		$	693
Ending balance: individually evaluated for impairment																	$	1,125		$	-		$	7,291		$	4,033		$	4,647		$	-
Ending balance: collectively evaluated for impairment																	$	244,303		$	14,623		$	330,101		$	76,684		$	69,994		$	693

				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		$	739	$	1,123		$	545		$	12,777				$	4		$	750		$	1,543		$	589		$	13,078
Charge-offs		0			0		(150	)		0			(904	)				-						(42	)		-			(176	)
Recoveries		0			0		63			0			131					-						20			-			20
Provisions		0			39		696			1,151			2,061
Provisions (credits)																		(1	)		(321	)		(578	)		(546	)		710
Ending balance	$	1		$	778	$	1,732		$	1,696		$	14,065				$	3		$	429		$	943		$	43		$	13,632
Ending balance: related to loans individually evaluated for impairment																	$	-		$	114		$	-		$	-		$	3,416
Ending balance: related to loans collectively evaluated for impairment																	$	3		$	315		$	943		$	43		$	10,216			-
Loans receivables:
Ending balance																	$	4,344		$	33,746		$	95,331		$	275		$	887,190
Ending balance: individually evaluated for impairment																	$	-		$	625		$	-		$	-		$	17,721
Ending balance: collectively evaluated for impairment																	$	4,344		$	33,121		$	95,331		$	275		$	869,469


	For the nine months ended September 30, 2022
	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	$	872		$	-		$	5,308		$	935		$	2,762		$	-
Charge-offs		(29	)		-			(23	)		(38	)		(334	)		-
Recoveries		-			-			250			-			46			-
Provisions (credits)		(31	)		-			221			2,472			(197	)		-
Ending balance	$	812		$	-		$	5,756		$	3,369		$	2,277		$	-

				Home equity			Other
	Tax exempt			and junior liens			consumer			Unallocated			Total
Allowance for loan losses:
Beginning Balance	$	3		$	774		$	1,297		$	984		$	12,935
Charge-offs		-			-			(122	)		-			(546	)
Recoveries		-			-			76			-			372
Provisions (credits)		-			(345	)		(308	)		(941	)		871
Ending balance	$	3		$	429		$	943		$	43		$	13,632

- 3631 - -


	For the three months ended September 30, 2021
	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	$	875	$	-		$	6,120		$	1,810		$	3,448		$	-
Charge-offs		-		-			-			(50	)		(577	)		-
Recoveries		-		-			-			5			-			-
Provisions (credits)		41		-			(893	)		(912	)		(9	)		-
Ending balance	$	916	$	-		$	5,227		$	853		$	2,862		$	-
Ending balance: related to loans individually evaluated for impairment	$	72	$	-		$	234		$	56		$	1,128		$	-
Ending balance: related to loans collectively evaluated for impairment	$	844	$	-		$	4,993		$	797		$	1,734		$	-
Loans receivables:
Ending balance	$	234,940	$	7,833		$	277,692		$	57,128		$	72,241		$	27,293
Ending balance: individually evaluated for impairment	$	1,138	$	-		$	7,281		$	156		$	2,042		$	-
Ending balance: collectively evaluated for impairment	$	233,802	$	7,833		$	270,411		$	56,972		$	70,199		$	27,293

			Home equity			Other
	Tax exempt		and junior liens			Consumer			Unallocated			Total
Allowance for loan losses:
Beginning Balance	$	1	$	805		$	1,250		$	294		$	14,603
Charge-offs		-		-			(32	)		-			(659	)
Recoveries		-		-			12			-			17
Provisions (credits)		-		(27	)		502			1,402			104
Ending balance	$	1	$	778		$	1,732		$	1,696		$	14,065
Ending balance: related to loans individually evaluated for impairment	$	-	$	114		$	-		$	-		$	1,604
Ending balance: related to loans collectively evaluated for impairment	$	1	$	664		$	1,732		$	1,696		$	12,461
Loans receivables:
Ending balance	$	5,956	$	32,988		$	73,352		$	294		$	789,717
Ending balance: individually evaluated for impairment	$	-	$	575		$	-		$	-		$	11,192
Ending balance: collectively evaluated for impairment	$	5,956	$	32,413		$	73,352		$	294		$	778,525

For the three months ended September 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

$
756

$
0

$
4,258

$
1,208

$
2,066

$
0

Charge-offs

0

0

0

(53
)

0

0

Recoveries

0

0

0

2

0

0

Provisions

35

0

558

139

581

0

Ending balance

$
791

$
0

$
4,816

$
1,296

$
2,647

$
0

Ending balance: related to loans
   individually evaluated for impairment

$
149

$
0

$
62

$
253

$
1,176

$
0

Ending balance: related to loans
   collectively evaluated for impairment

$
642

$
0

$
4,754

$
1,043

$
1,471

$
0

Loans receivables:

Ending balance

$
216,802

$
5,677

$
282,856

$
52,411

$
77,824

$
75,278

Ending balance: individually
   evaluated for impairment

$
1,573

$
0

$
5,320

$
331

$
2,385

$
0

Ending balance: collectively
   evaluated for impairment

$
215,229

$
5,677

$
277,536

$
52,080

$
75,439

$
75,278

Home equity

Other

Tax exempt

and junior liens

Consumer

Unallocated

Total

Allowance for loan losses:

Beginning Balance

$
1

$
644

$
1,055

$
565

10,553

Charge-offs

0

0

(94
)

0

(147
)

Recoveries

0

0

13

0

15

Provisions

0

91

127

151

1,682

Ending balance

$
1

$
735

$
1,101

$
716

$
12,103

Ending balance: related to loans
   individually evaluated for impairment

$
0

$
142

$
0

$
0

1,782

Ending balance: related to loans
   collectively evaluated for impairment

$
1

$
593

$
1,101

$
716

10,321

Loans receivables:

Ending balance

$
6,998

$
40,505

$
62,998

$
687

822,036

Ending balance: individually
   evaluated for impairment

$
0

$
218

$
83

$
0

9,910

Ending balance: collectively
   evaluated for impairment

$
6,998

$
40,287

$
62,915

$
687

$
812,126

- 3732 - -


	For the nine months ended September 30, 2020																	For the nine months ended September 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	$	580		$	0		$	4,010		$	1,195		$	1,645		$	0	$	931		$	-	$	4,776		$	1,670		$	2,992		$	-
Charge-offs		(125	)		0			0			(101	)		(9	)		0		(20	)		-		(7	)		(50	)		(677	)		-
Recoveries		1			0			0			4			0			0		-			-		-			68			-			-
Provisions (credits)		335			0			806			198			1,011			0		5			-		458			(835	)		547			-
Ending balance	$	791		$	0		$	4,816		$	1,296		$	2,647		$	0	$	916		$	-	$	5,227		$	853		$	2,862		$	-

				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		$	553		$	413		$	272		$	8,669				$	1		$	739	$	1,123		$	545		$	12,777
Charge-offs		0			(28	)		(279	)		0		$	(542	)				-			-		(150	)		-			(904	)
Recoveries		0			29			47			0		$	81					-			-		63			-			131
Provisions (credits)		0			181			920			444		$	3,895					-			39		696			1,151			2,061
Ending balance	$	1		$	735		$	1,101		$	716		$	12,103				$	1		$	778	$	1,732		$	1,696		$	14,065

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:

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.

At September 30, ~~2021~~2022 and December 31, ~~2020. At September 30,~~ 2021, ~~and December 31, 2020,~~ the Company reported ~~$613,000~~$628,000 and ~~$185,000,~~$1.0 million, respectively, in ~~residential~~ real estate loans in the process of foreclosure.

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.

There have been no transfers of assets into or out of any fair value measurement level during the three or nine months ended September 30, ~~2021.~~2022.

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.

Under 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~~debt – 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.

Note 11: Interest Rate Derivatives

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 the Company's 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 September 30, ~~2021.~~2022. Interest rate hedging agreements are recorded at fair value as other assets or liabilities. The Company had no material derivative contracts not designated as hedging agreements at September 30, ~~2021~~2022 or December 31, ~~2020.~~2021.

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 changes 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 underlying rate indices. 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~~decrease in interest rates ~~above~~below the strike price.

- 40 -

The Company records various hedges in the ~~Consolidated Statement~~consolidated statements of ~~Condition~~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 hedges at September 30, ~~2021~~2022 and December 31, ~~2020:~~2021:

- 45 -


(In thousands)	Carrying Amount of the Hedged Assets at September 30, 2022		Cumulative Amount of Fair Value Hedging Gains Included in the Carrying Amount of the Hedged Assets at September 30, 2022			Carrying Amount of the Hedged Assets at December 31, 2021		Cumulative Amount of Fair Value Hedging Gains Included in The Carrying Amount of the Hedged Assets at December 31, 2021
Line item on the balance sheet in which the hedged item is included:
Available-for-sale securities (1)	$	68,601	$	(8,707	)	$	61,808	$	(1,308	)
Loans receivable (2)	$	36,692	$	(1,576	)	$	41,651	$	(152	)

(In thousands)

Carrying Amount of the Hedged Assets at
September 30, 2021

Cumulative Amount of Fair Value Hedging Adjustment Included in the Carrying Amount of the Hedged Assets at September 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:

Loans receivable ⁽¹⁾

$
-

$
-

$
12,944

$
53

Available-for-sale securities ⁽²⁾

$
52,023

$
(946
)

$
17,055

$
(191
)
Loans receivable ⁽³⁾

$
20,688

$
(44
)

$
-

$
-

Interest Rate Cap ⁽⁴⁾

$
-

$
4

$
-

$
-

(1)

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 $68.6 million and $61.8 million at September 30, 2022 and December 31, 2021, respectively. The fair value of the derivative resulted in a net asset position of $8.7 million and $1.3 million recorded by the Company in other assets at September 30, 2022 and December 31, 2021. The Company’s participation in the fair value hedge had an immaterial effect on recorded interest income at September 30, 2022 and December 31, 2021.

(2)

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 $36.7 million and $41.7 million as of September 30, 2022 and December 31, 2021, respectively. At September 30, 2022, the fair value of the derivative resulted in a net asset position of $1.6 million, recorded by the Company in other assets. The Company’s participation in the fair value hedge had an immaterial effect on recorded interest income at September 30, 2022 and December 31, 2021.

⁽¹⁾

~~These amounts include the amortized historical cost basis 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 projected to be remaining at the end of the contractual term of the hedging instrument. The hedging instrument matured in April of 2021 and is no longer a component of the Company's Consolidated Statement of Condition at September 30, 2021. The amount of the designated hedged item was $9.2 million and 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 nine months ended September 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 hedge was $42.3 million and $16.3 million at September 30, 2021 and December 31, 2020, respectively. At September 30, 2021, the fair value of the derivative resulted in a net asset position of $946,000, 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 nine months ended September 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 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 September 30, 2021. The Company did 0t have this derivative agreement in place at December 31, 2020. At September 30, 2021, the fair value of the derivative resulted in a net asset position of $44,000, 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 nine months ended September 30, 2021 and 2020.

⁽⁴⁾

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 rises in short-term interest rates above the contractual level. The Company paid $228,000 in a one-time premium for the Cap contract and has no further contractual obligations to the contractual counterparty over the remaining life of the contract. The premium was expected to be amortized ratably over the contractual term of the Cap contract, which matures in February 2023. In September of 2021, the Company determined that the specific underlying funding stream, for which the interest rate Cap was originally intended to hedge, was no longer going to be a continuing component of the Bank’s overall funding strategies. Therefore, although the Cap contract continues to remain in force, it will no longer be considered to be a hedge against any specific funding liability. Therefore under ASC 815, the Company has determined to re-designate the Cap as a free-standing derivative and mark the fair value of the Cap to market during each reporting period through earnings until the Cap’s contractual maturity date. The changes in the expected future funding requirements of the Company occurred primarily as a result of the unprecedented, and previously unpredictable, measures undertaken by central banking authorities in response to the COVID-19 pandemic. The re-designation of the interest rate Cap contract to a free-standing derivative resulted in the recognition of a $157,000 increase in interest expense in the third quarter of 2021. As a free-standing derivative, future changes in the fair value of this Cap contract, until its maturity date, will be recognized through earnings as an adjustment to interest expense

The following table shows the pre-tax gains and losses of the Company’s derivatives designated as cash flow hedges in ~~other comprehensive income~~OCI at September 30, ~~2021~~2022 and December 31, 2021:

(In thousands)

September 30, 2021

December 31, 2020

Cash flow hedges:

Total unamortized premium

$
-

$
204

Fair market value adjustment interest rate cap

-

(197
)
Total unamortized cap

-

7

Fair market value adjustment interest rate swap

(718
)

(1,111
)
Total loss in comprehensive income

$
(718
)

$
(1,308
)


(In thousands)	September 30, 2022		December 31, 2021
Fair market value adjustment interest rate swap	$	700	$	(387	)
Total gain/(loss) in comprehensive income	$	700	$	(387	)

- 46 -

The ~~amounts of~~ hedge ~~ineffectiveness,~~effectiveness, recognized ~~during the three and nine months ended~~at September 30, ~~2021~~2022 and ~~2020~~December 31, 2021 for cash flow hedges ~~were~~was not material to the Company’s consolidated results of operations. 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. Management believes that the hedges will remain fully effective during the remaining term of the respective hedging contracts. The changes in the fair values of the interest rate hedging agreements primarily result from the effects of changing index interest ~~rates.~~rates and the reduction of the time each quarter between the measurements date and the contractual maturity date of the hedging instrument.

The Company manages its potential credit exposure on interest rate swap transactions by entering into bilateral credit support agreements with each contractual counterparty. These agreements require collateralization of credit exposures beyond specified minimum threshold amounts. At September 30, 2022 and December 31, 2021, the Company posted cash, held in an interest-bearing refundable escrow arrangement, in the amount of ~~$1.6~~$1.6 million in order to satisfy collateral requirements associated with its hedging contracts.

- 4741 - -

Note 12: Accumulated Other Comprehensive (Loss) Income ~~(Loss)~~

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


	For the three months ended September 30, 2021															For the three months ended September 30, 2022
(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			Retirement Plans			Unrealized Loss on Available-for- Sale Securities			Unrealized Gain on Derivatives and Hedging Activities		Unrealized Gain on Securities Transferred to Held-to-Maturity		Total
Beginning balance	$	(2,055	)	$	1,549		$	(724	)	$	(5	)	$	(1,235	)	$	(1,411	)	$	(8,421	)	$	431	$	2	$	(9,399	)
Other comprehensive income before reclassifications		0			(359	)		194			3			(162	)
Other comprehensive (loss) income before reclassifications																	-			(3,389	)		86		-		(3,303	)
Amounts reclassified from AOCI		19			(13	)		0			0			6			1			136			-		-		137
Ending balance	$	(2,036	)	$	1,177		$	(530	)	$	(2	)	$	(1,391	)	$	(1,410	)	$	(11,674	)	$	517	$	2	$	(12,565	)


	For the three months ended September 30, 2021
(In thousands)	Retirement Plans			Unrealized Gain on Available-for- Sale Securities			Unrealized Loss on Derivatives and Hedging Activities			Unrealized Loss on Securities Transferred to Held-to-Maturity			Total
Beginning balance	$	(2,055	)	$	1,549		$	(724	)	$	(5	)	$	(1,235	)
Other comprehensive (loss) income before reclassifications		-			(359	)		194			3			(162	)
Amounts reclassified from AOCI		19			(13	)		-			-			6
Ending balance	$	(2,036	)	$	1,177		$	(530	)	$	(2	)	$	(1,391	)


	For the nine months ended September 30, 2022
(In thousands)	Retirement Plans			Unrealized Loss on Available-for- Sale Securities			Unrealized Gain on Derivatives and Hedging Activities			Unrealized Gain on Securities Transferred to Held-to-Maturity		Total
Beginning balance	$	(1,412	)	$	428		$	(286	)	$	2	$	(1,268	)
Other comprehensive (loss) income before reclassifications		-			(12,220	)		803			-		(11,417	)
Amounts reclassified from AOCI		2			118			-			-		120
Ending balance	$	(1,410	)	$	(11,674	)	$	517		$	2	$	(12,565	)


	For the nine months ended September 30, 2021
(In thousands)	Retirement Plans			Unrealized Gain on Available-for- Sale Securities			Unrealized Loss on Derivatives and Hedging Activities			Unrealized Loss on Securities Transferred to Held-to-Maturity			Total
Beginning balance	$	(2,093	)	$	837		$	(966	)	$	(14	)	$	(2,236	)
Other comprehensive income before reclassifications		-			353			436			12			801
Amounts reclassified from AOCI		57			(13	)		-			-			44
Ending balance	$	(2,036	)	$	1,177		$	(530	)	$	(2	)	$	(1,391	)

For the three months ended September 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

$
(2,812
)

$
(341
)

$
(1,207
)

$
(27
)

$
(4,387
)
Other comprehensive income before reclassifications

0

821

91

7

919

Amounts reclassified from AOCI

45

(21
)

0

0

24

Ending balance

$
(2,767
)

$
459

$
(1,116
)

$
(20
)

$
(3,444
)

For the nine months ended September 30, 2021

(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

$
(2,093
)

$
837

$
(966
)

$
(14
)

$
(2,236
)
Other comprehensive income before reclassifications

0

353

436

12

801

Amounts reclassified from AOCI

57

(13
)

0

0

44

Ending balance

$
(2,036
)

$
1,177

$
(530
)

$
(2
)

$
(1,391
)

For the nine months ended September 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

$
(2,717
)

$
(216
)

$
0

$
(38
)

$
(2,971
)
Reevaluation of deferred tax asset valuation allowance ⁽¹⁾

(188
)

(15
)

0

(3
)

(206
)
Other comprehensive income before reclassifications

0

1,422

(1,116
)

21

327

Amounts reclassified from AOCI

138

(732
)

0

0

(594
)
Ending balance

$
(2,767
)

$
459

$
(1,116
)

$
(20
)

$
(3,444
)

(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.

- 4842 - -

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


		Amount Reclassified						Amount Reclassified
		from AOCI (1)						from AOCI (1)
		(Unaudited)						(Unaudited)
(In thousands)		For the three months ended						For the nine months ended
Details about AOCI (1) components	Affected Line Item in the Statement of Income	September 30, 2022			September 30, 2021			September 30, 2022			September 30, 2021
Retirement plan items
Retirement plan net losses recognized in plan expenses (2)	Salaries and employee benefits	$	(1	)	$	(26	)	$	(2	)	$	(79	)
Tax effect	Provision for income taxes		-			7			1			22
	Net (losses) income	$	(1	)	$	(19	)	$	(1	)	$	(57	)
Available-for-sale securities
Realized (loss) gain on sale of securities	Net gains on sales and redemptions of investment securities	$	(186	)	$	18		$	(160	)	$	18
Tax effect	Provision for income taxes		50			(5	)		43			(5	)
	Net (losses) income	$	(136	)	$	13		$	(117	)	$	13

Amount Reclassified

Amount Reclassified

from AOCI ⁽¹⁾

from AOCI ⁽¹⁾

(Unaudited)

(Unaudited)

(In thousands)

For the three months ended

For the nine months ended

Details about AOCI ⁽¹⁾ components

Affected Line Item in the Statement of Income

September 30, 2021

September 30, 2020

September 30, 2021

September 30, 2020

Retirement plan items

Retirement plan net losses
recognized in plan expenses ⁽²⁾

Salaries and employee benefits

$
(26
)

$
(58
)

$
(79
)

$
(175
)
Tax effect

Provision for income taxes

7

12

22

37

Net Income

$
(19
)

$
(46
)

$
(57
)

$
(138)

Available-for-sale securities

Realized gain on sale of securities

Net gains on sales and redemptions
of investment securities

$
18

$
27

$
18

$
926

Tax effect

Provision for income taxes

(5
)

(6
)

(5
)

(194
)

Net Income

$
13

$
21

$
13

$
732

(1)

Amounts in parentheses indicates debits in net income.

(2)

These items are included in net periodic pension cost.

~~(1)~~

~~Amounts in parentheses indicates debits in net income.~~

~~(2)~~

~~These items are included in net periodic pension cost.~~

See Note 5 for additional information.

- 43 -

49 -

Note 13: Noninterest Income

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

	For the three months				For the nine months
	ended September 30,				ended September 30,					For the three months ended					For the nine months ended
(In thousands)	2021		2020		2021		2020			September 30, 2022			September 30, 2021		September 30, 2022			September 30, 2021
Service fees
Insufficient funds fees	$	245	$	195	$	643	$	618		$	154		$	245	$	406		$	643
Deposit related fees		102		100		296		272			120			102		332			296
ATM fees		46		44		143		108			60			46		138			143
Total service fees		393		339		1,082		998			334			393		876			1,082
Fee Income
Insurance commissions		211		215		722		734			258			211		840			722
Investment services revenue		68		87		313		235			140			68		365			313
ATM fees surcharge		62		57		172		167			66			62		172			172
Banking house rents collected		61		47		187		189			70			61		172			187
Total fee income		402		406		1,394		1,325			534			402		1,549			1,394
Card income
Debit card interchange fees		236		209		698		577			180			236		639			698
Merchant card fees		23		20		54		51			21			23		54			54
Total card income		259		229		752		628			201			259		693			752
Mortgage fee income and realized gain on sale of loans and foreclosed real estate
Loan servicing fees		54		90		155		218			74			54		260			155
Net gains on sales of loans and foreclosed real estate		67		134		226		903			47			67		122			226
Total mortgage fee income and realized gain on sale of loans and foreclosed real estate		121		224		381		1,121			121			121		382			381
Total		1,175		1,198		3,609		4,072			1,190			1,175		3,500			3,609
Earnings and gain on bank owned life insurance		164		133		418		355			156			164		441			418
Net gains on sales and redemptions of investment securities		5		27		56		1,076
Gains/(losses) on marketable equity securities		89		118		372		(798	)
Net (losses) gains on sale and redemption of investment securities											(198	)		5		(168	)		56
Gains on marketable equity securities											-			89		39			372
Net gains on sale of premises and equipment		-		-		201		-			-			-		-			201
Other miscellaneous income		113		15		169		65			13			113		248			169
Total noninterest income	$	1,546	$	1,491	$	4,825	$	4,770		$	1,161		$	1,546	$	4,060		$	4,825

The following is a discussion of key revenues within the scope of ASC 606 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 ~~new~~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 ~~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.

is recognized over time.

•

~~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.

•

~~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

•

~~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~~

- 5044 - -

and commercial mortgage loans, sales of one-to-four family residential mortgage loans, sales of government guarantees portions of Small Business Administration loans (“SBA loans”), and sales of foreclosed real estate, and is earned as the transaction occurs.

Note 14: Leases

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 two years up to 2927 years, some of which include options to extend the leases for various renewal ~~periods.~~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 components of ~~the~~ lease expense are as follows:


	For the three months ended				For the nine months ended				For the three months ended				For the nine months ended
(In thousands)	September 30, 2021		September 30, 2020		September 30, 2021		September 30, 2020		September 30, 2022		September 30, 2021		September 30, 2022		September 30, 2021
Operating lease cost	$	57	$	61	$	170	$	182	$	57	$	57	$	170	$	170
Finance lease cost		20		20		61		60		21		20		62		61

For the three months ended

For the nine months ended

(In thousands)

September 30, 2021

September 30, 2020

September 30, 2021

September 30, 2020

Cash paid for amount included in the measurement of lease liabilities:

     Operating cash flows from operating leases

$
52

$
56

$
155

$
167

     Operating cash flows from finance leases

20

20

61

60

     Financing cash flows from finance leases

18

18

54

53

Supplemental cash flow information related to leases was as follows:


	For the three months ended				For the nine months ended
(In thousands)	September 30, 2022		September 30, 2021		September 30, 2022		September 30, 2021
Cash paid for amount included in the measurement of lease liabilities:
Operating cash flows from operating leases	$	53	$	52	$	158	$	155
Operating cash flows from finance leases		21		20		62		61
Financing cash flows from finance leases		19		18		55		54

- 45 -

Supplemental balance sheet information related to leases was as follows:



(In thousands, except lease term and discount rate)	September 30, 2021			December 31, 2020			September 30, 2022			December 31, 2021
Operating Leases:
Operating lease right-of-use assets	$	2,170		$	2,240		$	2,033		$	2,136
Operating lease liabilities	$	2,469		$	2,525		$	2,348		$	2,440

Finance Leases:
Financial Liability	$	594		$	587
Finance Lease Liability							$	603		$	596

Weighted Average Remaining Lease Term:
Operating Leases	18.43 years			19.08 years			17.89 years			18.29 years
Finance Leases	27.67 years			28.42 years			26.67 years			27.42 years

Weighted Average Discount Rate:
Operating Leases		3.73	%		3.73	%		3.74	%		3.73	%
Finance Leases		13.75	%		13.75	%		13.75	%		13.75	%

Maturities of lease liabilities ~~were~~are as follows:


Twelve Months Ending September 30,
(In thousands)
2023	$	28
2024		118
2025		118
2026		126
2027		133
Thereafter		2,428
Total minimum lease payments	$	2,951

- 51 -

Twelve Months Ending September 30,

(In thousands)

2022

$
23

2023

115

2024

118

2025

118

2026

126

Thereafter

2,563

Total minimum lease payments

$
3,063

The Company owns certain properties that it leases to unaffiliated third parties at market rates. Lease rental income was ~~$61,000~~$70,000 and ~~$47,000~~$61,000 for the three months ended September 30, ~~2021~~2022 and ~~2020,~~2021 respectively. Lease rental income was ~~$187,000~~$172,000 and ~~$189,000~~$187,000 for the nine months ended September 30, ~~2021~~2022 and ~~2020,~~2021, respectively. All lease agreements, in which the Company is the lessor, are accounted for as operating leases.

Note 15: COVID-19

The World Health Organization (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 varying degrees, these very substantial mandated curtailments of social and economic activity had been progressively relaxed in the United 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, the percentage of unvaccinated people in the United States, and the potential for future mutations of the coronavirus, remain significant long-term public health and economic concerns.

As a result of the initial and continuing outbreak, and governmental 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. During the most restrictive periods during the pandemic, the Company had many of its employees working remotely and significantly reduced physical customer contact with employees and other customers until the second quarter of 2021, when New York State relaxed the majority of its safety mandates. On September 30, 2021, the Bank’s offices and branches were fully accessible to the public. We will take further actions, 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%, 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, as long as these central bank monetary policies remain in effect. The long-term effects of the current interest rate environment, resulting from government and central bank responses to the pandemic, on the Bank’s net interest 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.

- 52 -

The Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”), signed into law on March 27, 2020, provided financial assistance in various forms to both businesses and 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~~service 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 likewise issued guidance encouraging financial institutions to work prudently~~There were no remaining pandemic-related borrower forbearances of any type remaining in effect at September 30, 2022. At September 30, 2022, the Company's operations and business activities, including its relationships with ~~borrowers who~~its customers, most particularly loan customers, 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 consumer customers affected by COVID-19. While the CARES Act is widely-considered to have been beneficialbeing conducted in a manner that was substantially identical to the ~~economic recovery and supportive of the Company’s business activities, the long-term effect of this legislation on the operations of~~way in which 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~~conducted its activities 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 beneficialrelationships prior 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.pandemic.

As of the date of this filing, a variant of the coronavirus, 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.

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 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 September 30, 2021, the Bank had no loans on active pandemic-related deferral. At December 31, 2020, the Bank had 38 residential mortgage and consumer loans, totaling $2.7 million and 24 commercial real estate and other commercial and industrial loans, totaling $14.4 million remained in deferral status.

- 53 -

Note 16: Related Party Transactions:

In the ordinary course of business, the Company has granted loans to certain directors, executive officers and their affiliates (collectively referred to as “related parties”). None of the related party loans were classified as nonaccrual, past due, restructured, or potential problem loans at September 30, ~~2021~~2022 or December 31, ~~2020.~~2021.

- 46 -

The following represents the activity associated with loans to related parties during the ~~year~~nine months ended September 30, ~~2021~~2022 and the year ended December 31, ~~2020:~~2021:


							September 30,			December 31,
(In thousands)	2021			2020				2022			2021
Balance at the beginning of the year	$	22,210		$	19,301		$	22,427		$	22,445
Originations and related party additions		3,298			4,899			10,716			8,007
Principal payments and related party removals		(3,104	)		(1,990	)		(4,311	)		(8,025	)
Balance at the end of the year	$	22,404		$	22,210
Balance at the end of the period							$	28,832		$	22,427

~~Note 17: Subsequent Events~~

As an integral part of the Bank’s overall balance sheet management strategies, the Bank periodically acquires diversified pools of loans and enters into loan participation agreement that are originated and serviced by unrelated third parties. On November 5, 2021, the Bank entered into a revolving commercial line participation agreement, for an amount up to $15.0 million, secured by the single corporate borrower’s accounts receivable assets. On November 8, 2021, the Bank acquired $22.3 million of broadly-diversified, secured consumer installment loans. Both of these loan asset acquisitions were collateralized by assets that are primarily located outside of the Bank’s market area.

- 54 -

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

General

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 (“Fitzgibbons” or “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 a noncontrolling ~~interests~~interest within the consolidated financial statements. At September 30, ~~2021,~~2022, the Company and subsidiaries had total consolidated assets of ~~$1.26~~$1.4 billion, total consolidated liabilities of ~~$1.16~~$1.29 billion and shareholders' equity of ~~$106.3~~$107.3 million, plus noncontrolling interest of ~~$337,000,~~$494,000, which represents the 49% of FitzGibbons not owned by the Company.

The following discussion reviews the Company's financial condition at September 30, ~~2021~~2022 and the results of operations for the three and nine month periods ended September 30, ~~2021~~2022 and ~~2020.~~2021. Operating results for the three and nine months ended September 30, ~~2021~~2022 are not necessarily indicative of the results that may be expected for the year ending December 31, ~~2021~~2022 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 ~~2020~~2021 Annual Report on Form 10-K filed with the Securities and Exchange Commission on March ~~30, 2021~~25, 2022 (“the consolidated annual financial statements”) as of December 31, ~~2020~~2021 and ~~2019~~2020 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.

Statement Regarding Forward-Looking Statements

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”~~"believe," "expect," "intend," "anticipate," "estimate," "project" or similar ~~expressions. The Company’s ability to predict results~~expressions, or ~~the actual effect of~~ future ~~plans~~ or ~~strategies is inherently uncertain. Factors which could have a material adverse effect~~conditional verbs, such as “will,” “would,” “should,” “could,” or “may.” These forward-looking statements are based on ~~the operations~~current beliefs and expectations of the ~~Company~~Company’s and ~~its subsidiaries~~the Bank’s management and are inherently subject to significant business, economic and competitive uncertainties and contingencies, many of which are beyond the Company’s and the Bank’s control. In addition, these forward-looking statements are subject to assumptions with respect to future business strategies and decisions that are subject to change. Actual results may differ materially from those set forth in the forward-looking statements as a result of numerous factors. Factors that could cause such differences to exist include, but are not limited to:

•

~~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;~~

•

~~Competition in our primary market areas;~~

•

~~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;~~

•

~~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;~~

•

~~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;~~

•

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

- 55 -

•

~~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.~~

~~In addition~~ risks related to the ~~risk factors enumerated above,~~real estate and economic environment, particularly in the ~~continuing economic impact~~market areas in which the Company and the Bank operate; fiscal and monetary policies of the U.S. Government; inflation; changes in government regulations affecting financial institutions, including regulatory compliance costs and capital requirements; fluctuations in the adequacy of the allowance for loan losses; decreases in deposit levels necessitating increased borrowing to fund loans

- 47 -

and investments; the effects of the COVID-19 ~~outbreak could adversely affect our financial condition~~pandemic; operational risks including, but not limited to, cybersecurity, fraud and ~~results of operations. The COVID-19 pandemic caused significant economic dislocation in~~natural disasters; the ~~United States as many state and local governments ordered non-essential businesses to close and residents to shelter in place. While certain restrictions have started to ease, particularly with~~risk that the ~~recent widespread availability of novel vaccines, the pace at which the economic recovery unfolds and 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:

•

Government action in response to the COVID-19 pandemic and its effects on our business and operations, including vaccination mandates and their effects on our workforce, human capital resources and infrastructure;

•

~~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;~~

•

~~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;~~

•

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;~~

•

~~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.~~

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. WeCompany may not be successful in ~~finding~~the implementation of its business strategy; changes in prevailing interest rates; credit risk management; asset-liability management; and ~~integrating suitable successors~~other risks described in the ~~event of key employee loss or unavailability.~~Company’s filings with the Securities and Exchange Commission, which are available at the SEC’s website, www.sec.gov.

~~Any one or a combination~~The Company and the Bank caution prospective investors not to place undue reliance on any such forward-looking statements, which speak only as 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, thedate made. The Company ~~does not undertake, and specifically~~ disclaims any obligation to ~~release publicly the result of~~revise or update any ~~revisions that may be made to any forward-~~

- 56 -

~~looking~~forward-looking statements contained in this quarterly report on Form 10-Q to reflect future events or ~~circumstances after~~developments.

COVID-19 Response and the ~~date of the statements or to reflect the occurrence of anticipated or unanticipated events.~~Paycheck Protection Program

~~COVID-19 Response~~

The World Health Organization (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 varying degrees these very substantial mandated curtailments of social and economic activity had been progressively relaxed in the United 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, the percentage of unvaccinated people in the United States, and the potential for future mutations of the coronavirus, remain significant long-term public health and economic concerns.

As a result of the initial and continuing outbreak, and governmental 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. During the most restrictive periods during the pandemic, the Company had many of its employees working remotely and significantly reduced physical customer contact with employees and other customers until the second quarter of 2021, when New York State relaxed the majority of its safety mandates. At September 30, 2021, the Bank’s offices and branches were fully accessible to the public. We will take further actions, 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%, 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, as long as these central bank monetary policies remain in effect. The long-term effects of the current interest rate environment, resulting from government and central bank responses to the pandemic, on the Bank’s net interest 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, provided financial assistance in various forms to both businesses and 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~~service 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 issued guidance encouraging financial institutions to work prudently~~There were no remaining pandemic-related borrower forbearances of any type remaining in effect at September 30, 2022. At September 30, 2022, the Company's operations and business activities, including its relationships with ~~borrowers who~~its customers, most particularly loan customers, 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 consumer customers affected by COVID-19. While the CARES Act is widely-considered to have been beneficialbeing conducted in a manner that was substantially identical to the ~~economic recovery and supportive of the Company’s business activities, the long-term effect of this legislation on the operations of~~way in which the Company ~~cannot be determined with certainty at this time.~~

- 57 -

~~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~~conducted its activities 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 beneficialrelationships prior 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.~~COVID-19 pandemic.

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, 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 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 September 30, 2021, the Bank had no loans on active pandemic-related deferral, compared to December 31, 2020, the Bank had 38 residential mortgage and consumer loans, totaling $2.7 million and 24 commercial real estate and other commercial and industrial loans, totaling $14.4 million remained in deferral status.

Paycheck Protection Program

The Bank participated in all rounds of the PPP funded by the U.S. Treasury Department and administered by the U.S. 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. 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 the loan proceeds are used for qualifying expenses. The PPP ended in May 2021. Information related to the Company’s PPP loans are included in the following tables:

Unaudited

For the three months ended

For the nine months ended,

(In thousands, except number of loans)

September 30, 2021

September 30, 2020

September 30, 2021

September 30, 2020

Number of PPP loans originated in the period

-

25

478

699

Funded balance of PPP loans originated in the period

$
-

$
313

$
36,369

$
75,352

Number of PPP loans forgiven in the period

287

-

636

-

Average balance of PPP loans in the period

$
39,799

$
74,769

$
59,431

$
41,056

Balance of PPP loans forgiven in the period

$
26,621

$
-

$
68,726

$
-

Deferred PPP fee income recognized in the period

$
595

$
350

$
1,742

$
639


Unaudited	For the three months ended				For the nine months ended
(In thousands, except number of loans)	September 30, 2022		September 30, 2021		September 30, 2022		September 30, 2021
Number of PPP loans originated in the period		-		-		-		478
Funded balance of PPP loans originated in the period	$	-	$	-	$	-	$	36,369
Number of PPP loans forgiven in the period	54			287		243		636
Balance of PPP loans forgiven in the period	$	4,184	$	26,621	$	12,601	$	68,726
Deferred PPP fee income recognized in the period	$	144	$	595	$	691	$	1,742


(In thousands)	September 30, 2022		September 30, 2021
Unearned PPP deferred fee income at end of period	$	28	$	1,124


(In thousands, except number of loans)	Number		Balance
Total PPP loans originated since inception		1,177	$	111,721
Total PPP loans forgiven since inception		1,164	$	111,028
Total PPP loans remaining at September 30, 2022		13	$	693

- 5848 - -

(In thousands, except number of loans)

September 30, 2021

September 30, 2020

Unearned PPP deferred fee income at end of period

$
1,124

$
1,823

(In thousands, except number of loans)

Number

Balance

Total PPP loans originated since inception

1,177

$
111,721

Total PPP loans forgiven since inception

759

$
84,428

Total PPP loans remaining at September 30, 2021

418

$
27,293

Application of Critical Accounting ~~Policies~~Estimates

The Company's consolidated 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 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 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:

Residential and Consumer Loans:

•

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

•

All Troubled Debt Restructured Loans.

•

~~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.~~

Commercial Lines and Loans, Commercial Real Estate, and Tax-exempt loans:

•

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

•

All Troubled Debt Restructured Loans.

•

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

•

~~All Troubled Debt Restructured Loans.~~

- 59 -

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

- 49 -

and capital loss ~~carry forwards.~~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 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 was unlikely that the Company would be required to pay material income taxes to New York State in future periods under then-existing income tax laws in the State. Management is continuously monitoring its future tax 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 continues to evaluate the projected impact of this newly issued New York State tax legislation on the Company’s financial condition and results of operations and believes that these provisions require an increase the Company’s income tax expense for the nine months ended September 30, 2021, thereby requiring an increase in the Company’s effective tax rate to 22.2% for the nine months ended September 30, 2021 as compared to the effective tax rate of 20.5%, for the same nine month period in 2020.

The Company’s effective tax rate typically differs from the 21% federal statutory tax rate due primarily to New York State income taxes, partially offset by 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. Other variances from the federal statutory federal tax rate are due to the effects of transitional adjustments related to state income taxes. In addition, the tax effects of certain incentive stock option activity may reduce the Company’s effective tax rate on a sporadic basis.

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.

- 60 -

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~~securities’ impairment losses and 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~~insufficient 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 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 available-for-sale and marketable equity investment securities, intangible assets, foreclosed real estate, and the value of loan collateral when valuing 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;~~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.

- 50 -

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, ~~2020~~2021 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.

Recent Events

On September ~~27, 2021,~~23, 2022, the Company announced that its Board of Directors declared a cash dividend of ~~$0.07~~$0.09 per share on the Company's voting common and non-voting common stock, and a cash dividend of ~~$0.07~~$0.09 per notional share for the issued warrant relating to the fiscal quarter ~~ending~~ended September 30, ~~2021.~~2022. The ~~dividend will be~~dividends are payable to all shareholders of record on October ~~15, 2021~~14, 2022 and ~~will be~~were paid on November ~~5, 2021.~~

- 6110, 2022. -

Overview and Results of Operations

The following represents the significant highlights of the Company’s operating results between the third quarter of ~~2021~~2022 and the third quarter of ~~2020.~~2021.

•

Net income attributable to Pathfinder Bancorp, Inc. decreased $185,000 or 5.50% to $3.2 million.

•

Basic and diluted earnings per voting common share were both $0.52 per share and decreased $0.04 per share from $0.56 per share.

•

Return on average assets decreased 14 basis points to 0.93% as the increase in average asset balance outpaced the increase in income.

•

Net interest income, after provision for loan losses, increased $383,000, or 4.0% to $10.1 million. Excluding the provision, net interest income increased $989,000, or 10.1%, to $10.8 million. The increase in net interest income, before provision for loan losses, was primarily due to the increase in the average balance of interest-earning assets of $114.2 million, coupled with an increase in the average yield earned on these assets of 10 basis points. These increases in interest income were partially offset by a 21 basis points increase in the average rates paid on interest-bearing liabilities.

•

The increase in the provision for loan losses of $606,000 was primarily due to management's decision to downgrade certain loans within a single large credit relationship.

•

The net interest margin for the third quarter of 2022 was 3.32%, a one basis point increase compared to 3.31% for the same quarter in 2021.

•

The effective income tax rate decreased 1.1% to 19.6% for the three months ended September 30, 2022 as compared to 22.1% for the same three month period in 2021. The decrease in the tax rate in the third quarter of 2022, as compared to the same quarter in 2021, was primarily related to an increase in tax exempt income derived from increased average balances invested in securities issued by state and political subdivisions.

•

~~Net income increased $1.9 million, or 128.3%, to $3.4 million.~~

•

~~Basic and diluted earnings per share were both $0.56 per share and increased $0.31 per share from $0.25 per share.~~

•

~~Return on average assets increased 57 basis points to 1.07% as the increase in income outpaced the increase in average assets.~~

•

Net interest income, after provision for loan losses, increased $3.1 million, or 46.1%, to $9.7 million. Excluding the provision, net interest income increased $1.5 million, or 17.8%, to $9.8 million. The increase in net interest income, after provision for loan losses, was primarily due to the increase in the average balance of interest-earning assets, coupled with an increase in the average yield earned on the average balance of interest-earning assets and a decrease in the average rate paid on average interest-bearing liabilities. Additionally, a reduction in the provision for loan losses of $1.6 million was reflective of improving asset quality metrics. The credit sensitive portfolios continue to be carefully monitored, and the Bank will consistently apply its conservative loan classification and reserve building methodologies to the analysis of these portfolios.

•

The net interest margin for the third quarter of 2021 was 3.31%, a 30 basis point increase compared to 3.01% for the third quarter of 2020. This improvement reflects both an 18 basis point decline in the average cost paid on interest-bearing liabilities, and a 13 basis point increase in the average yield earned on interest-earning assets.

•

The effective income tax rate increased 2.5% to 23.2% for the three months ended September 30, 2021 as compared to 20.7% for the same three month period in 2020. The increase in the tax rate in the third quarter of 2021, as compared to the same quarter in 2020, was primarily related to an increase in pretax income and relatively consistent permanent differences, due to a decrease in the percentage of the Company’s total revenues that were derived from investments in tax exempt loans and securities.

The following represents significant highlights of the ~~Company’s~~Company's operating results between the first nine months of ~~2021~~2022 and the first nine months of ~~2020.~~2021.

•

~~Net income increased $3.5 million, or 70.4%, to $8.5 million.~~

•

Net income attributable to Pathfinder Bancorp, Inc. increased $874,000, or 10.2%, to $9.4 million.

•

~~Basic and diluted earnings per share were both $1.43 per share and increased $0.58 per share.~~

•

Basic and diluted earnings per voting common share were both $1.55 per share and increased $0.12 per share.

•

~~Return on average assets increased 32 basis points to 0.90% as the increase in income outpaced the increase in average assets.~~

•

Return on average assets increased four basis points to 0.94% as the increase in net income outpaced the increase in average assets.

•

Net interest income, after provision for loan losses, increased by $6.7 million, or 33.6%, to $26.5 million. The increase was primarily due to the decrease in total interest expense, combined with an increase in the average balance of interest-earning assets.

•

Net interest income, after provision for loan losses, increased by $2.8 million, or 10.8%, to $29.4 million. This increase in net interest income after provision for loan losses was primarily due to a $1.1 million decrease in the provision for loan losses, combined with an increase of $70.1 million in the average balances of interest-earning assets and a seven basis points decrease in the average rates paid on interest-bearing liabilities.

•

The net interest margin was 3.19%, a 26 basis point increase as compared to 2.93% for the prior year period. This improvement reflects a 39 basis point decline in the average cost paid on interest-bearing liabilities, primarily due to a reduction in the average balance of time deposits of $35.9 million and a 68 basis point decrease in the average rate paid on those time deposits. The average yield earned on interest-earning assets declined eight basis points from the prior year period.

•

Net interest margin decreased by one basis point to 3.18%, primarily as the result of a 7 basis points decline in the average cost for interest-bearing liabilities, offset by an 8 basis points decrease in the average yield for interest-earning assets.

•

The effective income tax rate increased 1.7% to 22.2% for the nine months ended September 30, 2021 as compared to 20.5% for the same nine month period in 2020. The increase in the tax rate in the first nine months of 2021, as compared to the same period in 2020, was primarily related to an increase in pretax income.

- 6251 - -

•

The effective income tax rate decreased 2.6% to 19.4% for the nine months ended September 30, 2022 as compared to 22.0% for the same nine month period in 2021. The decrease in the tax rate in the first nine months of 2022 was primarily related to an increase in interest on tax exempt securities along with decreases in New York State taxes.

The following reflects the significant changes in financial condition between December 31, ~~2020~~2021 and September 30, ~~2021.~~2022. In addition, the following reflects significant changes in asset quality metrics between September 30, ~~2020~~2022 and September 30, 2021.

•

Total assets increased $111.8 million, or 8.7% to $1.40 billion at September 30, 2022, as compared to December 31, 2021, primarily driven by higher investment securities balances and loan balances.

•

Nonperforming loans to total loans increased nine basis points to 1.20% at September 30, 2022, compared to 1.11% at September 30, 2021. Nonperforming loans to total loans increased 20 basis points to 1.20% at September 30, 2022 compared to 1.00% at December 31, 2021. Correspondingly, the ratio of the allowance for loan losses to nonperforming loans was 128.3% at September 30, 2022, as compared to 160.1% at September 30, 2021, and 156.0% at December 31, 2021.

•

Total assets increased $34.8 million, or 2.8% to $1.26 billion at September 30, 2021, as compared to December 31, 2020, primarily driven by higher investment securities balances and cash and cash equivalents, offset by decreases in loans.

•

Asset quality metrics, as measured by net loan charge-offs, remained stable, in comparison to recent reporting periods. The annualized net loan charge-offs to average loans ratio was 0.12% for the third quarter of 2021, compared to 0.08% for the third quarter of 2020, and 0.08% for the fourth quarter of 2020. Nonperforming loans to total loans decreased 50 basis points to 1.11% at September 30, 2021, compared to 1.61% at September 30, 2020. Nonperforming loans to total loans decreased 147 basis points to 1.11% at September 30, 2021 compared to 2.58% at December 31, 2020. Correspondingly, the ratio of the allowance for loan losses to nonperforming loans was 160.10% at September 30, 2021, as compared to 91.44% at September 30, 2020, and 59.89% at December 31, 2020.

The Company had net income of $3.2 million for the three months ended September 30, 2022 compared to net income of $3.4 million for the three months ended September 30, ~~2021 compared to net income of $1.5 million for the three months ended September 30, 2020.~~2021. The ~~$1.9 million increase~~$213,000 decrease in net income was due primarily to a ~~$1.1~~$762,000 increase in total interest expense, a $606,000 increase in provision for loan losses expense, a $444,000 increase in total noninterest expenses and a $385,000 decrease in total noninterest income. These were partially offset by a $1.8 million increase in total interest and dividend income and a ~~$335,000~~$233,000 decrease in ~~interest expense, a $1.6 million decrease in the~~ provision for ~~loan losses and a $55,000 increase in noninterest income. Offsetting the increases to net~~ income ~~was a $593,000 increase in noninterest expense and a $633,000 increase in income tax expense.~~taxes.

Net interest income before the provision for loan losses increased ~~$1.5 million,~~$989,000, or ~~17.8%~~10.1%, to ~~$9.8~~$10.8 million for the three months ended September 30, ~~2021~~2022 as compared to ~~$8.3~~$9.8 million for the same three month period in ~~2020.~~2021. The increase was primarily ~~a result of an 18 basis point decrease in~~ the ~~average cost of interest-bearing liabilities between the year-over-year third quarter periods. Further, the increase was a~~ result of increases in the average ~~interest-earning asset balances, primarily in the loan~~yields of both taxable and tax-exempt investment ~~categories, coupled~~securities portfolios, combined with ~~an increase~~increases in the average ~~yield~~balances of ~~interest-earning assets~~the loan portfolio of 13$57.6 million and $74.3 million in the investment portfolios. These increases resulted in a 20 basis points increase to ~~3.93%~~4.13% in total interest-earning asset yields for the three months ended September 30, ~~2021 from 3.80%~~2022 as compared to 3.93% for the same three month period of the previous year. The increase in the average yields received on interest-earning assets in the third quarter of 2022, as compared to the same quarter in 2021, reflects generally increased rates of interest for newly funded loans and investments securities, as compared to the average yields within these portfolios, as well as increases in coupon rates for certain adjustable-rate loans and securities in the rising interest environment that has occurred in 2022. These increases in the average yield on loans during 2022, were partially offset by reduced fee recognition related to PPP loans. These increases in net interest income ~~was enhanced~~were partially offset by ~~the recognition of deferred PPP fee income recognized~~a 21 basis points increase in the ~~period due~~average cost of total interest-bearing liabilities in the third quarter of 2022, as compared to the ~~increased levels of forgiveness~~same quarter in 2021, combined with a $105.3 million increase in the ~~three month ended September 30, 2021. Please refer~~average balance of total interest-bearing liabilities. The increase in the average rates paid on interest-earning liabilities in the third quarter of 2022, as compared to the ~~PPP tables above~~same quarter in 2021, reflects the generally increased rates of interest for ~~the full impact of PPP loans on average loan yields.~~all financial instruments that has occurred in 2022.

The ~~$55,000,~~$385,000, or ~~3.7%~~24.9%, ~~increase~~decrease in noninterest income in the quarter ended September 30, ~~2021,~~2022, as compared to the same quarterly period in ~~2020,~~2021, was primarily the result of ~~an $86,000 increase~~a decrease of $203,000 in insurance agency revenue, a $54,000 increase in service charges on deposit accounts, a $31,000 increase in earnings on bank owned life insurance and a $27,000 increase in debit card interchange fees. These increases were partially offset by reductions innet gains on ~~foreclosed real estate~~sales of ~~$67,000, decreases in loan servicing fees of $36,000, decreases~~investment securities, an $89,000 decrease in gains on marketable equity securities, ~~of $29,000,~~a $59,000 decrease in service charges on deposits accounts, a $56,000 decrease in debit card interchange fees and a $45,000 decrease in insurance agency revenue. All other noninterest income categories netted to an $8,000 decrease in the ~~gains recognized on the sales of investment securities of $22,000.~~

- 63 -

~~The $593,000 increase in noninterest expense in the quarter~~three months ended September 30, ~~2021,~~2022, as compared to the same ~~quarterly~~ period in ~~2020,~~the prior year. These decreases were partially offset by a $75,000 increase in other charges, commissions and fees.

Total noninterest expense for the third quarter of 2022 was $7.3 million, an increase of $444,000, or 6.5%, compared to $6.8 million for the same three month period in 2021. The increase was primarily ~~the~~a result of ~~an increase in~~higher salaries and employee benefits expense of $572,000, or 15.8%. Other expenses and building and occupancy expenses increased $174,000 and $111,000, respectively. Partially offsetting these increases was a $201,000, or 29.3%, reduction in data processing ~~costs, insurance agency expense, professional and other services, audits and exams costs, and~~expenses, primarily the ~~FDIC assessment~~result of ~~$228,000, $117,000, $114,000, $103,000, $67,000, and $52,000, respectively. The increase~~a reduction in ~~salaries and employee benefit expense was due to the increase in net salaries expense due to increased PPP loan originations in 2020 and the deferral of employee-related expenses in 2020~~ATM processing fees related to ~~those originations.~~third-party vendor refunds obtained through contract

- 52 -

renegotiation activities. All other ~~employee-related expenses increased an aggregate of $32,000~~noninterest expense categories netted to a $212,000 decrease in the ~~third quarter of 2021,~~three months ended September 30, 2022, as compared to the same ~~quarterly period~~quarter in ~~2020. Data processing costs increased due to increases~~2021.

Management extensively reviews recent trends in ~~internet banking costs~~changes in the size and processing costs. Insurance agency expense increased as a result of a general increases in personnel costs and other administrative costs related to the Agency. Professional and other services costs increased due to increased use of third party services. These increases are consistent with the Company’s customer and operational growth. The increases in 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 resultcomposition of the ~~COVID-19 pandemic. The FDIC assessment increased as a result~~loan portfolio, historical loss experience, qualitative factors, and specific reserve needs on loans individually evaluated for impairment, in its determination of ~~an increase in~~ the ~~average balance~~adequacy of ~~deposits, including an increase in~~ the ~~average balance of brokered time deposits.~~

allowance for loan losses. For the three months ended September 30, ~~2021,~~2022, we recorded ~~$104,000~~$710,000 in provision for loan losses as compared to ~~$1.7 million~~$104,000 in the same prior year three month period. ~~This $1.6 million decrease~~The primary driver of the increased provision expense in the third quarter of 2022, as compared to the same quarter in 2021, was management's decision to downgrade certain commercial real estate loans and commercial loans within a single borrower relationship totaling $7.2 million in related credits. This relationship is under active resolution management by the Company. Additionally, the provision in the quarter ended September 30, 2022 is reflective of (1) the qualitative factors used in determining the adequacy of the allowance for loan losses, (2) the increase in the size of the loan portfolio, and (3) changes in the levels of delinquent and nonaccrual loans. The third quarter provision for loan losses ~~was primarily reflective of improving~~reflects an addition to reserves considering loan growth and asset quality metrics. The ~~credit sensitive~~credit-sensitive portfolios continue to be carefully monitored, and the Bank will consistently apply its ~~conservative~~ loan classification and reserve building methodologies to the analysis of these portfolios.

In comparing the year-over-year third quarter periods, the Company’s return on average assets ~~increased 57~~decreased 14 basis points to ~~1.07%~~0.93% due to the combined effects of the ~~increase~~decrease in net income (the numerator in the ratio) ~~and~~, offset by the increase in average assets (the denominator in the ratio). Average assets increased due to increases in average investment securities and average loans of ~~$7.3 million, average taxable securities of $60.7~~$74.3 million and ~~average tax-exempt securities of $2.3~~$57.6 million, respectively, in the third quarter of ~~2021,~~2022 as compared to the same quarter of ~~2020.~~2021. Average interest-bearing deposits increased ~~$19.7~~$105.8 million in the third quarter of ~~2021,~~2022, as compared with the same quarter in ~~2020. Noninterest-bearing~~2021. The increase in deposits ~~were the primary driver~~was primarily due to municipal deposit inflows and outflows due to seasonal timing of ~~growth between the comparable periods and totaled $206.2 million at September 30, 2021,~~tax collections, an increase ~~of $48.3 million, or 30.6%, compared to September 30, 2020. The increases~~ in ~~noninterest-bearing~~brokered deposits ~~were primarily a result of the Bank’s participation in the PPP, as well as ongoing~~and continued growth in business banking relationships. ~~In addition,~~Average MMDA accounts increased $3.5 million as compared with the ~~Bank has seen a general increase~~same quarter in the average account balance for consumer deposits consistent with similar increases generally reported throughout the industry. These increases are expected to be transitory and relate primarily to significant levels of economic stimulus combined with reduced levels of consumer spending related to the pandemic. At this time, it cannot be determined with certainty how long it will be before these deposits return to historically normal levels.2021.

The Company had net income of ~~$8.5~~$9.5 million for the nine months ended September 30, ~~2021~~2022 compared to net income of ~~$5.0~~$8.6 million for the nine months ended September 30, ~~2020.~~2021. The ~~$3.5 million~~$854,000 increase in net income was due primarily to a ~~$2.6~~$1.4 million increase in interest and dividend income, a ~~$2.2~~$1.2 million decrease in the provision for loan losses, a $227,000 decrease in interest expense and a ~~$1.8 million~~$132,000 decrease in provision for ~~loan losses, and a $55,000 increase in noninterest income. Offsetting~~income taxes. Partially offsetting the increase in net income was ana $1.4 million increase ~~of $2.1 million~~ in noninterest expense and a ~~$1.1 million increase~~$765,000 decrease in ~~income tax expense.~~noninterest income.

Net interest income before the provision for loan losses increased ~~$4.8~~$1.7 million to ~~$28.6~~$30.2 million for the nine months ended September 30, ~~2021,~~2022, as compared to ~~$23.7~~$28.6 million for the same nine month period in ~~2020. The increase was due principally~~2021. Interest expense decreased $227,000 to ~~a $2.6~~$5.8 million or 8.1%, increase in interest and dividend income that was a result of growth in average interest-earning assets of $113.0 million compared to the prior year nine month period. Average loans for the first nine months of 2021 increased by $51.8 million, or 6.5%, over the prior year period, while the average interest yield on interest-earning assets decreased by eight basis points. The increase in interest income was enhanced by the recognition of deferred PPP fee income recognized in the period due to the increased levels of forgiveness in the three months ended September 30, 2021. Please refer to the PPP tables above for the full impact of PPP loans on average loan yields. Average interest-bearing liabilities increased by $63.5 million, or 7.1%, for the nine months ended September 30, ~~2021~~2022 as compared to the prior year ~~period; however, the~~period. The average interest rate paid on interest-bearing liabilities decreased by 39seven basis ~~points.~~

- 64 -

~~The $55,000, or 1.2%, increase in noninterest income~~points for the nine months ended September 30, ~~2021,~~2022 as compared to the prior year period; however, average interest-bearing liabilities increased by $55.6 million, or 5.8%. Average loans for the first nine months of 2022 increased by $20.3 million, or 2.4%, over the prior year period,while the average interest yield earned on average loans decreased by 18 basis points, resulting in a decrease of $535,000 in interest income on loans for the nine months ended September 30, 2022 as compared to the prior year period due to the loss of PPP income. Income from investment securities increased $1.9 million, or 22.0% to $8.5 million for the nine months ended September 30, 2022.

Noninterest income decreased $765,000 for the nine months ended September 30, 2022, when compared to the same nine month period in 2020 was primarily due to the $1.2 million increase in net gains on equity securities and a $201,000 increase in gains on sales of premises and equipment. Offsetting these increases were decreases of $1.0 million in net2021. Net gains on sales and redemptions of investment securities ~~and a $677,000 decrease~~decreased $224,000 when compared to the same period in ~~net~~2021. Net gains on marketable equity securities decreased $333,000 and there were no gains on sale of premises and equipment when compared to the $201,000 gain in the same period in 2021. Service charges on deposit accounts, gains on sales of ~~loans and~~ foreclosed real estate ~~which was primarily~~and debit card interchange fees also decreased $206,000, $104,000, and $59,000, respectively, when compared to the ~~result of the sale of $35.9 million~~same period in ~~seasoned, conforming residential mortgage loans that was completed~~2021. The $206,000 decrease in ~~January 2020.~~

~~Excluding the effects of the period over period fluctuations discussed above, all other noninterest income categories increased in the aggregate by $381,000, or 10.6%, to $4.0 million~~service charges on deposit accounts in the nine months ended September 30, ~~2021~~2022, as compared ~~with $3.6 million in~~to the same nine month period ~~of 2020. This period over period increase~~in 2021, was ~~a result of debit card interchange fees, other~~primarily due to reductions in the Bank's service fee schedules, enacted in January 2022, based on the competitive environment within our marketplace. Other charges, ~~commissions~~commission and fees, ~~service charges on deposit accounts,~~loan servicing fees, insurance agency revenue, and earnings on bank owned life insurance ~~which~~ increased ~~$121,000, $98,000, $84,000, $78,000~~$202,000, $105,000, $32,000 and ~~$63,000,~~$23,000, respectively. The net increase in these categories

- 53 -

of noninterest income during the nine months ended September 30, 2022, were ~~in part~~largely due to growth in the ~~Company’s~~Bank's investment services and insurance businesses, the net income effect of which was partially offset by increased ~~strategic focus on improving recurring noninterest income. Offsetting these increases was a decrease in~~operating expenses, and increased loan ~~servicing~~prepayment fees ~~of $63,000.~~collected.

Total noninterest expense for the first nine month period of ~~2021~~2022 was ~~$20.3~~$21.7 million, an increase of ~~$2.1~~$1.4 million, or ~~11.4%~~6.7%, compared with ~~$18.2~~$20.3 million for the prior year period. The increase was primarily a result of higher salaries and employee benefits expense of $1.6 million, or 14.9%, and was primarily comprised of a $664,000, or 8.7%, increase in ~~noninterest expense for~~salaries, a $380,000 reduction in the ~~nine month period ended September 30, 2021,~~deferral of employee related expenses, a $173,000 increase in employee benefits and a $349,000 net increase in all other salaries and employee benefit expenses. The $443,000 increase in salaries was primarily due to increases in individual salaries, enacted early in 2022 and continuing through the year, as well as modest additions to staff headcount. The Company increased its salary structure where deemed appropriate in order to effectively respond to inflationary and competitive pressures within our marketplace to recruit and retain talent. The $380,000 reduction in deferred salaries was primarily due to reduced levels of PPP loan originations in 2022 as compared to the ~~same period~~previous year. The Company originated $36.4 million in ~~2020, was principally driven by an increase~~PPP loans in the first nine months of ~~$851,000~~2021 and $-0- in ~~personnel expenses, a $354,000~~2022. The $139,000 increase in professional and other services, a $295,000 increase in data processing expense, a $196,000 increase in audits and exams expense, a $138,000 increase in building and occupancy expense, a $143,000 increase in FDIC assessments and a $110,000 increase in insurance agency expense. The increase in net salaries expenseemployee benefit expenses was partially the result of increased PPP loan originations in 2020 and the deferral of employee-related expenses in 2020 related to 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 branch~~increased staffing levels 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 and operational growth. The FDIC assessment increased as a result of an increase in the average balance of deposits, including an increase in the average balance of brokered time deposits. Insurance agency expense increased as a result of a general increases in personnel costs and other administrative costs related to the Agency.salaries for 2022.

For the first nine months of ~~2021,~~2022, we recorded ~~$2.1 million~~$871,000 in provision for loan losses as compared to ~~$3.9~~$2.1 million in the same prior year nine month period. ~~The~~Notwithstanding the downgrading of a single credit relationship totaling $7.2 million in the third quarter of 2022, discussed above, the reduction in year-to-date provision expense 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 ~~decline~~decrease in the provision for loan losses ~~in 2021,~~through the third quarter of 2022, as compared to the same period in ~~2020,~~2021, was primarily related to the improvement in the qualitative factors used by the Company to determine the provision in ~~2021,~~2022, as compared to the same period in the previous year. The improvement in these qualitative factors was due to observed improvements in economic conditions during the second half of 2021 and the first half of 2022 that followed the easing of the most restrictive phases of the COVID-19 pandemic that had existed in ~~2020.~~2020 and the first half of 2021. The credit sensitive portfolios continue to be carefully ~~monitored, and the Bank will consistently apply its conservative loan classification and reserve building methodologies to the analysis of these portfolios.~~monitored. Please refer to the asset quality section below for a further discussion of asset quality as it relates to the allowance for loan losses.

Return on average assets increased 32four basis points to ~~0.90%~~0.94% between the year-over-year nine month periods as the ~~change~~increase in net income in the nine month period ended September 30, ~~2021~~2022 (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 investment securities and the loan portfolio of $63.4 and $20.3 million, respectively, in the nine month period ended September 30, 2022 as compared to the same period of 2021. Average interest-bearing liabilities increased $55.6 million in the nine months ended September 30 2022, as compared with the same period in 2021. The increase in deposits was primarily the result of municipal deposit inflows and outflows due to seasonal timing of tax collections, an increase in brokered deposits and continued growth in business banking relationships. Average time deposits increased $24.5 million in the nine months ended September 30, 2022, as compared with the same period in 2021.

- 65 -

Net Interest Income

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.

- 54 -

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.~~fees of $389,000 and $1.4 million for the nine month periods ended September 30, 2022 and September 30, 2021, respectively. The decrease in loan fees for the year over year nine month period is primarily due to the decrease in PPP loan fee income. Nonaccrual loans have been included in interest-earning assets for purposes of these calculations.


	(Unaudited)																(Unaudited)
	For the three months ended September 30,																For the three months ended September 30,
	2021								2020								2022								2021
						Average								Average								Average								Average
Unaudited	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	$	822,547		$	9,465		4.60	%	$	815,212		$	8,810		4.32	%	$	880,097		$	9,895		4.50	%	$	822,547		$	9,465		4.60	%
Taxable investment securities		317,612			2,136		2.69	%		256,958			1,623		2.53	%		363,877			3,108		3.42	%		317,612			2,136		2.69	%
Tax-exempt investment securities		14,863			28		0.75	%		12,549			50		1.59	%		42,855			351		3.28	%		14,863			28		0.75	%
Fed funds sold and interest-earning deposits		27,984			3		0.04	%		18,857			4		0.08	%		10,383			29		1.12	%		27,984			3		0.04	%
Total interest-earning assets		1,183,006			11,632		3.93	%		1,103,576			10,487		3.80	%		1,297,212			13,383		4.13	%		1,183,006			11,632		3.93	%
Noninterest-earning assets:
Other assets		83,028								79,901								90,482								83,028
Allowance for loan losses		(14,794	)							(10,969	)							(13,050	)							(14,794	)
Net unrealized gains/(losses) on available-for-sale securities		2,209								(206	)
Net unrealized (losses) gains on available-for-sale securities																		(10,983	)							2,209
Total assets	$	1,253,449							$	1,172,302							$	1,363,661							$	1,253,449
Interest-bearing liabilities:
NOW accounts	$	94,654		$	81		0.34	%	$	80,636		$	45		0.22	%	$	101,907		$	85		0.33	%	$	94,654		$	81		0.34	%
Money management accounts		16,583			5		0.12	%		16,332			4		0.10	%		16,097			4		0.10	%		16,583			5		0.12	%
MMDA accounts		241,374			241		0.40	%		204,943			316		0.62	%		244,884			427		0.70	%		241,374			241		0.40	%
Savings and club accounts		126,511			42		0.13	%		99,909			22		0.09	%		140,425			52		0.15	%		126,511			42		0.13	%
Time deposits		358,634			785		0.88	%		416,190			1,229		1.18	%		440,227			1,339		1.22	%		358,634			785		0.88	%
Subordinated loans		29,496			411		5.57	%		15,148			191		5.04	%
Subordinated debt																		29,655			442		5.96	%		29,496			411		5.57	%
Borrowings		78,892			276		1.40	%		73,655			369		2.00	%		78,232			254		1.30	%		78,892			276		1.40	%
Total interest-bearing liabilities		946,144			1,841		0.78	%		906,813			2,176		0.96	%		1,051,427			2,603		0.99	%		946,144			1,841		0.78	%
Noninterest-bearing liabilities:
Demand deposits		189,951								158,600								189,317								189,951
Other liabilities		11,441								12,567								12,248								11,441
Total liabilities		1,147,536								1,077,980								1,252,992								1,147,536
Shareholders' equity		105,913								94,322								110,669								105,913
Total liabilities & shareholders' equity	$	1,253,449							$	1,172,302							$	1,363,661							$	1,253,449
Net interest income				$	9,791							$	8,311							$	10,780							$	9,791
Net interest rate spread							3.15	%							2.84	%							3.14	%							3.15	%
Net interest margin							3.31	%							3.01	%							3.32	%							3.31	%
Ratio of average interest-earning assets to average interest-bearing liabilities							125.03	%							121.70	%							123.38	%							125.03	%

- 6655 - -


	For the nine months ended September 30,																	For the nine months ended September 30,
	2021								2020									2022								2021
						Average									Average								Average								Average
Unaudited	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	$	842,850		$	28,096		4.44	%	$	791,088		$	26,884			4.53	%	$	863,191		$	27,561		4.26	%	$	842,850		$	28,096		4.44	%
Taxable investment securities		310,098			6,438		2.77	%		245,228			4,998			2.72	%		348,499			7,850		3.00	%		310,098			6,438		2.77	%
Tax-exempt investment securities		12,631			99		1.05	%		7,839			109			1.85	%		37,593			612		2.17	%		12,631			99		1.05	%
Fed funds sold and interest-earning deposits		28,433			7		0.03	%		36,848			53			0.19	%		19,950			48		0.32	%		28,433			7		0.03	%
Total interest-earning assets		1,194,012			34,640		3.87	%		1,081,003			32,044	��		3.95	%		1,269,233			36,071		3.79	%		1,194,012			34,640		3.87	%
Noninterest-earning assets:
Other assets		81,779								76,726									85,652								81,779
Allowance for loan losses		(13,962	)							(9,921	)								(13,040	)							(13,962	)
Net unrealized gains/(losses) on available for sale securities		1,802								(629	)
Net unrealized (losses) gains on available-for-sale securities																			(7,230	)							1,802
Total assets	$	1,263,631							$	1,147,179								$	1,334,615							$	1,263,631
Interest-bearing liabilities:
NOW accounts	$	94,018		$	212		0.30	%	$	79,172		$	109			0.18	%	$	104,874		$	234		0.30	%	$	94,018		$	212		0.30	%
Money management accounts		16,059			13		0.11	%		15,450			14			0.12	%		16,212			12		0.10	%		16,059			13		0.11	%
MMDA accounts		238,507			737		0.41	%		200,529			1,072			0.71	%		255,933			985		0.51	%		238,507			737		0.41	%
Savings and club accounts		119,859			115		0.13	%		93,926			70			0.10	%		139,798			150		0.14	%		119,859			115		0.13	%
Time deposits		376,724			2,748		0.97	%		412,625			5,111			1.65	%		401,297			2,625		0.87	%		376,724			2,748		0.97	%
Subordinated loans		33,814			1,376		5.43	%		15,139			589			5.19	%
Subordinated debt																			29,617			1,284		5.78	%		33,814			1,376		5.43	%
Borrowings		84,001			873		1.39	%		82,663			1,349			2.18	%		70,833			557		1.05	%		84,001			873		1.39	%
Total interest-bearing liabilities		962,982			6,074		0.84	%		899,504			8,314			1.23	%		1,018,564			5,847		0.77	%		962,982			6,074		0.84	%
Noninterest-bearing liabilities:
Demand deposits		186,125								142,379									194,220								186,125
Other liabilities		11,660								12,487									11,808								11,660
Total liabilities		1,160,767								1,054,370									1,224,592								1,160,767
Shareholders' equity		102,864								92,809									110,023								102,864
Total liabilities & shareholders' equity	$	1,263,631							$	1,147,179								$	1,334,615							$	1,263,631
Net interest income				$	28,566							$	23,730								$	30,224							$	28,566
Net interest rate spread							3.03	%								2.72	%							3.02	%							3.03	%
Net interest margin							3.19	%								2.93	%							3.18	%							3.19	%
Ratio of average interest-earning assets to average interest-bearing liabilities							123.99	%								120.18	%							124.61	%							123.99	%

As indicated in the above ~~tables,~~table, net interest income, before provision for loan losses, increased ~~$1.5 million,~~$989,000 or ~~17.8%~~10.1%, to ~~$9.8~~$10.8 million for the three months ended September 30, ~~2021~~2022 as compared to ~~$8.3~~$9.8 million for the same prior year period. This increase was due principally to a 20 basis points increase in the ~~$79.4 million, or 7.2%,~~average yield of interest-earning assets, offset by an increase of 21 basis points on the average cost of interest-bearing liabilities. Net interest income was positively impacted by an increase in the average balance of interest-earning assets ~~coupled with an increase~~ of 13 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 $39.3$114.2 million, or ~~4.3%~~9.7%. The ~~negative~~positive effect of this increase in the average balance of ~~interest-bearing liabilities on net interest income however,~~interest-earning assets was ~~partially~~ offset by ~~a decrease~~an increase of ~~18 basis points on the average interest rate paid on those~~$105.3 million in interest-bearing liabilities. In total, net interest margin increased one basis point to 3.32% for the three months ended September 30, ~~basis points~~2022 as compared to ~~3.31%.~~the same prior year period. 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 ~~$1.1~~$1.8 million, or ~~10.9%~~15.1%, to ~~$11.6~~$13.4 million for the three months ended September 30, ~~2021~~2022 compared to ~~$10.5~~$11.6 million for the same three month period in ~~2020. The~~2021. This quarter-over-quarter increase ~~in interest income~~ was due principally to the increase in the average yields earned on average interest-earning assets (primarily loans of 28%), which increased 13 basis points between the year-over-year third quarter periods. This increase was also due to an increase in the average ~~balance~~yield earned on interest-earning assets of ~~interest earning assets, which increased between the year-over-year third quarter period~~20 basis points and was primarily driven by ~~7.2%. The average balance of investment securities and loans increased by $63.0 million and $7.3 million, respectively. The~~an 80 basis points increase in the average yield earned on investment securities, primarily, tax-exempt securities. This increase in 2022 on the yields received from investment securities was the result of the combined effects of increasing coupons received on previously-held adjustable-rate securities and relatively higher rates of interest received on newly-purchased securities as a result of rising interest rates. These increased yields on investments securities were offset slightly by a decrease of 10 basis

- 56 -

points in the average yield earned on loans ~~was~~in the quarter ended September 30, 2022 as compared to the same quarter in 2021.

Compared to the third quarter of 2021, average loan yields decreased 10 basis points during the three months ended September 30, 2022, primarily due to ~~the recognition of~~a $451,000 reduction in deferred ~~PPP~~Paycheck Protection Program (PPP) fee income recognized in the ~~period due~~quarter ended September 30, 2022 as compared to

- 67 -

the same quarter in 2021. Absent the effects of PPP revenue recognition, loan yields in aggregate would have increased ~~levels of forgiveness~~12 basis points from 4.31% in the three ~~month period~~months ended September 30, ~~2021. Please refer~~2021 to ~~the PPP tables above~~4.43% for the ~~full impact of PPP loans on average loan yields.~~ same three month period in 2022.

Interest expense for the three months ended September 30, ~~2021 decreased $335,000,~~2022 increased $762,000, or ~~15.4%~~41.4%, to ~~$1.8~~$2.6 million when compared to the same prior year period. ~~Deposit~~The average cost of interest-bearing liabilities increased 21 basis points between the two periods due primarily to an increase in the average cost of time deposits and MMDA accounts, combined with an increase of $105.8 million in the average balance of interest bearing deposits. Interest expense ~~decreased $462,000,~~on borrowings increased $9,000, or ~~28.6%~~1.3%, to ~~$1.2 million~~$696,000 due primarily to a 2439 basis ~~point decrease~~points increase in the ~~annualized~~ average rate paid on ~~deposits to 0.55%~~subordinated debt for the three months ended September 30, ~~2021,~~2022 as compared to ~~0.79% for~~ the ~~three months ended September 30, 2020.~~prior year period. This increase was ~~partially~~ offset by a ~~$19.7 million increase~~$660,000 decrease in the average balance of ~~interest-bearing deposits~~borrowings, combined with a 10 basis points decrease as long term, higher rate borrowings matured during the ~~same time periods. This decrease in~~period and were replaced with lower-cost overnight borrowings.

Net interest income for the ~~average cost of deposits was primarily due to a 30 basis point decrease in the average rates paid on time deposits, during the three~~nine months ended September 30, ~~2021 as compared to the same three month period in 2020 due to the general decline in market interest rates during the third quarter of 2021.~~

~~For the nine month period ended September 30, 2021, net interest income, before the provision for loan losses, increased $4.8 million, or 20.4%, to $28.6~~2022 was $30.2 million, compared to ~~$23.7~~$28.6 million for the nine months ended September 30, ~~2020. Interest~~2021. The primary driver of the increase in net interest income was a $1.4 million or 4.1%, increase in interest and dividend income ~~increased $2.6~~to $36.1 million ~~or 8.1%,~~for the nine months ended September 30, 2022 compared to $34.6 million for the nine months ended September 30, 2021. Interest income on investment securities increased $1.9 million to $8.5 million for the nine months ended September 30, 2022 as compared to $6.5 million for the same prior year period. Loan income decreased $535,000, or 1.9%, for the nine months ended September 30, 2022 when compared to the same prior year period. The average yield earned on interest earning assets decreased eight basis points as compared to the same nine month period in 2021. This increase in net interest income was also due to a seven basis points decrease in the average cost of interest-bearing liabilities. The average balance of interest-earning assets increased $75.2 million for the nine months ended September 30, 2022 to $1.3 billion from $1.2 billion for the same prior year period while the average balance of interest-bearing liabilities increased $55.6 million for the nine months ended September 30, 2022 as compared to same prior year period. The net interest margin percentage decreased from 3.19% for the nine months ended September 30, 2021 ~~from $32.0~~to 3.18% for the nine months ended September 30, 2022.

Interest and dividend income increased $1.4 million, or 4.1%, to $36.1 million for the nine months ended September 30, 2022 compared to $34.7 million for the same nine month period in ~~2020. The increase in interest income was due principally to the increase in average balances~~2021 primarily as a result of ~~taxable investment securities, tax exempt investment securities and loans, which increased 26.5%, 61.1% and 6.5%, respectively, between the year-over-year nine month periods. The~~a $$63.4 million increase in the average balance of ~~securities reflected increased purchases~~investments in ~~2021~~the nine months ended September 30, 2022, as compared to ~~2020. The increase in~~ the average balance of loans reflected the Bank’s participation in the PPP, continued success in its expansion within the greater Syracuse, New York market and purchased loan activity. These increases were offset by a reduction of the average balance of federal funds sold and interest-earning deposits, which decreased 22.8% in the year over-year nine month periods. The decrease in the average balance of federal funds sold and interest-earning deposits in 2021 was primarily the result of the effects of the COVID-19 pandemic. The Bank substantially increased its on-hand liquidity in 2020 to support the potential needs of the customers and the communities it serves during thesame nine month period in 2021. Additionally, there was a 22 basis points increase in investment yields in the nine months ended September 30, ~~2020. This level of liquidity was not considered necessary~~2022, as compared to the same nine month period in 2021. The increase in ~~interest income was partially offset by a decrease~~2022 in the ~~average yield~~yields received from investment securities was the result of ~~interest-earning assets~~the combined effects of 8increasing coupons received on previously-held adjustable-rate securities and relatively higher rates of interest received on newly-purchased securities as a result of rising interest rates. The 18 basis points decline in average loan yields during the nine months ended September 30, 2022, as compared to ~~3.87% for~~the same nine month period in 2021, was due to a variety of factors, most notably a $1.1 million reduction in deferred PPP fee income recognized in the first nine months of 2022 as compared to the same nine month period in the previous year. Absent the effects of PPP revenue recognition, loan yields in aggregate would have decreased one basis point from 4.16% in the nine months ended September 30, 2021 ~~as compared~~ to 4.15% for the ~~prior year~~same nine month ~~period. Further contributing to the increase~~period in ~~net interest income was a $2.2 million decrease in interest expense, primarily due to a $2.4 million decrease in deposit expense.~~2022.

Interest expense for the nine months ended September 30, ~~2021~~2022 decreased ~~$2.2 million,~~$227,000, or ~~26.9%~~3.7%, to ~~$6.1~~$5.8 million as compared to ~~$8.3~~$6.1 million for the nine months ended September 30, ~~2020.~~2021. The decrease in interest expense was due principally to a 39seven basis ~~point~~points decrease in the average rate paid on interest-bearing liabilities, ~~to 0.84%,~~ partially offset by a ~~$63.5~~$55.6 million increase in the average balance of these liabilities. ~~The decrease in~~Interest expense on time deposits decreased $123,000, while interest expense ~~was due to a $2.6 million decrease in deposit interest expense and a $476,000 decrease in borrowings expense, offset by a $787,000 increase in subordinated loan expense.~~on MMDA accounts increased $248,000, or 33.6%. The average balance of interest-bearing deposits, which include brokered deposits, increased ~~$43.5~~$72.9 million between the year-over-year nine month periods. The average rate paid on interest-bearing deposits decreased 46two basis points ~~to 0.60%~~ for the nine months ended September 30, ~~2021~~2022, as compared ~~with~~to the same nine month period in ~~2020.~~2021. This decrease was primarily due to a 6810 basis ~~point~~points decrease in the average rate paid on time deposits, during the nine months ended September 30, ~~2021~~2022 as compared to the same time period in ~~2020.~~2021. The decrease

- 57 -

in the average rates paid on those deposits reflected the general decline in market interest rates ~~during~~that occurred in last nine months of 2021 when many of the Bank's deposit liabilities were originated or acquired through brokers. Therefore, average deposit rates were lower in the nine months ended September 30, 2022 than they were in the same nine month period of 2021 due to time lag in the repricing of those deposits in 2022, despite the fact that general market rates of interest have increased significantly in the first nine months of ~~2021.~~2022. The Bank's management continues to monitor internal deposit activity and competitive market rates for deposits in an effort to effectively manage future deposit levels and the cost of deposits in the current interest rate environment. Interest expense on borrowings decreased $316,000, or 34 basis points, as higher rate advances matured and were replaced with lower-cost overnight borrowings, combined with a $13.1 million decrease in the average balance of borrowings. Interest expense on subordinated debt decreased $92,000, combined with a $4.2 million decrease in the average balance of the debt. This reduction in subordinated debt expense was offset by the increase in the average rate paid on the debt to 5.78% as compared to 5.43% in the prior year period.

- 68 -

Rate/Volume Analysis

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. Tax-exempt securities have not been adjusted for tax equivalency. 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 nine months ended September 30, ~~2021~~2022 and ~~2020.~~ 2021.


	Three months ended September 30,									Nine months ended September 30,									Three months ended September 30,									Nine months ended September 30,
	2021 vs. 2020									2021 vs. 2020									2022 vs. 2021									2022 vs. 2021
	Increase/(Decrease) Due to									Increase/(Decrease) Due to									Increase/(Decrease) Due to									Increase/(Decrease) Due to
							Total									Total									Total									Total
Unaudited							Increase									Increase									Increase									Increase
(In thousands)	Volume			Rate			(Decrease)			Volume			Rate			(Decrease)			Volume			Rate			(Decrease)			Volume			Rate			(Decrease)
Interest Income:
Loans	$	79		$	576		$	655		$	1,990		$	(778	)	$	1,212		$	1,607		$	(1,177	)	$	430		$	941		$	(1,476	)	$	(535	)
Taxable investment securities		405			108			513			1,350			90			1,440			341			631			972			840			572			1,412
Tax-exempt investment securities		49			(71	)		(22	)		68			(78	)		(10	)		116			207			323			333			180			513
Interest-earning deposits		7			(8	)		(1	)		(10	)		(36	)		(46	)		(13	)		39			26			(4	)		45			41
Total interest income		540			605			1,145			3,398			(802	)		2,596			2,051			(300	)		1,751			2,110			(679	)		1,431
Interest Expense:
NOW accounts		9			27			36			23			80			103			13			(9	)		4			25			(3	)		22
Money management accounts		-			1			1			1			(2	)		(1	)
MMDA accounts		276			(351	)		(75	)		267			(602	)		(335	)		4			182			186			56			192			248
Savings and club accounts		7			13			20			22			23			45			4			6			10			22			13			35
Time deposits		(155	)		(289	)		(444	)		(413	)		(1,950	)		(2,363	)		207			347			554			241			(364	)		(123	)
Subordinated loans		198			22			220			759			28			787
Subordinated debt																				2			29			31			(216	)		124			(92	)
Borrowings		152			(245	)		(93	)		36			(512	)		(476	)		(2	)		(20	)		(22	)		(123	)		(193	)		(316	)
Total interest expense		487			(822	)		(335	)		695			(2,935	)		(2,240	)		228			534			762			5			(232	)		(227	)
Net change in net interest income	$	53		$	1,427		$	1,480		$	2,703		$	2,133		$	4,836		$	1,823		$	(834	)	$	989		$	2,105		$	(447	)	$	1,658

Provision for Loan Losses

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.

- 58 -

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. WeThe Company recorded ~~$104,000~~$710,000 in provision for loan losses for the three month period ended September 30, ~~2021,~~2022, as compared to ~~$1.7 million~~$104,000 for the three month period ended September 30, ~~2020. For the first nine months of 2021, we~~2021. We recorded ~~$2.1 million~~$871,000 in provision for loan losses for the nine month period ended September 30, 2022, as compared to ~~$3.9~~$2.1 million infor the ~~same prior year~~ nine month ~~period.~~period ended September 30, 2021. The provisioning infor the three and nine months ended September 30, 2022 and 2021 ~~and 2020~~ reflects management’s determination of ~~prudent~~ additions to reserves considering loan mix changes, concentrations of loans in certain business sectors, factors related to loan quality metrics, and ~~continued~~ COVID-19 related economic ~~uncertainty.~~ impact. The ~~decline~~increase in ~~the~~ provision for loan losses in ~~2021,~~the third quarter of 2022, as compared to the same three month period in ~~2020, was~~2021, primarily reflected required reserves related to ~~the improvement~~year-over-year loan growth and management's decision to downgrade certain loans within a specifically-identified commercial real estate and commercial loan credit relationship with an aggregate total related outstanding balance of $7.2 million. The $1.2 million decrease in provision for loan losses in the ~~qualitative factors used by the Company to determine the provision~~

- 69 -

~~in 2021,~~nine months ended September 20, 2022, as compared to the ~~previous year. The improvement~~same nine month period in ~~these qualitative factors was due to observed~~2021, primarily reflected continued improvements in overall borrower credit profiles as pandemic-related economic ~~conditions during 2021 that followed the easing of the most restrictive phases of the COVID-19 pandemic that had existed in 2020.The credit-sensitive~~restrictions were eased. Certain credit sensitive portfolios continue to be carefully monitored, and the Bank will consistently apply its ~~conservative~~ loan classification and reserve building methodologies to the 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.

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 ~~2.37%~~2.42% at September 30, ~~2021~~2022 as compared to ~~1.85%~~2.14% at December 31, ~~2020.~~2021. Delinquent loans (numerator) ~~increased $3.4~~decreased $3.6 million while total loan balances (denominator) ~~decreased $37.0~~increased $53.5 million at September 30, ~~2021,~~2022, as compared to December 31, ~~2020.~~2021. The increase in past due loans was ~~primarily~~ driven by an increase of ~~$4.4 million~~$649,000 in loans delinquent 30-59 days, ~~partially offset by~~ an ~~$830,000 decrease~~increase of $690,000 in loans delinquent 60-89 days, and a $2.2 million increase in loans delinquent 90 ~~or more~~ days and over past due ~~and a $167,000 decrease in loans delinquent 60-89 days.~~at September 30, 2022 as compared to December 31, 2021.

At September 30, ~~2021,~~2022, there were ~~$18.7~~$21.4 million in loans past due including ~~$8.2~~$5.9 million in loans 30-59 days past due, ~~$5.2~~$5.3 million in loans 60-89 days past due and ~~$5.3~~$10.2 million in loans 90 or more days past due. At December 31, ~~2020,~~2021, there were ~~$15.3~~$17.9 million in loans past due including ~~$3.8~~$5.2 million in loans 30-59 days past due, ~~$5.4~~$4.6 million in loans 60-89 days past due and ~~$6.1~~$8.0 million in loans 90 or more days past due.

Noninterest Income

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:


Unaudited	For the three months ended									For the nine months ended											For the three months ended										For the nine months ended
(Dollars in thousands)	September 30, 2021		September 30, 2020		Change					September 30, 2021		September 30, 2020			Change						September 30, 2022			September 30, 2021		Change					September 30, 2022			September 30, 2021		Change
Service charges on deposit accounts	$	393	$	339	$	54		15.9	%	$	1,082	$	998		$	84			8.4	%	$	334		$	393	$	(59	)	-15.0	%	$	876		$	1,082	$	(206	)	-19.0	%
Earnings and gain on bank owned life insurance		164		133		31		23.3	%		418		355			63			17.7	%		156			164		(8	)	-4.9	%		441			418		23		5.5	%
Loan servicing fees		54		90		(36	)	-40.0	%		155		218			(63	)		-28.9	%		74			54		20		37.0	%		260			155		105		67.7	%
Debit card interchange fees		236		209		27		12.9	%		698		577			121			21.0	%		180			236		(56	)	-23.7	%		639			698		(59	)	-8.5	%
Insurance agency revenue		303		217		86		39.6	%		817		739			78			10.6	%		258			303		(45	)	-14.9	%		849			817		32		3.9	%
Other charges, commissions and fees		235		224		11		4.9	%		800		702			98			14.0	%		310			235		75		31.9	%		1,002			800		202		25.3	%
Noninterest income before gains (losses)		1,385		1,212		173		14.3	%		3,970		3,589			381			10.6	%
Net gains on sales and redemptions of investment securities		5		27		(22	)	-81.5	%		56		1,076			(1,020	)		-94.8	%
Gains/(losses) on marketable equity securities		89		118		(29	)	-24.6	%		372		(798	)		1,170			146.6	%
Net gains on sales of loans and foreclosed real estate		67		134		(67	)	-50.0	%		226		903			(677	)		-75.0	%
Gains on sale of premises and equipment		-		-		-		-			201		-			201		>100%
Noninterest income before (losses) gains																						1,312			1,385		(73	)	-5.3	%		4,067			3,970		97		2.4	%
Net (losses) gains on sales of securities, fixed assets, loans and foreclosed real estate																						(151	)		72		(223	)	-309.7	%		(46	)		483		(529	)	-109.5	%
Gains on marketable equity securities																						-			89		(89	)	-100.0	%		39			372		(333	)	89.5	%
Total noninterest income	$	1,546	$	1,491	$	55		3.7	%	$	4,825	$	4,770		$	55			1.2	%	$	1,161		$	1,546	$	(385	)	-24.9	%	$	4,060		$	4,825	$	(765	)	-15.9	%

- 59 -

Third quarter 2022 noninterest income was $1.2 million, a decrease of $385,000, or 24.9%, compared to $1.5 million for the same three month period in 2021. The ~~$55,000, or 3.7%, increase~~decrease in noninterest income, ~~in the quarter ended September 30, 2021,~~ as compared to the same ~~quarterly period~~quarter of the previous year was due to (1) a loss on sales and redemptions of investment securities in ~~2020, was primarily~~ the ~~result~~current quarter, compared to a net gain in the third quarter of ~~an $86,000 increase~~2021, (2) no activity with sales of marketable equity securities in ~~insurance agency revenue,~~the current quarter compared to the net gain on marketable equity securities recorded in the third quarter of 2021, and (3) a ~~$54,000 increase~~decrease in service charges for overdraft, ATM fees and insufficient funds on deposit accounts a $31,000 increase in earnings on bank owned life insurance and a $27,000 increase in debit card interchange fees. The increase in insurance revenue was a result of nonrecurring income as a result offor the ~~Agency’s PPP loan forgiveness. Noninterest income related to deposit account fees began to return to normal levels when~~current quarter compared to the third quarter of 2020 due to the reduced customer transactional activity levels and the Bank’s increased levels of fee waivers in response to the effects of the COVID-19 pandemic during the three months ended September 30, 2020. These increases in noninterest2021.

Noninterest income ~~were offset by a decrease of $36,000 in loan servicing fees.~~

Offsetting these increases in noninterest income for the three month period, were decreases of $67,000 in gains on sales of loans and foreclosed real estate a $29,000 decrease in gains on marketable equity securities and a $22,000 decrease in gains on the sale of investment securities in the quarter ended September 30, 2021.

- 70 -

~~The $55,000, or 1.2%, increase in noninterest income~~was $4.1 million for the nine months ended September 30, ~~2021, when~~2022, a decrease of $765,000, or 15.9%, compared to $4.8 million for the same nine month period in ~~2020~~2021. The decrease in noninterest income, as compared to the nine month period of the previous year was primarily due to the ~~$1.2 million increase in~~ net ~~gains on equity securities and $201,000 increase in gains on sales of premises and equipment. Offsetting these increases weredecreases of $1.0 million in net gains~~loss on sales and redemptions of investment securities, a decline in the gains on marketable securities and a ~~$677,000 decrease~~reduction in net gains on the sales of loans and foreclosed real estate, which was primarily the result of the sale of $35.9 million in seasoned, conforming residential mortgage loans that was completed in January 2020.

Excluding the effects of the period over period fluctuations discussed above, all other noninterest income categories increased in the aggregate by $381,000, or 10.6%, to $4.0 million in the nine months ended September 30, 2021 as compared with $3.6 million in the same nine month period of 2020. This period over period increase in debit card interchange fees, other charges, commissions and fees, serviceservices charges on deposit accounts, insurance agency revenue, and earnings on bank owned life insurance, which increased $121,000, $98,000, $84,000, $78,000, and $63,000, respectively. The net increase in these categories of noninterest income was in part due to the Company’s increased strategic focus on improving recurring noninterest income. Offsetting these increases was a decrease in loan servicing fees of $63,000.accounts.

Noninterest Expense

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


Unaudited	For the three months ended									For the nine months ended									For the three months ended									For the nine months ended
(Dollars in thousands)	September 30, 2021		September 30, 2020		Change					September 30, 2021		September 30, 2020		Change					September 30, 2022		September 30, 2021		Change					September 30, 2022		September 30, 2021		Change
Salaries and employee benefits	$	3,624	$	3,396	$	228		6.7	%	$	10,466	$	9,615	$	851		8.9	%	$	4,196	$	3,624	$	572		15.8	%	$	12,030	$	10,466	$	1,564		14.9	%
Building and occupancy		724		788		(64	)	-8.1	%		2,387		2,249		138		6.1	%		835		724		111		15.3	%		2,491		2,387		104		4.4	%
Data processing		686		569		117		20.6	%		2,016		1,721		295		17.1	%		485		686		(201	)	-29.3	%		1,552		2,016		(464	)	-23.0	%
Professional and other services		385		282		103		36.5	%		1,253		899		354		39.4	%		267		385		(118	)	-30.6	%		1,112		1,253		(141	)	-11.3	%
Advertising		191		236		(45	)	-19.1	%		696		673		23		3.4	%		199		191		8		4.2	%		621		696		(75	)	-10.8	%
FDIC assessments		222		170		52		30.6	%		652		509		143		28.1	%		162		222		(60	)	-27.0	%		606		652		(46	)	-7.1	%
Audits and exams		193		126		67		53.2	%		572		376		196		52.1	%		141		193		(52	)	-26.9	%		424		572		(148	)	-25.9	%
Insurance agency expense		227		113		114		100.9	%		627		517		110		21.3	%		229		227		2		0.9	%		687		627		60		9.6	%
Community service activities		59		44		15		34.1	%		181		163		18		11.0	%		58		59		(1	)	-1.7	%		193		181		12		6.6	%
Foreclosed real estate expenses		8		7		1		14.3	%		30		42		(12	)	-28.6	%		17		8		9		112.5	%		57		30		27		90.0	%
Other expenses		504		499		5		1.0	%		1,424		1,469		(45	)	-3.1	%		678		504		174		34.5	%		1,892		1,424		468		32.9	%
Total noninterest expenses	$	6,823	$	6,230	$	593		9.5	%	$	20,304	$	18,233	$	2,071		11.4	%	$	7,267	$	6,823	$	444		6.5	%	$	21,665	$	20,304	$	1,361		6.7	%

Total noninterest expense for the third quarter of 2022 was $7.3 million, an increase of $444,000, or 6.5%, compared to $6.8 million for the third quarter of 2021. The ~~$593,000,~~increase was primarily a result of higher salaries and employee benefits expense of $572,000, or ~~9.5%~~15.8%, and a net decrease of $128,000, or 4.0%, in all other expense categories. The $572,000 increase in ~~noninterest~~salaries and benefits expense ~~between~~for the ~~year-over-year third quarter periods~~three months ended September 30, 2022 was ~~principally~~primarily due to increases in individual staff salaries and commissions and other compensation expenses paid related to increased levels of insurance and investment services activities. Additionally, salaries and benefits expenses increased due to additions to staff headcount concentrated primarily in the loan servicing areas and within the Bank's branch system. Staffing increases in the Bank's branch system were made in anticipation of the imminent opening of the Bank's eleventh branch. During 2022, the Company increased its salary structure where it was deemed appropriate in order to effectively respond to inflationary and competitive pressures within our marketplace to recruit and retain talent.

Total noninterest expense for the nine month period of 2022 was $21.7 million, an increase of $1.4 million, or 6.7%, compared with $20.3 million for the prior year period. The increase was primarily a result of higher salaries and employee benefits expense of $1.6 million, or 14.9%, that was primarily comprised of a $1.0 million, or 10.7%, increase in salaries, a $379,000 reduction in the level of deferred employee-related expenses related to loan origination volume declines following the cessation of the PPP, a $136,000 increase in employee benefits and a $85,000 net increase in all other salaries and employee benefit data processing expenses, insurance agency expense, professional and other services expense, other expenses, audits and exams and the FDIC assessment, which was partially offset by decreases in building and occupancy expenses and advertising expenses.

The ~~detail of the components of the overall~~$1.0 million increase in ~~noninterest~~salaries expense ~~is as follows:~~

•

Salaries and employee benefits expense increased primarily as a result of an increase in salaries and commission expense of $241,000, which is consistent with the Company’s increased asset size and general inflationary factors. Additionally, deferred payroll expense decreased $86,000 due to the greater levels of PPP loan originations in 2020, as compared to 2021, and the correspondingly greater level of deferrals of employee-related expenses in 2020 that were related to those originations.

•

~~Data processing costs increased $117,000 due to increased internet banking services, ATM processing charges and maintenance and supply costs increases.~~

•

~~Insurance agency expense increased as a result of general increases in personnel costs and other administrative costs related to the Agency.~~

•

~~Professional and other services expense increased $103,000 primarily as a result of an increase in consulting fees and purchased program expenses from the prior year.~~

- 71 -

•

~~Audits and exam costs increased due 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.~~

•

~~FDIC assessments increased $52,000 from the prior year.~~ ~~The FDIC assessment increased as a result of an increase in the average balance of deposits, including an increase in the average balance of brokered time deposits.~~

•

~~All other noninterest expenses decreased in aggregate in the year-over-year three month periods by a total of $88,000, or 5.6%.~~

~~The $2.1 million, or 11.4%, increase in noninterest expenses between~~ the nine ~~month period~~months ended September 30, ~~2021~~2022 was primarily due to increases in individual salaries, enacted early in 2022 and continuing through the year, as well as additions to staff headcount primarily in the loan servicing areas and within the Bank's branch system, as discussed above. Additionally, under generally accepted accounting principles (GAAP), certain direct costs related to loan originations are deferred and recorded as an adjustment to yield over the life of the loan. The $379,000 reduction in the total deferred employee related expenses in the nine months ended September 30, 2022, as compared to the same nine month period in ~~the prior year~~2021, was ~~principally~~primarily due to the termination of the PPP loan program in 2021, which returned loan origination volume to normalized levels. The $136,000 increase in employee

- 60 -

benefit expenses is consistent with increased staffing levels and additionally reflects increases in ~~almost all categories of noninterest expense as explained below:~~per-employee benefit costs, including health insurance premiums.

•

Salaries and employee benefits expense increased $851,000 primarily as a result of an increase in salaries and commission expense of $634,000, which is consistent with the Company’s increased asset size and general inflationary factors. Additionally, deferred payroll expense decreased $256,000 due ~~increased PPP loan originations in 2020 and the deferral of employee-related expenses in 2020 related to those originations.~~ Commissions’ expense increased primarily due to the resumption of accruals related to employee and officer incentive programs in the first nine months of 2021. These accruals were substantially reduced in the first nine months of 2020 in response to the uncertainties presented by the pandemic. All other employee-related expenses decreased in aggregate by $39,000 in the first nine months of 2021, as compared to the same nine month period in 2020.

•

Data processing costs increased $295,000 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.

•

The $354,000 increase in professional and other services and the $196,000 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.

•

~~FDIC assessments increased $143,000 from the prior year.~~ ~~The FDIC assessment increased as a result of an increase in the average balance of deposits, including an increase in the average balance of brokered time deposits.~~

•

Building and occupancy costs increased primarily as a result of an increase in maintenance costs and depreciation expense of $136,000 and $75,000, 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.

•

~~Insurance agency expense increased as result of general increases in personnel costs and other administrative costs related to the Agency.~~

•

~~All other noninterest expense categories decreased in aggregate in the year-over-year nine month periods by a total of $16,000, or 0.7%.~~

At September 30, ~~2021,~~2022, the Bank serviced ~~505~~511 residential mortgage loans in the aggregate amount of ~~$51.9~~$52.5 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 nine month periods ended in either September 30, ~~2021~~2022 or September 30, ~~2020.~~2021. 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.

- 72 -

Income Tax Expense

~~During the most restrictive periods following the inception~~

Income tax expense decreased $233,000 to $772,000, with an effective tax rate of 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 eliminated19.6%, 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. 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 nine month periods in 2019, which were the most recent three and nine month periods not affected by the pandemic. The following table details the components of noninterest expense for the three and nine monthsquarter ended September 30, ~~2021 and 2019:~~

Unaudited

For the three months ended

For the nine months ended,

(Dollars in thousands)

September 30, 2021

September 30, 2019

Change

September 30, 2021

September 30, 2019

Change

Salaries and employee benefits

$
3,624

$
3,275

$
349

10.7
%

$
10,466

$
10,379

$
87

0.8
%
Building and occupancy

724

699

25

3.6
%

2,387

1,986

401

20.2
%
Data processing

686

587

99

16.9
%

2,016

1,749

267

15.3
%
Professional and other services

385

352

33

9.4
%

1,253

1,068

185

17.3
%
Advertising

191

238

(47
)

-19.7
%

696

719

(23
)

-3.2
%
FDIC assessments

222

130

92

70.8
%

652

371

281

75.7
%
Audits and exams

193

104

89

85.6
%

572

304

268

88.2
%
Insurance agency expense

227

190

37

19.5
%

627

618

9

1.5
%
Community service activities

59

110

(51
)

-46.4
%

181

392

(211
)

-53.8
%
Foreclosed real estate expenses

8

28

(20
)

-71.4
%

30

324

(294
)

-90.7
%
Other expenses

504

569

(65
)

-11.4
%

1,424

1,622

(198
)

-12.2
%
Total noninterest expenses

$
6,823

$
6,282

$
541

8.6
%

$
20,304

$
19,532

$
772

4.0
%

~~Income Tax Expense~~

~~Income tax expense increased $633,000~~2022, as compared to $1.0 million with an effective tax rate of 23.2%~~, for the quarter ended September 30, 2021, as compared to $372,000, with an effective tax rate of 20.7%,~~ for the same three month period in ~~2020.~~2021. The ~~increase~~reduction in income tax expense infor the ~~current~~ quarter ended September 30, 2022, as compared to the same quarter in ~~2020,~~2021, was primarily ~~attributable~~driven by the aforementioned decrease in the effective tax rate, combined with a decrease of $446,000 in recorded net income. The effective income tax rate decreased 3.6% to 19.6% for the three months ended September 30, 2022 as compared to 23.2% for the same three month period in 2021. The decrease in the tax rate in the third quarter of 2022, as compared to the ~~year-over-year third~~same quarter in 2021, was primarily related to an increase in ~~pre-tax net income.~~ tax exempt income derived from increased average balances of investment securities issued by state and political subdivisions.

Income tax expense ~~increased $1.1~~decreased $132,000 to $2.3 million, with an effective tax rate of ~~22.2%~~19.4%, for the nine months ended September 30, ~~2021~~2022, as compared to ~~$1.3~~$2.4 million with an effective tax rate of ~~20.5%~~22.0%, for the same nine month period in ~~2020.~~2021. The ~~federal statutory rate applied to pretax income was 21% for each of the three and nine month periods ended September 30, 2021 and 2020.~~

~~Effective~~decrease 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’s state~~ income tax liability is computed. Under this adopted methodology, management determined in the first quarter of 2019, it was unlikely that the Company would be required to pay material income taxes to New York State in future periods under then-existingexpense and effective income tax laws in the State. Management is continuously monitoring its future tax 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.

- 73 -

1, 2024, with the 0% rate to take effect in 2024. Management continues to evaluate the projected impact of this newly issued New York State tax legislation on the Company’s financial condition and results of operations and believes that these provisions require an increase the Company’s income tax expense for the nine months ended September 30, ~~2021, thereby requiring an increase in the Company’s effective tax rate to 22.2% for the nine months ended September 30, 2021~~2022, as compared to ~~the effective tax rate of 20.5%, for~~ the same nine month period in ~~2020.~~ 2021, was primarily driven by the increase in tax exempt interest on securities.

The Company’s ~~effective~~tax liability is a function of the 21% statutory federal tax rate, ~~typically differs from~~ the ~~21% federal statutory tax rate due primarily to~~level of pretax income, the varying effects of New York State income taxes, and is partially ~~offset~~reduced by 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. Other variances from the federal statutory federal tax rate are due to the effects of transitional adjustments related to state income taxes. In addition, the tax effects of certain incentive stock option activity may reduce the Company’s effective tax rate on a sporadic basis.

Earnings per Share

Basic and diluted earnings per Voting share were ~~$0.56~~$0.52 per share for the third quarter of ~~2021,~~2022, as compared to ~~$0.25~~$0.56 per basic and diluted Voting share for the same quarter of ~~2020.~~

2021. Basic and diluted earnings per Series A Non-Voting share were ~~$1.43~~$0.52 per share for the third quarter of 2022, as compared to $0.56 per basic and diluted Series A Non-Voting share for the same quarter of 2021.

Basic and diluted earnings per Voting share were $1.55 per share for the nine month period ended September 30, ~~2021,~~2022, as compared to ~~$0.85~~$1.43 for the same period year period. Basic and diluted earnings per Series A Non-Voting share were $1.55 for the nine month period ended September 30, 2022, as compared to $1.43 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.

- 61 -

Changes in Financial Condition

Assets

Total assets increased ~~$34.8~~$111.8 million, or ~~2.8%~~8.7%, to ~~$1.26~~$1.40 billion at September 30, ~~2021~~2022 as compared to ~~$1.23~~$1.29 billion at December 31, ~~2020.~~2021. This increase was due primarily to increases in loans and investment ~~securities and cash and cash equivalents.~~securities.

~~Investment securities increased $36.6 million, or 12.1%, to $337.9~~Loans totaled $886.2 million at September 30, ~~2021, as~~2022, an increase of $53.7 million compared to ~~$301.3~~$832.5 million at December 31, ~~2020,~~2021, primarily due to increases of $48.9 million in commercial real estate loans, $4.3 million in commercial business loans and $13.1 million in residential real estate loans. These increases were offset by a $12.8 million decrease in total consumer loans.

Investment securities, including investment in FHLB-NY stock, increased $36.0 million, or 10.1%, to $392.4 million at September 30, 2022, as compared to $356.4 million at December 31, 2021, due principally to purchases of securities during the first nine months of ~~2021,~~2022, that were partially offset by sales and redemptions of ~~securities.~~

~~Cash~~securities totaling $50.3 million and ~~cash equivalents totaled $75.2~~unrealized losses of $15.8 million ~~an increase~~in the portion of ~~$31.8 million compared to $43.5 million at December 31, 2020. This~~the investment portfolio characterized as available-for-sale as a result of the increase in ~~cash and equivalents corresponded to~~market interest rates through the ~~$50.3 million increase in deposits during the nine months ended September 30, 2021.~~ third quarter of 2022.

These increases were partially offset by a decrease in loans. Total loans of $788.1 million declined by $37.3 million, or 4.5%, compared with $825.5 million at December 31, 2020. The decrease was primarily the result of a decrease of $31.7 million in commercial loans between these two dates, partially offset by increases in residential mortgage loans of $9.3 million. The decrease in commercial loans was a direct result of PPP loan forgiveness.

Liabilities

~~Liabilities~~

Total liabilities increased ~~$25.8~~$114.6 million, or ~~2.3%~~9.8%, to ~~$1.16~~$1.29 billion at September 30, ~~2021~~2022, compared to ~~$1.13~~$1.17 billion at December 31, ~~2020.~~2021. Deposits increased ~~$50.3~~$125.2 million, or ~~5.1%~~11.9%, to ~~$1.04~~$1.18 billion at September 30, ~~2021,~~2022, compared to ~~$995.9 million~~$1.06 billion at December 31, ~~2020. Noninterest-bearing~~2021. Interest-bearing deposits, primarily time deposits acquired through various broker channels, were the primary driver of growth between the comparable ~~periods~~dates and totaled ~~$206.2~~$993.4 million at September 30, ~~2021,~~2022, an increase of ~~$44.2~~$130.0 million, or ~~27.2%,~~15.1% from the ~~2020~~2021 year end. The increases in noninterest-bearing deposits were primarily a result of the Bank’s participation in the PPP, as well as ongoing growth in business banking relationships. In addition, the Bank has seen a general increase in the average account balance for consumer deposits consistent with similar increases generally reported throughout the industry. These increases are expected to be transitory and relate primarily to significant levels of economic stimulus combined with reduced levels of consumer spending related to the pandemic. At this time, it cannot be determined with certainty how long it will be before these deposits return to historically normal levels.

- 74 -

Borrowed funds balances from the FHLB-NY decreased ~~$15.0~~$11.5 million, or ~~18.3%~~14.9%, to ~~$67.1~~$65.6 million at September 30, ~~2021~~2022 from ~~$82.1~~$77.1 million at December 31, ~~2020~~2021 as the Bank primarily used ~~excess~~net incoming deposit cash flows to repay ~~borrowings.~~borrowings at their scheduled maturity dates.

Shareholders’ Equity

~~The Company’s~~Total shareholders’ equity ~~exclusive of the noncontrolling interest, increased $8.9 million, or 9.1%, to $106.3~~was $107.3 million at September 30, ~~2021, from $97.5~~2022, a decrease of $3.0 million, as compared to $110.3 million at December 31, ~~2020. This increase~~2021. The $3.0 million decline in shareholders' equity was ~~principally~~primarily due to ~~a $7.2~~an increase of $11.3 million in accumulated other comprehensive loss, due to unrealized temporary losses on investment securities categorized as available-for-sale, and $740,000 in declared dividend distributions, partially offset by an increase in retained earnings ~~an $845,000~~for the nine months ended September 30, 2022 of $7.6 million, or 12.5%.

The $11.3 million tax-effected increase in accumulated other comprehensive ~~income, a $669,000~~loss from December 31, 2021 to September 30, 2022, was primarily due to the decline in the fair value of the Company's available-for-sale investment securities portfolio during that period. The available-for-sale investment securities portfolio, with an aggregate amortized historical cost of $191.5 million, had an aggregate fair value that was less than its aggregate amortized historical cost by $15.8 million, or 8.25%, at September 30, 2022. The available-for-sale investment securities portfolio, with an aggregate amortized historical cost of $190.6 million, had an aggregate fair value that exceeded its aggregate amortized historical cost by $579,000, or 0.30%, at December 31, 2021. The resultant $15.2 million total decline in the fair value of the available-for-sale investment portfolio's aggregate fair value relative to its aggregate amortized historical cost, in the nine months ended September 30, 2022, was due to the significant increase in ~~additional paid~~general interest rates that occurred in ~~capital,~~that period and ~~a $135,000 increase in ESOP shares. The increase in retained earnings resulted from $8.5 million in net income recorded in~~did not represent any other-than-temporary impairment within the first nine months of 2021. Partially offsetting this increase in retained earnings were $940,000 for cash dividends declared on our common stock, $194,000 for cash dividends declared on our Non-Voting common stock, $97,000 for cash dividends declared on our former preferred stock, $26,000 for cash dividends declared on our issued warrant, and $65,000 in cumulative effect of our affiliate capital allocation Comprehensive income increased primarily as the result of increases in the unrealized gain on the available-for sale investment portfolio ~~during the 2021 nine month period. .~~ at September 30, 2022.

~~Non-Voting Common Stock Issued~~ Capital

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~~

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 September 30, ~~2021,~~2022, the Bank met the

- 62 -

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. At September 30, ~~2021,~~2022, 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 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

- 75 -

~~elect to be subject to this new definition. 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 September 30, 2021:
As of September 30, 2022:
Total Core Capital (to Risk-Weighted Assets)	$	124,366		15.42	%	$	64,508		8.00	%	$	80,635		10.00	%	$	84,667		10.50	%	$	141,354		14.69	%	$	76,993		8.00	%	$	96,241		10.00	%	$	101,053		10.50	%
Tier 1 Capital (to Risk-Weighted Assets)	$	114,237		14.17	%	$	48,381		6.00	%	$	64,508		8.00	%	$	68,540		8.50	%	$	129,304		13.44	%	$	57,744		6.00	%	$	76,993		8.00	%	$	81,805		8.50	%
Tier 1 Common Equity (to Risk-Weighted Assets)	$	114,237		14.17	%	$	36,286		4.50	%	$	52,413		6.50	%	$	56,445		7.00	%	$	129,304		13.44	%	$	43,308		4.50	%	$	62,556		6.50	%	$	67,368		7.00	%
Tier 1 Capital (to Assets)	$	114,237		9.21	%	$	49,621		4.00	%	$	62,026		5.00	%	$	62,026		5.00	%	$	129,304		9.48	%	$	54,576		4.00	%	$	68,220		5.00	%	$	68,220		5.00	%
As of December 31, 2020
As of December 31, 2021
Total Core Capital (to Risk-Weighted Assets)	$	115,289		13.13	%	$	70,270		8.00	%	$	87,838		10.00	%	$	92,230		10.50	%	$	129,166		15.19	%	$	68,013		8.00	%	$	85,016		10.00	%	$	89,266		10.50	%
Tier 1 Capital (to Risk-Weighted Assets)	$	104,287		11.87	%	$	52,703		6.00	%	$	70,270		8.00	%	$	74,662		8.50	%	$	118,511		13.94	%	$	51,009		6.00	%	$	68,013		8.00	%	$	72,263		8.50	%
Tier 1 Common Equity (to Risk-Weighted Assets)	$	104,287		11.87	%	$	39,527		4.50	%	$	57,095		6.50	%	$	61,487		7.00	%	$	118,511		13.94	%	$	38,257		4.50	%	$	55,260		6.50	%	$	59,511		7.00	%
Tier 1 Capital (to Assets)	$	104,287		8.63	%	$	48,314		4.00	%	$	60,392		5.00	%	$	60,392		5.00	%	$	118,511		9.52	%	$	49,804		4.00	%	$	62,255		5.00	%	$	62,255		5.00	%

- 76 -

Non-GAAP Financial Measures

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.

September 30,

December 31,

(Dollars in thousands)
2021

2020

Regulatory Capital Ratios (Bank Only)

Total capital (to risk-weighted assets)

Total equity (GAAP)
$
117,503

$
106,720

Goodwill

(4,536
)

(4,536
)

Intangible assets

(121
)

(133
)

Addback: Accumulated other comprehensive income

1,391

2,236

       Total Tier 1 Capital
$
114,237

$
104,287

Allowance for loan and lease losses

10,129

11,002

       Total Tier 2 Capital
$
10,129

$
11,002

       Total Tier 1 plus Tier 2 Capital (numerator)
$
124,366

$
115,289

Risk-weighted assets (denominator)

806,353

878,380

      Total core capital to risk-weighted assets

15.42

%

13.13

%

Tier 1 capital (to risk-weighted assets)

Total Tier 1 capital (numerator)
$
114,237

$
104,287

Risk-weighted assets (denominator)

806,353

878,380

      Total capital to risk-weighted assets

14.17

%

11.87

%

Tier 1 capital (to adjusted assets)

Total Tier 1 capital (numerator)
$
114,237

$
104,287

Total average assets

1,245,173

1,212,512

Goodwill

(4,536
)

(4,536
)

Intangible assets

(121
)

(133
)

Adjusted assets (denominator)
$
1,240,516

$
1,207,843

      Total capital to adjusted assets

9.21

%

8.63

%

Tier 1 Common Equity (to risk-weighted assets)

Total Tier 1 capital (numerator)
$
114,237

$
104,287

Risk-weighted assets (denominator)

806,353

878,380

      Total Tier 1 Common Equity to risk-weighted assets

14.17

%

11.87

%

- 7763 - -


	September 30,				December 31,
(Dollars in thousands)	2022				2021
Regulatory Capital Ratios (Bank only)
Total capital (to risk-weighted assets)
Total equity (GAAP)	$	121,380			$	121,896
Goodwill		(4,536	)			(4,536	)
Intangible assets		(105	)			(117	)
Addback: Accumulated other comprehensive income		12,565				1,268
Total Tier 1 Capital	$	129,304			$	118,511
Allowance for loan and lease losses		12,050				10,655
Total Tier 2 Capital	$	12,050			$	10,655
Total Tier 1 plus Tier 2 Capital (numerator)	$	141,354			$	129,166
Risk-weighted assets (denominator)		962,407				850,157
Total core capital to risk-weighted assets		14.69		%		15.19		%

Tier 1 capital (to risk-weighted assets)
Total Tier 1 capital (numerator)	$	129,304			$	118,511
Risk-weighted assets (denominator)		962,407				850,157
Total capital to risk-weighted assets		13.44		%		13.94		%

Tier 1 capital (to adjusted assets)
Total Tier 1 capital (numerator)	$	129,304			$	118,511
Total average assets		1,369,039				1,249,752
Goodwill		(4,536	)			(4,536	)
Intangible assets		(105	)			(117	)
Adjusted assets (denominator)	$	1,364,398			$	1,245,099
Total capital to adjusted assets		9.48		%		9.52		%

Tier 1 Common Equity (to risk-weighted assets)
Total Tier 1 capital (numerator)	$	129,304			$	118,511
Risk-weighted assets (denominator)		962,407				850,157
Total Tier 1 Common Equity to risk-weighted assets		13.44		%		13.94		%

Loan and Asset Quality and Allowance for Loan Losses

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


	September 30,			December 31,			September 30,			September 30,			December 31,			September 30,
(Dollars In thousands)	2021			2020			2020			2022			2021			2021
Nonaccrual loans:
Commercial and commercial real estate loans	$	5,666		$	17,978		$	11,208		$	8,201		$	6,297		$	5,666
Consumer		1,289			747			576			1,576			1,104			1,289
Residential mortgage loans		1,830			2,608			1,452			848			891			1,830
Total nonaccrual loans		8,785			21,333			13,236			10,625			8,292			8,785
Total nonperforming loans		8,785			21,333			13,236			10,625			8,292			8,785
Foreclosed real estate		-			-			-			221			-			-
Total nonperforming assets	$	8,785		$	21,333		$	13,236		$	10,846		$	8,292		$	8,785

Accruing troubled debt restructurings	$	5,302		$	3,554		$	1,999		$	3,716		$	3,605		$	5,302

Nonperforming loans to total loans		1.11	%		2.58	%		1.61	%		1.22	%		1.00	%		1.11	%
Nonperforming assets to total assets		0.70	%		1.74	%		1.10	%		0.78	%		0.65	%		0.70	%

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

- 64 -

within the categories of nonaccrual loans or accruing TDRs. There were nofive TDR loans in nonaccrual status at September 30, ~~2021.~~ 2022 totaling $1.8 million.

Pursuant to the CARES Act, 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) 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 September 30, ~~2021~~2022 were ~~$8.8~~$10.8 million, and were ~~$12.5~~$2.5 million ~~lower~~higher than the ~~$21.3~~$8.3 million reported at December 31, ~~2020, due~~2021 and $2.0 million higher than the reported $8.8 million at September 30, 2021. The increase in the nonperforming loan portfolio on September 30, 2022, as compared to December 31, 2021, was primarily ~~to a decrease~~the result of ~~$12.3~~the placement of $1.8 million ~~in nonperforming commercial and~~into nonaccrual status of certain loans within one large commercial real estate ~~loans~~loan and commercial loan relationship with a ~~$778,000 decrease in nonperforming residential real estate loans.~~total related outstanding amount of $7.2 million. This ~~decrease was partially offset by an increase of $542,000 in nonperforming consumer loans.~~relationship is under active resolution management at September 30, 2022.

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.

- 78 -

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 ~~$14.1~~$13.6 million and ~~$12.8~~$12.9 million at September 30, ~~2021~~2022 and December 31, ~~2020,~~2021, respectively. The ratio of the allowance for loan losses to total loans ~~increased 23 basis points to 1.78%~~remained consistent at 1.54% as of September 30, ~~2021 from~~2022 when compared to 1.55% at December 31, ~~2020.~~2021. 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 September 30, ~~2021.~~2022.

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 September 30, ~~2021~~2022 and December 31, ~~2020,~~2021, the Company had ~~$11.2~~$17.7 million and ~~$22.8~~$11.4 million in loans, respectively, which were deemed to be impaired, having established specific reserves of ~~$1.6~~$4.2 million and ~~$2.8~~$1.9 million, respectively, on these loans. The ~~decrease~~$5.7 million increase in impaired loans between these two dates was primarily ~~driven by decreases~~the result of ~~$5.5 million, $4.9 million, $769,000,~~the placement into nonaccrual status of a group of loans within one large commercial loan and ~~$701,000, in impaired~~ commercial real estate loans, commercial and industrial loans, commercial lines of credit and residential real estate loans, respectively. The $1.2 million decrease in specific reserves for impaired loans at September 30, 2021 as compared to December 31, 2020 was primarily due to a $869,000 decrease in specific reserves for other commercial lines of credit. borrower relationship.

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 ~~$37.4~~$42.6 million as of September 30, ~~2021, an increase~~2022, a decrease of ~~$14.2~~$1.1 million, or ~~61.4%~~2.5%, as compared to ~~$23.2~~$43.7 million at December 31, ~~2020.~~2021. These loans have been internally classified as special mention, substandard, or doubtful, yet are not currently considered impaired.

- 65 -

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~~sells residential mortgage loans and has infrequently sold participation interests in commercial loans. As is typical in the industry, the Bank makes certain representations and warranties to the ~~buyer.~~buyers of these loans or loan participations. 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 ~~cour~~secourse 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.

- 79 -

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 September 30, 2021, the Company had 26 total related credit relationships, comprised of 231 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 September 30, 2021 with outstanding principal balances of $182.5 million and unfunded commitments of $38.1 million with an aggregate total related credit of $220.6 million. Of the $220.6 million in total related credits, $206.4 million was secured by various collateral assets, primarily commercial real estate, $8.7 million was unsecured, and $5.5 million were PPP loans.Liquidity

- 80 -

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 as of September 30, 2021:

(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

$
243,067

2,117

$
115

$
0

-
$
1,529

$
916

31
%

Commercial Real Estate:

Mixed Use

$
43,989

57

$
772

$
33

-
$
6,200

$
828

6
%
Multi-Family Residential

38,291

59

649

23

-

6,239

721

5
%
Hotels and Motels

35,320

10

3,532

321

-

11,500

665

4
%
Office

32,673

62

527

3

-

4,772

615

4
%
Retail

24,146

48

503

30

-

5,060

455

3
%
1-4 Family Residential

19,891

157

127

0

-

1,193

374

3
%
Automobile Dealership

16,639

10

1,664

163

-

6,641

313

2
%
Skilled Nursing Facility

12,068

14

862

16

-

3,150

227

2
%
Recreation/ Golf Course/
   Marina

11,847

2

5,924

3,800

-

8,048

223

2
%

7,132

12

594

69

-

2,632

134

1
%
Manufacturing/Industrial

6,701

17

394

55

-

1,389

126

1
%
Restaurant

6,462

24

269

40

-

1,210

122

1
%
Automobile Repair

4,619

12

385

40

-

2,266

87

0
%
Hospitals

4,036

8

505

65

-

2,000

76

0
%
Not-For-Profit & Community Service Real Estate

4,002

3

1,334

76

-

3,105

75

1
%
Land

3,391

3

1,130

104

-

1,739

64

0
%
All Other

6,485

30

216

8

-

737

122

0
%
Total Commercial Real Estate Loans

$
277,692

528

$
526

$
5,227

35
%

Commercial and Industrial:

Secured Term Loans

$
57,487

367

$
157

$
-

-
$
4,485

$
1,651

7
%
Unsecured Term Loans

14,755

106

139

1

-

2,244

424

2
%
Secured Lines of Credit

47,775

262

182

-

-

6,821

1,372

6
%
Unsecured Lines of Credit

9,352

141

66

-

-

3,000

269

1
%
Total Commercial and
   Industrial Loans

$
129,369

876

$
148

$
3,715

16
%

Tax Exempt Loans

$
5,956

20

$
298

$
6

-
$
2,248

$
1

1
%

Paycheck Protection Loans

$
27,293

418

$
65

$
0

-
$
870

$
-

3
%

Consumer:

Home Equity Lines of Credit

$
32,989

922

$
36

$
-

-
$
504

$
778

4
%
Vehicle

20,552

1,440

14

0

-

439

485

3
%
Consumer Secured

23,409

838

28

1

-

113

553

3
%
Consumer Unsecured

27,011

4,346

6

-

-

95

638

3
%
All Others

2,380

1,109

2

-

-

460

56

0
%
Total Consumer Loans

$
106,340

8,655

$
12

$
2,510

13
%

Net deferred loan fees

(1,569
)

-

-

-

-

Unallocated allowance for
   loan losses

-

-

-

1,696

-

Total Loans

$
788,148

12,614

$
62

$
14,065

100
%

- 81 -

~~Liquidity~~

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 nine months of ~~2021,~~2022, as indicated in the consolidated statement of cash flows, the Company reported net cash flow from operating activities of ~~$15.7~~$12.2 million and net cash outflow of ~~$8.4~~$117.4 million related to investing activities. The net cash outflow from investing activities primarily was due to a ~~$37.6~~$61.4 million increase in net investment activity, a $54.6 million increase in net loan activity and a ~~$5.8~~$1.4 million net increase in all other investing activities in ~~aggregate, partially offset by a net $35.1 million decrease in loan balances.~~aggregate. The Company reported net cash flows from financing activities of ~~$24.5~~$112.5 million generated principally by increased customer and brokered deposit balances of ~~$91.2~~$145.9 million, partially offset by ~~ay decreased brokered deposit balances of $40.9~~a $11.5 million decrease in net borrowings, a $20.7 million decrease in time deposits, and an aggregate decrease in net cash of ~~$66.8 million~~$400,000 from all other financing sources, including dividends paid to common voting and ~~preferred~~non-voting shareholders and warrants of ~~$1.2~~$1.5 million.

The Company has a number of existing credit facilities available to it. At September 30, ~~2021,~~2022, total credit available to the Company under the existing lines of credit was approximately ~~$145.9~~$141.6 million at FHLBNY, the Federal Reserve Bank, and two other correspondent banks. As of September 30, ~~2021,~~2022, the Company had ~~$67.1~~$65.6 million of the available lines of credit utilized on its existing lines of credit with ~~$78.8~~$76.0 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 September 30, ~~2021,~~2022, management reported to the Board of Directors that the Company is in compliance with its liquidity policy guidelines.

- 66 -

Off-Balance Sheet Arrangements

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 September 30, ~~2021,~~2022, the Company had ~~$190.2~~$234.5 million in outstanding commitments to extend credit and standby letters of credit.

Item 3 – Quantitative and Qualitative Disclosures About Market Risk

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

Item 4 – Controls and Procedures

Under the supervision and with the participation of our Chief Executive Officer (“CEO”) and our Chief Financial Officer (“CFO”) (the Company’s principal executive officer and principal financial officer), management conducted an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15(e) and 15d-15(e) under the Exchange Act) as of September 30, ~~2021.~~2022. The term “disclosure controls and procedures,” under the Exchange Act, means controls and other procedures of a company that are designed to ensure that information

- 82 -

required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the 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 September 30, ~~2021,~~2022, 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 September 30, 2021,~~ our disclosure controls and procedures were ~~not~~ effective as of ~~September 30, 2021.~~that date.

~~Previously Disclosed Material Weakness~~

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 September 30, 2021, our internal control over financial reporting was not effective.

~~Management’s Financial Reporting Remediation Initiatives~~

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.

~~Changes in Internal Control over Financial Reporting~~

There were no changes made in our internal controls during the quarter ended September 30, ~~2021~~2022 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial ~~reporting~~.reporting.

- 8367 - -

PART II – OTHER INFORMATION

Item 1 – Legal Proceedings

At September 30, ~~2021,~~2022, 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.

Item 1A – Risk Factors

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

Item 2 – Unregistered Sales of Equity Securities and Use of Proceeds


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
July 1, 2020 through July 31, 2020		-	$	-		-		74,292

August 1, 2020 through August 31, 2020		-	$	-		-		74,292

September 1, 2020 through September 30, 2020		-	$	-		-		74,292

(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.

Item 3 – Defaults Upon Senior Securities

None

Item 4 – Mine Safety Disclosures

Not applicable

Item 5 – Other Information

None

Item 6 – Exhibits


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 Inline Extensible Business Reporting Language (iXBRL): (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.
104	Cover Page Interactive Data File (embedded within the Inline XBRL document).

- 8468 - -

SIGNATURES

~~SIGNATURES~~

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.

PATHFINDER BANCORP, INC.

(registrant)


November ~~15, 2021~~14, 2022	/s/ ~~Thomas W. Schneider~~James A. Dowd
	~~Thomas W. Schneider~~James A. Dowd
	President and Chief Executive Officer

November ~~15, 2021~~14, 2022	~~/s/~~ /s/ Walter F. Rusnak
	Walter F. Rusnak
	Senior Vice President, Chief Financial Officer

- 8569 - -


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


Large accelerated filer ☐	Accelerated filer ☐	Non-accelerated filer☒	Smaller reporting company ☒	Emerging growth company ☐


	September 30,			December 31,			September 30,			December 31,
(In thousands, except share and per share data)	2021			2020			2022			2021
ASSETS:
Cash and due from banks (including restricted balances of $1,600 and $1,600, respectively)	$	27,230		$	14,906
Interest-earning deposits (including restricted balances of $0 and $0, respectively)		48,010			28,558
Cash and due from banks (including restricted balances of $1,600 and $1,600, respectively)							$	15,584		$	13,856
Interest-earning deposits (including restricted balances of $0 and $0, respectively)								28,870			23,293
Total cash and cash equivalents		75,240			43,464			44,454			37,149
Available-for-sale securities, at fair value		175,523			128,261			191,506			190,598
Held-to-maturity securities, at amortized cost (fair value of $164,896 and $174,935, respectively)		161,736			171,224
Held-to-maturity securities, at amortized cost (fair value of $184,007 and $162,805, respectively)								195,930			160,923
Marketable equity securities, at fair value		667			1,850			1,203			677
Federal Home Loan Bank stock, at cost		3,737			4,390			3,715			4,189
Loans		787,854			823,969			885,931			831,946
Loans held-for-sale		294			1,526			275			513
Less: Allowance for loan losses		14,065			12,777			13,632			12,935
Loans receivable, net		774,083			812,718			872,574			819,524
Premises and equipment, net		21,943			22,264			21,981			21,659
Operating lease right-of-use assets		2,170			2,240			2,033			2,136
Accrued interest receivable		4,599			4,549			5,172			4,520
Foreclosed real estate								221			-
Intangible assets, net		121			133			104			117
Goodwill		4,536			4,536			4,536			4,536
Bank owned life insurance		23,282			17,864			23,864			23,423
Other assets		14,561			13,950			29,653			15,726
Total assets	$	1,262,198		$	1,227,443		$	1,396,946		$	1,285,177

LIABILITIES AND SHAREHOLDERS' EQUITY:
Deposits:
Interest-bearing	$	840,004		$	833,850		$	993,406		$	863,448
Noninterest-bearing		206,212			162,057			187,177			191,858
Total deposits		1,046,216			995,907			1,180,583			1,055,346
Short-term borrowings		-			4,020			11,500			12,500
Long-term borrowings		67,054			78,030			54,121			64,598
Subordinated loans		29,522			39,400
Subordinated debt								29,689			29,563
Accrued interest payable		145			193			494			106
Operating lease liabilities		2,469			2,525			2,348			2,440
Other liabilities		10,143			9,646			10,416			9,991
Total liabilities		1,155,549			1,129,721			1,289,151			1,174,544
Shareholders' equity:
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; 4,575,615 and 4,531,383 shares issued and outstanding, respectively		46			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			-
Voting common stock, par value $0.01; 25,000,000 authorized shares; 4,620,489 and 4,603,184 shares issued and outstanding, respectively								46			46
Non-Voting common stock, par value $0.01; 1,505,283 authorized shares; 1,380,283 and 1,380,283 shares issued and outstanding, respectively								14			14
Additional paid in capital		50,693			50,024			51,603			51,044
Retained earnings		57,490			50,284			68,563			60,946
Accumulated other comprehensive loss		(1,391	)		(2,236	)		(12,565	)		(1,268	)
Unearned ESOP		(540	)		(675	)		(360	)		(495	)
Total Pathfinder Bancorp, Inc. shareholders' equity		106,312			97,456			107,301			110,287
Noncontrolling interest		337			266			494			346
Total equity		106,649			97,722			107,795			110,633
Total liabilities and shareholders' equity	$	1,262,198		$	1,227,443		$	1,396,946		$	1,285,177


	For the nine months ended September 30,						For the nine months ended September 30,
(In thousands)	2021			2020			2022			2021
OPERATING ACTIVITIES
Net income attributable to Pathfinder Bancorp, Inc.	$	8,528		$	5,005		$	9,402		$	8,528
Adjustments to reconcile net income to net cash flows from operating activities:
Provision for loan losses		2,061			3,895			871			2,061
Amortization of operating leases		14			15			11			14
Proceeds from sales of loans		7,076			43,753			6,789			7,076
Originations of loans held-for-sale		(5,618	)		(7,597	)		(6,429	)		(5,618	)
Realized losses (gains) on sales, redemptions and calls of:
Real estate acquired through foreclosure		0			5
Realized (gains) losses on sales, redemptions and calls of:
Loans		(226	)		(908	)		(122	)		(226	)
Available-for-sale investment securities		(18	)		(1,042	)		160			(18	)
Held-to-maturity investment securities		(38	)		(34	)		8			(38	)
Premises and equipment		(201	)		0			-			(201	)
Marketable equity securities		(372	)		798			(39	)		(372	)
Depreciation		1,361			1,249			1,108			1,361
Amortization of mortgage servicing rights		(7	)		(325	)		(1	)		(7	)
Amortization of deferred loan costs		1,499			355			389			1,499
Amortization of deferred financing from subordinated debt		122			26			126			122
Earnings on bank owned life insurance		(418	)		(355	)		(441	)		(418	)
Net amortization of premiums and discounts on investment securities		1,837			1,572			1,475			1,837
Amortization of intangible assets		12			12			13			12
Stock based compensation and ESOP expense		467			415			487			467
Net change in accrued interest receivable		(50	)		(1,194	)		(652	)		(50	)
Payment of executive deferred compensation and SERP contracts, expensed in prior periods		(571	)		0			-			(571	)
Net change in other assets and liabilities		248			(573	)		(1,003	)		248
Net cash flows from operating activities		15,707			45,072			12,152			15,707
INVESTING ACTIVITIES
Purchase of investment securities available-for-sale		(133,834	)		(107,075	)		(51,411	)		(133,834	)
Purchase of investment securities held-to-maturity		(28,059	)		(75,234	)		(60,253	)		(28,059	)
Purchase of Federal Home Loan Bank stock		(3,923	)		(3,016	)		(9,769	)		(3,923	)
Proceeds from redemption of Federal Home Loan Bank stock		4,576			2,490			10,243			4,576
Purchase of marketable securities								(1,215	)		-
Proceeds from maturities and principal reductions of investment securities available-for-sale		46,491			71,970			16,449			46,491
Proceeds from maturities and principal reductions of investment securities held-to-maturity		36,091			31,730			23,322			36,091
Proceeds from sales, redemptions and calls of:
Available-for-sale investment securities		38,243			24,795			8,358			38,243
Held-to-maturity investment securities		1,215			1,701			2,196			1,215
Marketable equity securities		1,555			0			714			1,555
Real estate acquired through foreclosure		0			132
Purchase of bank owned life insurance		(5,000	)		0			-			(5,000	)
Net change in loans		35,075			(74,980	)		(54,562	)		35,075
Purchase of premises and equipment		(1,070	)		(1,354	)		(1,430	)		(1,070	)
Proceeds from sale of premises and equipment		231			0			-			231
Net cash outflows from investing activities		(8,409	)		(128,841	)		(117,358	)		(8,409	)
FINANCING ACTIVITIES
Net change in demand deposits, NOW accounts, savings accounts, money management deposit accounts, MMDA accounts and escrow deposits		102,484			130,533			848			102,484
Net change in time deposits		(11,275	)		(51,337	)		(20,707	)		(11,275	)
Net change in brokered deposits								145,096			(40,900	)
Net change in short-term borrowings								(1,000	)		(4,020	)
Payments on long-term borrowings								(12,227	)		(18,071	)
Proceeds from long-term borrowings								1,750			7,095

Net change in brokered deposits		(40,900	)		37,144
Net change in short-term borrowings		(4,020	)		(15,118	)
Payments on long-term borrowings		(18,071	)		(32,331	)
Proceeds from long-term borrowings		7,095			34,550

Payments on sub-debt borrowings		(10,000	)		0			-			(10,000	)
Proceeds from exercise of stock options		305			195			131			305
Cash dividends paid to common shareholders		(1,005	)		(852	)
Cash dividends paid to common voting shareholders								(1,152	)		(1,005	)
Cash dividends paid to common non-voting shareholders								(345	)		-
Cash dividends paid to preferred shareholders		(180	)		(208	)		-			(180	)
Cash dividends paid on warrants		(25	)		(22	)		(31	)		(25	)
Change in noncontrolling interest, net		71			36			148			71
Net cash flows from financing activities		24,479			102,590			112,511			24,479
Change in cash and cash equivalents		31,776			18,821			7,305			31,777
Cash and cash equivalents at beginning of period		43,464			20,160			37,149			43,464
Cash and cash equivalents at end of period	$	75,240		$	38,981		$	44,454		$	75,241
CASH PAID DURING THE PERIOD FOR:
Interest	$	6,122		$	8,522		$	1,452		$	6,122
Income taxes		1,355			1,850			2,518			1,355
NON-CASH INVESTING ACTIVITY
Real estate acquired in exchange for loans		0			58			252			-
RESTRICTED CASH
Collateral deposits for hedge position included in cash and due from banks		1,600			1,600			1,600			1,600


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 (Loss)	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)	5547

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	8267

Item 4.	Controls and Procedures	8267

PART II - OTHER INFORMATION

Item 1.	Legal Proceedings	8468
Item 1A.	Risk ~~Factors~~Factor	8468
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	8468
Item 3.	Defaults upon Senior Securities	8468
Item 4.	Mine Safety Disclosures	8468
Item 5.	Other information	8468
Item 6.	Exhibits	8468

SIGNATURES		8569


Pathfinder Bancorp, Inc.
Consolidated Statements of Changes in Shareholders' Equity
Three months ended September 30, 2022 and September 30, 2021
(Unaudited)

(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, June 30, 2022	$	-	$	46	$	14	$	51,388	$	66,077		$	(9,399	)	$	(405	)	$	407	$	108,128
Net income		-		-		-		-		3,180			-			-			12		3,192
Other comprehensive income, net of tax		-		-		-		-		-			(3,166	)		-			-		(3,166	)
ESOP shares earned (6,111 shares)		-		-		-		77		-			-			45			-		122
Stock based compensation		-		-		-		45		-			-			-			-		45
Stock options exercised		-		-		-		17		-			-			-			-		17
Common stock dividends declared ($0.09 per share)		-		-		-		-		(411	)		-			-			-		(411	)
Non-Voting common stock dividends declared ($0.09 per share)		-		-		-		-		(125	)		-			-			-		(125	)
Warrant dividends declared ($0.09 per share)		-		-		-		-		(11	)		-			-			-		(11	)
Cumulative effect of affiliate capital allocation		-		-		-		76		(147	)		-			-			71		-
Distributions from affiliates		-		-		-		-		-			-			-			4		4
Balance, September 30, 2022	$	-	$	46	$	14	$	51,603	$	68,563		$	(12,565	)	$	(360	)	$	494	$	107,795

Balance, June 30, 2021	$	-	$	45	$	14	$	50,451	$	54,545		$	(1,235	)	$	(585	)	$	297	$	103,532
Net income		-		-		-		-		3,365			-			-			40		3,405
Conversion of Preferred stock to Non-Voting common stock		-		-		-		-		-			-			-			-		-
Other comprehensive income, net of tax		-		-		-		-		-			(156	)		-			-		(156	)
ESOP shares earned (6,111 shares)		-		-		-		54		-			-			45			-		99
Stock based compensation		-		-		-		46		-			-			-			-		46
Stock options exercised		-		1		-		142		-			-			-			-		143
Common stock dividends declared ($0.07 per share)		-		-		-		-		(315	)		-			-			-		(315	)
Non-Voting common stock dividends declared ($0.07 per share)		-		-		-		-		(96	)		-			-			-		(96	)
Warrant dividends declared ($0.07 per share)		-		-		-		-		(9	)		-			-			-		(9	)
Cumulative effect of affiliate capital allocation		-		-		-		-		-			-			-			-		-
Distributions from affiliates		-		-		-		-		-			-			-			-		-
Balance, September 30, 2021	$	-	$	46	$	14	$	50,693	$	57,490		$	(1,391	)	$	(540	)	$	337	$	106,649


	Pension Benefits						Postretirement Benefits						Pension Benefits						Postretirement Benefits						Pension Benefits						Postretirement Benefits						Pension Benefits						Postretirement Benefits
	For the three months ended September 30,												For the nine months ended September 30,												For the three months ended September 30,												For the nine months ended September 30,
(In thousands)	2021			2020			2021			2020			2021			2020			2021			2020			2022			2021			2022			2021			2022			2021			2022			2021
Service cost	$	-		$	-		$	-		$	-		$	-		$	-		$	-		$	-		$	-		$	-		$	-		$	-		$	-		$	-		$	-		$	-
Interest cost		110			116			4			5			331			349			9			12			116			110			3			4			348			331			9			9
Expected return on plan assets		(286	)		(273	)		-			-			(859	)		(820	)		-			-			(267	)		(286	)		-			-			(801	)		(859	)		-			-
Amortization of prior service credits		-			-			(1	)		(1	)		-			-			(3	)		(3	)		-			-			(1	)		(1	)		-			-			(4	)		(3	)
Amortization of net losses		26			57			2			2			76			171			6			7			-			26			2			2			-			76			5			6
Net periodic benefit plan (benefit) cost	$	(150	)	$	(100	)	$	5		$	6		$	(452	)	$	(300	)	$	12		$	16		$	(151	)	$	(150	)	$	4		$	5		$	(453	)	$	(452	)	$	10		$	12


(Dollars in thousands)	Number of properties		September 30, 2022		Number of properties		December 31, 2021
Foreclosed real estate		2	$	221		-	$	-

	September 30, 2021
								Total Fair
(In thousands)	Level 1		Level 2			Level 3		Value
Available-for-Sale Portfolio
Debt investment securities:
US Treasury, agencies and GSEs	$	0	$	35,844		$	0	$	35,844
State and political subdivisions		0		28,910			0		28,910
Corporate		0		9,753			0		9,753
Asset backed securities		0		12,496			0		12,496
Residential mortgage-backed - US agency		0		23,606			0		23,606
Collateralized mortgage obligations - US agency		0		12,007			0		12,007
Collateralized mortgage obligations - Private label		0		48,299			0		48,299
Total				170,915					170,915
Corporate measured at NAV		-		-			-		4,402
Total available-for-sale securities	$	0	$	170,915		$	0	$	175,317

Marketable equity securities	$	667	$	0		$	0	$	667

Interest rate swap derivative fair value hedges	$	0	$	994		$	0	$	994

Interest rate swap derivative cash flow hedges	$	0	$	(718	)	$	0	$	(718	)


		Quantitative Information about Level 3 Fair Value Measurements
	Valuation	Unobservable	Range
	Techniques	~~Input~~	~~(Weighted Avg.)~~
~~At September 30, 2021~~
~~Impaired loans~~	~~Appraisal of collateral~~	~~Appraisal Adjustments~~	~~5% - 25% (14%~~Input	(Weighted Avg.)
	~~(Sales Approach)~~	~~Costs to Sell~~At September 30, 2022	7%
Impaired loans	Appraisal of collateral	Appraisal Adjustments	5% - ~~14% (11%~~25% (19%)
	(Sales Approach)	Costs to Sell	7% - 14% (12%)
	Discounted Cash Flow

		Amount Reclassified						Amount Reclassified
		from AOCI ⁽¹⁾						from AOCI ⁽¹⁾
		(Unaudited)						(Unaudited)
(In thousands)		For the three months ended						For the nine months ended
Details about AOCI ⁽¹⁾ components	Affected Line Item in the Statement of Income	September 30, 2021			September 30, 2020			September 30, 2021			September 30, 2020
Retirement plan items
Retirement plan net losses recognized in plan expenses ⁽²⁾	Salaries and employee benefits	$	(26	)	$	(58	)	$	(79	)	$	(175	)
Tax effect	Provision for income taxes		7			12			22			37
	Net Income	$	(19	)	$	(46	)	$	(57	)	$	(138)

Available-for-sale securities
Realized gain on sale of securities	Net gains on sales and redemptions of investment securities	$	18		$	27		$	18		$	926
Tax effect	Provision for income taxes		(5	)		(6	)		(5	)		(194	)
	Net Income	$	13		$	21		$	13		$	732

Unaudited	For the three months ended				For the nine months ended,
(In thousands, except number of loans)	September 30, 2021		September 30, 2020		September 30, 2021		September 30, 2020
Number of PPP loans originated in the period		-		25		478		699
Funded balance of PPP loans originated in the period	$	-	$	313	$	36,369	$	75,352
Number of PPP loans forgiven in the period	287			-	636			-
Average balance of PPP loans in the period	$	39,799	$	74,769	$	59,431	$	41,056
Balance of PPP loans forgiven in the period	$	26,621	$	-	$	68,726	$	-
Deferred PPP fee income recognized in the period	$	595	$	350	$	1,742	$	639

(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	$	243,067			2,117	$	115	$	0	-	$	1,529	$	916		31	%

Commercial Real Estate:
Mixed Use	$	43,989			57	$	772	$	33	-	$	6,200	$	828		6	%
Multi-Family Residential		38,291			59		649		23	-		6,239		721		5	%
Hotels and Motels		35,320			10		3,532		321	-		11,500		665		4	%
Office		32,673			62		527		3	-		4,772		615		4	%
Retail		24,146			48		503		30	-		5,060		455		3	%
1-4 Family Residential		19,891			157		127		0	-		1,193		374		3	%
Automobile Dealership		16,639			10		1,664		163	-		6,641		313		2	%
Skilled Nursing Facility		12,068			14		862		16	-		3,150		227		2	%
Recreation/ Golf Course/ Marina		11,847			2		5,924		3,800	-		8,048		223		2	%
		7,132			12		594		69	-		2,632		134		1	%
Manufacturing/Industrial		6,701			17		394		55	-		1,389		126		1	%
Restaurant		6,462			24		269		40	-		1,210		122		1	%
Automobile Repair		4,619			12		385		40	-		2,266		87		0	%
Hospitals		4,036			8		505		65	-		2,000		76		0	%
Not-For-Profit & Community Service Real Estate		4,002			3		1,334		76	-		3,105		75		1	%
Land		3,391			3		1,130		104	-		1,739		64		0	%
All Other		6,485			30		216		8	-		737		122		0	%
Total Commercial Real Estate Loans	$	277,692			528	$	526						$	5,227		35	%

Commercial and Industrial:
Secured Term Loans	$	57,487			367	$	157	$	-	-	$	4,485	$	1,651		7	%
Unsecured Term Loans		14,755			106		139		1	-		2,244		424		2	%
Secured Lines of Credit		47,775			262		182		-	-		6,821		1,372		6	%
Unsecured Lines of Credit		9,352			141		66		-	-		3,000		269		1	%
Total Commercial and Industrial Loans	$	129,369			876	$	148						$	3,715		16	%

Tax Exempt Loans	$	5,956			20	$	298	$	6	-	$	2,248	$	1		1	%

Paycheck Protection Loans	$	27,293			418	$	65	$	0	-	$	870	$	-		3	%

Consumer:
Home Equity Lines of Credit	$	32,989			922	$	36	$	-	-	$	504	$	778		4	%
Vehicle		20,552			1,440		14		0	-		439		485		3	%
Consumer Secured		23,409			838		28		1	-		113		553		3	%
Consumer Unsecured		27,011			4,346		6		-	-		95		638		3	%
All Others		2,380			1,109		2		-	-		460		56		0	%
Total Consumer Loans	$	106,340			8,655	$	12						$	2,510		13	%

Net deferred loan fees		(1,569	)		-		-							-		-
Unallocated allowance for loan losses		-			-		-							1,696		-
Total Loans	$	788,148			12,614	$	62						$	14,065		100	%


	YES☒ NO ☐


	YES☒ NO ☐