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

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

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

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

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

As of ~~August 12, 2020,~~May 17, 2021, there were ~~4,753,883~~4,553,886 shares outstanding of the registrant’s common stock.

	June 30,			December 31,			March 31,			December 31,
(In thousands, except share and per share data)	2020			2019			2021			2020
ASSETS:
Cash and due from banks (including restricted balances of $1,600 and $0, respectively)	$	19,320		$	8,284
Cash and due from banks (including restricted balances of $1,600 and $1,600, respectively)							$	10,940		$	14,906
Interest-earning deposits (including restricted balances of $0 and $0, respectively)		25,803			11,876			41,028			28,558
Total cash and cash equivalents		45,123			20,160			51,968			43,464
Available-for-sale securities, at fair value		116,131			111,134			159,080			128,261
Held-to-maturity securities, at amortized cost (fair value of $143,140 and $124,148, respectively)		141,298			122,988
Held-to-maturity securities, at amortized cost (fair value of $168,666 and $174,935, respectively)								165,613			171,224
Marketable equity securities, at fair value		1,564			534			2,084			1,850
Federal Home Loan Bank stock, at cost		4,091			4,834			4,591			4,390
Loans		806,009			745,516			864,870			823,969
Loans held-for-sale ⁽¹⁾		-			35,935			437			1,526
Less: Allowance for loan losses		10,553			8,669			13,693			12,777
Loans receivable, net		795,456			772,782			851,614			812,718
Premises and equipment, net		22,311			22,699			22,192			22,264
Operating lease right-of-use assets		2,312			2,386			2,206			2,240
Accrued interest receivable		4,973			3,712			4,718			4,549
Foreclosed real estate		26			88
Intangible assets, net		141			149			129			133
Goodwill		4,536			4,536			4,536			4,536
Bank owned life insurance		17,625			17,403			22,989			17,864
Other assets		11,437			10,402			15,436			13,950
Total assets	$	1,167,024		$	1,093,807		$	1,307,156		$	1,227,443

LIABILITIES AND SHAREHOLDERS' EQUITY:
Deposits:
Interest-bearing	$	810,455		$	774,392		$	871,405		$	833,850
Noninterest-bearing		160,138			107,501			197,503			162,057
Total deposits		970,593			881,893			1,068,908			995,907
Short-term borrowings		10,158			25,138			4,020			4,020
Long-term borrowings		65,239			67,987			82,480			78,030
Subordinated loans		15,145			15,128			39,443			39,400
Accrued interest payable		276			396			192			193
Operating lease liabilities		2,587			2,650			2,495			2,525
Other liabilities		10,419			9,946			9,375			9,646
Total liabilities		1,074,417			1,003,138			1,206,913			1,129,721
Shareholders' equity:
Preferred stock, par value $0.01 per share; no liquidation preference; 10,000,000 and 10,000,000 shares authorized, respectively; 1,155,283 and 1,155,283 shares issued and outstanding, respectively		12			12
Common stock, par value $0.01; 25,000,000 authorized shares; 4,753,883 and 4,709,238 shares issued and outstanding, respectively		48			47
Preferred stock, par value $0.01 per share; no liquidation preference; 10,000,000 shares authorized; 1,380,283 shares issued and outstanding								14			14
Common stock, par value $0.01; 25,000,000 authorized shares; 4,540,520 and 4,531,383 shares issued and outstanding, respectively								45			45
Additional paid in capital		49,747			49,362			50,258			50,024
Retained earnings		47,660			44,839			52,020			50,284
Accumulated other comprehensive loss		(4,387	)		(2,971	)		(1,768	)		(2,236	)
Unearned ESOP		(765	)		(855	)		(630	)		(675	)
Total Pathfinder Bancorp, Inc. shareholders' equity		92,315			90,434			99,939			97,456
Noncontrolling interest		292			235			304			266
Total equity		92,607			90,669			100,243			97,722
Total liabilities and shareholders' equity	$	1,167,024		$	1,093,807		$	1,307,156		$	1,227,443

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


	For the three months ended,						For the six months ended					For the three months ended
(In thousands, except per share data)	June 30, 2020			June 30, 2019			June 30, 2020			June 30, 2019		March 31, 2021		March 31, 2020
Interest and dividend income:
Loans, including fees	$	8,832		$	8,222		$	18,074		$	15,797	$	8,847	$	9,242
Debt securities:
Taxable		1,549			1,655			3,241			3,454		1,976		1,692
Tax-exempt		52			51			59			159		29		7
Dividends		64			74			134			151		87		70
Federal funds sold and interest earning deposits		17			106			49			216		3		32
Total interest and dividend income		10,514			10,108			21,557			19,777		10,942		11,043
Interest expense:
Interest on deposits		2,204			2,740			4,760			5,085		1,527		2,556
Interest on short-term borrowings		39			58			96			225		3		57
Interest on long-term borrowings		439			387			884			780		295		445
Interest on subordinated loans		192			217			398			434		557		206
Total interest expense		2,874			3,402			6,138			6,524		2,382		3,264
Net interest income		7,640			6,706			15,419			13,253		8,560		7,779
Provision for loan losses		1,146			610			2,213			754		1,028		1,067
Net interest income after provision for loan losses		6,494			6,096			13,206			12,499		7,532		6,712
Noninterest income:
Service charges on deposit accounts		303			348			659			630		331		356
Earnings and gain on bank owned life insurance		106			101			222			222		125		116
Loan servicing fees		79			60			128			87		90		49
Net gains on sales and redemptions of investment securities		1,023			32			1,049			111		-		26
(Losses) gains on marketable equity securities		(722	)		16			(916	)		57
Gains (losses) on marketable equity securities													234		(194	)
Net gains on sales of loans and foreclosed real estate		97			13			769			5		120		672
Gains on sale of premises and equipment													201		-
Debit card interchange fees		205			187			368			331		221		163
Insurance agency revenue		185			218			522			461		280		337
Other charges, commissions & fees		255			244			478			408		243		223
Total noninterest income		1,531			1,219			3,279			2,312		1,845		1,748
Noninterest expense:
Salaries and employee benefits		2,972			3,454			6,219			7,104		3,341		3,247
Building and occupancy		707			632			1,461			1,287		793		754
Data processing		552			587			1,152			1,162		676		600
Professional and other services		301			380			617			716		417		316
Advertising		261			242			437			481		246		176
FDIC assessments		150			130			339			241		198		189
Audits and exams		125			100			250			200		202		125
Insurance agency expense		212			229			404			428		206		192
Community service activities		12			144			119			282		88		107
Foreclosed real estate expenses		5			59			35			296		6		30
Other expenses		461			582			970			1,053		463		509
Total noninterest expense		5,758			6,539			12,003			13,250		6,636		6,245
Income before income taxes		2,267			776			4,482			1,561		2,741		2,215
Provision for income taxes		439			175			894			426		549		455
Net income attributable to noncontrolling interest and Pathfinder Bancorp, Inc.		1,828			601			3,588			1,135		2,192		1,760
Net (loss) income attributable to noncontrolling interest		(13	)		(6	)		57			14
Net income attributable to noncontrolling interest													38		70
Net income attributable to Pathfinder Bancorp Inc.	$	1,841		$	607		$	3,531		$	1,121	$	2,154	$	1,690
Convertible preferred stock dividends		69			69			138			69		97		69
Warrant dividends		7			8			15			8		9		8
Undistributed earnings allocated to participating securities		322			38			612			41		439		290
Net income available to common shareholders	$	1,443		$	492		$	2,766		$	1,003	$	1,609	$	1,323

Earnings per common share - basic	$	0.31		$	0.11		$	0.60		$	0.23	$	0.36	$	0.29
Earnings per common share - diluted	$	0.31		$	0.11		$	0.60		$	0.23	$	0.36	$	0.29
Dividends per common share	$	0.06		$	0.06		$	0.12		$	0.12	$	0.07	$	0.06

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

	For the three months ended						For the six months ended						For the three months ended
(In thousands)	June 30, 2020			June 30, 2019			June 30, 2020			June 30, 2019			March 31, 2021			March 31, 2020
Net Income	$	1,828		$	601		$	3,588		$	1,135		$	2,192		$	1,760

Other Comprehensive Income (Loss)

Retirement Plans:
Retirement plan net losses recognized in plan expenses		59			84			117			168			26			58

Unrealized holding gains (losses) on available-for-sale securities:
Unrealized holding (losses) gains arising during the period		4,393			1,759			760			3,748
Unrealized holding gains (losses) arising during the period														366			(3,633	)
Reclassification adjustment for net gains included in net income		(873	)		(32	)		(899	)		(111	)		-			(26	)
Net unrealized gains (losses) on available-for-sale securities		3,520			1,727			(139	)		3,637			366			(3,659	)

Derivatives and hedging activities:
Unrealized holding losses arising during the period		(184	)		-			(1,528	)		-
Net unrealized losses on derivatives and hedging activities		(184	)		-			(1,528	)		-
Unrealized holding gains (losses) arising during the period														234			(1,344	)
Net unrealized gains (losses) on derivatives and hedging activities														234			(1,344	)

Accretion of net unrealized loss on securities transferred to held-to- maturity⁽¹⁾		10			9			19			15
Accretion of net unrealized loss on securities transferred to held-to- maturity⁽¹⁾														7			8

Other comprehensive income (loss), before tax		3,405			1,820			(1,531	)		3,820			633			(4,937	)
Tax effect		(715	)		(382	)		321			(802	)		(165	)		1,037
Other comprehensive income (loss) , net of tax		2,690			1,438			(1,210	)		3,018			468			(3,900	)
Comprehensive income	$	4,518		$	2,039		$	2,378		$	4,153
Comprehensive (loss) income, attributable to noncontrolling interest	$	(13	)	$	(6	)	$	57		$	14
Comprehensive income attributable to Pathfinder Bancorp, Inc.	$	4,531		$	2,045		$	2,321		$	4,139
Comprehensive income (loss)													$	2,660		$	(2,140	)
Comprehensive income, attributable to noncontrolling interest													$	38		$	70
Comprehensive income (loss) attributable to Pathfinder Bancorp, Inc.													$	2,622		$	(2,210	)

Tax Effect Allocated to Each Component of Other Comprehensive Income (Loss)
Retirement plan net losses recognized in plan expenses	$	(12	)	$	(18	)	$	(24	)	$	(37	)	$	(7	)	$	(12	)
Unrealized holding gains (losses) on available-for-sale securities arising during the period		(923	)		(369	)		(160	)		(785	)
Unrealized holding (losses) gains on available-for-sale securities arising during the period														(95	)		764
Reclassification adjustment for net gains included in net income		183			7			189			23			-			5
Unrealized losses on derivatives and hedging arising during the period		39			-			321			-
Accretion of net unrealized loss on securities transferred to held-to- maturity⁽¹⁾		(2	)		(2	)		(5	)		(3	)
Unrealized gains (losses) on derivatives and hedging arising during the period														(61	)		282
Accretion of net unrealized loss on securities transferred to held-to- maturity⁽¹⁾														(2	)		(2	)
Income tax effect related to other comprehensive income (loss)	$	(715	)	$	(382	)	$	321		$	(802	)	$	(165	)	$	1,037

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

Three months ended ~~June 30,~~March 31, 2021 and March 31, 2020 ~~and June 30, 2019~~


										Accumulated																					Accumulated
					Additional					Other Com-						Non-										Additional					Other Com-						Non-
	Preferred		Common		Paid in		Retained			prehensive			Unearned			controlling						Preferred		Common		Paid in		Retained			prehensive			Unearned			controlling
(In thousands, except share and per share data)	Stock		Stock		Capital		Earnings			Loss			ESOP			Interest			Total			Stock		Stock		Capital		Earnings			Loss			ESOP			Interest		Total
Balance, March 31, 2020	$	12	$	47	$	49,659	$	46,174		$	(7,077	)	$	(809	)	$	305		$	88,311
Balance, January 1, 2021																						$	14	$	45	$	50,024	$	50,284		$	(2,236	)	$	(675	)	$	266	$	97,722
Net income		-		-		-		1,841			-			-			(13	)		1,828			-		-		-		2,154			-			-			38		2,192
Other comprehensive income, net of tax		-		-		-		-			2,690			-			-			2,690			-		-		-		-			468			-			-		468
ESOP shares earned (6,110 shares)		-		-		15		-			-			44			-			59
Restricted stock units (13,437 shares)		-		-		-		-			-			-			-			-
ESOP shares earned (6,111 shares)																							-		-		37		-			-			45			-		82
Stock based compensation																							-		-		93		-			-			-			-		93
Stock options exercised																							-		-		104		-			-			-			-		104
Common stock dividends declared ($0.07 per share)																							-		-		-		(312	)		-			-			-		(312	)
Preferred stock dividends declared ($0.07 per share)																							-		-		-		(97	)		-			-			-		(97	)
Warrant dividends declared ($0.07 per share)																							-		-		-		(9	)		-			-			-		(9	)
Balance, March 31, 2021																						$	14	$	45	$	50,258	$	52,020		$	(1,768	)	$	(630	)	$	304	$	100,243

Balance, January 1, 2020																						$	12	$	47	$	49,362	$	44,839		$	(2,971	)	$	(855	)	$	235	$	90,669
Net income																							-		-		-		1,690			-			-			70		1,760
Reevaluation of deferred tax asset valuation allowance⁽¹⁾																							-		-		-		-			(206	)		-			-		(206	)
Other comprehensive loss, net of tax																							-		-		-		-			(3,900	)		-			-		(3,900	)
ESOP shares earned (6,111 shares)																							-		-		37		-			-			46			-		83
Stock based compensation		-		-		73		-			-			-			-			73			-		-		66		-			-			-			-		66
Stock options exercised		-		1		-		-			-			-			-			1			-		-		194		-			-			-			-		194
Common stock dividends declared ($0.06 per share)		-		-		-		(279	)		-			-			-			(279	)		-		-		-		(278	)		-			-			-		(278	)
Preferred stock dividends declared ($0.06 per share)		-		-		-		(69	)		-			-			-			(69	)				-		-		(69	)		-			-			-		(69	)
Warrant dividends declared ($0.06 per share)		-		-		-		(7	)		-			-			-			(7	)		-		-		-		(8	)		-			-			-		(8	)
Balance, June 30, 2020	$	12	$	48	$	49,747	$	47,660		$	(4,387	)	$	(765	)	$	292		$	92,607

Balance, March 31, 2019	$	-	$	44	$	29,454	$	42,133		$	(4,462	)	$	(989	)	$	258		$	66,438
Net income		-		-		-		607			-			-			(6	)		601
Other comprehensive income, net of tax		-		-		-		-			1,438			-			-			1,438
Proceeds of common stock private placement, net of expenses ⁽¹⁾		-		3		3,823		-			-			-			-			3,826
Proceeds of preferred stock private placement, net of expenses ⁽¹⁾		12		-		15,358		-			-			-			-			15,370
Effect of warrant issued from private placement ⁽¹⁾		-		-		373		-			-			-						373
ESOP shares earned (6,110 shares)		-		-		44		-			-			45			-			89
Restricted stock units (13,436 shares)		-		-		-		-			-			-			-			-
Stock based compensation		-		-		73		-			-			-			-			73
Common stock dividends declared ($0.06 per share)		-		-		-		(274	)		-			-			-			(274	)
Preferred stock dividends declared ($0.06 per share)		-		-		-		(69	)		-			-			-			(69	)
Warrant dividends declared ($0.06 per share)		-		-		-		(8	)		-			-			-			(8	)
Distributions from affiliates		-		-		-		-			-			-			(13	)		(13	)
Balance, June 30, 2019	$	12	$	47	$	49,125	$	42,389		$	(3,024	)	$	(944	)	$	239		$	87,844
Balance, March 31, 2020																						$	12	$	47	$	49,659	$	46,174		$	(7,077	)	$	(809	)	$	305	$	88,311

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

Accumulated

Additional

Other Com-

Non-

Preferred

Common

Paid in

Retained

prehensive

Unearned

controlling

(In thousands, except share and per share data)

Stock

Stock

Capital

Earnings

Loss

ESOP

Interest

Total

Balance, January 1, 2020

$
12

$
47

$
49,362

$
44,839

$
(2,971
)

$
(855
)

$
235

$
90,669

Net income

-

-

-

3,531

-

-

57

3,588

Reevaluation of deferred tax asset valuation allowance⁽¹⁾

-

-

-

-

(206
)

-

-

(206
)
Other comprehensive loss, net of tax

-

-

-

-

(1,210
)

-

-

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

-

-

52

-

-

90

-

142

Restricted stock units (13,437 shares)

-

-

-

-

-

-

-

-

Stock based compensation

-

-

139

-

-

-

-

139

Stock options exercised

-

1

194

-

-

-

-

195

Common stock dividends declared ($0.12 per share)

-

-

-

(557
)

-

-

-

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

-

-

-

(138
)

-

-

-

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

-

-

-

(15
)

-

-

(15
)
Balance, June 30, 2020

$
12

$
48

$
49,747

$
47,660

$
(4,387
)

$
(765
)

$
292

$
92,607

Balance, January 1, 2019

$
-

$
44

$
29,139

$
42,114

$
(6,042
)

$
(1,034
)

$
238

$
64,459

Net income

-

-

-

1,121

-

-

14

1,135

Other comprehensive income, net of tax

-

-

-

-

3,018

-

-

3,018

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

-

3

3,823

-

-

-

-

3,826

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

12

-

15,358

-

-

-

-

15,370

Effect of warrant issued from private placement ⁽²⁾

-

-

373

-

-

-

-

373

ESOP shares earned (12,221 shares)

-

-

86

-

-

90

-

176

Restricted stock units (13,436 shares)

-

-

-

-

-

-

-

-

Stock based compensation

-

-

146

-

-

-

-

146

Stock options exercised

-

-

200

-

-

-

-

200

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

-

-

-

(239
)

-

-

-

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

-

-

-

(530
)

-

-

-

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

-

-

(69
)

-

-

-

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

-

-

-

(8
)

-

-

-

(8
)
Distributions from affiliates

-

-

-

-

-

-

(13
)

(13
)
Balance, June 30, 2019

$
12

$
47

$
49,125

$
42,389

$
(3,024
)

$
(944
)

$
239

$
87,844

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

	For the six months ended June 30,						For the three months ended March 31,
(In thousands)	2020			2019			2021			2020
OPERATING ACTIVITIES
Net income attributable to Pathfinder Bancorp, Inc.	$	3,531		$	1,121		$	2,154		$	1,690
Adjustments to reconcile net income to net cash flows from operating activities:
Provision for loan losses		2,213			754			1,028			1,067
Amortization of operating leases		11			15			4			5
Proceeds from sales of loans		40,498			48			2,840			36,614
Originations of loans held-for-sale		(3,790	)		(47	)		(1,631	)		(150	)
Realized losses (gains) on sales, redemptions and calls of:
Real estate acquired through foreclosure		4			-			-			7
Loans		(773	)		(5	)		(120	)		(679	)
Available-for-sale investment securities		(1,014	)		(111	)
Held-to-maturity investment securities		(35	)		-			-			(26	)
Premises and equipment								(201	)		-
Marketable equity securities		916			(57	)		(234	)		194
Depreciation		824			744			453			414
Amortization of mortgage servicing rights		(298	)		2			(7	)		(279	)
Amortization of deferred loan costs		137			128			328			75
Amortization of deferred financing from subordinated debt		17			17			43			8
Earnings and gain on bank owned life insurance		(222	)		(222	)
Earnings on bank owned life insurance								(125	)		(116	)
Net amortization of premiums and discounts on investment securities		637			618			430			268
Amortization of intangible assets		8			8			4			4
Stock based compensation and ESOP expense		281			322			175			149
Net change in accrued interest receivable		(1,261	)		(271	)		(169	)		12
Net change in other assets and liabilities		(1,363	)		14			(1,699	)		(1,262	)
Net cash flows from operating activities		40,321			3,078			3,273			37,995
INVESTING ACTIVITIES
Purchase of investment securities available-for-sale		(79,052	)		(12,280	)		(52,064	)		(38,422	)
Purchase of investment securities held-to-maturity		(39,552	)		(46,970	)		(9,131	)		(7,492	)
Purchase of Federal Home Loan Bank stock		(1,176	)		(2,605	)		(903	)		(1,121	)
Proceeds from redemption of Federal Home Loan Bank stock		1,919			4,099			702			1,197
Proceeds from maturities and principal reductions of investment securities available-for-sale		47,457			12,044			19,671			24,244
Proceeds from maturities and principal reductions of investment securities held-to-maturity		19,523			5,035			13,605			8,824
Proceeds from sales, redemptions and calls of:
Available-for-sale investment securities		24,768			63,486			500			-
Held-to-maturity investment securities		1,589			548			1,051			1,068
Real estate acquired through foreclosure		116			1,085			-			81
Purchase of bank owned life insurance								(5,000	)		-
Net change in loans		(61,017	)		(73,419	)		(40,252	)		(5,119	)
Purchase of premises and equipment		(436	)		(2,368	)		(411	)		(19	)
Proceeds from sale of premises and equipment								231			-
Net cash flows from investing activities		(85,861	)		(51,345	)		(72,001	)		(16,759	)

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

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

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

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

The Financial Accounting Standards ~~Board~~FASB (“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~~presentation provides a description of standards adopted in the ~~accounting~~first quarter of 2021 as well as standards that are not currently effective, but could have an impact on the Company's consolidated financial statements upon adoption.

The Company entered into a securities purchase agreement with Castle Creek Capital Partners VII, L.P. on May 8, 2019, pursuant to which the Company sold: (i) 37,700 shares of the Company’s common stock, par value $0.01 per share, at a purchase price of $14.25 per share; (ii) 1,155,283 shares of a new series of preferred stock, Series B convertible perpetual preferred stock, par value $0.01 per share, at a purchase price of $14.25 per share; and (iii) a warrant, with an approximate fair value of $373,000, to purchase 125,000 shares of common stock of the Company at an exercise price equal to $14.25 per share, in a private placement transaction (the “Private Placement”) for gross proceeds of approximately $17.0 million. As a result of the securities purchase agreement, the Company has common stock, preferred stock and a warrant that are all eligible to participate in dividends equal to the common stock dividends on a per share basis. Securities that participate in dividends, such as the Company’s preferred stock and warrant, are considered “participating securities.” The Company calculates net income available to 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 common stock and participating securities outstanding for the period. Diluted earnings per share may include the additional effect of other securities, if dilutive, in which case the dilutive effect of such securities is calculated by applying either the two-class method or the Treasury Stock method to the assumed exercise or vesting of potentially dilutive common shares. The method yielding the more dilutive result is ultimately reported for the applicable period. Potentially dilutive common stock equivalents primarily consist of employee stock options and restricted stock units. Unallocated common shares held by the ESOP are not included in the weighted average number of common shares outstanding for purposes of calculating earnings per common share until they are committed to be released to plan participants.

Anti-dilutive shares are common stock equivalents with average exercise prices in excess of the weighted average market price for the period presented. Anti-dilutive stock options, not included in the computation below, were ~~256,145~~-0- for both the three months ended ~~June 30, 2020~~March 31, 2021 and ~~128,073 for the six months ended June 30, 2020 and were -0- for the three and six months ended June 30, 2019.~~March 31, 2020.

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

	Three months ended				Six months ended				Three months ended
	June 30,				June 30,				March 31,
(In thousands, except per share data)	2020		2019		2020		2019		2021		$	2,020
Net income attributable to Pathfinder Bancorp, Inc.	$	1,841	$	607	$	3,531	$	1,121	$	2,154	$	1,690
Convertible preferred stock dividends		69		69		138		69		97		69
Warrant dividends		7		8		15		8		9		8
Undistributed earnings allocated to participating securities		322		38		612		41		439		290
Net income available to common shareholders	$	1,443	$	492	$	2,766	$	1,003	$	1,609	$	1,323

Basic weighted average common shares outstanding		4,639		4,443		4,623		4,344		4,442		4,607
Effect of assumed exercise of stock options and unvested restricted stock units		-		-		-		-		-		-
Diluted weighted average common shares outstanding		4,639		4,443		4,623		4,344		4,442		4,607

Basic earnings per common share	$	0.31	$	0.11	$	0.60	$	0.23	$	0.36	$	0.29
Diluted earnings per common share	$	0.31	$	0.11	$	0.60	$	0.23	$	0.36	$	0.29

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

	June 30, 2020									March 31, 2021
			Gross		Gross			Estimated				Gross		Gross			Estimated
	Amortized		Unrealized		Unrealized			Fair		Amortized		Unrealized		Unrealized			Fair
(In thousands)	Cost		Gains		Losses			Value		Cost		Gains		Losses			Value
Available-for-Sale Portfolio
Debt investment securities:
US Treasury, agencies and GSEs	$	21,584	$	4	$	(26	)	$	21,562	$	23,428	$	16	$	(42	)	$	23,402
State and political subdivisions		13,167		-		(26	)		13,141		22,115		1,141		(68	)		23,188
Corporate		11,124		131		(19	)		11,236		12,847		431		(59	)		13,219
Asset backed securities		13,079		1		(279	)		12,801		13,182		45		(31	)		13,196
Residential mortgage-backed - US agency		14,845		279		-			15,124		24,644		324		(6	)		24,962
Collateralized mortgage obligations - US agency		25,243		166		(528	)		24,881		30,525		117		(661	)		29,981
Collateralized mortgage obligations - Private label		17,316		234		(370	)		17,180		30,634		384		(92	)		30,926
Total		116,358		815		(1,248	)		115,925		157,375		2,458		(959	)		158,874
Equity investment securities:
Common stock - financial services industry		206		-		-			206		206		-		-			206
Total		206		-		-			206		206		-		-			206
Total available-for-sale	$	116,564	$	815	$	(1,248	)	$	116,131	$	157,581	$	2,458	$	(959	)	$	159,080

Held-to-Maturity Portfolio
Debt investment securities:
US Treasury, agencies and GSEs	$	1,000	$	9	$	-		$	1,009	$	-	$	-	$	-		$	-
State and political subdivisions		10,676		418		(19	)		11,075		16,424		408		(337	)		16,495
Corporate		24,776		817		(269	)		25,324		39,930		1,183		(109	)		41,004
Asset backed securities		22,804		9		(735	)		22,078		18,922		331		(117	)		19,136
Residential mortgage-backed - US agency		11,909		623		-			12,532		11,338		380		(74	)		11,644
Collateralized mortgage obligations - US agency		23,713		893		(14	)		24,592		17,281		596		(4	)		17,873
Collateralized mortgage obligations - Private label		46,420		183		(73	)		46,530		61,718		980		(184	)		62,514
Total held-to-maturity	$	141,298	$	2,952	$	(1,110	)	$	143,140	$	165,613	$	3,878	$	(825	)	$	168,666

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

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

The amortized cost and estimated fair value of debt investments at ~~June 30, 2020~~March 31, 2021 by contractual maturity are shown below. Expected maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without penalties.

	Available-for-Sale				Held-to-Maturity				Available-for-Sale				Held-to-Maturity
	Amortized		Estimated		Amortized		Estimated		Amortized		Estimated		Amortized		Estimated
(In thousands)	Cost		Fair Value		Cost		Fair Value		Cost		Fair Value		Cost		Fair Value
Due in one year or less	$	15,701	$	15,701	$	1,976	$	1,999	$	17,580	$	17,833	$	674	$	677
Due after one year through five years		8,462		8,535		17,572		17,804		7,760		7,904		17,026		17,709
Due after five years through ten years		15,309		15,257		20,392		20,801		15,512		15,484		34,556		35,261
Due after ten years		19,482		19,247		19,316		18,882		30,720		31,784		23,020		22,988
Sub-total		58,954		58,740		59,256		59,486		71,572		73,005		75,276		76,635
Residential mortgage-backed - US agency		14,845		15,124		11,909		12,532		24,644		24,962		11,338		11,644
Collateralized mortgage obligations - US agency		25,243		24,881		23,713		24,592		30,525		29,981		17,281		17,873
Collateralized mortgage obligations - Private label		17,316		17,180		46,420		46,530		30,634		30,926		61,718		62,514
Totals	$	116,358	$	115,925	$	141,298	$	143,140	$	157,375	$	158,874	$	165,613	$	168,666

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

	June 30, 2020																					March 31, 2021
	Less than Twelve Months							Twelve Months or More							Total							Less than Twelve Months							Twelve Months or More							Total
	Number of							Number of							Number of							Number of							Number of							Number of
	Individual		Unrealized			Fair		Individual		Unrealized			Fair		Individual		Unrealized			Fair		Individual		Unrealized			Fair		Individual		Unrealized			Fair		Individual		Unrealized			Fair
(Dollars in thousands)	Securities		Losses			Value		Securities		Losses			Value		Securities		Losses			Value		Securities		Losses			Value		Securities		Losses			Value		Securities		Losses			Value
Available-for-Sale Portfolio
US Treasury, agencies and GSE's		-	$	-		$	-		1	$	(26	)	$	4,951		1	$	(26	)	$	4,951		1	$	(19	)	$	2,067		1	$	(23	)	$	4,956		2	$	(42	)	$	7,023
State and political subdivisions		4		(26	)		11,480		-		-			-		4		(26	)		11,480		3		(68	)		4,621		-		-			-		3		(68	)		4,621
Corporate		4		(19	)		2,505		-		-			-		4		(19	)		2,505		2		(59	)		1,717		-		-			-		2		(59	)		1,717
Asset backed securities		8		(273	)		11,220		1		(6	)		262		9		(279	)		11,482		2		(4	)		3,100		2		(27	)		2,236		4		(31	)		5,336
Residential mortgage-backed - US agency		-		-			-		-		-			-		-		-			-		1		(6	)		5,667		-		-			-		1		(6	)		5,667
Collateralized mortgage obligations - US agency		1		(30	)		2,085		2		(498	)		6,538		3		(528	)		8,623		5		(171	)		11,195		2		(490	)		5,361		7		(661	)		16,556
Collateralized mortgage obligations - Private label		4		(31	)		2,565		4		(339	)		2,908		8		(370	)		5,473		1		(71	)		3,165		3		(21	)		2,171		4		(92	)		5,336
Totals		21	$	(379	)	$	29,855		8	$	(869	)	$	14,659		29	$	(1,248	)	$	44,514		15	$	(398	)	$	31,532		8	$	(561	)	$	14,724		23	$	(959	)	$	46,256
Held-to-Maturity Portfolio
State and political subdivisions		3	$	(19	)	$	3,368		-	$	-		$	-		3	$	(19	)	$	3,368		6	$	(332	)	$	6,169		1	$	(4	)	$	3,005		7	$	(336	)	$	9,174
Corporate		9		(269	)		9,880		-		-			-		9		(269	)		9,880		13		(109	)		11,787		-		-			-		13		(109	)		11,787
Asset backed securities		9		(528	)		12,984		2		(207	)		3,978		11		(735	)		16,962		-		-			-		5		(117	)		4,917		5		(117	)		4,917
Residential mortgage-backed - US agency		-		-			-		-		-			-		-		-			-		1		(74	)		1,924		-		-			-		1		(74	)		1,924
Collateralized mortgage obligations - US agency		1		(6	)		2,043		1		(8	)		1,587		2		(14	)		3,630		1		(4	)		1,388		-		-			-		1		(4	)		1,388
Collateralized mortgage obligations - Private label		4		(72	)		5,706		1		(1	)		309		5		(73	)		6,015		5		(183	)		7,607		1		(1	)		638		6		(184	)		8,245
Totals		26	$	(894	)	$	33,981		4	$	(216	)	$	5,874		30	$	(1,110	)	$	39,855		26	$	(702	)	$	28,875		7	$	(122	)	$	8,560		33	$	(824	)	$	37,435

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

Excluding the effects of changes in the characteristics of individual debt securities that potentially give rise to other-than-temporary impairment (“OTTI”), as described below, the fair market value of a debt security as of a particular measurement date is highly dependent upon prevailing market and economic environmental factors at the measurement date relative to the prevailing market and economic environmental factors present at the time the debt security was acquired. The most significant market and environmental factors include, but are not limited to (1) the general level of interest rates, (2) the relationship between shorter-term interest rates and longer-term interest rates (referred to as the “slope” of the interest rate yield curve), (3) general bond market liquidity, (4) the recent and expected near-term volume

of new issuances of similar debt securities, and (5) changes in the market values of individual loan collateral underlying mortgage-backed debt securities. Changes in interest rates affect the fair market values of debt securities by influencing the discount rate applied to the securities’ future expected cash flows. The higher the discount rate, the lower the resultant security price. Conversely, the lower the discount rate, the higher the resultant security price. In addition, the cumulative amount and timing of undiscounted cash flows of debt securities may be also affected by changes in interest rates. For any given level of movement in the general market and economic environmental factors described above, the magnitude of any particular debt security’s price changes will also depend heavily upon security-specific factors such as (1) the

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

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

Management does not believe any individual unrealized loss in the securities ~~within the~~ portfolio as of ~~June 30, 2020 represents~~March 31, 2021 represented OTTI. At ~~June 30, 2020,~~March 31, 2021, the Bank had the following securities, not issued by the United States Government or GSE, in a loss position for 12 months or more relative to their amortized historical cost, which were deemed to have no credit impairment, thus, the disclosed unrealized losses ~~relate~~related 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 12 securities in an unrealized loss position for 12 months or more at June 30, 2020, four securities, representing 62.9% of the unamortized cost of the total securities in an unrealized loss position for 12 months or more, are issued by United States agencies or GSE’s and consist of mortgage-backed securities, collateralized mortgage obligations and direct agency financings. These positions in US government agency and GSE’s are deemed to have no credit impairment, thus, the disclosed unrealized losses relate primarily to changes in prepayment assumptions related to significantly lower general interest rates resulting from the economic effects of the pandemic.

~~In addition to these 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 June 30, 2020:~~

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

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

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

	For the three months						For the six months						For the three months
	ended June 30,						ended June 30,						ended March 31,
(In thousands)	2020			2019			2020			2019			2021			2020
Realized gains on investments	$	917		$	179		$	950		$	401		$	7		$	33
Realized losses on investments		(9	)		(147	)		(16	)		(290	)		(7	)		(7	)
	$	908		$	32		$	934		$	111		$	-		$	26

As of ~~June 30, 2020~~March 31, 2021 and December 31, ~~2019,~~2020, securities with a fair value of ~~$98.5~~$125.3 million and ~~$92.4~~$96.4 million, respectively, were pledged to collateralize certain municipal deposit relationships. As of the same dates, securities with a fair value of ~~$15.0~~$11.9 million and ~~$21.3~~$13.2 million, respectively, were pledged against certain borrowing arrangements.

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

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

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

	Pension Benefits						Postretirement Benefits						Pension Benefits						Postretirement Benefits						Pension Benefits						Postretirement Benefits
	For the three months ended June 30,												For the six months ended June 30,												For the three months ended March 31,
(In thousands)	2020			2019			2020			2019			2020			2019			2020			2019			2021			2020			2021			2020
Service cost	$	-		$	-		$	-		$	-		$	-		$	-		$	-		$	-		$	-		$	-		$	-		$	-
Interest cost		117			123			3			5			233			247			8			11			110			116			3			4
Expected return on plan assets		(274	)		(233	)		-			-			(547	)		(467	)		-			-			(286	)		(273	)		-			-
Amortization of prior service credits		-			-			(1	)		(1	)		-			-			(2	)		(2	)		-			-			(1	)		(1	)
Amortization of net losses		57			82			3			3			114			164			5			6			25			57			2			2
Net periodic benefit plan (benefit) cost	$	(100	)	$	(28	)	$	5		$	7		$	(200	)	$	(56	)	$	11		$	15		$	(151	)	$	(100	)	$	4		$	5

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

	June 30,			December 31,			March 31,			December 31,
(In thousands)	2020			2019			2021			2020
Residential mortgage loans:
1-4 family first-lien residential mortgages	$	212,741		$	209,559		$	226,058		$	227,185
Construction		3,678			3,963			7,789			6,681
Loans held-for-sale ⁽¹⁾		-			35,790			437			1,526
Total residential mortgage loans		216,419			249,312			234,284			235,392

Commercial loans:
Real estate		260,824			254,257			289,182			286,271
Lines of credit		53,509			58,617			63,158			49,103
Other commercial and industrial		83,167			82,092			77,915			78,629
Paycheck Protection Program loans		73,774			-			71,885			60,643
Tax exempt loans		7,644			8,067			6,959			7,166
Total commercial loans		478,918			403,033			509,099			481,812

Consumer loans:
Home equity and junior liens		42,587			46,389			36,181			38,624
Other consumer		69,915			82,607			87,976			70,905
Total consumer loans		112,502			128,996			124,157			109,529

Total loans		807,839			781,341			867,540			826,733
Net deferred loan fees		(1,830	)		110			(2,233	)		(1,238	)
Less allowance for loan losses		(10,553	)		(8,669	)		(13,693	)		12,777
Loans receivable, net	$	795,456		$	772,782		$	851,614		$	812,718

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

AsThe Bank acquires diversified pools of loans, originated by unrelated third parties, as part of the Company’s overall balance sheet management ~~strategies~~strategies. These acquisitions occurred in ten separate transactions commencing in 2019 and the management’s ongoing efforts to profitably deploy its increased capital position following the equity sales transactions completed in May 2019, the Bank acquired seven diverse pools of loans, originated by unrelated third parties, in sixcontinuing through 2021, including two separate transactions during ~~2019.~~the three months ended March 31, 2021. The purchase of participations in loans that are originated by third parties only occurs after the completion of thorough pre-acquisition due diligence. Loans in which the Company acquires a participating interest are determinedfollowing table sets forth certain information related to meet, in all material respects, the Company’s internal underwriting policies, including credit and collateral suitability thresholds, prior to acquisition. In addition, the financial condition of the originating entity, which are generally retained as the ongoingthese loan servicing provider for participations acquired by the Bank, are analyzed prior to the acquisition of the participating interests and monitored on a regular basis thereafter for the life of those interests.transactions:

The following table presents details regarding the purchased loan pools:	June 30,			December 31,
							March 31,			December 31,
(In thousands, except number of loans)	2020			2019			2021			2020
Purchased residential real estate loans
Original Balance	$	2,100		$	2,100
Current Balance		2,000			2,100
Unamortized Premium		131			135
Percent Owned		100	%		100	%
Number of Loans	25			25
Maturity range	22-24 years			22-24 years
Cumulative net charge-offs		-			-

Purchased other commercial and industrial loans
Original Balance		6,800			6,800
Current Balance		6,100			6,600
Unamortized Premium		-			-
Percent Owned		100	%		100	%
Number of Loans	41			43
Maturity range	4-10 years			4-10 years
Cumulative net charge-offs		-			-

Purchased home equity lines of credit:
Original Balance		21,900			21,900
Current Balance		17,300			20,100
Unamortized Premium		347			390
Percent Owned		100	%		100	%
Number of Loans	335			376
Maturity range	4-30 years			4-30 years
Cumulative net charge-offs		-			-

Purchased automobile loans:
Original Balance		50,400			50,400
Current Balance		22,300			27,200
Unamortized Premium		768			930
Percent Owned		90	%		90	%
Number of Loans	1,484			1,657
Maturity range	2-6 years			2-6 years
Cumulative net charge-offs		212			196

Purchased unsecured consumer loan pool 1:
Original Balance		5,400			5,400		$	5,400		$	5,400
Current Balance		4,300			5,000		$	3,300		$	3,600
Unamortized Premium		-			-
Unamortized Premium (Discount)							$	-		$	-
Percent Owned		100	%		100	%		100	%		100	%
Number of Loans	82			87			72			76
Maturity range	4-10 years			4-10 years			3-6 years			3-6 years
Cumulative net charge-offs		-			-		$	-		$	-

Purchased unsecured consumer loan pool 2:
Original Balance		26,600			26,600		$	26,600		$	26,600
Current Balance		21,200			25,800		$	12,900		$	15,400
Unamortized Premium		86			114
Unamortized Premium (Discount)							$	53		$	63
Percent Owned		59	%		59	%		59	%		59	%
Number of Loans	2,535			2,768				2,075			2,246
Maturity range	3-5 years			3-5 years			1-5 years			2-4 years
Cumulative net charge-offs		219			-		$	-		$	-

Purchased unsecured consumer loan pool 3:
Original Balance							$	10,300		$	10,300
Current Balance							$	4,400		$	5,500
Unamortized Premium (Discount)							$	118		$	138
Percent Owned								100	%		100	%
Number of Loans								2,495			2,958
Maturity range							0-6 years			0-6 years
Cumulative net charge-offs							$	3		$	-

Purchased secured consumer loan pool 1:
Original Balance							$	14,500		$	14,500
Current Balance							$	14,300		$	14,500
Unamortized Premium (Discount)							$	(2,032	)	$	(2,124	)
Percent Owned								68	%		68	%
Number of Loans								612			619
Maturity range							25 years			25 years
Cumulative net charge-offs							$	-		$	-

Purchased secured consumer loan pool 2:
Original Balance							$	24,400		$	-
Current Balance							$	23,600		$	-
Unamortized Premium (Discount)							$	(662	)	$	-
Percent Owned								100	%		0	%
Number of Loans								844			-
Maturity range							10-24 years				-
Cumulative net charge-offs							$	-		$	-

Purchased commercial line of credit:
Original Balance							$	11,600		$	-
Current Balance							$	11,600		$	-
Unamortized Premium (Discount)							$	35		$	-
Percent Owned								12	%		0	%
Number of Loans								1			-
Maturity range							3 years				-
Cumulative net charge-offs							$	-		$	-

As of ~~June 30, 2020~~March 31, 2021 and December 31, ~~2019,~~2020, residential mortgage loans with a carrying value of ~~$107.7~~$119.8 million and ~~$136.9~~$115.6 million, respectively, have been pledged by the Company to the Federal Home Loan Bank of New York (“FHLBNY”) under a blanket collateral agreement to secure the Company’s line of credit and term borrowings.

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

To develop and document a systematic methodology for determining the allowance for loan losses, the Company has divided the loan portfolio into three 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:

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

	As of June 30, 2020										As of March 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	$	208,783	$	1,295	$	1,609	$	1,054	$	212,741	$	221,499	$	1,111	$	2,841	$	607	$	226,058
Construction		3,678		-		-		-		3,678		7,789		-		-		-		7,789
Loans held-for-sale		-		-		-		-		-		437		-		-		-		437
Total residential mortgage loans		212,461		1,295		1,609		1,054		216,419		229,725		1,111		2,841		607		234,284
Commercial loans:
Real estate		243,749		9,150		7,218		707		260,824		267,008		13,108		8,547		519		289,182
Lines of credit		46,241		4,297		2,971		-		53,509		54,838		5,125		3,114		81		63,158
Other commercial and industrial		72,499		8,689		1,940		39		83,167		64,420		5,130		7,932		433		77,915
Paycheck Protection Program loans		73,774		-		-		-		73,774		71,885		-		-		-		71,885
Tax exempt loans		7,644		-		-		-		7,644		6,959		-		-		-		6,959
Total commercial loans		443,907		22,136		12,129		746		478,918		465,110		23,363		19,593		1,033		509,099
Consumer loans:
Home equity and junior liens		41,725		221		367		274		42,587		35,138		130		681		232		36,181
Other consumer		69,619		101		195		-		69,915		87,480		140		274		82		87,976
Total consumer loans		111,344		322		562		274		112,502		122,618		270		955		314		124,157
Total loans	$	767,712	$	23,753	$	14,300	$	2,074	$	807,839	$	817,453	$	24,744	$	23,389	$	1,954	$	867,540

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

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

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

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

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

	As of June 30, 2020												As of March 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	$	988	$	130	$	1,038	$	2,156	$	210,585	$	212,741	$	132	$	482	$	776	$	1,390	$	224,668	$	226,058
Construction		-		-		-		-		3,678		3,678		-		-		-		-		7,789		7,789
Loans held-for-sale		-		-		-		-		-		-		-		-		-		-		437		437
Total residential mortgage loans		988		130		1,038		2,156		214,263		216,419		132		482		776		1,390		232,894		234,284
Commercial loans:
Real estate		74		2,000		4,034		6,108		254,716		260,824		2,943		3,555		2,574		9,072		280,110		289,182
Lines of credit		1,299		1,844		430		3,573		49,936		53,509		1,461		900		196		2,557		60,601		63,158
Other commercial and industrial		6,645		4,076		1,992		12,713		70,454		83,167		515		1,420		1,214		3,149		74,766		77,915
Paycheck Protection Program loans		-		-		-		-		73,774		73,774		-		-		-		-		71,885		71,885
Tax exempt loans		-		-		-		-		7,644		7,644		-		-		-		-		6,959		6,959
Total commercial loans		8,018		7,920		6,456		22,394		456,524		478,918		4,919		5,875		3,984		14,778		494,321		509,099
Consumer loans:
Home equity and junior liens		222		-		344		566		42,021		42,587		63		13		291		367		35,814		36,181
Other consumer		323		126		196		645		69,270		69,915		411		279		186		876		87,100		87,976
Total consumer loans		545		126		540		1,211		111,291		112,502		474		292		477		1,243		122,914		124,157
Total loans	$	9,551	$	8,176	$	8,034	$	25,761	$	782,078	$	807,839	$	5,525	$	6,649	$	5,237	$	17,411	$	850,129	$	867,540

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

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

	June 30,		December 31,		March 31,		December 31,
(In thousands)	2020		2019		2021		2020
Residential mortgage loans:
1-4 family first-lien residential mortgages	$	1,038	$	1,613	$	2,899	$	2,608
		1,038		1,613		2,899		2,608
Commercial loans:
Real estate		4,094		2,343		11,449		11,286
Lines of credit		430		68		196		194
Other commercial and industrial		2,283		591		6,197		6,498
		6,807		3,002		17,842		17,978
Consumer loans:
Home equity and junior liens		344		480		337		473
Other consumer		196		151		265		274
		540		631
Total consumer loans						602		747
Total nonaccrual loans	$	8,385	$	5,246	$	21,343	$	21,333

The following table summarizes nonaccrual loans by category and status at March 31, 2021:

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

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

change in the allowance for loan losses between the pre-modification outstanding recorded investment and post-modification outstanding recorded investment.

The ~~Company had no~~table below details loans that ~~were~~had been modified as TDRs for the three months ended ~~June 30, 2020.~~

~~The Company had no loans that were modified as TDRs for the six months ended June 30, 2020.~~

~~The table below details one loan that was modified as a TDR for the three months ended June 30, 2019.~~March 31, 2021.

	For the three months ended June 30, 2019							For the three months ended March 31, 2021
(In thousands)	Number of loans	Pre-modification outstanding recorded investment		Post-modification outstanding recorded investment		Additional provision for loan losses		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	1	$	205	$	250	$	-	2	$		389	$		389	$		12
Home equity and junior liens								1	$		200	$		504	$		219

The ~~TDR~~loans evaluated for impairment for the three months ended ~~June 30, 2019 was~~March 31, 2021 have been classified as ~~a TDR~~TDRs due to economic concessions granted, which consisted of ~~additional funds advanced without associated increases~~a reduction in ~~collateral and~~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 ~~contractual maturity.~~terms.

The ~~table below details one loan~~Company had no loans that ~~was~~have been modified as ~~a TDR~~TDRs for the ~~six~~three months ended ~~June 30, 2019.~~

The TDR evaluated for impairment for the six months ended June 30, 2019 was classified as a TDR due to economic concessions granted, which consisted of additional funds advanced without associated increases in collateral and an extended maturity date that will result in a delay in payment from the original contractual maturity.March 31, 2020.

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

The Company had no loans that ~~were~~had been modified as TDRs during the twelve months prior to ~~June 30, 2020,~~March 31, 2021, which had subsequently defaulted during the ~~six~~three months ended ~~June 30, 2020.~~March 31, 2021.

The Company had no loans that ~~were~~had been modified as TDRs during the twelve months prior to ~~June 30, 2019,~~March 31, 2020, which had subsequently defaulted during the ~~six~~three months ended ~~June 30, 2019.~~

~~The United States has been operating under a state of emergency related to the Coronavirus Disease 2019 (“COVID-19”) pandemic since~~ March ~~13,~~31, 2020. The direct and indirect effects of the COVID-19 pandemic have resulted in a dramatic reduction in economic activity that has severely hampered the ability for businesses and consumers to meet their current repayment obligations. The Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”), signed into law on March 27, 2020, in addition to providing financial assistance to both businesses and consumers, creates a forbearance program for federally-backed mortgage loans, protects borrowers from negative credit reporting due to loan accommodations related to the national emergency, and provides financial institutions the option to temporarily suspend certain requirements under GAAP related to troubled debt restructurings for a limited period of time to account for the effects of COVID-19. The banking regulatory agencies have likewise issued guidance encouraging financial institutions to work prudently with borrowers who are, or may be, unable to meet their contractual payment obligations because of the effects of COVID-19. That guidance, with concurrence of the Financial Accounting Standards Board, and provisions of the CARES Act allow modifications made on a good faith basis in response to COVID-19 to borrowers who were generally current with their payments prior to any relief, to not be treated as troubled debt restructurings. Modifications may include payment deferrals, fee waivers, extensions of repayment term, or other delays in payment. Through July 7, 2020, the Bank granted payment deferral requests primarily for 90 days, on 556 loans representing approximately $145.6 million of existing loan balances. To the extent that such modifications meet the criteria previously described, such modifications are not expected to be classified as troubled debt restructurings.

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

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

	June 30, 2020						December 31, 2019						March 31, 2021						December 31, 2020
			Unpaid						Unpaid						Unpaid						Unpaid
	Recorded		Principal		Related		Recorded		Principal		Related		Recorded		Principal		Related		Recorded		Principal		Related
(In thousands)	Investment		Balance		Allowance		Investment		Balance		Allowance		Investment		Balance		Allowance		Investment		Balance		Allowance
With no related allowance recorded:
1-4 family first-lien residential mortgages	$	680	$	680	$	-	$	1,027	$	1,027	$	-	$	566	$	566	$	-	$	665	$	665	$	-
Commercial real estate		4,217		4,294		-		3,996		4,067		-		11,437		11,676		-		11,053		11,136		-
Commercial lines of credit		80		80		-		86		86		-		-		-		-		-		-		-
Other commercial and industrial		333		353		-		69		77		-		4,896		4,921		-		5,114		5,132		-
Home equity and junior liens		77		77		-		40		40		-		74		74		-		75		75		-
Other consumer		85		85		-		55		55		-		82		82		-		81		81		-

With an allowance recorded:
1-4 family first-lien residential mortgages		918		918		153		584		584		97		941		941		161		1,182		1,182		205
Commercial real estate		444		444		64		450		450		78		2,084		2,084		252		1,729		1,729		231
Commercial lines of credit		98		98		98		98		98		98		960		960		960		925		925		925
Other commercial and industrial		729		729		563		866		866		406		1,818		1,818		1,285		1,864		1,864		1,278
Home equity and junior liens		142		142		142		180		180		150		504		504		221		142		142		142
Other consumer		-		-		-		36		36		1		10		10		-		-		-		-
Total:
1-4 family first-lien residential mortgages		1,598		1,598		153		1,611		1,611		97		1,507		1,507		161		1,847		1,847		205
Commercial real estate		4,661		4,738		64		4,446		4,517		78		13,521		13,760		252		12,782		12,865		231
Commercial lines of credit		178		178		98		184		184		98		960		960		960		925		925		925
Other commercial and industrial		1,062		1,082		563		935		943		406		6,714		6,739		1,285		6,978		6,996		1,278
Home equity and junior liens		219		219		142		220		220		150		578		578		221		217		217		142
Other consumer		85		85		-		91		91		1		92		92		-		81		81		-
Totals	$	7,803	$	7,900	$	1,020	$	7,487	$	7,566	$	830	$	23,372	$	23,636	$	2,879	$	22,830	$	22,931	$	2,781

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

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

	For the three months ended				For the six months ended				For the three months ended
	June 30,				June 30,				March 31,
(In thousands)	2020		2019		2020		2019		2021		2020
1-4 family first-lien residential mortgages	$	1,601	$	1,528	$	1,604	$	1,627	$	1,677	$	1,608
Commercial real estate		4,544		3,662		4,511		3,399		13,152		4,437
Commercial lines of credit		180		344		181		314		943		183
Other commercial and industrial		972		1,100		959		1,008		6,846		908
Home equity and junior liens		219		227		219		220		398		220
Other consumer		88		99		89		66		87		91
Total	$	7,604	$	6,960	$	7,563	$	6,634	$	23,103	$	7,447

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

	For the three months ended				For the six months ended				For the three months ended
	June 30,				June 30,				March 31,
(In thousands)	2020		2019		2020		2019		2021		2020
1-4 family first-lien residential mortgages	$	15	$	23	$	27	$	35	$	16	$	12
Commercial real estate		38		57		69		85		65		31
Commercial lines of credit		3		14		5		18		10		2
Other commercial and industrial		6		24		22		38		25		16
Home equity and junior liens		1		3		4		6		1		3
Other consumer		2		3		3		3		5		1
Total	$	65	$	124	$	130	$	185	$	122	$	65

Management extensively reviews recent trends in changes in the size and composition of the loan portfolio, historical ~~losses,~~loss experience, qualitative factors, and specific reserve needs on loans individually evaluated for impairment, in its determination of the adequacy of the allowance for loan losses. WeThe Company recorded ~~$1.1~~$1.0 million in provision for loan losses for the ~~three month~~three-month period ended ~~June 30, 2020,~~March 31, 2021, as compared to ~~$610,000~~$1.1 million for the ~~three month~~three-month period ended ~~June 30, 2019.~~March 31, 2020. The ~~$536,000 increase in the~~ provision for loan losses in the ~~second~~first quarter of 2021 and 2020, ~~as compared to the same quarter in 2019,~~ resulted from year-over-year increases in: (1) the qualitative factors used in determining the adequacy of the allowance for loan losses, (2) the size of the loan portfolio, and (3) delinquent and nonaccrual loans. The increase in the quantitative factors used in determining the provision for loan losses reflects the substantial increase in economic uncertainty and the resultant potential for increased credit losses in future periods as a consequence of the COVID-19 pandemic. Outstanding loan balances, excluding PPP loans, increased ~~$113.2~~$42.9 million, or ~~16.3%~~5.7%, in the quarter ended ~~June 30, 2020,~~March 31, 2021, as compared to the same quarter in the previous year, and therefore required a corresponding increase in the estimable and probable loan losses inherent in the loan portfolio. Finally, the provision for loan losses in the quarter ended ~~June 30, 2020~~March 31, 2021 was further increased ~~as compared to the same quarter in 2019,~~ by the effects of an increase in ~~the ratio of delinquent loans to total loans, which increased to 3.19% at June 30, 2020 as compared to 2.45% at June 30, 2019, coupled with an increase in~~ nonaccrual loans that increased ~~$4.6~~$16.6 million to ~~$8.4~~$21.3 million at ~~June 30, 2020~~March 31, 2021 as compared to ~~$3.8~~$4.7 million at ~~June 30, 2019.~~

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 three months ended June 30, 2020

1-4 family

first-lien

Residential

Other

Paycheck

residential

construction

Commercial

Commercial

commercial

Protection

(In thousands)

mortgage

mortgage

real estate

lines of credit

and industrial

Program

Allowance for loan losses:

Beginning Balance

$
731

$
-

$
4,243

$
1,218

$
1,758

$
-

Charge-offs

(99
)

-

-

(48
)

(9
)

-

Recoveries

-

-

-

-

-

-

Provisions

124

-

15

38

317

-

Ending balance

$
756

$
-

$
4,258

$
1,208

$
2,066

$
-

Ending balance: related to loans
   individually evaluated for impairment

$
153

$
-

$
64

$
98

$
563

$
-

Ending balance: related to loans
   collectively evaluated for impairment

$
603

$
-

$
4,194

$
1,110

$
1,503

$
-

Loans receivables:

Ending balance

$
212,741

$
3,678

$
260,824

$
53,509

$
83,167

$
73,774

Ending balance: individually
   evaluated for impairment

$
1,598

$
-

$
4,661

$
178

$
1,062

$
-

Ending balance: collectively
   evaluated for impairment

$
211,143

$
3,678

$
256,163

$
53,331

$
82,105

$
73,774

Home equity

Other

Tax exempt

and junior liens

Consumer

Unallocated

Total

Allowance for loan losses:

Beginning Balance

$
1

$
611

$
846

$
198

9,606

Charge-offs

-

-

(52
)

-

(208
)

Recoveries

-

-

9

-

9

Provisions

-

33

252

367

1,146

Ending balance

$
1

$
644

$
1,055

$
565

$
10,553

Ending balance: related to loans
   individually evaluated for impairment

$
-

$
142

$
-

$
-

$
1,020

Ending balance: related to loans
   collectively evaluated for impairment

$
1

$
502

$
1,055

$
565

$
9,533

Loans receivables:

Ending balance

$
7,644

$
42,587

$
69,915

$
-

$
807,839

Ending balance: individually
   evaluated for impairment

$
-

$
219

$
85

$
-

$
7,803

Ending balance: collectively
   evaluated for impairment

$
7,644

$
42,368

$
69,830

$
-

$
800,036

	For the six months ended June 30, 2020																	For the three months ended March 31, 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		$	-		$	4,010		$	1,195		$	1,645		$	-	$	931	$	-	$	4,776		$	1,670		$	2,992		$	-
Charge-offs		(125	)		-			-			(48	)		(9	)		-		-		-		(100	)		-			-			-
Recoveries		1			-			-			2			-			-		-		-		-			1			-			-
Provisions		300			-			248			59			430			-		44		-		1,045			245			24			-
Ending balance	$	756		$	-		$	4,258		$	1,208		$	2,066		$	-	$	975	$	-	$	5,721		$	1,916		$	3,016		$	-
Ending balance: related to loans individually evaluated for impairment																		$	161	$	-	$	252		$	960		$	1,285		$	-
Ending balance: related to loans collectively evaluated for impairment																		$	814	$	-	$	5,469		$	956		$	1,731		$	-
Loans receivables:
Ending balance																		$	226,058	$	7,789	$	289,182		$	63,158		$	77,915		$	71,885
Ending balance: individually evaluated for impairment																		$	1,507	$	-	$	13,521		$	960		$	6,714		$	-
Ending balance: collectively evaluated for impairment																		$	224,551	$	7,789	$	275,661		$	62,198		$	71,201		$	71,885

				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		-			(28	)		(185	)		-			(395	)				-		-		(43	)		-			(143	)
Recoveries		-			29			34			-			66					-		-		30			-			31
Provisions		-			90			793			293			2,213					-		88		127			(545	)		1,028
Ending balance	$	1		$	644		$	1,055		$	565		$	10,553				$	1	$	827	$	1,237		$	-		$	13,693
Ending balance: related to loans individually evaluated for impairment																		$	-	$	221	$	-		$	-		$	2,879
Ending balance: related to loans collectively evaluated for impairment																		$	1	$	606	$	1,237		$	-		$	10,814
Loans receivables:
Ending balance																		$	6,959	$	36,181	$	87,976		$	437		$	867,540
Ending balance: individually evaluated for impairment																		$	-	$	578	$	92		$	-		$	23,372
Ending balance: collectively evaluated for impairment																		$	6,959	$	35,603	$	87,884		$	437		$	844,168

For the three months ended June 30, 2019

1-4 family

first-lien

Residential

Other

residential

construction

Commercial

Commercial

commercial

(In thousands)

mortgage

mortgage

real estate

lines of credit

and industrial

Allowance for loan losses:

Beginning Balance

$
722

$
-

$
3,370

$
802

$
1,560

   Charge-offs

(11
)

-

-

(24
)

(1
)
   Recoveries

1

-

-

-

-

   Provisions

12

-

82

367

143

Ending balance

$
724

$
-

$
3,452

$
1,145

$
1,702

Ending balance: related to loans
   individually evaluated for impairment

$
104

$
-

$
108

$
204

$
287

Ending balance: related to loans
   collectively evaluated for impairment

$
620

$
-

$
3,344

$
941

$
1,415

Loans receivables:

Ending balance

$
239,422

$
3,966

$
225,794

$
56,569

$
79,590

Ending balance: individually
   evaluated for impairment

$
1,633

$
-

$
4,461

$
370

$
1,146

Ending balance: collectively
   evaluated for impairment

$
237,789

$
3,966

$
221,333

$
56,199

$
78,444

Home equity

Other

Tax exempt

and junior liens

Consumer

Unallocated

Total

Allowance for loan losses:

Beginning Balance

$
1

$
430

$
399

$
-

$
7,284

   Charge-offs

-

-

(40
)

-

(76
)
   Recoveries

-

-

6

-

7

   Provisions (credits)

-

(44
)

50

-

610

Ending balance

$
1

$
386

$
415

$
-

$
7,825

Ending balance: related to loans
   individually evaluated for impairment

$
-

$
136

$
6

$
-

$
845

Ending balance: related to loans
   collectively evaluated for impairment

$
1

$
250

$
409

$
-

$
6,980

Loans receivables:

Ending balance

$
8,803

$
26,214

$
52,508

$
-

$
692,866

Ending balance: individually
   evaluated for impairment

$
-

$
247

$
97

$
-

$
7,954

Ending balance: collectively
   evaluated for impairment

$
8,803

$
25,967

$
52,411

$
-

$
684,912

	For the six months ended June 30, 2019															For the three months ended March 31, 2020
	1-4 family															1-4 family
	first-lien			Residential									Other			first-lien			Residential									Other
	residential			construction			Commercial			Commercial			commercial			residential			construction			Commercial			Commercial			commercial
(In thousands)	mortgage			mortgage			real estate			lines of credit			and industrial			mortgage			mortgage			real estate			lines of credit			and industrial
Allowance for loan losses:
Beginning Balance	$	766		$	-		$	3,578		$	730		$	1,285		$	580		$	-		$	4,010		$	1,195		$	1,645
Charge-offs		(11	)		-			-			(131	)		(2	)		(26	)		-			-			-			-
Recoveries		1			-			-			-			-			1			-			-			2			-
Provisions (credits)		(32	)		-			(126	)		546			419			176			-			233			21			113
Ending balance	$	724		$	-		$	3,452		$	1,145		$	1,702		$	731		$	-		$	4,243		$	1,218		$	1,758
Ending balance: related to loans individually evaluated for impairment																$	95		$	-		$	76		$	98		$	379
Ending balance: related to loans collectively evaluated for impairment																$	636		$	-		$	4,167		$	1,120		$	1,379
Loans receivables:
Ending balance																$	212,149		$	2,338		$	261,929		$	59,354		$	84,774
Ending balance: individually evaluated for impairment																$	1,604		$	-		$	4,427		$	181		$	881
Ending balance: collectively evaluated for impairment																$	210,545		$	2,338		$	257,502		$	59,173		$	83,893


				Home equity			Other												Home equity			Other
	Tax exempt			and junior liens			consumer			Unallocated			Total			Tax exempt			and junior liens			Consumer			Unallocated			Total
Allowance for loan losses:
Beginning Balance	$	1		$	409		$	385		$	152		$	7,306		$	1		$	553		$	413		$	272		$	8,669
Charge-offs		-			-			(107	)		-			(251	)		-			(28	)		(133	)		-			(187	)
Recoveries		-			-			15			-			16			-			29			25			-			57
Provisions (credits)		-			(23	)		122			(152	)		754
Provisions																	-			57			541			(74	)		1,067
Ending balance	$	1		$	386		$	415		$	-		$	7,825		$	1		$	611		$	846		$	198		$	9,606
Ending balance: related to loans individually evaluated for impairment																$	-		$	128		$	1		$	-		$	777
Ending balance: related to loans collectively evaluated for impairment																$	1		$	483		$	845		$	198		$	8,829
Loans receivables:
Ending balance																$	7,937		$	44,732		$	76,839		$	150		$	750,202
Ending balance: individually evaluated for impairment																$	-		$	219		$	90		$	-		$	7,402
Ending balance: collectively evaluated for impairment																$	7,937		$	44,513		$	76,749		$	150		$	742,800

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.

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

	June 30, 2020										March 31, 2021
	1-4 family										1-4 family
	first-lien		Residential						Other		first-lien		Residential						Other
	residential		construction		Commercial		Commercial		commercial		residential		construction		Commercial		Commercial		commercial
(In thousands)	mortgage		mortgage		real estate		lines of credit		and industrial		mortgage		mortgage		real estate		lines of credit		and industrial
Specifically reserved	$	153	$	-	$	64	$	98	$	563	$	161	$	-	$	252	$	960	$	1,285
Historical loss rate		71		-		99		152		61		84		-		1		89		61
Qualitative factors		532		-		4,095		958		1,442		730		-		5,468		867		1,670
Total	$	756	$	-	$	4,258	$	1,208	$	2,066	$	975	$	-	$	5,721	$	1,916	$	3,016

			Home equity		Other								Home equity		Other
	Tax exempt		and junior liens		consumer		Unallocated		Total		Tax exempt		and junior liens		consumer		Unallocated		Total
Specifically reserved	$	-	$	142	$	-	$	-	$	1,020	$	-	$	221	$	-	$	-	$	2,879
Historical loss rate		-		211		805		-		1,399		-		325		957		-		1,517
Qualitative factors		1		291		250		-		7,569		1		281		280		-		9,297
Other		-		-		-		565		565
Total	$	1	$	644	$	1,055	$	565	$	10,553	$	1	$	827	$	1,237	$	-	$	13,693

	June 30, 2019										March 31, 2020
	1-4 family										1-4 family
	first-lien		Residential						Other		first-lien		Residential						Other
	residential		construction		Commercial		Commercial		commercial		residential		construction		Commercial		Commercial		commercial
(In thousands)	mortgage		mortgage		real estate		lines of credit		and industrial		mortgage		mortgage		real estate		lines of credit		and industrial
Specifically reserved	$	104	$	-	$	108	$	204	$	287	$	95	$	-	$	76	$	98	$	379
Historical loss rate		64		-		89		35		28		66		-		101		100		57
Qualitative factors		556		-		3,255		906		1,387		570		-		4,066		1,020		1,322
Total	$	724	$	-	$	3,452	$	1,145	$	1,702	$	731	$	-	$	4,243	$	1,218	$	1,758

			Home equity		Other								Home equity		Other
	Tax exempt		and junior liens		consumer		Unallocated		Total		Tax exempt		and junior liens		consumer		Unallocated		Total
Specifically reserved	$	-	$	136	$	6	$	-	$	845	$	-	$	128	$	1	$	-	$	777
Historical loss rate		-		1		144		-		361		-		146		584		-		1,054
Qualitative factors		1		249		265		-		6,619		1		337		261		-		7,577
Other												-		-		-		198		198
Total	$	1	$	386	$	415	$	-	$	7,825	$	1	$	611	$	846	$	198	$	9,606

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

~~At June 30, 2020~~ The Company had no foreclosed residential real estate at March 31, 2021 and December 31, ~~2019,~~2020. At March 31, 2021 and December 31, 2020, the Company reported ~~$685,000~~$612,000 and ~~$341,000,~~$182,000, respectively, in residential real estate loans in the process of foreclosure.

The Company does not issue any guarantees that would require liability recognition or disclosure, other than its standby letters of credit. Generally, all letters of credit, when issued have expiration dates within one year. The credit risks involved in issuing letters of credit is essentially the same as those that are involved in extending loan facilities to customers. The Company generally holds collateral and/or personal guarantees supporting these commitments. The Company had ~~$2.3~~$2.4 million of standby letters of credit as of ~~June 30, 2020.~~March 31, 2021. Management believes that the proceeds obtained through a liquidation of collateral and the enforcement of guarantees would be sufficient to cover the potential

amount of future payments required under the corresponding guarantees. The fair value of standby letters of credit was not significant to the Company’s consolidated financial statements.

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

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

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

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

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

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

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

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

The Company holds one corporate investment security, categorized based on its net asset value (NAV), with an aggregate amortized historical cost of $2.6 million and an aggregate fair market value of ~~$2.7~~$2.8 million as of ~~June 30, 2020.~~March 31, 2021. This security has ~~a valuation~~valuations that isare determined using published net asset values (NAV) derived by ~~an analysis~~analyses of the security’s underlying assets. This security is comprised primarily of broadly-diversified real estate and adjustable-rate senior secured business loans and are traded in secondary markets on an infrequent basis. While ~~these securities are~~this security is redeemable at least annually through tender offers made by ~~their~~its respective ~~issuers,~~issuer, the liquidation value of the ~~securities~~security may be below ~~their~~its stated NAVs and also subject to restrictions as to the amount of securities that can be redeemed at any single scheduled redemption. The Company anticipates that ~~these~~

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

The Company holds two equity security investments, with an aggregate value of $1.6 million at June 30, 2020, valued utilizing readily available market pricing (Level 1) observed from active trading on major national stock exchanges.this investment.

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

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

Foreclosed real estate: Fair values for foreclosed real estate are initially recorded based on market value evaluations by third parties, less costs to sell (“initial cost basis”). Any write-downs required when the related loan receivable is exchanged for the underlying real estate collateral at the time of transfer to foreclosed real estate are charged to the allowance for loan losses. Values are derived from appraisals, similar to impaired loans, of underlying collateral or discounted cash flow analysis. Subsequent to foreclosure, valuations are updated periodically and assets are marked to current fair value, not to exceed the initial cost basis. In the determination of fair value subsequent to foreclosure, management also considers other factors or recent developments, such as, changes in absorption rates and market conditions from the time of valuation and anticipated sales values considering management’s plans for disposition. Either change could result in adjustment to lower the property value estimates indicated in the appraisals. These measurements are classified as Level 3 within the fair value hierarchy.

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

	December 31, 2019										March 31, 2021
								Total Fair										Total Fair
(In thousands)	Level 1		Level 2			Level 3		Value			Level 1		Level 2			Level 3		Value
Available-for-Sale Portfolio
Debt investment securities:
US Treasury, agencies and GSEs											$	-	$	23,402		$	-	$	23,402
State and political subdivisions		-		1,736			-		1,736			-		23,188			-		23,188
Corporate		-		7,631			-		7,631			-		10,415			-		10,415
Asset backed securities		-		13,232			-		13,232			-		13,196			-		13,196
Residential mortgage-backed - US agency		-		18,980			-		18,980			-		24,962			-		24,962
Collateralized mortgage obligations - US agency		-		30,785			-		30,785			-		29,981			-		29,981
Collateralized mortgage obligations - Private label		-		16,821			-		16,821			-		30,926			-		30,926
Total		-		106,005			-		106,005					156,070					156,070
Corporate measured at NAV		-		-			-		4,923			-		-			-		2,804
Total available-for-sale securities	$	-	$	106,005		$	-	$	110,928		$	-	$	156,070		$	-	$	158,874

Marketable equity securities	$	-	$	534		$	-	$	534		$	2,084	$	-		$	-	$	2,084

Interest rate swap derivative fair value hedge	$	-	$	(92	)	$	-	$	(92	)
Interest rate swap derivative fair value hedges											$	-	$	1,318		$	-	$	1,318

Interest rate swap derivative cash flow hedges											$	-	$	(1,074	)	$	-	$	(1,074	)

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

			June 30, 2020								March 31, 2021
							Total Fair								Total Fair
(In thousands)	Level 1		Level 2		Level 3		Value		Level 1		Level 2		Level 3		Value
Impaired loans	$	-	$	-	$	589	$	589	$	-	$	-	$	1,698	$	1,698
Foreclosed real estate	$	-	$	-	$	26	$	26

			December 31, 2019								December 31, 2020
							Total Fair								Total Fair
(In thousands)	Level 1		Level 2		Level 3		Value		Level 1		Level 2		Level 3		Value
Impaired loans	$	-	$	-	$	3,105	$	3,105	$	-	$	-	$	14,701	$	14,701

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.

The Company’s two equity security investments, with fair values determined using Level 1 inputs at June 30, 2020 were restructured and consequently listed on major national stock exchanges in the second quarter

There have been no transfers of ~~2020. The~~assets into or out of any fair value ~~of one of~~measurement level during the ~~investments was $918,000 at June 30, 2020 and its fair values, determined using NAV methodologies, at~~three months ended March 31, 2020 and December 31, 2019 were $2.1 million and $2.1 million, respectively. The fair value of the other investment was $645,000 at June 30, 2020 and its fair values, determined using Level 2 inputs, at March 31, 2020 and December 31, 2019 were $340,000 and $534,000, respectively.2021.

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

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

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

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

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

The following information should not be interpreted as an estimate of the fair value of the entire Company since a fair value calculation is only provided for a limited portion of the Company’s assets and liabilities. Due to a wide range of valuation techniques and the degree of subjectivity used in making the estimates, comparisons between the Company’s disclosures and those of other companies may not be meaningful. The Company, in estimating its fair value disclosures for financial instruments, used the following methods and assumptions:

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

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

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

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

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

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

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

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

		June 30, 2020				December 31, 2019					March 31, 2021				December 31, 2020
	Fair Value	Carrying		Estimated		Carrying		Estimated		Fair Value	Carrying		Estimated		Carrying		Estimated
(In thousands)	Hierarchy	Amounts		Fair Values		Amounts		Fair Values		Hierarchy	Amounts		Fair Values		Amounts		Fair Values
Financial assets:
Cash and cash equivalents	1	$	45,123	$	45,123	$	20,160	$	20,160	1	$	51,968	$	51,968	$	43,464	$	43,464
Investment securities - available-for-sale	2		113,231		113,231		106,005		106,005	2		156,070		156,070		125,330		125,330
Investment securities - available-for-sale	NAV		2,694		2,694		4,923		4,923	NAV		2,804		2,804		2,725		2,725
Investment securities - marketable equity	1		1,564		1,564		-		-	1		2,084		2,084		1,850		1,850
Investment securities - marketable equity	2		-		-		534		534	2		-		-		-		-
Investment securities - held-to-maturity	2		141,298		143,140		122,988		124,148	2		165,613		168,666		171,224		174,935
Federal Home Loan Bank stock	2		4,091		4,091		4,834		4,834	2		4,591		4,591		4,390		4,390
Net loans	3		795,456		798,815		772,782		767,654	3		851,614		856,436		812,718		816,626
Accrued interest receivable	1		4,973		4,973		3,712		3,712	1		4,718		4,718		4,549		4,549
Interest rate swap derivative fair value hedges										2		1,323		1,287		191		191

Financial liabilities:
Demand Deposits, Savings, NOW and MMDA	1	$	560,273	$	560,273	$	460,293	$	460,293	1	$	676,330	$	676,330	$	598,683	$	598,683
Time Deposits	2		410,320		413,167		421,600		422,409	2		392,578		392,895		397,224		398,863
Borrowings	2		75,397		78,088		93,125		93,643	2		86,500		87,740		82,050		84,065
Subordinated loans	2		15,145		14,379		15,128		14,921	2		39,443		39,437		39,400		39,416
Accrued interest payable	1		276		276		396		396	1		192		192		193		193
Interest rate swap derivative fair value hedge	2		149		149		92		92
Interest rate swap derivative fair value hedges										2		5		5		55		55
Interest rate swap derivative cash flow hedges	2		1,528		1,528		-		-	2		1,074		1,074		1,308		1,308

The Company is exposed to certain risks from both its business operations and changes in economic conditions. As part of managing interest rate risk, the Company enters into standardized interest rate derivative contracts (designated as hedging agreements) to modify the repricing characteristics of certain portions of the Company’s portfolios of earning assets and interest-bearing liabilities. The Company designates interest rate hedging agreements utilized in the management of interest rate risk as either fair value hedges or cash flow hedges. Interest rate hedging agreements are generally entered into with counterparties that meet established credit standards and the agreements contain master netting, collateral and/or settlement provisions protecting the at-risk party. Based on adherence to the Company’s credit standards and the presence of the netting, collateral or settlement provisions, the Company believes that the credit risk

inherent in these contracts was not material at ~~June 30, 2020.~~March 31, 2021. Interest rate hedging agreements are recorded at fair value as other assets or liabilities. The Company had no derivative contracts not designated as hedging agreements at ~~June 30, 2020~~March 31, 2021 or December 31, ~~2019.~~2020.

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

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

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

The Company entered into a pay-fixed/receive variable interest rate swap with a notional amount of $9.2 million in April ~~2019, which~~2019. The swap agreement was designated as a fair value hedge ~~associated with~~and was linked to a specific ~~pools~~pool of loans within the Company’s fixed-rate consumer loan portfolio. ~~The~~Under the swap ~~contract will be in force from April 2019 to April 2021 and~~agreement, the Company ~~will be required to pay~~paid a fixed-rate of 2.39% per annum to the swap counterparty, while receiving 3-month LIBOR indexed payments from the same counterparty, with both payments calculated on the notional amount. The swap agreement expired in April 2021 and management does not intend to renew the arrangement.

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

(In thousands)

Carrying Amount of the Hedged Assets at

June 30, 2020

Cumulative Amount of Fair Value Hedging Adjustment Included in The Carrying Amount of the Hedged Assets at June 30, 2020

Carrying Amount of the Hedged Assets at

December 31, 2019

Cumulative Amount of Fair Value Hedging Adjustment Included in The Carrying Amount of the Hedged Assets at December 31, 2019

Carrying Amount of the Hedged Assets at

March 31, 2021

Cumulative Amount of Fair Value Hedging Adjustment Included in The Carrying Amount of the Hedged Assets at March 31, 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⁾

16,428

149

19,254

11,345

12,944

At ~~June 30, 2020~~March 31, 2021 and December 31, ~~2019,~~2020, the fair value of the fair value derivative resulted in a net liability position of ~~$157,000~~$5,000 and ~~$92,000~~$55,000 under the agreement, respectively, recorded by the Company in other liabilities. The Company’s participation in the swap contract ~~reduced total loan~~had an immaterial effect on recorded interest income ~~recognized in consolidated earnings, by $72,000 and $88,000~~ for the three ~~and six~~ months ended ~~June 30, 2020, respectively.~~March 31, 2021.

In February 2020, the Company entered into an interest rate cap contract in the notional amount of $40.0 million, intended to reduce the Company’s exposure to potential rising interest rates. This contractual agreement has been designated as a cash flow hedge with changes in the fair value of the contract, net of changes in the fair value of the designated hedged liability (certain short-term certificates of deposit with rates of interest that are highly correlated to the 3-month LIBOR index) being accounted for through other comprehensive income. The term of the cap contract commenced on May 1, 2020 and expire on May 1, 2023. The Company paid $228,000 in a one-time premium for the cap contract and has no further contractual obligations to the counterparty over the three-year life of the contract. The premium will be amortized ratably over the contractual term of the cap contract with an annual average cost to the Company of approximately 19 basis points relative to the notional amount. The Company will potentially benefit during the term of this cap contract, in the manner described above, for the period of time that the 3-month LIBOR index exceeds 1.85% (the strike price). The cap contract had no effect on recorded interest expense in the ~~three or six months~~quarter ended ~~June 30, 2020.~~March 31, 2021.

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

cash flow hedge with changes in the fair value of the contract, net of changes in the fair value of the designated hedged liability (certain short-term certificates of deposit with rates of interest that are highly correlated to the 3-month LIBOR index) being accounted for through other comprehensive income. The term of the swap contract ~~commenced~~will commence on May 15, 2020 and expire on May 15, 2023. Under the terms of the swap contract, the Company will be obligated to pay the contractual counterparty an annual rate of 1.39% (the strike price) times the notional amount of the contract. Simultaneously, for the duration of the swap contract, the counterparty will be obligated to pay the Company the annual rate of the 3-month LIBOR index, as determined each calendar quarter, times the notional contractual amount. The swap contract had no effect on recorded interest expense in the ~~three or six months~~quarter ended ~~June 30, 2020.~~March 31, 2021.

(In thousands)		June 30, 2020			December 31, 2019			March 31, 2021			December 31, 2020
Cash flow hedges:	Cash flow hedges:						Cash flow hedges:
Total unamortized premium	Total unamortized premium	$	224		$	-	Total unamortized premium	$	192		$	204
Fair market value adjustment interest rate cap	Fair market value adjustment interest rate cap		(199	)		-	Fair market value adjustment interest rate cap		(169	)		(197	)
Total unamortized cap	Total unamortized cap		25			-	Total unamortized cap		23			7
Fair market value adjustment interest rate swap	Fair market value adjustment interest rate swap		(1,329	)		-	Fair market value adjustment interest rate swap		(905	)		(1,111	)
Total loss in comprehensive income	Total loss in comprehensive income	$	(1,528	)	$	-	Total loss in comprehensive income	$	(1,074	)	$	(1,308	)

The amounts of hedge ineffectiveness, recognized during the quarter ended ~~June 30, 2020,~~March 31, 2021, for cash flow hedges were not material to the Company’s consolidated results of operations.~~The Company had no hedged positions at June 30, 2019.~~ Some or the entire amount included in accumulated other comprehensive loss would be reclassified into current earnings should a portion of, or the entire hedge no longer be considered effective, but at this time, management expects the hedge to remain fully effective during the remaining term of the swap. The changes in the fair values of the interest rate hedging agreements and the hedged items primarily result from the effects of changing interest rates and spreads.

From time to time, the Company purchases high credit-quality securities with long maturity dates. In order to reduce the Company's exposure to potential declines in the fair value of such securities, particularly in a rising interest rate environment, the Company has elected to enter into fixed-pay, receive floating rate interest rate swap contracts, designated as fair value hedges. The maturity dates of the swaps are matched exactly to the first call date of the seven hedged securities. During 2020, the Company entered into five swap contracts of this type with a total notional amount of $16.3 million. The objective of the hedges is to protect the hedged securities of the Bank against changes in fair value due

to changes in the benchmark interest rate. Changes in the fair value of the interest rate swap are expected to be “perfectly effective” in offsetting changes in the fair value of the hedged item attributable to changes in the LIBOR swap rate, the designated benchmark interest rate. The following table details the changes in the fair value of the hedged securities and the corresponding fair value hedges at March 31, 2021:

At March 31, 2021, the fair value of the derivative resulted in a net asset position of $1.3 million under the agreement, respectively, 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 under the agreement, respectively, recorded by the Company in other assets. The fair value hedge had an immaterial effect on recorded interest income for the three months ended March 31, 2021.

The Company entered into a pay-fixed/receive variable interest rate swap with a notional amount of $12.2 million in February 2021, which was designated as a fair value hedge, associated with specific pools within the Company’s fixed-rate consumer loan portfolio. As of March 31, 2021 and December 31, 2020, the following amounts were recorded on the balance sheet related to the cumulative basis adjustments for this fair value hedge:

(1) These amounts include the amortized cost basis of the closed portfolio used to designate the hedging relationship in which the hedged item is the remaining amortized cost of the last layer expected to be remaining at the end of the hedging relationship. At March 31, 2021, the amortized cost of the basis of the closed portfolio used in the hedging relationship was $23.4 million, the cumulative basis adjustment associated with the hedging relationship was $36,000, and the amount of the designated hedged item was $12.2 million. The Company did not have this derivative agreement in place at December 31, 2020.

At March 31, 2021, the fair value of the derivative resulted in a net asset position of $36,000 under the agreement, recorded by the Company in other assets. The Company’s participation in the swap contract had an immaterial effect on recorded interest income for the three months ended March 31, 2021.

The Company manages its potential credit exposure on interest rate swap transactions by entering into a bilateral credit support agreements with each counterparty. These agreements require collateralization of credit exposures beyond

specified minimum threshold amounts. The Company posted cash in escrow of $1.6 million under collateral arrangements

to satisfy collateral requirements associated with the interest rate swap ~~contract at June 30, 2020.~~contract.

	For the three months ended					For the six months ended					For the three months ended
(In thousands)	June 30, 2020			June 30, 2019		June 30, 2020			June 30, 2019		March 31, 2021			March 31, 2020
Balance as of December 31:	$	-		$	-	$	-		$	-	$	(1,308	)	$	-
Amount of losses recognized in other comprehensive income		(184	)		-		(1,528	)		-
Amount of gains (losses) recognized in other comprehensive income												234			(1,344	)
Losses in other comprehensive income:	$	(184	)	$	-	$	(1,528	)	$	-	$	(1,074	)	$	(1,344	)

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

	For the three months ended June 30, 2020															For the three months ended March 31, 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			Retirement Plans			Unrealized Gains and Losses on Available-for- Sale Securities		Unrealized Losses on Derivatives and Hedging Activities			Unrealized Loss on Securities Transferred to Held-to-Maturity			Total
Beginning balance	$	(2,859	)	$	(3,121	)	$	(1,062	)	$	(35	)	$	(7,077	)	$	(2,093	)	$	837	$	(966	)	$	(14	)	$	(2,236	)
Other comprehensive income before reclassifications		-			3,470			(145	)		8			3,333			-			271		173			5			449
Amounts reclassified from AOCI		47			(690	)		-			-			(643	)		19			-		-			-			19
Ending balance	$	(2,812	)	$	(341	)	$	(1,207	)	$	(27	)	$	(4,387	)	$	(2,074	)	$	1,108	$	(793	)	$	(9	)	$	(1,768	)

	For the six months ended June 30, 2020															For the three months ended March 31, 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			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	)	$	-		$	(38	)	$	(2,971	)	$	(2,717	)	$	(216	)	$	-		$	(38	)	$	(2,971	)
Reevaluation of deferred tax asset valuation allowance ⁽¹⁾		(188	)		(15	)		-			(3	)		(206	)		(188	)		(15	)		-			(3	)		(206	)
Other comprehensive income before reclassifications		-			600			(1,207	)		14			(593	)		-			(2,869	)		(1,062	)		6			(3,925	)
Amounts reclassified from AOCI		93			(710	)		-			-			(617	)		46			(21	)		-			-			25
Ending balance	$	(2,812	)	$	(341	)	$	(1,207	)	$	(27	)	$	(4,387	)	$	(2,859	)	$	(3,121	)	$	(1,062	)	$	(35	)	$	(7,077	)

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

	Amount Reclassified							Amount Reclassified							Amount Reclassified
	from AOCI ⁽¹⁾							from AOCI ⁽¹⁾							from AOCI ⁽¹⁾
	(Unaudited)							(Unaudited)							(Unaudited)
(In thousands)	For the three months ended							For the six months ended							For the three months ended
Details about AOCI ⁽¹⁾ components	June 30, 2020			June 30, 2019			Affected Line Item in the Statement of Income	June 30, 2020			June 30, 2019				March 31, 2021			March 31, 2020			Affected Line Item in the Statement of Income
Retirement plan items
Retirement plan net losses recognized in plan expenses ⁽²⁾	$	(59	)	$	(84	)	Salaries and employee benefits	$	(117	)	$	(168	)		$	(26	)	$	(58	)	Salaries and employee benefits
Tax effect		12			18		Provision for income taxes		24			37				7			12		Provision for income taxes
	$	(47	)	$	(66	)	Net Income	$	(93	)	$	(131	)		$	(19	)	$	(46	)	Net Income

Available-for-sale securities
Realized gain on sale of securities	$	873		$	32		Net gains on sales and redemptions of investment securities	$	899		$	111			$	-		$	26		Net gains on sales and redemptions of investment securities
Tax effect		(183	)		(7	)	Provision for income taxes		(189	)		(23	)			-			(5	)	Provision for income taxes
	$	690		$	25		Net Income	$	710		$	88		��	$	-		$	21		Net Income

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

	For the three months					For the six months					For the three months
	ended June 30,					ended June 30,					ended March 31,
(In thousands)	2020			2019		2020			2019		2021		2020
Service fees
Insufficient funds fees	$	148		$	272	$	423		$	480	$	190	$	275
Deposit related fees		117			53		172			105		97		55
ATM fees		38			23		64			45		44		26
Total service fees		303			348		659			630		331		356
Fee Income
Insurance commissions		184			216		519			451		279		335
Investment services revenue		81			97		149			145		83		68
ATM fees surcharge		56			59		109			105		51		54
Banking house rents collected		71			33		142			68		63		71
Total fee income		392			405		919			769		476		528
Card income
Debit card interchange fees		205			187		368			331		221		163
Merchant card fees		15			22		31			38		15		16
Total card income		220			209		399			369		236		179
Mortgage fee income and realized gain on sale of loans and foreclosed real estate
Loan servicing fees		79			60		128			87		90		49
Net gain on sales of loans and foreclosed real estate		97			13		769			5
Net gains on sales of loans and foreclosed real estate												120		672
Total mortgage fee income and realized gain on sale of loans and foreclosed real estate		176			73		897			92		210		721
Total		1,091			1,035		2,874			1,860		1,253		1,784
Earnings and gain on bank owned life insurance		106			101		222			222		125		116
Net gains on sales and redemptions of investment securities		1,023			32		1,049			111		-		26
(Losses)/gains on marketable equity securities		(722	)		16		(916	)		57
Gains/(losses) on marketable equity securities												234		(194	)
Other miscellaneous income		33			35		50			62		233		16
Total noninterest income	$	1,531		$	1,219	$	3,279		$	2,312	$	1,845	$	1,748

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

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

	For the three months ended				For the six months ended				For the three months ended
(In thousands)	June 30, 2020		June 30, 2019		June 30, 2020		June 30, 2019		March 31, 2021		March 31, 2020
Operating lease cost	$	60	$	60	$	121	$	119	$	57	$	61
Finance lease cost		20		12		40		12		20		20

		For the three months ended				For the six months ended					For the three months ended
(In thousands)		June 30, 2020		June 30, 2019		June 30, 2020		June 30, 2019			March 31, 2021		March 31, 2020
Cash paid for amount included in the measurement of lease liabilities:	Cash paid for amount included in the measurement of lease liabilities:									Cash paid for amount included in the measurement of lease liabilities:
Operating cash flows from operating leases		$	55	$	56	$	111	$	104		$	52	$	56
Operating cash flows from finance leases			20		12		40		12			20		20
Financing cash flows from finance leases			17		11		35		11			18		18

Twelve Months Ending June 30,
Twelve Months Ending March 31,
(In thousands)
2021	$	110
2022		95	$	97
2023		105		102
2024		114		111
2025		122		120
2026				128
Thereafter		2,624		2,527
Total minimum lease payments	$	3,170	$	3,085

The Company owns certain properties that it leases to unaffiliated third parties at market rates. Lease rental income was ~~$71,000~~$63,000 and ~~$34,000~~$71,000 for the three months ended ~~June 30,~~March 31, 2021 and 2020, ~~and 2019, respectively. Lease rental income was $142,000 and $68,000 for the six months ended June 30, 2020 and 2019,~~ respectively. All lease agreements ~~in which the Company is the lessor,~~ are accounted for as operating leases.

In early January 2020, the World Health Organization issued an alert that a novel coronavirus outbreak was emanating from Wuhan, Hubei Province in China. Over the course of the next several weeks, the outbreak continued to spread to various regions of the world, prompting the World Health Organization to declare 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 restrictions on international and domestic travel, limitations on public gatherings, implementation of social distancing and sanitization protocols, school closings, orders to shelter in place and mandates to close all non-essential businesses to the public. To widely varying degrees, largely dependent upon the level of ~~local~~regional and ~~regional~~national outbreaks and the resultant levels of strain on ~~locally-available~~available medical resources, these very substantial mandated curtailments of social and economic activity ~~have~~had been relaxed ~~globally and~~ in the United ~~States.~~States during the first quarter of 2021. This relaxation of the curtailments followed a pattern of very gradual relaxation of those curtailments in the later part of 2020. However, there isare still virtually no ~~locality~~localities within the United States that ~~has~~have completely returned to substantively normal business and social activities at the time of this ~~filing~~filing. This discussion would apply directly to the curtailments that have occurred and continue to occur, to lessening degrees, within the ~~spread rate of the coronavirus remains extremely high in many regions of the country.~~ Company’s primary service areas.

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

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

On December 27, 2020, following passage by the United States Congress, President Donald Trump signed into law the Consolidated Appropriations Act, 2021 which included the Coronavirus Response and Relief Supplemental Appropriations Act (“CRRSAA”). The intent of this legislation was to provide another round of Economic Impact Payments to eligible individuals and families, renew the PPP to support small businesses and their employees, ensure needed access to unemployment benefits for Americans who have 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 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.

On March 11, 2021, President Joseph 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 includes 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, as well as extend and expand 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.

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 March 31, 2021, the Bank had active deferrals on a total of 17 loans with aggregated outstanding balances of $8.4 million. Of that total, eight deferred loans were either residential mortgage loans or consumer loans. These two categories of deferred loans had outstanding loan principal balances totaling $793,000 at March 31, 2021. Of the eight residential mortgage loans or consumer loans in deferral status at March 31, 2021, one loan, representing $107,000 is also in nonaccrual status at that date and has been included in the nonaccrual loan totals. Due to the substantially smaller outstanding balances of individual loans within these categories and the presence of significant collateralization in the case of residential mortgage loans, management does not consider the loans in these categories to be at increased risk of impairment as a result of their deferral status.

Of the nine remaining loans granted ~~payment~~ deferral ~~requests primarily for 90 days, on 556~~status at March 31, 2021, $7.6 million were commercial real estate or commercial & industrial loans (collectively, “commercial” loans). Of the nine commercial loans in deferral status at March 31, 2021, six loans, representing ~~approximately $145.6~~$6.2 million are also in nonaccrual status at that date. Of this $6.2 million in deferred commercial loans, $500,000 have deferral periods that have been extended beyond a cumulative total of ~~existing loan balances.~~

Borrowers that were delinquent in their payments to the Bank, prior to requesting a COVID-19 related financial hardship payment deferral were reviewed on a case by case basis for troubled debt restructure classification and non-performing

loan status. In the instances where the Company granted a payment deferral to a delinquent borrower because of COVID-19, the borrower’s delinquency status was frozen as of February 29, 2020, and their loans will continue to be reported as delinquent during the deferment period based on their delinquency status as of that date. The Company anticipates that the number and amount of COVID-19 financial hardship payment deferral requests will continue to remain elevated in the second half of 2020 and, possibly, significantly longer. The long-term collectability of

deferred loan payments will depend on many factors, including the future progression of the pandemic, potential medical breakthroughs in therapeutic treatments and/or vaccines, the pace of vaccine distributions, further economic stimulus from government authorities, the rate at which governmental restrictions on business activities are relaxed and the adequacy and sustainability of other sources of repayment such as loan collateral. Consistent with industry regulatory guidance, borrowers that were granted COVID-19 related deferrals but were otherwise current on loan payments will continue to have their loans reported as current loans during the agreed upon deferral ~~period,~~period(s), accrue interest and not be accounted for as troubled debt restructurings.

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

Loans to a single borrower, or to a related group of borrowers, are referred to as ~~total~~ related credits. Total related credits encompass all related or affiliated borrower loan balances, including available unused lines of credit, for both personal and business loans. At ~~June 30, 2020,~~March 31, 2021, the Company had 2629 total related credit relationships, comprised of ~~210~~294 individual loans, with outstanding balances in excess of $5.0 million. These total related credits ranged from $5.0 million to ~~$13.2~~$16.5 million at ~~June 30, 2020~~March 31, 2021 with aggregate balances of ~~$207.2~~$258.7 million. Of the ~~$207.2~~$258.7 million in total related credits, ~~$189.8~~$236.7 million was secured by various collateral assets, primarily commercial real estate, ~~$11.3~~$6.5 million was unsecured, and ~~$6.1~~$15.5 million were PPP loans.

In addition, the future credit-related performance of a loan portfolio generally depends upon the types of loans within the portfolio, concentrations by type of loan and the quality of the collateral securing the loans. The following table details the Company's loan portfolio by collateral type within major categories as of ~~June 30, 2020:~~March 31, 2021:

(Dollars in thousands)	Balance			Number of Loans		Average Loan Balance		Minimum/ Maximum Loan Balance					Allowance for Loan Losses		Percent of Total Loans			Balance			Number of Loans		Average Loan Balance		Minimum/ Maximum Loan Balance					Allowance for Loan Losses		Percent of Total Loans
Residential Mortgage Loans	$	216,419			2,101	$	103	$	1	-	$	1,566	$	756		27	%	$	234,284			2,121	$	110	$	0	-	$	1,536	$	975		27	%

Commercial Real Estate:
Mixed Use	$	41,179			50	$	824	$	26	-	$	7,433	$	672		5	%	$	50,392			56	$	900	$	44	-	$	7,433	$	997		6	%
Multi-Family Residential		39,952			57		701		27	-		6,009		652		5	%		43,886			60		731		25	-		6,275		868		5	%
Hotels and Motels		33,258			10		3,326		226	-		11,500		543		4	%		35,198			10		3,520		334	-		11,500		696		4	%
Office		32,035			58		552		12	-		4,902		523		4	%		34,587			62		558		7	-		4,835		684		4	%
Retail		22,720			52		437		1	-		5,217		371		3	%		23,200			45		516		32	-		5,124		459		3	%
1-4 Family Residential		18,433			146		126		10	-		1,250		301		2	%		19,449			150		130		8	-		1,222		385		2	%
Automobile Dealership		16,497			10		1,650		173	-		6,629		269		2	%		16,250			10		1,625		167	-		6,741		321		2	%
Recreation/Golf Course/Marina		10,812			14		772		32	-		3,150		177		1	%
Warehouse		10,790			15		719		8	-		2,678		176		1	%		9,961			13		766		73	-		2,696		197		1	%
Recreation/ Golf Course/ Marina																			11,533			15		769		23	-		3,150		228		1	%
Skilled Nursing Facility																			10,896			2		5,448		3,800	-		7,096		216		1	%
Manufacturing/Industrial		6,625			15		442		3	-		1,438		108		1	%		7,443			15		496		91	-		1,415		147		1	%
Restaurant		6,346			25		254		10	-		1,311		104		1	%		6,300			24		263		43	-		1,251		125		1	%
Automobile Repair		4,829			10		483		61	-		2,342		79		1	%		4,756			11		432		52	-		2,312		94		1	%
Not-For-Profit & Community Service Real Estate		3,378			3		1,126		109	-		1,679		55		0	%		3,451			3		1,150		106	-		1,778		68		1	%
Hospitals																			3,375			3		1,125		77	-		3,105		67		0	%
Land		3,418			5		684		76	-		2,000		56		0	%		2,406			4		602		70	-		2,000		48		0	%
Skilled Nursing Facility		3,503			1		3,503		3,503	-		3,503		57		1	%
All Other		7,049			36		196		17	-		745		115		1	%		6,099			31		197		5	-		739		121		1	%
Total Commercial Real Estate Loans	$	260,824			507	$	514						$	4,258		32	%	$	289,182			514	$	563						$	5,721		34	%

Commercial and Industrial:
Secured Term Loans	$	63,672			360	$	177	$	0	-	$	6,035	$	1,525		8	%	$	61,201			378	$	162	$	-	-	$	4,485	$	2,369		7	%
Unsecured Term Loans		19,494			131		149		0	-		1,647		467		3	%		16,715			118		142		1	-		2,244		647		2	%
Secured Lines of Credit		42,370			288		147		0	-		5,000		1,015		5	%		53,857			263		205		-	-		11,588		1,634		6	%
Unsecured Lines of Credit		11,140			143		78		0	-		2,999		267		1	%		9,300			139		67		-	-		2,750		282		1	%
Total Commercial and Industrial Loans	$	136,676			922	$	148						$	3,274		17	%	$	141,073			898	$	157						$	4,932		16	%

Tax Exempt Loans	$	7,644			24	$	319	$	9	-	$	2,425	$	1		1	%	$	6,959			22	$	316	$	6	-	$	2,248	$	1		1	%

Paycheck Protection Loans	$	73,774			641	$	115	$	1	-	$	3,000	$	-		9	%	$	71,885			708	$	102	$	0	-	$	3,001	$	-		8	%

Consumer:
Home Equity Lines of Credit	$	42,587			1,077	$	40	$	0	-	$	417	$	644		5	%	$	36,181			986	$	37	$	-	-	$	504	$	827		4	%
Automobile		31,569			1,994		16		1	-		368		476		4	%
Vehicle																			24,196			1,633		15		-	-		353		340		3	%
Consumer Secured		4,302			82		52		23	-		146		65		1	%		41,069			1,527		27		20	-		125		577		5	%
Consumer Unsecured		32,075			6,539		5		1	-		116		484		4	%		20,392			5,026		4		-	-		105		287		2	%
All Others		1,969			1,002		2		0	-		60		30		0	%		2,319			1,006		2		-	-		476		33		0	%
Total Consumer Loans	$	112,502			10,694	$	11						$	1,699		14	%	$	124,157			10,178	$	12						$	2,064		14	%

Net deferred loan fees		(1,830	)		-		-					-		-		-			(2,233	)		-		-							-		-
Unallocated allowance for loan losses		-			-		-					-		565		-			-			-		-							-		-
Total Loans	$	806,009			14,889	$	54						$	10,553		100	%	$	865,307			14,441	$	60						$	13,693		100	%

Including the potential effects of the COVID-19 outbreak on the Company’s loan portfolios, the ongoing and dynamic nature of the pandemic and the resultant, potentially severe and long-lasting, economic dislocations, it is difficult to predict the full impact of the COVID-19 outbreak on our business. The extent of such impact will depend on future

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

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

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

On April 1, 2021 the Company redeemed its $10.0 million non-amortizing subordinated loan that was scheduled to mature on October 1, 2025. The Company has had the right to prepay the Subordinated Loan at any time after October 15, 2020 without penalty. The terms of the Subordinated Loan required fixed interest payments at an annual interest rate of 6.25% after February 29, 2016 until the Loan’s scheduled maturity date. The redemption of this $10.0 million component of the Company’s outstanding subordinated debt will prospectively reduce interest expense after April 1, 2021 by $625,000 annually.

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

The Company is a Maryland corporation headquartered in Oswego, New York. The Company is 100% owned by public shareholders. The primary business of the Company is its investment in Pathfinder Bank (the "Bank"), a New York State chartered commercial bank, which is 100% owned by the Company. The Bank has two wholly owned operating subsidiaries, Pathfinder Risk Management Company, Inc. (“PRMC”) and Whispering Oaks Development Corp. All significant inter-company accounts and activity have been eliminated in consolidation. Although the Company owns, through its subsidiary PRMC, 51% of the membership interest in FitzGibbons Agency, LLC (“Agency”), the Company is required to consolidate 100% of FitzGibbons within the consolidated financial statements. The 49% of which the Company does not own is accounted for separately as noncontrolling interests within the consolidated financial statements. At ~~June 30, 2020,~~March 31, 2021, the Company and subsidiaries had total consolidated assets of ~~$1.2~~$1.3 billion, total ~~consolidated~~ liabilities of ~~$1.1~~$1.2 billion and shareholders' equity of ~~$92.0~~$99.9 million plus noncontrolling interest of ~~$292,000,~~$304,000, which represents the 49% of FitzGibbons not owned by the Company.

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

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

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

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

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

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

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

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

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

The Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”), signed into law on March 27, 2020, ~~provides~~provided financial assistance in various forms to both businesses and ~~consumers.~~consumers, including the establishment and funding of the Paycheck Protection Program (“PPP”). In addition, the CARES Act also created many directives affecting the operations of financial services providers, such as the Company, including a forbearance program for federally-backed mortgage loans and protections for borrowers from negative credit reporting due to loan accommodations related to the national emergency. The banking regulatory agencies have likewise issued guidance encouraging financial institutions to work prudently with borrowers who are, or may be, unable to meet their contractual payment obligations because of the effects of COVID-19. The Company has worked to assist its business and ~~individual~~consumer customers affected by COVID-19. ~~Through June 30,~~On December 27, 2020, following passage by the ~~Bank granted payment deferral requests primarily~~United States Congress, President Donald Trump signed into law the Consolidated Appropriations Act, 2021 which included the Coronavirus Response and Relief Supplemental Appropriations Act (“CRRSAA”). The intent of this legislation was to provide another round of Economic Impact Payments to eligible individuals and families, renew the PPP to support small businesses and their employees, ensure needed access to unemployment benefits for ~~90 days, on 556 loans representing approximately $145.6 million~~Americans who have lost their jobs due to COVID-19, and provide additional funding for schools, vaccine distribution, and other important sectors of ~~existing loan balances. For more information~~the economy.

On March 11, 2021, President Joseph 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 includes 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, as well as extend and expand support for housing, child care, food and the education system. While CRRSSA and 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 ~~Bank’s loan concentrations, please see Note 15 to~~operations of the ~~Unaudited Consolidated Financial Statements above.~~Company cannot be determined with certainty at this time.

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

reduced by the loan forgiveness amount under the PPP so long as employee and compensation levels of the business are maintained and ~~60% of~~ the loan proceeds are used for ~~payroll expenses, with the remaining 40% of the loan proceeds used for other~~ qualifying expenses. Through ~~June 30, 2020,~~March 31, 2021, the Bank has ~~submitted to and~~ received approval from the SBA for ~~680~~1,120 loans totaling approximately ~~$73.8~~$109.8 million through this program. The program was initially extended through May of 2021, but as of May 5, 2021 has exhausted the initial allocated funding. The Bank is now also assisting borrowers with the loan forgiveness phase of the process. As of May 3, 2021, the Company has submitted 423 loans totaling approximately $47.5 million to the SBA for forgiveness and has received approximately $41.5 million from the SBA for 414 loans.

Borrowers that were delinquent in their payments to the Bank, prior to requesting a COVID-19 ~~crisis is expected~~related financial hardship payment deferral were reviewed on a case by case basis for troubled debt restructuring classification and non-performing loan status. In the instances where the Company granted a payment deferral to a delinquent borrower because of COVID-19, the borrower’s delinquency status was frozen as of February 29, 2020, and their loans will continue to ~~impact the Company’s financial results,~~be reported as ~~well as demand for its services and products~~delinquent during the ~~remainder~~deferment period based on their delinquency status as of ~~2020 and potentially beyond.~~that date. The ~~short- and~~ long-term ~~implications~~collectability of deferred loan payments will depend on many factors, including the future progression of the pandemic, potential medical breakthroughs in therapeutic treatments and/or vaccines, the pace of vaccine distributions, further economic stimulus from government authorities, the rate at which governmental restrictions on business activities are relaxed and the adequacy and sustainability of other sources of repayment such as loan collateral. Consistent with industry regulatory guidance, borrowers that were granted COVID-19 ~~crisis~~related deferrals but were otherwise current on loan payments will continue to have their loans reported as current loans during the ~~Company’s~~agreed upon deferral period(s), accrue interest and not be accounted for as troubled debt restructurings.

Through March 31, 2021 the Bank granted payment deferral requests for an initial period of 90 days on 621 loans representing approximately $141.0 million in loan balances. Upon the receipt of borrower requests, additional 90 day deferral periods were generally granted. Of these granted deferrals, 304 loans, totaling $23.2 million, were residential mortgage or consumer loans. At March 31, 2021, 296 residential and consumer loans, totaling $22.4 million, have been returned to non-deferral status. Of these granted deferrals, 317 loans, totaling $117.8 million, were commercial real estate or other commercial and industrial loans. At March 31, 2021, 308 commercial real estate or other commercial and industrial loans, totaling $110.2 million, have been returned to non-deferral status. Therefore, at March 31, 2021, eight residential mortgage and consumer loans, totaling $793,000 and nine commercial real estate and other commercial and industrial loans, totaling $7.6 million remained in deferral status. These loans still in deferral status therefore totaled $8.4 million and represented 0.97% of all loans outstanding at March 31, 2021. On an extremely limited basis, subject to discussions with specific borrowers and further analysis, additional deferral periods will potentially be granted. To the extent that such modifications meet the criteria previously described above, certain loans currently in deferral status (and/or certain future ~~revenues, earnings results,~~deferrals) have not been classified as troubled debt restructurings nor classified as nonperforming at March 31, 2021. Loans not granted additional deferral periods have been, and will continue to be, categorized as nonaccrual loans if the ~~allowance for loan losses, capital reserves, and liquidity are unknown at this time.~~borrowers fail to make the first scheduled payment following the end of the deferral period.

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

The most significant accounting policies followed by the Company are presented in Note 1 to the annual audited consolidated financial statements. These policies, along with the disclosures presented in the other financial statement notes and in this discussion, provide information on how significant assets and liabilities are valued in the consolidated annual 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:

Impairment is measured by determining the present value of expected future cash flows or, for collateral-dependent loans, the fair value of the collateral adjusted for market conditions and selling expenses as compared to the loan carrying value. For all other loans and leases, the Company uses the general allocation methodology that establishes an allowance to estimate the probable incurred loss for each risk-rating category.

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

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

Effective in January 2018, the Company adopted a modification methodology that was at the time newly made available ~~following changes to~~under the New York State tax code, affecting how the Company’s state income tax liability is computed. Under this adopted methodology, management determined in the first quarter of 2019, it iswas unlikely that the Company ~~will~~would pay material income taxes to New York State in future periods under then-existing income tax laws in the State, and ~~it is~~ therefore ~~probable that~~in the ~~Company’s~~ quarter ended March 31, 2019, the Company established, through a charge to earnings, a valuation allowance in the amount of $136,000 in order to reserve against deferred tax assets related to New York State income ~~taxes are unlikely to further reduce the Company’s state income tax rate in the future. Accordingly, a~~taxes. This valuation allowance against the value of those deferred tax assets was established to reduce the net deferred tax asset related to New York State income taxes to $0. ~~Therefore, as~~Management is continuously monitoring its future tax consequences to determine if the Company’s deferred taxes are properly stated. In the first quarter of ~~January 1, 2019,~~2020, consistent with policy, management reviewed all facts and circumstances related to its deferred taxes and determined that based on the ~~Company established, through a charge to earnings, a valuation allowance in the amount~~expected filings of ~~$136,000 in order to reserve against deferred tax assets related to~~future New York State ~~income taxes.~~

Intax 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,~~2020.

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 ~~determined~~is evaluating the projected impact on the Company’s financial condition and results of operations and believes that these provisions may increase the ~~Company, under the current New York State (“NYS”)~~Company’s income tax ~~code, was highly unlikely to incur a material NYS tax liability~~expense in the ~~foreseeable~~ future. As a result, certain net current and deferred tax assets, related to GAAP vs. tax timing differences under previous NYS tax law, were no longer going to provide any future tax benefit. The substantial majority ofHowever, these ~~net deferred tax assets were offset by a related valuation allowance established~~potential increases in prior periods. Upon analysis of all factors related to the expected future filings of NYS tax returns, the Company eliminated its remaining NYS net deferred tax asset balances and the related valuation allowance on January 1, 2020. The effect of these eliminations required an adjustment to other comprehensive income of $206,000 and had no effect on first half 2020 reported earnings. At June 30, 2019, the Company had a valuation allowance of $61,000 established against the future projected benefits of deferred tax assets related to New York State income ~~tax obligations.~~taxes are not expected to be material to the future results of the Company’s operations.

The Company’s effective tax rate typically differs from the 21% federal statutory tax rate due primarily to tax-exempt income from specific types of investment securities and loans, bank owned life insurance, and, to a much lesser degree, the utilization of low income housing tax credits, as well as a the effects of transitional adjustments related to state income taxes and certain taxes payable to states other than New York. The effective tax rate was ~~20.5%~~20.6% for the ~~six~~three month period ended ~~June 30, 2020.~~ March 31, 2021.

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

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

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

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

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

Fair values for securities available-for-sale are obtained from unaffiliated third party pricing services. Where available, fair values are based on quoted prices on a nationally recognized securities exchange. If quoted prices are not available, fair values are measured using quoted market prices for similar benchmark securities. Management made no adjustments to the fair value quotes that were provided by the pricing sources. Fair values for marketable equity securities are based on quoted prices on a nationally recognized securities exchange for similar benchmark securities. The fair values of foreclosed real estate and the underlying collateral value of impaired loans are typically determined based on evaluations by third parties, less estimated costs to sell. When necessary, appraisals are updated to reflect changes in market conditions.

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

On ~~June 30, 2020,~~March 29, 2021, the Company announced that ~~the~~its Board of Directors had declared a ~~quarterly~~ cash dividend of ~~$0.06~~$0.07 per common and preferred share, and a cash dividend of ~~$0.06~~$0.07 per notional share for the issued common stock ~~warrant.~~Warrant. The ~~dividends are~~dividend was payable on ~~August 14, 2020~~May 7, 2021 to shareholders of record on ~~July 17, 2020.~~April 15, 2021.

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

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

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

The Company had net income of ~~$1.8~~$2.2 million for the three months ended ~~June 30, 20120~~March 31, 2021 compared to net income of ~~$607,000~~$1.7 million for the three months ended ~~June 30, 2019.~~March 31, 2020. The ~~$1.2 million~~$464,000 increase in net income was ~~due~~ primarily ~~to a~~

~~$781,000 decrease in noninterest expense, a $528,000~~an $882,000 decrease in interest expense, a ~~$406,000~~$97,000 increase in ~~interest and dividend~~noninterest income, and a ~~$312,000 increase~~decrease of $39,000 in ~~noninterest income.~~provision for loan losses. These fluctuations were partially offset by a ~~$536,000~~$391,000 increase in ~~the provision for loan losses~~noninterest expenses, a $101,000 decrease in interest and ~~a $264,000~~dividend income, and an increase in income tax ~~expense.~~ expense of $94,000.

~~Net~~First quarter 2021 net interest income before the provision for loan losses ~~increased $934,000,~~was $8.6 million, an increase of $781,000, or ~~13.9%~~10.0%, ~~to $7.6 million for the three months ended June 30, 2020 as~~ compared to ~~$6.7~~$7.8 million for the same ~~three month period~~quarter in ~~2019. The increase was~~2020, primarily ~~the~~a result of an $882,000, or 27.0%, decrease in total interest expense. Interest and dividend income in the ~~increase in average interest-earning asset balances due to increases among all interest earning asset categories. The positive effects~~first quarter of ~~increased average interest-earning assets for the three months ended June 30, 2020, as~~2021 was $10.9 million, compared to $11.0 million in the ~~same three month period~~first quarter of 2020. The decrease in ~~2019, were partially offset by~~interest and dividend income was a result of a 70 basis point decrease in the average yield earned on loans in the first quarter of ~~interest-earning assets of 58 basis points~~2021, compared to ~~3.78% for the three months ended June 30, 2020 from 4.36% for~~ the same ~~three month period of the previous year. Further, this increase~~quarter in ~~net interest income was~~2020, partially offset by an increase of ~~$115.8~~$176.7 million in the average balance of interest-earning assets. This decrease in the average yield earned on loans was consistent with the general decline in the interest ~~bearing liabilities, which~~rate environment following the onset of the COVID-19 pandemic, as well as the effect that relatively lower-yielding PPP loan balances had on overall loan portfolio yields. The decrease in the first quarter of 2021 interest expense was ~~partially offset by~~primarily a 44result of a 52 basis point decrease in the average ~~cost~~interest rate paid on average interest-bearing deposits. As a result of ~~interest-bearing liabilities between~~ the ~~year-over-year second~~factors noted above, the net interest margin for the first quarter ~~periods.~~ of 2021 was 2.85%, an 18 basis point decline compared to 3.03% for the first quarter of 2020.

First quarter 2021 noninterest income was $1.8 million, an increase of $97,000, or 5.5%, compared to $1.7 million for the same three-month period in 2020. Excluding gains on equity securities and the sales of loans and foreclosed real estate, as well as premises and equipment, recurring noninterest income for the first quarter of 2021 was $1.3 million, reflecting a $46,000, or 3.7%, improvement over the year-ago period. The ~~$312,000, or 25.6%,~~$97,000 increase in noninterest income in the quarter ended ~~June 30, 2020,~~March 31, 2021, as compared to the same quarterly period in ~~2019,~~2020, was primarily the result of ~~a $253,000~~an increase ~~in income from the combined investment related activities~~ of ~~(1)~~$428,000 in net gains on ~~sales~~marketable equity securities, a $201,000 increase on the gain on sale of premises and ~~redemptions of investment securities~~equipment, a $58,000 increase in debit card interchange fees, and (2) net losses on equity securities. During the second quarter of 2020, net gains on sales and redemptions of investment securities increased $991,000, as compared to the previous year period, and thisa $41,000 increase ~~was~~in loan servicing fees. These increases were partially offset by a ~~$738,000 decline in gains on equity securities, compared to the second quarter~~decrease of ~~2019. Further contributing to the increase in noninterest income was a net increase of $84,000~~$552,000 in net gains on sales of loans and foreclosed real estate ~~for~~and a $57,000 decrease in insurance agency revenue. The increase in gains on marketable equity securities was directly correlated with the ~~current period.~~underlying stock price of those securities, which increased with improving market conditions. The decrease in the gain on the sale of loans and foreclosed real estate was primarily the result of the prior year sale of $35.9 million in seasoned conforming residential mortgage loans that was completed in January 2020. All other noninterest income categories decreased by ~~$25,000,~~$42,000, or ~~2.2%~~8.4%, in the three months ended ~~June 30, 2020,~~March 31, 2021, as compared to the same prior year period. The overall increases in noninterest income were significantly muted in the second quarter of 2020 by reduced customer transactional activity levels and the Bank’s increased levels of fee waivers and other forbearances in response to the local economic effects of the COVID-19 pandemic.

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

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

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

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

~~The $781,000 decrease in~~Total noninterest expense for the first quarter of 2021 was $6.6 million, an increase of $391,000, or 6.3%, in ~~the quarter ended June 30, 2020, as compared~~comparison to $6.2 million for the same ~~quarterly~~three-month period in ~~2019,~~2020. The increase was ~~due~~ primarily to a ~~decrease~~result of ~~$482,000, or 14.0%, in~~higher professional and other services fees, salaries and employee benefits ~~expense. The decrease in salaries and employee benefit expense was primarily due to a $359,000 decrease in net salaries~~ expense and ~~a $170,000 decrease~~audits and exams expense. Management believes that the increases in ~~employee benefits expense. The decrease in net salaries~~professional and other services fees, and audits and exams expense was partially the result of a significant absorption of these expenses into the unamortized cost of the originated PPP loans as required under GAAP. During the second quarter, the Bank originated $73.8 million in PPP loans and deferrals of employee-related expensesare primarily related to ~~those originations resulted in an overall net decrease~~the Bank’s first year of ~~$331,000 in employee-related~~increased internal controls testing under FDICIA requirements for institutions with assets greater than $1 billion and additional expenses for the current quarter, as compared to the second quarter 2019. All other employee-related expenses declined an aggregate $299,000 in the second quarter of 2020, as compared to the same quarterly period in 2019. All other noninterest expenses unrelated to personnel expenses declined primarily due to reductions in expenditures for community service activities, training, and meals and entertainment of $132,000, $93,000 and $44,000, respectively. These expenses were substantially curtailed in the period as a result of the significant restrictions placed on many business activities as a result of the pandemic.

For the three months ended June 30, 2020, we recorded $1.1 million in provision for loan losses as compared to $610,000 in the same prior year three month period. This $536,000 increase in the provision for loan losses was primarily due to economic uncertainty and the resultant potential for increased credit losses in future periods,Company as a result of the COVID-19 pandemic. ~~Additionally,~~Accordingly, the ~~provision reflects an increase in outstanding loan balances~~increases within these two categories of ~~$113.2 million, or 16.3%,~~expenses are not expected to be representative of the levels of expenses expected in the ~~second~~remaining quarters of 2021.

Management extensively reviews recent trends in changes in the size and composition of the loan portfolio, historical loss experience, qualitative factors, and specific reserve needs on loans individually evaluated for impairment, in its determination of the adequacy of the allowance for loan losses. The first quarter ~~of 2020,~~2021 provision for loan losses was $1.0 million, compared to $1.1 million for the ~~same~~prior year quarter. The first quarter in2021 provision for loan losses reflects a prudent addition to reserves considering loan growth, asset quality metrics, and continued COVID-19 economic uncertainty. The credit-sensitive portfolios continue to be carefully monitored, and the ~~previous year, as well as an increase in~~Bank will consistently apply its proven conservative loan classification and reserve building methodologies to the ~~non-performing loans to period end loans as a result~~analysis of ~~four commercial loan relationships.~~

In comparing the year-over-year ~~second~~first quarter periods, the return on average assets increased 38six basis points to ~~0.63%~~0.68% due to the combined effects of the increase in net income (the numerator in the ratio) and the increase in average assets (the denominator in the ratio). The Company’s net income increased $464,000, or 27.5%, which outpaced the increase in average assets. Average assets increased due to increases in average loans and average ~~federal funds sold and interest earning deposits~~taxable investment securities of ~~$129.8~~$88.5 million and ~~$54.0~~$60.6 million, respectively in the ~~second~~first quarter of ~~2020~~2021 as compared to the same quarter of ~~2019.~~2020. Average ~~interest-bearing~~ deposits increased ~~$100.0~~$149.6 million in the ~~second~~first quarter of ~~2020,~~2021, as compared with the same quarter in ~~2019. The increase in deposits was~~2020, due to strong growth in retail and commercial relationship deposits ~~as a result of~~along with brokered deposit inflows, the seasonally-normal strong deposit inflows related to the Bank’s municipal depositor relationships and the Bank’s participation in the ~~PPP lending program, along with brokered deposit inflows, as a result of the Bank’s efforts to significantly increase cash and cash equivalent balances in response to the COVID-19 pandemic.~~

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

Net interest income before the provision for loan losses increased $2.2 million to $15.4 million for the six months ended June 30, 2020, as compared to $13.3 million for the same six month period in 2019. The increase was due principally to a $1.8 million, or 9.0%, increase in interest and dividend income that was a result of growth in average interest-earning assets of $157.4 million compared to the prior year six month period. Average loans for the first six months of 2020 increased by $128.5 million, or 19.8%, over the prior year period, primarily the result of growth in the commercial loan portfolios and in particular PPP loans, while the average interest rate earned on interest-earning assets decreased by 31 basis points. Average interest-bearing liabilities increased by $107.6 million, or 13.78%, for the six months ended June 30, 2020 as compared to the prior year period; however, the average interest rate paid on interest-bearing liabilities decreased by 29 basis points.

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

Total noninterest expense for the six month period of 2020 was $12.0 million, a decrease of $1.2 million, or 9.4%, compared with $13.2 million for the prior year period. The reduced noninterest expense for the six month period ended June 30, 2020, as compared to the same period in 2019, was principally driven by a decrease of $885,000 in personnel expenses, a $261,000 decrease in foreclosed real estate expenses, and a $163,000 reduction in community service activities expenses. The decrease in personnel expenses in the first six months of 2020, as compared to the same six month period in 2019, was primarily due to a $470,000 decrease in net salaries expense. This reduction in net salaries expense primarily resulted from the increased deferral of these expenses into the unamortized cost of the loans originated in the first six months of 2020. The increased volume of loans originated in the first six months of 2020, as compared to the same period in 2019, was due primarily to the PPP loan volume originated in the second quarter of 2020, as discussed above. In addition, personnel expenses declined in the six months ended June 30, 2020, as compared to the same period in 2019, due primarily to decreases of $319,000 in employee benefits. The decrease in other employee benefits for the six months ended June 30, 2020, as compared to the same six month period in 2019, was primarily due to decreases in pension, employee medical and other employee benefits expenses of $144,000, $76,000 and $49,000, respectively. Pension expense decreased $144,000 primarily due to the higher market value of pension assets held in trust at January 1, 2020 as compared to the same date in 2019. The higher market values for pension assets resulted from market value appreciation of those assets in 2019. Medical expenses declined primarily due to reduced employee utilization of elective medical services and increased cost sharing of certain medical costs with employees in 2020, as compared to the previous year. The decrease in other employee benefits expenses related to reduced levels of certain training, employee recognition and other employee-related activities due primarily to restrictions on such activities resulting from the pandemic.

For the first six months of 2020, we recorded $2.2 million in provision for loan losses as compared to $754,000 in the same prior year six month period. This $1.5 million increase in the provision for loan losses resulted from year-over-year increases in: (1) the qualitative factors used in determining the adequacy of the allowance for loan losses, (2) the size of the loan portfolio, and (3) delinquent and nonaccrual loans. The increase in the quantitative factors used in determining the provision for loan losses reflected the substantial increase in economic uncertainty and the resultant potential for increased credit losses in future periods as a consequence of the COVID-19 pandemic. Outstanding loan balances increased $113.2 million, or 16.3%, in the quarter ended June 30, 2020, as compared to the same quarter in the previous year, and therefore required a corresponding increase in the estimable and probable loan losses inherent in the loan portfolio. Finally, the provision for loan losses in the six months ended June 30, 2020 was further increased, as compared to the same period in 2019, by the effects of an increase in the ratio of delinquent loans to total loans, which increased to 3.19% at June 30, 2020 as compared to 2.45% at June 30, 2019, coupled with an increase in nonaccrual loans that increased $4.6 million to $8.4 million at June 30, 2020 ~~as compared to $3.8 million at June 30, 2019.~~

Return on average assets increased 39 basis points to 0.62% between the year-over-year six month periods as the change in net income in the six month period ended June 30, 2020 (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.

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

The following ~~tables set~~table sets 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~~table has not been adjusted for tax equivalency. Averages are computed on the daily average balance for each month in the period divided by the number of days in the period. Yields and amounts earned include loan fees. Nonaccrual loans have been included in interest-earning assets for purposes of these calculations.

For the three months ended June 30,

2020

2019

Average

Average

Average

Yield /

Average

Yield /

(Dollars in thousands)

Balance

Interest

Cost

Balance

Interest

Cost

Interest-earning assets:

Loans

$
796,267

$
8,832

4.44
%

$
666,428

$
8,222

4.93
%
Taxable investment securities

230,943

1,613

2.79
%

228,506

1,729

3.03
%
Tax-exempt investment securities

9,552

52

2.18
%

9,383

51

2.17
%
Fed funds sold and interest-earning deposits

76,203

17

0.09
%

22,222

106

1.91
%
Total interest-earning assets

1,112,965

10,514

3.78
%

926,539

10,108

4.36
%
Noninterest-earning assets:

Other assets

73,721

67,935

Allowance for loan losses

(10,076
)

(7,372
)

Net unrealized losses
on available-for-sale securities

(1,804
)

(1,685
)

Total assets

$
1,174,806

$
985,417

Interest-bearing liabilities:

NOW accounts

$
80,712

$
35

0.17
%

$
67,380

$
28

0.17
%
Money management accounts

15,826

4

0.10
%

13,415

5

0.15
%
MMDA accounts

202,136

355

0.70
%

177,284

395

0.89
%
Savings and club accounts

94,684

22

0.09
%

85,283

25

0.12
%
Time deposits

418,722

1,788

1.71
%

368,708

2,287

2.48
%
Subordinated loans

15,139

192

5.07
%

15,102

217

5.75
%
Borrowings

87,415

478

2.19
%

71,701

445

2.48
%
Total interest-bearing liabilities

914,634

2,874

1.26
%

798,873

3,402

1.70
%
Noninterest-bearing liabilities:

Demand deposits

156,001

101,675

Other liabilities

12,828

10,395

Total liabilities

1,083,463

910,943

Shareholders' equity

91,343

74,474

Total liabilities & shareholders' equity

$
1,174,806

$
985,417

Net interest income

$
7,640

$
6,706

Net interest rate spread

2.52
%

2.66
%
Net interest margin

2.75
%

2.90
%
Ratio of average interest-earning assets
to average interest-bearing liabilities

121.68
%

115.98
%

	For the six months ended June 30,																(Unaudited)
	2020								2019								For the three months ended March 31,
						Average								Average			2021								2020
	Average					Yield /			Average					Yield /								Average								Average
(Unaudited)																	Average					Yield /			Average					Yield /
(Dollars in thousands)	Balance			Interest		Cost			Balance			Interest		Cost			Balance			Interest		Cost			Balance			Interest		Cost
Interest-earning assets:
Loans	$	778,709		$	18,074		4.64	%	$	650,169		$	15,797		4.86	%	$	849,676		$	8,847		4.16	%	$	761,214		$	9,242		4.86	%
Taxable investment securities		239,297			3,375		2.82	%		226,586			3,605		3.18	%		308,259			2,063		2.68	%		247,651			1,762		2.85	%
Tax-exempt investment securities		5,458			59		2.16	%		13,903			159		2.29	%		12,234			29		0.95	%		1,364			7		2.05	%
Fed funds sold and interest-earning deposits		45,943			49		0.21	%		21,390			216		2.02	%		32,414			3		0.04	%		15,683			32		0.82	%
Total interest-earning assets		1,069,407			21,557		4.03	%		912,048			19,777		4.34	%		1,202,583			10,942		3.64	%		1,025,912			11,043		4.31	%
Noninterest-earning assets:
Other assets		75,263								66,878								82,353								77,009
Allowance for loan losses		(9,390	)							(7,324	)							(13,057	)							(8,704	)
Net unrealized losses on available for sale securities		(843	)							(2,468	)
Net unrealized gains on available-for-sale securities																		1,314								119
Total assets	$	1,134,437							$	969,134							$	1,273,193							$	1,094,336
Interest-bearing liabilities:
NOW accounts	$	78,247		$	65		0.17	%	$	68,819		$	56		0.16	%	$	94,951		$	57		0.24	%	$	75,845		$	29		0.15	%
Money management accounts		15,005			9		0.12	%		13,820			10		0.14	%		15,597			4		0.10	%		14,184			5		0.14	%
MMDA accounts		198,298			756		0.76	%		180,907			829		0.92	%		235,289			255		0.43	%		194,458			402		0.83	%
Savings and club accounts		90,901			48		0.11	%		84,792			50		0.12	%		111,317			33		0.12	%		87,118			26		0.12	%
Time deposits		410,967			3,882		1.89	%		345,486			4,140		2.40	%		399,176			1,178		1.18	%		403,214			2,094		2.08	%
Subordinated loans		15,135			398		5.26	%		15,097			434		5.75	%		39,412			557		5.65	%		15,131			206		5.45	%
Borrowings		87,217			980		2.25	%		79,200			1,005		2.54	%		85,070			298		1.40	%		87,019			502		2.31	%
Total interest-bearing liabilities		895,770			6,138		1.37	%		788,121			6,524		1.66	%		980,812			2,382		0.97	%		876,969			3,264		1.49	%
Noninterest-bearing liabilities:
Demand deposits		134,179								101,480								180,442								112,358
Other liabilities		12,446								9,383								11,944								12,059
Total liabilities		1,042,395								898,984								1,173,198								1,001,386
Shareholders' equity		92,042								70,150								99,995								92,950
Total liabilities & shareholders' equity	$	1,134,437							$	969,134							$	1,273,193							$	1,094,336
Net interest income				$	15,419							$	13,253							$	8,560							$	7,779
Net interest rate spread							2.66	%							2.68	%							2.67	%							2.82	%
Net interest margin							2.88	%							2.91	%							2.85	%							3.03	%
Ratio of average interest-earning assets to average interest-bearing liabilities							119.38	%							115.72	%							122.61	%							116.98	%

As indicated in the above ~~tables,~~table, net interest income, before provision for loan losses, increased ~~$934,000,~~$781,000, or ~~13.9%~~10.0%, to ~~$7.6~~$8.6 million for the three months ended ~~June 30, 2020~~March 31, 2021, as compared to ~~$6.7~~$7.8 million for the same prior year period. ~~This~~The increase was due principally to a decrease of $882,000, or 27.0%, in interest expense. The decrease in interest expense was principally due to the ~~$186.4~~52 basis point decrease in the average rate paid on these liabilities, partially offset by the $103.8 million, or ~~20.1%~~11.8%, increase in the average balance of ~~interest-earning assets, and a decrease of 58 basis points on the average yield earned on those assets.~~interest-bearing liabilities. These positive factors on net interest income were partially offset by anthe increase in the average balance of ~~interest-bearing liabilities~~interest earning assets of ~~$115.8~~$176.7 million, ~~or 14.5%, and~~offset by a ~~decrease of 44~~67 basis ~~points on~~point reduction in the average ~~interest rate paid on those liabilities. In total, net interest margin decreased 15 basis points to 2.75% due largely to the decrease in yields~~yield earned on ~~average interest-earning assets, as noted above.~~these assets. The ~~following~~above analysis should also be viewed in conjunction with the table below which reports the changes in net interest income attributable to rate and volume.

Interest and dividend income ~~increased $406,000,~~decreased $101,000, or ~~4.0%~~0.9%, to ~~$10.5~~$10.9 million for the three months ended ~~June 30, 2020~~March 31, 2021 compared to ~~$10.1~~$11.0 million for the same ~~three month~~three-month period in ~~2019.~~2020. The ~~increase~~decrease in interest and dividend income was due principally to the increase in average interest-earning assets (primarily loans), which increased between the year-over-year second quarter periods by 20.1%. The increase in interest income on loans was due principally to the increase in thea 70 basis point decrease in the average ~~balances~~yield earned on the loan portfolio, partially offset by an increase of ~~loans, which increased 19.5%, between~~$88.5 million in the ~~year-over-year second quarter periods. The~~ average balance of loans ~~increased by $129.8 million.~~between the year-over-year first quarter periods. The increase in the average balance of loans reflected ~~the Company’s~~

~~continued success in its expansion within the greater Syracuse, New York market and the Company’s~~ participation in the PPP loan ~~program.~~program and purchased loan growth. Interest income on investment securities increased $323,000 between the two comparable periods due to increased average balances of taxable and tax-exempt investment securities of $60.6 million and $10.9 million, respectively between the two periods, while the average yield on those portfolios decreased 17 and 110 basis points, respectively.

Interest expense for the three months ended ~~June 30, 2020~~March 31, 2021 decreased ~~$528,000~~$882,000, or ~~15.5%~~27.0%, to ~~$2.9~~$2.4 million when compared to the same prior year period. Deposit interest expense decreased ~~$536,000,~~$1.0 million, or ~~19.6%~~40.3%, to ~~$2.2~~$1.5 million due to a 4561 basis point decrease in the average annualized rate paid on deposits to ~~1.09%~~0.71% for the three months ended ~~June 30, 2020,~~March 31, 2021, as compared to ~~1.54% for~~1.32% in the ~~three months ended June 30, 2019. This was~~same three-month period in 2020. These decreases were partially offset by ~~a $100.0~~the $81.5 million increase in the average balance of interest-bearing ~~deposits during the same time periods. This~~deposits. The decrease in the average ~~cost~~rate of deposits was primarily due to ~~a 77~~90 and 40 basis point ~~decrease~~decreases in the average rates paid on time deposits and money market deposit accounts (“MMDA”), respectively, during the three months ended ~~June 30,~~March 31, 2021 as compared to the same time period in 2020 due to declining market rates during the first quarter of 2021. The increase in the average balance of deposits was due to increases of $40.8 million in MMDA deposits, a $24.2 million increase in savings and club accounts and a $19.1 million increase in NOW accounts during the first quarter of 2021 as compared to the same period in 2020. The increase in overall deposits was the result of customer activity, related to various governmental economic stimulus receipts deposited by both business and consumer customers in the first quarter of 2021, an increase in business deposits as a result of the Bank’s participation in the PPP program, along with increased short-term brokered deposit acceptances. Interest expense on subordinated loans increased $351,000, or 170.4% for the three months ended March 31, 2021 as compared to the same three month period in ~~2019 due to the general decline in market interest rates during the second quarter of~~ 2020. ~~In 2019, the average rates paid on time deposits reflected the competitive environment for such deposits within the Company’s marketplace.~~

For the six month period ended June 30, 2020, net interest income, before the provision for loan losses, increased $2.2 million, or 16.3%, to $15.4 million compared to $13.3 million for the six months ended June 30, 2019. Interest and dividend income increased $1.8 million, or 9.0%, to $21.6 million for the six months ended June 30, 2020 from $19.8 million for the same six month period in 2019. The increase in interest income was due principally to the increase in average balances of federal funds sold and interest-earning deposits and loans, which increased 114.8% and 19.8%, respectively, between the year-over-year six month periods. The increase in the average balance of federal funds sold and interest-earning deposits was a result of the COVID-19 pandemic. The Bank substantially increased the liquidity of its balance sheet to support the potential needs of the customers and communities it serves. The increase in the average balance of loans reflected the Company’s continued success in its expansion within the greater Syracuse market and the Company’s participation in the PPP loan program. Further contributing to the increase in net interest income was a $386,000 decrease in interest expense, primarily due to a $325,000 decrease in deposit expense.

Interest expense for the six months ended June 30, 2020 decreased $386,000, or 5.9%, to $6.1 million as compared to $6.5 million for the six months ended June 30, 2019. The decrease in interest expense was due principally to a 29 basis point decrease in the average rate paid on interest-bearing liabilities to 1.37%, partially offset by a $107.6 million increase in the average balance of these liabilities. The decrease in interest expense was due to a $325,000 decrease in deposit interest expense, a $36,000 decrease in subordinated loan expense, and a $25,000 decrease in borrowings expense. The average balance of ~~interest-bearing deposits, which include brokered deposits,~~subordinated loans increased ~~$113.4~~$24.2 million, or 160.5%, between the year-over-year six month periods. The average rate paid on interest- bearing deposits decreased 30 basis points to 1.20% for the six months ended June 30, 2020 as compared with the same six month period in 2019. This decrease was primarilytwo periods due to ~~a 51 basis point decrease~~the issuance of $25.0 million in ~~the average rate paid on time deposits, during the six months ended June 30, 2020 as compared to the same time period~~subordinated debt in ~~2019. The decrease in the average rates paid on those deposits reflected the general decline in market interest rates during the first half~~October of 2020.The Company exercised its option to redeem $10.0 million of subordinated loans that were outstanding at March 31, 2021 on April 1, 2021. The redemption of this $10.0 million component of the Company’s outstanding subordinated debt will prospectively reduce interest expense after April 1, 2021 by $625,000 annually.

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.

	Three months ended June 30,								Six months ended June 30,									Three months ended March 31,
	2020 vs. 2019								2020 vs. 2019									2021 vs. 2020
	Increase/(Decrease) Due to								Increase/(Decrease) Due to									Increase/(Decrease) Due to
						Total									Total									Total
						Increase									Increase									Increase
(In thousands)	Volume		Rate			(Decrease)			Volume			Rate			(Decrease)			Volume			Rate			(Decrease)
Interest Income:
Loans	$	4,776	$	(4,166	)	$	610		$	4,161		$	(1,884	)	$	2,277		$	4,567		$	(4,962	)	$	(395	)
Taxable investment securities		115		(231	)		(116	)		465			(695	)		(230	)		928			(627	)		301
Tax-exempt investment securities		1		-			1			(92	)		(8	)		(100	)		67,867			(67,845	)		22
Interest-earning deposits		517		(606	)		(89	)		340			(507	)		(167	)		114			(143	)		(29	)
Total interest income		5,409		(5,003	)		406			4,874			(3,094	)		1,780			73,476			(73,577	)		(101	)
Interest Expense:
NOW accounts		6		1			7			8			1			9			8			20			28
Money management accounts		4		(5	)		(1	)		2			(3	)		(1	)		3			(4	)		(1	)
MMDA accounts		251		(291	)		(40	)		176			(249	)		(73	)		426			(573	)		(147	)
Savings and club accounts		13		(16	)		(3	)		8			(10	)		(2	)		9			(2	)		7
Time deposits		1,578		(2,077	)		(499	)		1,534			(1,792	)		(258	)		(21	)		(895	)		(916	)
Subordinated loans		4		(29	)		(25	)		3			(39	)		(36	)		343			8			351
Borrowings		296		(263	)		33			204			(229	)		(25	)		(11	)		(193	)		(204	)
Total interest expense		2,152		(2,680	)		(528	)		1,935			(2,321	)		(386	)		757			(1,639	)		(882	)
Net change in net interest income	$	3,257	$	(2,323	)	$	934		$	2,939		$	(773	)	$	2,166		$	72,719		$	(71,938	)	$	781

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.

Management extensively reviews recent trends in changes in the size and composition of the loan portfolio, historical ~~losses,~~loss experience, qualitative factors, and specific reserve needs on loans individually evaluated for impairment, in its determination of the adequacy of the allowance for loan losses. We recorded $1.0 million in provision for loan losses for the three-month period ended March 31, 2021 and $1.1 million in provision for loan losses for the three month period ended ~~June 30,~~March 31, 2020. The provisioning in 2021 and 2020 ~~as compared~~reflects a prudent addition to ~~$610,000 for~~reserves considering loan growth, asset quality metrics, and continued COVID-19 economic uncertainty. The credit-sensitive portfolios continue to be carefully monitored, and the ~~three month period ended June 30, 2019. The $536,000 increase in the provision for~~Bank will consistently apply its proven conservative loan ~~losses for the second quarter of 2020, as compared~~classification and reserve building methodologies to the ~~same quarter in 2019, resulted from year-over-year increases in: (1) the qualitative factors used in determining the adequacy~~analysis of the allowance for loan losses, (2) the size of the loan portfolio, and (3) delinquent and nonaccrual loans. The increase in the quantitative factors used in determining the provision for loan losses reflects the substantial increase in economic uncertainty and the resultant potential for increased credit losses in future periods as a consequence of the COVID-19 pandemic.these portfolios. Outstanding loan balances, excluding PPP loans, increased ~~$113.2~~$42.9 million, or ~~16.3%~~5.7%, in the quarter ended ~~June 30, 2020,~~March 31, 2021, as compared to the same quarter in the previous year, and therefore required a corresponding increase in the estimable and probable loan losses inherent in the loan portfolio. ~~Finally, the provision for loan losses in the quarter ended June 30, 2020 was further increased, as compared to the same quarter in 2019, by the effects of an~~

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

The Company measures delinquency based on the amount of past due loans as a percentage of total loans. The ratio of delinquent loans to total loans increased to ~~3.19%~~2.01% at ~~June 30, 2020~~March 31, 2021 as compared to ~~2.09%~~1.85% at December 31, ~~2019.~~2020. Delinquent loans ~~(numerator)~~ increased ~~$9.5 million while~~at a rate that was modestly more than the rate of increase in total loan balances, ~~(denominator) increased $26.5 million at June 30, 2020, as compared to December 31, 2019. The increase in past due loans was~~ primarily driven by an increase of ~~$6.8~~$1.8 million in loans delinquent ~~60-89~~30-59 days, and an increase of ~~$2.9~~$1.2 million in loans 60-89 days past due, partially offset by an $917,000 decrease in loans delinquent more than 90 ~~days, partially offset by a $210,000 decrease in loans delinquent 30-59~~ days. ~~The increase in loans 60-89 days past due at June 30, 2020 as compared to December~~At March 31, 2019 was primarily due to the addition of nine commercial loans totaling $6.6 million. The increase in loans delinquent 90 days or more at June 30, 2020 as compared to December 31, 2019 was primarily due to the addition of six commercial loans totaling $3.2 million.

~~At June 30, 2020,~~2021, there were ~~$25.8~~$17.4 million in loans past due including ~~$9.6~~$5.5 million in loans 30-59 days past due, $8.2 million in loans 60-89 days past due and $8.0 million in loans 90 or more days past due. At December 31, 2019, there were $16.3 million in loans past due including $9.7 million in loans 30-59 days past due, $1.4$6.6 million in loans 60-89 days past due and $5.2 million in loans 90 or more days past due. At December 31, 2020, there were $15.3 million in loans past due including $3.8 million in loans 30-59 days past due, $5.4 million in loans 60-89 days past due and $6.2 million in loans 90 or more days past due.

The increase of $2.1 million in total loans past due at March 31, 2021, as compared to December 31, 2020, was primarily due to an increase of $1.8 million in loans 30-59 days past due. The increase in loans 30-59 days past due at March 31, 2021 as compared to December 31, 2020 was primarily due to the addition of one commercial real estate loan with an outstanding balance of $1.4 million. Total loans 60-89 days past due increased in aggregate primarily due to the addition of one commercial real estate loan in the amount of $3.1 million, which was offset by a decrease in residential and consumer loans. The decrease in loans 90 days or more past due was primarily a result of a decrease in commercial loans, residential mortgages and consumer loans that were 90 days or more past due.

The determination of the overall adequacy of the allowance for loan losses is also influenced by individual loan and borrower analyses that include reviews of such factors as the delinquency status of loans, assessments of underlying collateral sufficiency and/or the borrower’s documented resources outside of the specific loan relationship (referred to as the borrower’s “global” capacity to repay), personal or corporate guarantees, and the conclusions drawn from detailed discussions with borrowers. Therefore, the level of loan delinquencies, while generally indicative of the potential levels of future loan charge-offs, are not wholly-definitive in making that determination. Management believes that the allowance for loan losses was adequate at March 31, 2021, based on its analyses of the totality of factors related to making that determination.

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

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

	Three months ended June 30,										Six months ended June 30,										For the three months ended
(Dollars in thousands)	2020			2019		Change					2020			2019		Change					March 31, 2021		March 31, 2020			Change
Service charges on deposit accounts	$	303		$	348	$	(45	)	-12.9	%	$	659		$	630	$	29		4.6	%	$	331	$	356		$	(25	)	-7.0	%
Earnings and gain on bank owned life insurance		106			101		5		5.0	%		222			222		-		0.0	%		125		116			9		7.8	%
Loan servicing fees		79			60		19		31.7	%		128			87		41		47.1	%		90		49			41		83.7	%
Debit card interchange fees		205			187		18		9.6	%		368			331		37		11.2	%		221		163			58		35.6	%
Insurance agency revenue		185			218		(33	)	-15.1	%		522			461		61		13.2	%		280		337			(57	)	-16.9	%
Other charges, commissions and fees		255			244		11		4.5	%		478			408		70		17.2	%		243		223			20		9.0	%
Noninterest income before gains (losses)		1,133			1,158		(25	)	-2.2	%		2,377			2,139		238		11.1	%		1,290		1,244			46		3.7	%
Net gains on sales and redemptions of investment securities		1,023			32		991		3096.9	%		1,049			111		938		845.0	%		-		26			(26	)	-100.0	%
(Losses) gains on marketable equity securities		(722	)		16		(738	)	-4612.5	%		(916	)		57		(973	)	-1707.0	%
Gains/(losses) on marketable equity securities																						234		(194	)		428		220.6	%
Net gains on sales of loans and foreclosed real estate		97			13		84		-646.2	%		769			5		764		15280.0	%		120		672			(552	)	-82.1	%
Gains on sale of premises and equipment																						201		-			201		100.0	%
Total noninterest income	$	1,531		$	1,219	$	312		25.6	%	$	3,279		$	2,312	$	967		41.8	%	$	1,845	$	1,748		$	97		5.5	%

The ~~$312,000,~~$97,000, or ~~25.6%~~5.5%, increase in noninterest income in the quarter ended ~~June 30, 2020,~~March 31, 2021, as compared to the same quarterly period in ~~2019,~~2020, was primarily the result of ~~a $253,000~~an increase of $428,000 in gains on marketable equity securities and

$201,000 in gains on sale of premises and equipment. The increase in ~~income from the combined investment related activities of (1) net~~ gains on ~~sales and redemptions~~marketable equity securities was directly correlated with the underlying stock price of ~~investment~~those securities ~~and (2) net losses on equity securities. During the second quarter of 2020, net~~which increased with improving market conditions. The increase in gains on ~~sales~~premises and ~~redemptions~~equipment was a result of ~~investment securities increased $991,000, as compared to~~ the ~~previous year period, and this increase was partially~~sale of property held in the Whispering Oaks subsidiary. These increases were offset by a ~~$738,000 decline in gains on equity securities,~~

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

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

The $967,000, or 41.8%, increase in noninterest income for the six months ended June 30, 2020, when compared to the same six month period in 2019, was primarily the result of an increase of $938,000 in net gains on sales and redemptions of investment securities, which decreased $552,000 and ~~a $764,000 increase in net gains on~~$26,000 when compared to the ~~sales~~first quarter of ~~loans and foreclosed real estate. The investment securities sales were part of the Company’s portfolio optimization and liquidity management strategies. The increased gain on the sales of loans and~~ ~~foreclosed real estate was primarily the result of the sale of $35.9 million in seasoned, conforming residential mortgage loans that was completed in January~~ 2020, ~~and resulted in the recognition of a gain of $659,000.~~ ~~These increases in noninterest income were partially offset by a $973,000 increase in net losses on equity securities, as discussed above.~~

~~Excluding the effects of the period over period fluctuations discussed above all~~respectively. All other noninterest income categories increased by $46,000, or 3.7%, in the ~~aggregate by $238,000, or 11.1%, to $2.4 million in the six~~three months ended ~~June 30, 2020~~March 31, 2021 as compared ~~with $2.1 million in~~to the same ~~six month~~prior year period ~~of 2019. This $238,000 period over period increase in noninterest income was~~primarily due ~~primarily~~ to increases in ~~other charges, commissions and fees, insurance agency revenue,~~ debit ~~card~~ interchange fees, loan servicing fees, and ~~service~~other charges, oncommissions and fees. These increases were partially offset by a decrease in insurance agency revenue and deposit ~~accounts, which increased $70,000, $61,000, $37,000, $41,000,~~account fees of $57,000 and ~~$29,000,~~$25,000, respectively. The net increase in these categories of noninterest income were in part due to the Company’s increased strategic focus on improving recurring noninterest income. However, as noted above, overall increases in noninterest income were significantly muted in the second quarter of 2020 by reduced customer activity levels and the Bank’s increased levels of fee waivers and forbearances in response to the local economic effects of the COVID-19 pandemic.

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

	Three months ended June 30,									Six months ended June 30,									For the three months ended
(Dollars in thousands)	2020		2019		Change					2020		2019		Change					March 31, 2021		March 31, 2020		Change
Salaries and employee benefits	$	2,972	$	3,454	$	(482	)	-14.0	%	$	6,219	$	7,104	$	(885	)	-12.5	%	$	3,341	$	3,247	$	94		2.9	%
Building and occupancy		707		632		75		11.9	%		1,461		1,287		174		13.5	%		793		754		39		5.2	%
Data processing		552		587		(35	)	-6.0	%		1,152		1,162		(10	)	-0.9	%		676		600		76		12.7	%
Professional and other services		301		380		(79	)	-20.8	%		617		716		(99	)	-13.8	%		417		316		101		32.0	%
Advertising		261		242		19		7.9	%		437		481		(44	)	-9.1	%		246		176		70		39.8	%
FDIC assessments		150		130		20		15.4	%		339		241		98		40.7	%		198		189		9		4.8	%
Audits and exams		125		100		25		25.0	%		250		200		50		25.0	%		202		125		77		61.6	%
Insurance agency expense		212		229		(17	)	-7.4	%		404		428		(24	)	-5.6	%		202		192		10		5.2	%
Community service activities		12		144		(132	)	-91.7	%		119		282		(163	)	-57.8	%		48		107		(59	)	-55.1	%
Foreclosed real estate expenses		5		59		(54	)	-91.5	%		35		296		(261	)	-88.2	%		6		30		(24	)	-80.0	%
Other expenses		461		582		(121	)	-20.8	%		970		1,053		(83	)	-7.9	%		507		509		(2	)	-0.4	%
Total noninterest expenses	$	5,758	$	6,539	$	(781	)	-11.9	%	$	12,003	$	13,250	$	(1,247	)	-9.4	%	$	6,636	$	6,245	$	391		6.3	%

~~The $781,000, or 11.9%, decrease in~~Total noninterest expense ~~between~~for the ~~year-over-year second~~first quarter ~~periods~~of 2021 was ~~principally due~~$6.6 million, an increase of $391,000, or 6.3%, in comparison to $6.2 million for the same three-month period in 2020. The increase was primarily a ~~decrease in~~result of higher professional and other services fees, salaries and employee ~~benefits~~benefit expense ~~of $482,000, or 14.0%. All other noninterest expenses in aggregate increased $299,000, or 9.7%, for the three months ended June 30, 2020 as compared to the same three month period in 2019.~~ and audits and exams expense.

The detail of the components of the overall ~~decrease~~increase in noninterest expense is as follows:

~~The $1.2 million, or 9.4%, decrease~~growth in noninterest expenses between the six month period ended June 30, 2020 and the same six month period in the prior year was principally due to a decrease in salaries and employee benefits expense, foreclosed real estate expense, and community service activities. The detail of the components of the overall decrease in noninterest expense is as follows:

At June 30, 2020, the Bank serviced 476 residential mortgage loans in the aggregate amount of $48.8 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. 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.

Income tax expense increased ~~$264,000~~$94,000 to ~~$439,000,~~$549,000, with an effective tax rate of ~~19.2%,~~20.6% for the quarter ended ~~June 30, 2020,~~March 31, 2021, as compared to ~~$175,000,~~$455,000, with an effective tax rate of ~~22.2%~~22.0%, for the same three month period in 2019. The increase in income tax expense in the current quarter, as compared to the same quarter in 2019, was primarily attributable to the year-over-year second quarter increase in pre-tax net income.2020.

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

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

The Company’s effective tax rate typically differs from the 21% federal statutory ~~federal~~ tax rate ~~of 21%~~ due primarily to tax-exempt income from specific types of investment securities and loans, bank owned life insurance, and, to a much lesser degree, the utilization of ~~low-income~~low income housing ~~credits.~~tax credits, as well as the effects of transitional adjustments related to state income taxes and certain taxes payable to states other than New York. In addition, the tax effects of certain incentive stock option activity may also reduce the Company’s effective tax rate on a sporadic basis. During the ~~six months~~quarter ended ~~June 30, 2020,~~March 31, 2021, these effects reduced the Company’s effective tax rate by ~~0.2%~~0.3%. ~~Excluding the nonrecurring charge related to the deferred tax asset valuation allowance, income tax expense in the first half of 2020 would have been $604,000 more than the same prior year period.~~ The increase in income tax expense, as compared to the previous year’s same period, was primarily attributable to the year-over-year first ~~half~~quarter increase in pre-tax net ~~income.~~

Basic and diluted earnings per share were ~~$0.31 per share~~$0.36 for the ~~second~~first quarter of ~~2020,~~2021, as compared to ~~$0.11~~$0.29 per basic and diluted share for the same quarter of ~~2019.~~

~~Basic~~2020. These $0.07 increases in basic and fully diluted earnings per share, respectively, were ~~$0.60 for the six month period ended June 30, 2020, as compared to $0.23 for the same prior year period. The increase in earnings per share between these two periods was due to~~driven principally by the increase in net income between these two ~~time~~ periods. Further information on earnings per share can be found in Note 3 of this Form 10-Q.

Total assets increased ~~$73.2~~$79.7 million, or ~~6.7%~~6.5%, to $1.3 billion at March 31, 2021, as compared to $1.2 billion at ~~June 30, 2020 as compared to $1.1 billion at~~ December 31, ~~2019.~~2020. This increase was due primarily to increases in ~~loans,~~ cash and cash equivalents, ~~and~~ investment ~~securities.~~

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

York market. The decrease in the residential mortgage loans was primarily the result of the sale of $35.9 million in seasoned conforming residential mortgage loans in the first quarter of 2020, which generated a $680,000 gain. The decrease in consumer loans was primarily due to general amortization.bank owned life insurance.

Cash and cash equivalents increased ~~$25.0~~$8.5 million, or ~~123.8%~~19.6%, to ~~$45.1~~$52.0 million at ~~June 30, 2020,~~March 31, 2021, as compared to ~~$20.2~~$43.5 million at December 31, ~~2019. The $25.0 million~~2020. This increase in cash and cash equivalents was ~~primarily due to the ongoing COVID-19 pandemic; as a result, the Bank has substantially increased the liquidity of its balance sheet to support the potential needs of its customers and communities.~~transitory in nature. Total restricted cash was $1.6 million ~~and -$0-~~ at ~~June 30, 2020~~March 31, 2021 and December 31, ~~2019, respectively.~~2020.

Investment securities increased ~~$24.3~~$25.6 million, or ~~10.4%~~8.4%, to ~~$259.0~~$331.4 million at ~~June 30, 2020,~~March 31, 2021, as compared to ~~$234.7~~$305.7 million at December 31, ~~2019,~~2020, due principally to purchases of securities during the first ~~six months~~quarter of 2021.

Total net loans receivable increased $38.9 million, or 4.8%, to $851.6 million at March 31, 2021 from $812.7 million at December 31, 2020. This increase was primarily the result of an increase in commercial loans of $27.3 million and a $14.6 million increase in consumer loans during the first quarter of 2021. The increase in commercial loans was primarily due to increases of $11.6 million in advances to customers on commercial lines of credit, a net $11.2 million increase in outstanding PPP loan balances and a $2.9 million increase in commercial real estate loans. The increase in consumer loans was due to the $17.1 million purchase of a pool of secured consumer installment loans, partially offset by a decrease in home equity and junior lien loans of $2.4 million.

Bank owned life insurance increased $5.1 million due to the $5.0 million purchase of additional coverage on bank owned life insurance policies.

Total liabilities increased ~~$71.3~~$77.2 million to $1.2 billion at March 31, 2021 compared to $1.1 billion at December 31, 2020. Deposits increased $73.0 million, or ~~7.1%~~7.3%, to $1.1 billion at ~~June 30, 2020~~March 31, 2021, compared to ~~$1.0 billion at December 31, 2019. Deposits increased $88.7 million, or 10.1%, to $970.6 million at June 30, 2020, compared to $881.9~~$995.9 million at December 31, ~~2019.~~2020. Noninterest-bearing deposits were up $35.4 million, or 21.9%, from the 2020 year end, primarily the result of the Bank’s participation in the PPP, as well as ongoing growth in business banking relationships. The increase in deposits compared to December 31, 2020 was due to growth in retail and commercial relationship deposits ~~along with~~The Bank utilizes the Certificates of Deposit Account Registry Service (“CDARS”) provided by Promontory Interfinancial Network and other deposits acquired through unaffiliated financial institutions as forms of brokered ~~deposit inflows,~~deposits. At March 31, 2021, deposits obtained through the use of these services decreased $5.8 million to $164.1 million as ~~a result of the Bank’s efforts~~compared to ~~significantly increase cash and cash equivalent balances in response to the COVID-19 pandemic. Noninterest-bearing deposits were $160.1~~$170.0 million at ~~quarter end, compared with $107.5 million on~~ December 31, 2019. Second quarter noninterest-bearing deposits increased by $46.6 million from March 31, 2020, primarily as a result of the Bank’s participation in the PPP lending program, as well as ongoing growth in business banking relationships.2020. Borrowed funds balances from the FHLB-NY ~~decreased $17.7~~increased $4.4 million, or ~~19.0%~~5.4%, to ~~$75.4~~$86.5 million at ~~June 30, 2020~~March 31, 2021 from ~~$93.1~~$82.1 million at December 31, ~~2019.~~

The Company’s shareholders’ equity, exclusive of the noncontrolling interest, increased ~~$1.9~~$2.5 million ~~or 2.1%,~~ to ~~$92.3~~$99.9 million at ~~June 30, 2020,~~March 31, 2021 from ~~$90.4~~$97.5 million at December 31, ~~2019.~~2020. This increase in shareholders’ equity during the quarter ended March 31, 2021 was principally due to a ~~$2.8~~$1.7 million increase in retained earnings, a ~~$385,000~~$468,000 decrease in accumulated other comprehensive loss, a $234,000 increase in ~~additional paid in~~paid-in capital, and a ~~$90,000~~$45,000 increase in earned ESOP shares earned, offset by a $1.4 million decrease in comprehensive income. Comprehensive income decreased primarily as the result of losses on derivatives and hedging activities during the six month period. shares.

The increase in retained earnings resulted from ~~$3.6~~$2.2 million in net income recorded in the first ~~six~~three months of ~~2020. Partially offsetting this increase in retained~~2021. Retained earnings ~~were $557,000~~was partially offset by $312,000 for cash dividends declared on our common stock, ~~$138,000~~$97,000 for cash dividends declared on our preferred stock, and ~~$15,000~~$9,000 for cash dividends declared on our issued warrant.

Capital adequacy is evaluated primarily by the use of ratios which measure capital against total assets, as well as against total assets that are weighted based on defined risk characteristics. The Company’s goal is to maintain a strong capital position, consistent with the risk profile of its banking operations. This strong capital position serves to support growth and expansion activities while at the same time exceeding regulatory standards. At ~~June 30, 2020,~~March 31, 2021, the Bank met the regulatory definition of a “well-capitalized” institution, i.e. a leverage capital ratio exceeding 5%, a Tier 1 risk-based capital ratio exceeding 8%, Tier 1 common equity exceeding 6.5%, and a total risk-based capital ratio exceeding 10%.

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

assets. At ~~June 30, 2020,~~March 31, 2021, the Bank exceeded all regulatory required minimum capital ratios, including the capital buffer requirements.

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

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

	Actual					Minimum For Capital Adequacy Purposes					Minimum To Be "Well-Capitalized" Under Prompt Corrective Provisions					Minimum For Capital Adequacy with Buffer					Actual					Minimum For Capital Adequacy Purposes					Minimum To Be "Well-Capitalized" Under Prompt Corrective Provisions					Minimum For Capital Adequacy with Buffer
(Dollars in thousands)	Amount		Ratio			Amount		Ratio			Amount		Ratio			Amount		Ratio			Amount		Ratio			Amount		Ratio			Amount		Ratio			Amount		Ratio
As of June 30, 2020:
As of March 31, 2021:
Total Core Capital (to Risk-Weighted Assets)	$	105,603		12.64	%	$	66,848		8.00	%	$	83,561		10.00	%	$	87,739		10.50	%	$	118,007		13.48	%	$	70,052		8.00	%	$	87,565		10.00	%	$	91,943		10.50	%
Tier 1 Capital (to Risk-Weighted Assets)	$	95,157		11.39	%	$	50,136		6.00	%	$	66,848		8.00	%	$	71,026		8.50	%	$	107,027		12.22	%	$	52,539		6.00	%	$	70,052		8.00	%	$	74,430		8.50	%
Tier 1 Common Equity (to Risk-Weighted Assets)	$	95,157		11.39	%	$	37,602		4.50	%	$	54,314		6.50	%	$	58,492		7.00	%	$	107,027		12.22	%	$	39,404		4.50	%	$	56,917		6.50	%	$	61,296		7.00	%
Tier 1 Capital (to Assets)	$	95,157		8.17	%	$	46,607		4.00	%	$	58,259		5.00	%	$	58,259		5.00	%	$	107,027		8.49	%	$	50,409		4.00	%	$	63,011		5.00	%	$	63,011		5.00	%
As of December 31, 2019:
As of December 31, 2020
Total Core Capital (to Risk-Weighted Assets)	$	95,093		12.28	%	$	61,934		8.00	%	$	77,418		10.00	%	$	81,289		10.50	%	$	115,289		13.13	%	$	70,270		8.00	%	$	87,838		10.00	%	$	92,230		10.50	%
Tier 1 Capital (to Risk-Weighted Assets)	$	86,424		11.16	%	$	46,451		6.00	%	$	61,934		8.00	%	$	65,805		8.50	%	$	104,287		11.87	%	$	52,703		6.00	%	$	70,270		8.00	%	$	74,662		8.50	%
Tier 1 Common Equity (to Risk-Weighted Assets)	$	86,424		11.16	%	$	34,838		4.50	%	$	50,322		6.50	%	$	54,192		7.00	%	$	104,287		11.87	%	$	39,527		4.50	%	$	57,095		6.50	%	$	61,487		7.00	%
Tier 1 Capital (to Assets)	$	86,424		8.20	%	$	42,175		4.00	%	$	52,719		5.00	%	$	52,719		5.00	%	$	104,287		8.63	%	$	48,314		4.00	%	$	60,392		5.00	%	$	60,392		5.00	%

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

	June 30,				December 31,				March 31,				December 31,
(Dollars in thousands)	2020				2019				2021				2020
Regulatory Capital Ratios (Bank Only)
Total capital (to risk-weighted assets)
Total equity (GAAP)	$	95,447			$	88,138			$	109,924			$	106,720
Goodwill		(4,536	)			(4,536	)			(4,536	)			(4,536	)
Intangible assets		(141	)			(149	)			(129	)			(133	)
Addback: Accumulated other comprehensive income		4,387				2,971				1,768				2,236
Total Tier 1 Capital	$	95,157			$	86,424			$	107,027			$	104,287
Allowance for loan and lease losses		10,446				8,669				10,980				11,002
Total Tier 2 Capital	$	10,446			$	8,669			$	10,980			$	11,002
Total Tier 1 plus Tier 2 Capital (numerator)	$	105,603			$	95,093			$	118,007			$	115,289
Risk-weighted assets (denominator)		835,605				774,177				875,652				878,380
Total core capital to risk-weighted assets		12.64		%		12.28		%		13.48		%		13.13		%

Tier 1 capital (to risk-weighted assets)
Total Tier 1 capital (numerator)	$	95,157			$	86,424			$	107,027			$	104,287
Risk-weighted assets (denominator)		835,605				774,177				875,652				878,380
Total capital to risk-weighted assets		11.39		%		11.16		%		12.22		%		11.87		%

Tier 1 capital (to adjusted assets)
Total Tier 1 capital (numerator)	$	95,157			$	86,424			$	107,027			$	104,287
Total average assets		1,169,861				1,059,060				1,264,881				1,212,512
Goodwill		(4,536	)			(4,536	)			(4,536	)			(4,536	)
Intangible assets		(141	)			(149	)			(129	)			(133	)
Adjusted assets (denominator)	$	1,165,184			$	1,054,375			$	1,260,216			$	1,207,843
Total capital to adjusted assets		8.17		%		8.20		%		8.49		%		8.63		%

Tier 1 Common Equity (to risk-weighted assets)
Total Tier 1 capital (numerator)	$	95,157			$	86,424			$	107,027			$	104,287
Risk-weighted assets (denominator)		835,605				774,177				875,652				878,380
Total Tier 1 Common Equity to risk-weighted assets		11.39		%		11.16		%		12.22		%		11.87		%

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

	June 30,			December 31,			June 30,			March 31,			December 31,			March 31,
(Dollars In thousands)	2020			2019			2019			2021			2020			2020
Nonaccrual loans:
Commercial and commercial real estate loans	$	6,807		$	3,002		$	2,470		$	17,842		$	17,978		$	2,969
Consumer		540			631			367			602			747			657
Residential mortgage loans		1,038			1,613			918			2,899			2,608			1,040
Total nonaccrual loans		8,385			5,246			3,755			21,343			21,333			4,666
Total nonperforming loans		8,385			5,246			3,755			21,343			21,333			4,666
Foreclosed real estate		26			88			591			-			-			58
Total nonperforming assets	$	8,411		$	5,334		$	4,346		$	21,343		$	21,333		$	4,724

Accruing troubled debt restructurings	$	2,020		$	2,008		$	2,860		$	5,378		$	3,554		$	2,033

Nonperforming loans to total loans		1.04	%		0.67	%		0.54	%		2.47	%		2.58	%		0.62	%
Nonperforming assets to total assets		0.72	%		0.49	%		0.43	%		1.63	%		1.74	%		0.43	%

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.~~interest at the dates indicated in the table above. Loans are considered modified in a TDR when, due to a borrower’s financial difficulties, the Company makes a concession(s) to the borrower that it would not otherwise consider. These modifications may include, among others, an extension of the term of the loan, and granting a period when interest-only payments can be made, with the principal payments made over the remaining term of the loan or at maturity. TDRs are included in the above table within the categories of nonaccrual loans or accruing TDRs. There ~~was one~~were three nonaccruing TDR ~~loan,~~loans, with an aggregate carrying value of ~~$74,000~~$1.6 million included among the nonaccrual loans detailed in the table above at ~~June 30, 2020.~~ March 31, 2021.

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) ~~December 31, 2020~~January 1, 2022 or (ii) 60 days after the end of the COVID-19 national emergency. The relief can only be applied to modifications for borrowers that were not more than 30 days past due as of December 31, 2019. The Bank elected to adopt these provisions of the CARES Act.

As indicated in the table above, nonperforming assets at ~~June 30, 2020~~March 31, 2021 were ~~$8.4~~$21.3 million and were ~~$3.1 million higher than~~consistent with the ~~$5.3~~$21.3 million reported at December 31, ~~2019,~~2020 and increased $16.6 million from March 31, 2020. The increase from March 31, 2020 was due primarily to an increase of ~~$3.8~~$14.9 million in nonperforming commercial loans and ~~commercial real estate loans. This~~a $1.9 million increase ~~was~~in nonperforming residential loans, partially offset by a decrease of ~~$575,000 in nonperforming residential mortgage loans, a $91,000 decrease~~$55,000 in nonperforming consumer loans and residential mortgages loans and a ~~$62,000~~$58,000 decrease in ~~FRE~~

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

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

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

The allowance for loan losses represents management’s estimate of the probable losses inherent in the loan portfolio as of the date of the statement of condition. The allowance for loan losses was ~~$10.6~~$13.7 million and ~~$8.7~~$12.8 million at ~~June 30, 2020~~March 31, 2021 and December 31, ~~2019,~~2020, respectively. The ratio of the allowance for loan losses to total loans increased 203 basis points to ~~1.31%~~1.58% at ~~June 30, 2020~~March 31, 2021 from ~~1.11%~~1.55% at December 31, ~~2019.~~2020. Management performs a quarterly evaluation of the allowance for loan losses based on quantitative and qualitative factors and has determined that the current level of the allowance for loan losses is adequate to absorb the losses in the loan portfolio as of ~~June 30, 2020.~~March 31, 2021.

The Company considers a loan impaired when, based on current information and events, it is probable that the Company will be unable to collect the scheduled payments of principal and interest when due according to the contractual terms of the loan. The measurement of impaired loans is generally based upon the fair value of the collateral, with a portion of the impaired loans measured based upon the present value of future cash flows discounted at the historical effective interest rate. A specific reserve is established for an impaired loan if its carrying value exceeds its estimated fair value. The estimated fair values of the majority of the Company’s impaired loans are measured based on the estimated fair value of the loan’s collateral. For loans secured by real estate, estimated fair values are determined primarily through third-party appraisals or broker price opinions. When a loan is determined to be impaired, the Bank will reevaluate the collateral which secures the loan. For real estate, the Company will obtain a new appraisal or broker’s opinion whichever is considered to provide the most accurate value in the event of sale. An evaluation of equipment held as collateral will be obtained from a firm able to provide such an evaluation. Collateral will be inspected not less than annually for all impaired loans and will be reevaluated not less than every two years. Appraised values and broker opinion values are discounted due to the market’s perception of a reduced price of Bank-owned property and the Bank’s desire to sell the property ~~more quickly~~quicker to arrive at the estimated selling price of the collateral, which is considered to be the estimated fair value. The discounts also include estimated costs to sell the property.

At ~~June 30, 2020~~March 31, 2021 and December 31, ~~2019,~~2020, the Company had ~~$7.8~~$23.4 million and ~~$7.5~~$22.8 million in loans, ~~respectively,~~ which were deemed to be impaired, having established specific reserves of ~~$1.0~~$2.9 million and ~~$830,000,~~$2.8 million, respectively, on these loans. The increase in impaired loans between these two dates was primarily driven by increases of $215,000 and $127,000, in impaired commercial real estate loans and other commercial and industrial loans. The $190,000 increase in specific reserves for impaired loans at June 30, 2020 as compared to December 31, 2019 was primarily due to a $157,000 increase in specific reserves for other commercial and industrial loans and a $56,000 increase in specific reserves for residential real estate loans.

Management has identified potential credit problems which may result in the borrowers not being able to comply with the current loan repayment terms and which may result in those loans being included in future impaired loan reporting. Potential problem loans totaled ~~$32.3~~$26.7 million as of ~~June 30, 2020,~~March 31, 2021, an increase of ~~$847,000,~~$3.6 million, or ~~2.7%~~15.3%, as compared to ~~$31.5~~$23.1 million at December 31, ~~2019.~~2020. These loans have been internally classified as special mention, substandard, or doubtful, yet are not currently considered impaired. ~~Due to the adverse economic impacts of the COVID-19 pandemic on our market area and our customers, the Company expects that potential problem loans may increase during the course of fiscal 2020.~~

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

In the normal course of business, the Bank ~~has infrequently sold~~sells residential mortgage loans and, infrequently, participation interests in commercial loans. As is typical in the industry, the Bank makes certain representations and warranties to the ~~buyer.~~buyer of those loans. The Bank maintains a quality control program for closed loans and considers the risks and uncertainties associated with potential repurchase requirements related to sold loans to be minimal.

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.

For the first ~~six~~three months of ~~2020, as indicated in the consolidated statement of~~2021, cash ~~flows, the Company reported net~~and cash flows from operating activities of $40.3 million and net cash outflows of $85.9 million related to investing activities. The net cash outflows from investing activities primarily was due to a net $61.0 million increase in loan balances, combined with a $24.8 million increase in all other investing activities in aggregate.equivalents increased by $8.5 million. The Company reported net cash flows from financing activities of ~~$70.5~~$77.2 million generated ~~principally~~primarily by increased customer deposit balances of ~~$60.6 million,~~$78.8 million. The increase in deposits was the result of organic growth in consumer, business and ~~increased brokered deposits balances of $28.1 million, partially offset by~~municipal segments within our existing marketplace. This increase was combined with an ~~aggregate decrease~~increase in net cash of ~~$17.6~~$4.5 million from ~~all other financing sources, including~~borrowings and was offset by dividends paid to common and preferred shareholders, and decreased balances in brokered deposits. The Company reported net cash outflows from investing activities of ~~$567,000.~~$72.0 million, primarily due to the purchase of securities and funding of loans, offset by proceeds and principal reductions in investment securities. Additionally, $3.3 million was provided through operating activities, primarily from the sale of residential loans to the secondary market.

The Company has a number of existing credit facilities available to it. At ~~June 30, 2020,~~March 31, 2021, total credit available to the Company under the existing lines of credit was approximately ~~$137.7~~$146.7 million at FHLBNY, the Federal Reserve Bank, and two other correspondent banks. As of ~~June 30, 2020,~~March 31, 2021, the Company had ~~$75.4~~$86.5 million of the available lines of credit utilized on its existing lines of credit with ~~$62.3~~$60.2 million available.

The Asset Liability Management Committee of the Company is responsible for implementing the policies and guidelines for the maintenance of prudent levels of liquidity. As of ~~June 30, 2020,~~March 31, 2021, management reported to the Board of Directors that the Company iswas in compliance with its liquidity policy guidelines.

The Company is also a party to financial instruments with off-balance sheet risk in the normal course of business to meet the financing needs of its customers. These financial instruments include commitments to extend credit and standby letters of credit. At ~~June 30, 2020,~~March 31, 2021, the Company had ~~$159.3~~$180.1 million in outstanding commitments to extend credit and standby letters of credit.

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

Under the supervision and with the participation of ~~the Company’s management, including~~ our Chief Executive Officer (“CEO”) and our Chief Financial Officer ~~the Company has evaluated~~(“CFO”) (the Company’s principal executive officer and principal financial officer), management conducted an evaluation of the effectiveness of the design and operation of ~~its~~our disclosure controls and procedures (as defined in Rule 13a-15(e) and 15d-15(e) under the Exchange Act) as of the end of the period covered by this quarterly report. Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that, as of the end of the period covered by this report, the Company’s disclosureMarch 31, 2021. The term “disclosure controls and procedures,” under the Exchange Act, means controls and other procedures of a company that are ~~effective~~designed to ensure that information required to be disclosed by a company in the reports that ~~the Company~~it files or submits under the ~~Securities~~ Exchange Act ~~of 1934~~ is recorded, processed, summarized and reported, within the time periods specified in the ~~Securities and Exchange Commission’s~~SEC’s rules and forms. ~~There has been no change~~Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the ~~Company’s~~reports that it files or submits under the Exchange Act is accumulated and communicated to our management, including its principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure.

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

Based on the evaluation of our disclosure controls and procedures as of March 31, 2021, our CEO and CFO concluded that, solely as a result of the material weaknesses in internal control over financial reporting described below, which continued to exist as of March 31, 2021, our disclosure controls and procedures were not effective as of March 31, 2021.

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

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

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

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

There were no changes made in our internal controls during the ~~most recent fiscal~~ quarter ended March 31, 2021 that ~~has~~have materially affected, or ~~is reasonable~~are reasonably likely to materially affect, the Company’s internal control over financial ~~reporting.~~reporting.

At ~~June 30, 2020,~~March 31, 2021, the Company is not currently a named party in a legal proceeding, the outcome of which would have a material and adverse effect on the financial condition or results of operations of the Company.

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

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

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


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

PART I - FINANCIAL INFORMATION				PAGE NO.

Item 1.	Consolidated Financial Statements (Unaudited)			3
	Consolidated Statements of Condition			3
	Consolidated Statements of Income			4
	Consolidated Statements of Comprehensive Income			5
	Consolidated Statements of Changes in Shareholders' Equity			6
	Consolidated Statements of Cash Flows		8	7
	Notes to Consolidated Financial Statements		10	9

Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations (Unaudited)	53

Item 3.	Quantitative and Qualitative Disclosures About Market Risk		76	73

Item 4.	Controls and Procedures		76	73

PART II - OTHER INFORMATION

Item 1.	Legal Proceedings		77	75
Item 1A.	Risk Factors		77	75
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds		77	75
Item 3.	Defaults upon Senior Securities		77	75
Item 4.	Mine Safety Disclosures		77	75
Item 5.	Other information		77	75
Item 6.	Exhibits		77	75

SIGNATURES			78	76

FINANCING ACTIVITIES
Net change in demand deposits, NOW accounts, savings accounts, money management deposit accounts, MMDA accounts and escrow deposits		100,069			(14,292	)
Net change in time deposits		(39,454	)		61,781
Net change in brokered deposits		28,085			34,088
Net change in short-term borrowings		(14,980	)		(10,000	)
Payments on long-term borrowings		(18,060	)		(19,100	)
Proceeds from long-term borrowings		15,312			-
Proceeds from exercise of stock options		195			200
Cash dividends paid to common shareholders		(567	)		(526	)
Cash dividends paid to preferred shareholders		(139	)		-
Cash dividends paid on warrants		(15	)		-
Net proceeds from common stock private placement		-			4,199
Net proceeds from preferred stock private placement		-			15,370
Proceeds from finance lease transaction		-			572
Change in noncontrolling interest, net		57			1
Net cash flows from financing activities		70,503			72,293
Change in cash and cash equivalents		24,963			24,026
Cash and cash equivalents at beginning of period		20,160			26,316
Cash and cash equivalents at end of period	$	45,123		$	50,342
CASH PAID DURING THE PERIOD FOR:
Interest	$	6,259		$	6,382
Income taxes		550			-
NON-CASH INVESTING ACTIVITY
Real estate acquired in exchange for loans		58			503
RESTRICTED CASH
Collateral deposits for hedge position included in cash and due from banks		1,600			-

FINANCING ACTIVITIES
Net change in demand deposits, NOW accounts, savings accounts, money management deposit accounts, MMDA accounts and escrow deposits		73,422			35,546
Net change in time deposits		5,414			2,137
Net change in brokered deposits		(5,835	)		(19,716	)
Net change in short-term borrowings		-			(17,000	)
Proceeds from long-term borrowings		4,450			15,312
Proceeds from exercise of stock options		104			194
Cash dividends paid to common shareholders		(271	)		(283	)
Cash dividends paid to preferred shareholders		(83	)		(69	)
Cash dividends paid on warrants		(8	)		(8	)
Change in noncontrolling interest, net		38			70
Net cash flows from financing activities		77,232			16,183
Change in cash and cash equivalents		8,504			37,419
Cash and cash equivalents at beginning of period		43,464			20,160
Cash and cash equivalents at end of period	$	51,968		$	57,579
CASH PAID DURING THE PERIOD FOR:
Interest	$	2,383		$	3,253
Income taxes		5			200
NON-CASH INVESTING ACTIVITY
Real estate acquired in exchange for loans		-			58
RESTRICTED CASH
Collateral deposits for hedge position included in cash and due from banks		1,600			1,300

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.

~~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 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 amendments in this Update should be applied prospectively. The Company does not expect the new guidance will have a material impact to its consolidated statements of condition or income.~~
~~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 amendments in this Update related to separate financial statements of legal entities that are not subject to tax should be applied on a retrospective basis for all periods presented. The amendments related to changes in ownership of foreign equity method investments or foreign subsidiaries should be applied on a modified retrospective basis through a cumulative-effect adjustment to retained earnings as of the beginning of the fiscal year of adoption. The amendments related to franchise taxes that are partially based on income should be applied on either a retrospective basis for all periods presented or a modified retrospective basis through a cumulative-effect adjustment to retained earnings as of the beginning of the fiscal year of adoption. All other amendments should be applied on a prospective basis. The Company does not expect the new guidance will have a material impact to its consolidated statements of condition or income.

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

Loan Type	Collateral Type	Number of Loans		Loan Balance		Average Loan Balance		Weighted LTV at Origination/ Modification			Status	Loan Balance In Deferral
Secured residential mortgage:
	Real Estate		33	$	2,899	$	88		85	%	Under active resolution management by the Bank.	$	107

Secured commercial real estate:
	Hotel		1		7,202		7,202		73	%	Currently making principal and interest payments. The borrower has substantial deposits with the Bank.		-
	Private Museum		1		1,385		1,385		79	%	The Bank is working on a modification with the borrower. The borrower has substantial deposits with the Bank.		-
	Recreational		1		1,234		1,234		50	%	The loan is currently classified as a Troubled Debt Restructuring (TDR). Next payment is due June 1, 2021.		1,234
	All other		11		1,628		148		86	%	Under active resolution management by the Bank.		259

Commercial lines of credit			5		196		39	N/A			Under active resolution management by the Bank.		-

Commercial and industrial:
	Real Estate		1		4,485		4,485		41	%	The Bank modified the loan and the next payment is due June 1, 2021. Repayment is expected from operations, pledges and collateral value.		4,485
	All Others		10		1,712		171	N/A			Under active resolution by the Bank.		240

Consumer loans			30		602		20	N/A			Under active resolution management by the Bank.		-
			93	$	21,343	$	229					$	6,325

		Quantitative Information about Level 3 Fair Value Measurements
	Valuation	Unobservable	Range
	Techniques	Input	(Weighted Avg.)
At ~~June 30, 2020~~March 31, 2021
Impaired loans	Appraisal of collateral	Appraisal Adjustments	5% - 25% ~~(10%~~(15%)
	(Sales Approach)	Costs to Sell	7% - 13% ~~(11%~~(12%)
	Discounted Cash Flow

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

(In thousands)	Carrying Amount of the Hedged Assets at March 31, 2021		Cumulative Amount of Fair Value Hedging Adjustment Included in The Carrying Amount of the Hedged Assets at March 31, 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:
Available-for-sale securities ⁽¹⁾	$	15,935	$	(1,287	)	$	17,055	$	(191	)

⁽¹⁾These amounts represent the amortized cost basis of the hedged securities used to designate the hedging relationship in which the hedged item is the remaining amortized cost of the last layer expected to be remaining at the end of the hedging relationship. At March 31, 2021, the amortized cost basis of the hedged securities used in the hedging relationship was $15.9 million, the cumulative basis adjustment associated with the hedging relationship reduced the basis of the hedged assets by $1.3 million, and the notional amount of the designated hedged item was $16.3 million. At December 31, 2020, the amortized cost basis of the hedged securities used in the hedging relationship was $17.1 million, the cumulative basis adjustment associated with the hedging relationship reduced the basis of the hedged assets by $191,000, and the notional amount of the designated hedged item was $16.3 million.

(In thousands, except lease term and discount rate)	March 31, 2021			December 31, 2020
Operating Leases:
Operating lease right-of-use assets	$	2,206		$	2,240
Operating lease liabilities	$	2,495		$	2,525

Finance Leases:
Financial Liability	$	590		$	587

Weighted Average Remaining Lease Term:
Operating Leases	18.94 years			19.08 years
Finance Leases	28.17 years			28.42 years

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

Period	Total Number of Shares Purchased ⁽¹⁾		Average Price Paid Per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs		Maximum Number of Shares That May Yet Be Purchased Under the Plans or Programs
~~April~~January 1, ~~2020~~2021 through ~~April 30, 2020~~January 31, 2021		-	$	-		-		74,292

~~May~~February 1, ~~2020~~2021 through ~~May 31, 2020~~February 28, 2021		-	$	-		-		74,292

~~June~~March 1, ~~2020~~2021 through ~~June 30, 2020~~March 31, 2021		-	$	-		-		74,292

Exhibit No.	Description

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

~~August 13, 2020~~May 17, 2021	/s/ Thomas W. Schneider
	Thomas W. Schneider
	President and Chief Executive Officer

~~August 13, 2020~~May 17, 2021	/s/ Walter F. Rusnak
	Walter F. Rusnak
	Senior Vice President and Chief Financial Officer