SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended March 31, 20212022
OR
☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from _______ to _______
(Exact Name of Company as Specified in its Charter)
Maryland (State of Other Jurisdiction of Incorporation) | 001-36695 (Commission File No.) | 38-3941859 (I.R.S. Employer Identification No.)
|
214 West First Street, Oswego, NY 13126
(Address of Principal Executive Office) (Zip Code)
(315) 343-0057
(Issuer'sIssuer’s Telephone Number including area code)
Securities registered pursuant to Section 12(b) of the Act:
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 |
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.
| YES ☒ NO ☐ |
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).
| YES ☒ NO ☐ |
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.
Large accelerated filer ☐ | Accelerated filer ☐ | Non-accelerated filer ☒ | Smaller reporting company ☒ | Emerging growth company ☐ |
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 May 17, 2021,13, 2022, there were 4,553,8864,603,184 shares outstanding of the registrant’s Voting common stock and 1,380,283 shares outstanding of the registrant’s Series A Non-Voting common stock.
INDEX
PART I - FINANCIAL INFORMATION |
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Item 1. |
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Item 2. | Management's Discussion and Analysis of Financial Condition and Results of Operations (Unaudited) |
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Item 3. |
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Item 4. |
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PART II - OTHER INFORMATION |
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Item 1. |
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Item 1A. |
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Item 2. |
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Item 3. |
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Item 4. |
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Item 5. |
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Item 6. |
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PART I - FINANCIAL INFORMATION
Item 1 – Consolidated Financial Statements
Pathfinder Bancorp, Inc.
Consolidated Statements of Condition
(Unaudited)
|
| March 31, |
|
| December 31, |
|
| March 31, |
|
| December 31, |
| ||||
(In thousands, except share and per share data) |
| 2021 |
|
| 2020 |
|
| 2022 |
|
| 2021 |
| ||||
ASSETS: |
|
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|
|
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|
|
|
|
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|
|
|
Cash and due from banks (including restricted balances of $1,600 and $1,600, respectively) |
| $ | 10,940 |
|
| $ | 14,906 |
|
| $ | 13,734 |
|
| $ | 13,856 |
|
Interest-earning deposits (including restricted balances of $0 and $0, respectively) |
|
| 41,028 |
|
|
| 28,558 |
| ||||||||
Interest-earning deposits |
|
| 23,450 |
|
|
| 23,293 |
| ||||||||
Total cash and cash equivalents |
|
| 51,968 |
|
|
| 43,464 |
|
|
| 37,184 |
|
|
| 37,149 |
|
Available-for-sale securities, at fair value |
|
| 159,080 |
|
|
| 128,261 |
|
|
| 198,130 |
|
|
| 190,598 |
|
Held-to-maturity securities, at amortized cost (fair value of $168,666 and $174,935, respectively) |
|
| 165,613 |
|
|
| 171,224 |
| ||||||||
Held-to-maturity securities, at amortized cost (fair value of $164,791 and $162,805, respectively) |
|
| 167,997 |
|
|
| 160,923 |
| ||||||||
Marketable equity securities, at fair value |
|
| 2,084 |
|
|
| 1,850 |
|
|
| 1,230 |
|
|
| 677 |
|
Federal Home Loan Bank stock, at cost |
|
| 4,591 |
|
|
| 4,390 |
|
|
| 3,533 |
|
|
| 4,189 |
|
Loans |
|
| 864,870 |
|
|
| 823,969 |
|
|
| 854,922 |
|
|
| 831,946 |
|
Loans held-for-sale |
|
| 437 |
|
|
| 1,526 |
|
|
| 679 |
|
|
| 513 |
|
Less: Allowance for loan losses |
|
| 13,693 |
|
|
| 12,777 |
|
|
| 13,017 |
|
|
| 12,935 |
|
Loans receivable, net |
|
| 851,614 |
|
|
| 812,718 |
|
|
| 842,584 |
|
|
| 819,524 |
|
Premises and equipment, net |
|
| 22,192 |
|
|
| 22,264 |
|
|
| 21,910 |
|
|
| 21,659 |
|
Operating lease right-of-use assets |
|
| 2,206 |
|
|
| 2,240 |
|
|
| 2,102 |
|
|
| 2,136 |
|
Accrued interest receivable |
|
| 4,718 |
|
|
| 4,549 |
|
|
| 4,740 |
|
|
| 4,520 |
|
Intangible assets, net |
|
| 129 |
|
|
| 133 |
|
|
| 112 |
|
|
| 117 |
|
Goodwill |
|
| 4,536 |
|
|
| 4,536 |
|
|
| 4,536 |
|
|
| 4,536 |
|
Bank owned life insurance |
|
| 22,989 |
|
|
| 17,864 |
|
|
| 23,585 |
|
|
| 23,423 |
|
Other assets |
|
| 15,436 |
|
|
| 13,950 |
|
|
| 20,773 |
|
|
| 15,726 |
|
Total assets |
| $ | 1,307,156 |
|
| $ | 1,227,443 |
|
| $ | 1,328,416 |
|
| $ | 1,285,177 |
|
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|
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LIABILITIES AND SHAREHOLDERS' EQUITY: |
|
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Deposits: |
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Interest-bearing |
| $ | 871,405 |
|
| $ | 833,850 |
|
| $ | 909,345 |
|
| $ | 863,488 |
|
Noninterest-bearing |
|
| 197,503 |
|
|
| 162,057 |
|
|
| 204,732 |
|
|
| 191,858 |
|
Total deposits |
|
| 1,068,908 |
|
|
| 995,907 |
|
|
| 1,114,077 |
|
|
| 1,055,346 |
|
Short-term borrowings |
|
| 4,020 |
|
|
| 4,020 |
|
|
| 2,500 |
|
|
| 12,500 |
|
Long-term borrowings |
|
| 82,480 |
|
|
| 78,030 |
|
|
| 60,021 |
|
|
| 64,598 |
|
Subordinated loans |
|
| 39,443 |
|
|
| 39,400 |
|
|
| 29,604 |
|
|
| 29,563 |
|
Accrued interest payable |
|
| 192 |
|
|
| 193 |
|
|
| 122 |
|
|
| 106 |
|
Operating lease liabilities |
|
| 2,495 |
|
|
| 2,525 |
|
|
| 2,409 |
|
|
| 2,440 |
|
Other liabilities |
|
| 9,375 |
|
|
| 9,646 |
|
|
| 10,237 |
|
|
| 9,991 |
|
Total liabilities |
|
| 1,206,913 |
|
|
| 1,129,721 |
|
|
| 1,218,970 |
|
|
| 1,174,544 |
|
Shareholders' equity: |
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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 |
| ||||||||
Voting common stock, par value $0.01; 25,000,000 authorized shares; 4,603,184 and 4,603,184 shares issued and outstanding, respectively |
|
| 46 |
|
|
| 46 |
| ||||||||
Non-Voting common stock, par value $0.01; 1,505,283 authorized shares; 1,380,283 and 1,380,283 shares issued and outstanding, respectively |
|
| 14 |
|
|
| 14 |
| ||||||||
Additional paid in capital |
|
| 50,258 |
|
|
| 50,024 |
|
|
| 51,151 |
|
|
| 51,044 |
|
Retained earnings |
|
| 52,020 |
|
|
| 50,284 |
|
|
| 63,352 |
|
|
| 60,946 |
|
Accumulated other comprehensive loss |
|
| (1,768 | ) |
|
| (2,236 | ) |
|
| (5,058 | ) |
|
| (1,268 | ) |
Unearned ESOP |
|
| (630 | ) |
|
| (675 | ) |
|
| (450 | ) |
|
| (495 | ) |
Total Pathfinder Bancorp, Inc. shareholders' equity |
|
| 99,939 |
|
|
| 97,456 |
|
|
| 109,055 |
|
|
| 110,287 |
|
Noncontrolling interest |
|
| 304 |
|
|
| 266 |
|
|
| 391 |
|
|
| 346 |
|
Total equity |
|
| 100,243 |
|
|
| 97,722 |
|
|
| 109,446 |
|
|
| 110,633 |
|
Total liabilities and shareholders' equity |
| $ | 1,307,156 |
|
| $ | 1,227,443 |
|
| $ | 1,328,416 |
|
| $ | 1,285,177 |
|
The accompanying notes are an integral part of the consolidated financial statements.
- 3 -
Pathfinder Bancorp, Inc.
Consolidated Statements of Income
(Unaudited)
|
|
|
|
|
|
|
|
|
|
| For the three months ended |
| |||||
(In thousands, except per share data) |
| March 31, 2022 |
|
| March 31, 2021 |
| ||
Interest and dividend income: |
|
|
|
|
|
|
|
|
Loans, including fees |
| $ | 8,692 |
|
| $ | 8,847 |
|
Debt securities: |
|
|
|
|
|
|
|
|
Taxable |
|
| 2,120 |
|
|
| 1,976 |
|
Tax-exempt |
|
| 118 |
|
|
| 29 |
|
Dividends |
|
| 48 |
|
|
| 87 |
|
Federal funds sold and interest earning deposits |
|
| 4 |
|
|
| 3 |
|
Total interest and dividend income |
|
| 10,982 |
|
|
| 10,942 |
|
Interest expense: |
|
|
|
|
|
|
|
|
Interest on deposits |
|
| 965 |
|
|
| 1,527 |
|
Interest on short-term borrowings |
|
| 5 |
|
|
| 3 |
|
Interest on long-term borrowings |
|
| 133 |
|
|
| 295 |
|
Interest on subordinated loans |
|
| 412 |
|
|
| 557 |
|
Total interest expense |
|
| 1,515 |
|
|
| 2,382 |
|
Net interest income |
|
| 9,467 |
|
|
| 8,560 |
|
Provision for loan losses |
|
| 102 |
|
|
| 1,028 |
|
Net interest income after provision for loan losses |
|
| 9,365 |
|
|
| 7,532 |
|
Noninterest income: |
|
|
|
|
|
|
|
|
Service charges on deposit accounts |
|
| 259 |
|
|
| 331 |
|
Earnings and gain on bank owned life insurance |
|
| 162 |
|
|
| 125 |
|
Loan servicing fees |
|
| 117 |
|
|
| 90 |
|
Net losses on sales and redemptions of investment securities |
|
| (6 | ) |
|
| - |
|
Gains on marketable equity securities |
|
| 68 |
|
|
| 234 |
|
Net gains on sales of loans and foreclosed real estate |
|
| 63 |
|
|
| 120 |
|
Net gains on sale of premises and equipment |
|
| - |
|
|
| 201 |
|
Debit card interchange fees |
|
| 228 |
|
|
| 221 |
|
Insurance agency revenue |
|
| 299 |
|
|
| 280 |
|
Other charges, commissions & fees |
|
| 413 |
|
|
| 243 |
|
Total noninterest income |
|
| 1,603 |
|
|
| 1,845 |
|
Noninterest expense: |
|
|
|
|
|
|
|
|
Salaries and employee benefits |
|
| 4,049 |
|
|
| 3,341 |
|
Building and occupancy |
|
| 826 |
|
|
| 793 |
|
Data processing |
|
| 550 |
|
|
| 676 |
|
Professional and other services |
|
| 393 |
|
|
| 417 |
|
Advertising |
|
| 187 |
|
|
| 246 |
|
FDIC assessments |
|
| 222 |
|
|
| 198 |
|
Audits and exams |
|
| 141 |
|
|
| 202 |
|
Insurance agency expense |
|
| 204 |
|
|
| 206 |
|
Community service activities |
|
| 62 |
|
|
| 88 |
|
Foreclosed real estate expenses |
|
| 13 |
|
|
| 6 |
|
Other expenses |
|
| 605 |
|
|
| 463 |
|
Total noninterest expense |
|
| 7,252 |
|
|
| 6,636 |
|
Income before income taxes |
|
| 3,716 |
|
|
| 2,741 |
|
Provision for income taxes |
|
| 721 |
|
|
| 549 |
|
Net income attributable to noncontrolling interest and Pathfinder Bancorp, Inc. |
|
| 2,995 |
|
|
| 2,192 |
|
Net income attributable to noncontrolling interest |
|
| 45 |
|
|
| 38 |
|
Net income attributable to Pathfinder Bancorp Inc. |
|
| 2,950 |
|
|
| 2,154 |
|
|
|
|
|
|
|
|
|
|
Voting Earnings per common share - basic |
| $ | 0.49 |
|
| $ | 0.36 |
|
Voting Earnings per common share - diluted |
| $ | 0.49 |
|
| $ | 0.36 |
|
Series A Non-Voting Earnings per common share- basic |
| $ | 0.49 |
|
| $ | - |
|
Series A Non-Voting Earnings per common share - diluted |
| $ | 0.49 |
|
| $ | - |
|
Dividends per common share (Voting and Series A Non-Voting) |
| $ | 0.09 |
|
| $ | 0.07 |
|
The accompanying notes are an integral part of the consolidated financial statements.
- 4 -
Pathfinder Bancorp, Inc.
Consolidated Statements of Comprehensive (Loss) Income
(Unaudited)
|
| For the three months ended |
| |||||
(In thousands) |
| March 31, 2022 |
|
| March 31, 2021 |
| ||
Net Income |
| $ | 2,995 |
|
| $ | 2,192 |
|
|
|
|
|
|
|
|
|
|
Other Comprehensive Income (Loss) |
|
|
|
|
|
|
|
|
Retirement Plans: |
|
|
|
|
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|
|
|
Retirement plan net losses recognized in plan expenses |
|
| 1 |
|
|
| 26 |
|
|
|
|
|
|
|
|
|
|
Unrealized holding (losses) gains on available-for-sale securities: |
|
|
|
|
|
|
|
|
Unrealized holding (losses) gains arising during the period |
|
| (5,782 | ) |
|
| 366 |
|
Net unrealized (losses) gains on available-for-sale securities |
|
| (5,782 | ) |
|
| 366 |
|
|
|
|
|
|
|
|
|
|
Derivatives and hedging activities: |
|
|
|
|
|
|
|
|
Unrealized holding gains arising during the period |
|
| 650 |
|
|
| 234 |
|
Net unrealized gains on derivatives and hedging activities |
|
| 650 |
|
|
| 234 |
|
|
|
|
|
|
|
|
|
|
Accretion of net unrealized loss on securities transferred to held-to- maturity |
|
| - |
|
|
| 7 |
|
|
|
|
|
|
|
|
|
|
Other comprehensive (loss) income, before tax |
|
| (5,131 | ) |
|
| 633 |
|
Tax effect |
|
| 1,341 |
|
|
| (165 | ) |
Other comprehensive (loss) income, net of tax |
|
| (3,790 | ) |
|
| 468 |
|
Comprehensive (loss) income |
| $ | (795 | ) |
| $ | 2,660 |
|
Comprehensive income, attributable to noncontrolling interest |
| $ | 45 |
|
| $ | 38 |
|
Comprehensive (loss) income attributable to Pathfinder Bancorp, Inc. |
| $ | (840 | ) |
| $ | 2,622 |
|
|
|
|
|
|
|
|
|
|
Tax Effect Allocated to Each Component of Other Comprehensive Income (Loss) |
|
|
|
|
|
|
|
|
Retirement plan net losses recognized in plan expenses |
| $ | - |
|
| $ | (7 | ) |
Unrealized holding gains (losses) on available-for-sale securities arising during the period |
|
| 1,511 |
|
|
| (95 | ) |
Unrealized gains on derivatives and hedging arising during the period |
|
| (170 | ) |
|
| (61 | ) |
Accretion of net unrealized loss on securities transferred to held-to- maturity |
|
| - |
|
|
| (2 | ) |
Income tax effect related to other comprehensive income (loss) |
| $ | 1,341 |
|
| $ | (165 | ) |
The accompanying notes are an integral part of the consolidated financial statements.
- 5 -
Pathfinder Bancorp, Inc. |
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Three months ended March 31, 2022 and March 31, 2021 |
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(Unaudited) |
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(In thousands, except share and per share data) |
| Preferred Stock |
|
| Common Stock |
|
| Non-Voting Common Stock |
|
| Additional Paid in Capital |
|
| Retained Earnings |
|
| Accumulated Other Comprehensive Loss |
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| Unearned ESOP |
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| Non-controlling Interest |
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| Total |
| |||||||||
Balance, January 1, 2022 |
| $ | - |
|
| $ | 46 |
|
| $ | 14 |
|
| $ | 51,044 |
|
| $ | 60,946 |
|
| $ | (1,268 | ) |
| $ | (495 | ) |
| $ | 346 |
|
| $ | 110,633 |
|
Net income |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 2,950 |
|
|
| - |
|
|
| - |
|
|
| 45 |
|
|
| 2,995 |
|
Other comprehensive income, net of tax |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| (3,790 | ) |
|
| - |
|
|
| - |
|
|
| (3,790 | ) |
ESOP shares earned (6,111 shares) |
|
| - |
|
|
| - |
|
|
| - |
|
|
| 63 |
|
|
| - |
|
|
| - |
|
|
| 45 |
|
|
| - |
|
|
| 108 |
|
Stock based compensation |
|
| - |
|
|
| - |
|
|
| - |
|
|
| 44 |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 44 |
|
Common stock dividends declared ($0.09 per share) |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| (409 | ) |
|
| - |
|
|
| - |
|
|
| - |
|
|
| (409 | ) |
Non-Voting common stock dividends declared ($0.09 per share) |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| (124 | ) |
|
| - |
|
|
| - |
|
|
| - |
|
|
| (124 | ) |
Warrant dividends declared ($0.09 per share) |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| (11 | ) |
|
| - |
|
|
| - |
|
|
| - |
|
|
| (11 | ) |
Balance, March 31, 2022 |
| $ | - |
|
| $ | 46 |
|
| $ | 14 |
|
| $ | 51,151 |
|
| $ | 63,352 |
|
| $ | (5,058 | ) |
| $ | (450 | ) |
| $ | 391 |
|
| $ | 109,446 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, January 1, 2021 |
| $ | 14 |
|
| $ | 45 |
|
| $ | - |
|
| $ | 50,024 |
|
| $ | 50,284 |
|
| $ | (2,236 | ) |
| $ | (675 | ) |
| $ | 266 |
|
| $ | 97,722 |
|
Net income |
|
| - |
|
|
| - |
|
|
|
|
|
|
| - |
|
|
| 2,154 |
|
|
| - |
|
|
| - |
|
|
| 38 |
|
|
| 2,192 |
|
Other comprehensive income, net of tax |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 468 |
|
|
| - |
|
|
| - |
|
|
| 468 |
|
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 |
|
The accompanying notes are an integral part of the consolidated financial statements.
- 36 -
Pathfinder Bancorp, Inc.
Consolidated Statements of Income
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
| For the three months ended |
|
| |||||
(In thousands, except per share data) |
| March 31, 2021 |
|
| March 31, 2020 |
|
| ||
Interest and dividend income: |
|
|
|
|
|
|
|
|
|
Loans, including fees |
| $ | 8,847 |
|
| $ | 9,242 |
|
|
Debt securities: |
|
|
|
|
|
|
|
|
|
Taxable |
|
| 1,976 |
|
|
| 1,692 |
|
|
Tax-exempt |
|
| 29 |
|
|
| 7 |
|
|
Dividends |
|
| 87 |
|
|
| 70 |
|
|
Federal funds sold and interest earning deposits |
|
| 3 |
|
|
| 32 |
|
|
Total interest and dividend income |
|
| 10,942 |
|
|
| 11,043 |
|
|
Interest expense: |
|
|
|
|
|
|
|
|
|
Interest on deposits |
|
| 1,527 |
|
|
| 2,556 |
|
|
Interest on short-term borrowings |
|
| 3 |
|
|
| 57 |
|
|
Interest on long-term borrowings |
|
| 295 |
|
|
| 445 |
|
|
Interest on subordinated loans |
|
| 557 |
|
|
| 206 |
|
|
Total interest expense |
|
| 2,382 |
|
|
| 3,264 |
|
|
Net interest income |
|
| 8,560 |
|
|
| 7,779 |
|
|
Provision for loan losses |
|
| 1,028 |
|
|
| 1,067 |
|
|
Net interest income after provision for loan losses |
|
| 7,532 |
|
|
| 6,712 |
|
|
Noninterest income: |
|
|
|
|
|
|
|
|
|
Service charges on deposit accounts |
|
| 331 |
|
|
| 356 |
|
|
Earnings and gain on bank owned life insurance |
|
| 125 |
|
|
| 116 |
|
|
Loan servicing fees |
|
| 90 |
|
|
| 49 |
|
|
Net gains on sales and redemptions of investment securities |
|
| - |
|
|
| 26 |
|
|
Gains (losses) on marketable equity securities |
|
| 234 |
|
|
| (194 | ) |
|
Net gains on sales of loans and foreclosed real estate |
|
| 120 |
|
|
| 672 |
|
|
Gains on sale of premises and equipment |
|
| 201 |
|
|
| - |
|
|
Debit card interchange fees |
|
| 221 |
|
|
| 163 |
|
|
Insurance agency revenue |
|
| 280 |
|
|
| 337 |
|
|
Other charges, commissions & fees |
|
| 243 |
|
|
| 223 |
|
|
Total noninterest income |
|
| 1,845 |
|
|
| 1,748 |
|
|
Noninterest expense: |
|
|
|
|
|
|
|
|
|
Salaries and employee benefits |
|
| 3,341 |
|
|
| 3,247 |
|
|
Building and occupancy |
|
| 793 |
|
|
| 754 |
|
|
Data processing |
|
| 676 |
|
|
| 600 |
|
|
Professional and other services |
|
| 417 |
|
|
| 316 |
|
|
Advertising |
|
| 246 |
|
|
| 176 |
|
|
FDIC assessments |
|
| 198 |
|
|
| 189 |
|
|
Audits and exams |
|
| 202 |
|
|
| 125 |
|
|
Insurance agency expense |
|
| 206 |
|
|
| 192 |
|
|
Community service activities |
|
| 88 |
|
|
| 107 |
|
|
Foreclosed real estate expenses |
|
| 6 |
|
|
| 30 |
|
|
Other expenses |
|
| 463 |
|
|
| 509 |
|
|
Total noninterest expense |
|
| 6,636 |
|
|
| 6,245 |
|
|
Income before income taxes |
|
| 2,741 |
|
|
| 2,215 |
|
|
Provision for income taxes |
|
| 549 |
|
|
| 455 |
|
|
Net income attributable to noncontrolling interest and Pathfinder Bancorp, Inc. |
|
| 2,192 |
|
|
| 1,760 |
|
|
Net income attributable to noncontrolling interest |
|
| 38 |
|
|
| 70 |
|
|
Net income attributable to Pathfinder Bancorp Inc. |
| $ | 2,154 |
|
| $ | 1,690 |
|
|
Convertible preferred stock dividends |
|
| 97 |
|
|
| 69 |
|
|
Warrant dividends |
|
| 9 |
|
|
| 8 |
|
|
Undistributed earnings allocated to participating securities |
|
| 439 |
|
|
| 290 |
|
|
Net income available to common shareholders |
| $ | 1,609 |
|
| $ | 1,323 |
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per common share - basic |
| $ | 0.36 |
|
| $ | 0.29 |
|
|
Earnings per common share - diluted |
| $ | 0.36 |
|
| $ | 0.29 |
|
|
Dividends per common share |
| $ | 0.07 |
|
| $ | 0.06 |
|
|
The accompanying notes are an integral part of the consolidated financial statements.
- 4 -
Pathfinder Bancorp, Inc.
Consolidated Statements of Comprehensive Income
(Unaudited)
|
| For the three months ended |
|
| |||||
(In thousands) |
| March 31, 2021 |
|
| March 31, 2020 |
|
| ||
Net Income |
| $ | 2,192 |
|
| $ | 1,760 |
|
|
|
|
|
|
|
|
|
|
|
|
Other Comprehensive Income (Loss) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Retirement Plans: |
|
|
|
|
|
|
|
|
|
Retirement plan net losses recognized in plan expenses |
|
| 26 |
|
|
| 58 |
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized holding gains (losses) on available-for-sale securities: |
|
|
|
|
|
|
|
|
|
Unrealized holding gains (losses) arising during the period |
|
| 366 |
|
|
| (3,633 | ) |
|
Reclassification adjustment for net gains included in net income |
|
| - |
|
|
| (26 | ) |
|
Net unrealized gains (losses) on available-for-sale securities |
|
| 366 |
|
|
| (3,659 | ) |
|
|
|
|
|
|
|
|
|
|
|
Derivatives and hedging activities: |
|
|
|
|
|
|
|
|
|
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) |
|
| 7 |
|
|
| 8 |
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income (loss), before tax |
|
| 633 |
|
|
| (4,937 | ) |
|
Tax effect |
|
| (165 | ) |
|
| 1,037 |
|
|
Other comprehensive income (loss) , net of tax |
|
| 468 |
|
|
| (3,900 | ) |
|
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 |
| $ | (7 | ) |
| $ | (12 | ) |
|
Unrealized holding (losses) gains on available-for-sale securities arising during the period |
|
| (95 | ) |
|
| 764 |
|
|
Reclassification adjustment for net gains included in net income |
|
| - |
|
|
| 5 |
|
|
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) |
| $ | (165 | ) |
| $ | 1,037 |
|
|
|
|
The accompanying notes are an integral part of the consolidated financial statements.
- 5 -
Pathfinder Bancorp, Inc.
Consolidated Statements of Changes in Shareholders’ Equity
Three months ended March 31, 2021 and March 31, 2020
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 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, 2021 |
| $ | 14 |
|
| $ | 45 |
|
| $ | 50,024 |
|
| $ | 50,284 |
|
| $ | (2,236 | ) |
| $ | (675 | ) |
| $ | 266 |
|
| $ | 97,722 |
|
Net income |
|
| - |
|
|
| - |
|
|
| - |
|
|
| 2,154 |
|
|
| - |
|
|
| - |
|
|
| 38 |
|
|
| 2,192 |
|
Other comprehensive income, net of tax |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 468 |
|
|
| - |
|
|
| - |
|
|
| 468 |
|
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 |
|
| - |
|
|
| - |
|
|
| 66 |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 66 |
|
Stock options exercised |
|
| - |
|
|
| - |
|
|
| 194 |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 194 |
|
Common stock dividends declared ($0.06 per share) |
|
| - |
|
|
| - |
|
|
| - |
|
|
| (278 | ) |
|
| - |
|
|
| - |
|
|
| - |
|
|
| (278 | ) |
Preferred stock dividends declared ($0.06 per share) |
|
|
|
|
|
| - |
|
|
| - |
|
|
| (69 | ) |
|
| - |
|
|
| - |
|
|
| - |
|
|
| (69 | ) |
Warrant dividends declared ($0.06 per share) |
|
| - |
|
|
| - |
|
|
| - |
|
|
| (8 | ) |
|
| - |
|
|
| - |
|
|
| - |
|
|
| (8 | ) |
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.
- 6 -
Pathfinder Bancorp, Inc.
Consolidated Statements of Cash Flows
(Unaudited)
|
| For the three months ended March 31, |
|
| For the three months ended March 31, |
| ||||||||||
(In thousands) |
| 2021 |
|
| 2020 |
|
| 2022 |
|
| 2021 |
| ||||
OPERATING ACTIVITIES |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to Pathfinder Bancorp, Inc. |
| $ | 2,154 |
|
| $ | 1,690 |
|
| $ | 2,950 |
|
| $ | 2,154 |
|
Adjustments to reconcile net income to net cash flows from operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for loan losses |
|
| 1,028 |
|
|
| 1,067 |
|
|
| 102 |
|
|
| 1,028 |
|
Amortization of operating leases |
|
| 4 |
|
|
| 5 |
|
|
| 3 |
|
|
| 4 |
|
Proceeds from sales of loans |
|
| 2,840 |
|
|
| 36,614 |
|
|
| 2,782 |
|
|
| 2,840 |
|
Originations of loans held-for-sale |
|
| (1,631 | ) |
|
| (150 | ) |
|
| (2,885 | ) |
|
| (1,631 | ) |
Realized losses (gains) on sales, redemptions and calls of: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate acquired through foreclosure |
|
| - |
|
|
| 7 |
| ||||||||
Loans |
|
| (120 | ) |
|
| (679 | ) |
|
| (63 | ) |
|
| (120 | ) |
Held-to-maturity investment securities |
|
| - |
|
|
| (26 | ) | ||||||||
Premises and equipment |
|
| (201 | ) |
|
| - |
| ||||||||
Available-for-sale investment securities |
|
| 6 |
|
|
| 0 |
| ||||||||
Marketable equity securities |
|
| (234 | ) |
|
| 194 |
|
|
| (68 | ) |
|
| (234 | ) |
Depreciation |
|
| 453 |
|
|
| 414 |
|
|
| 384 |
|
|
| 453 |
|
Amortization of mortgage servicing rights |
|
| (7 | ) |
|
| (279 | ) |
|
| (5 | ) |
|
| (7 | ) |
Amortization of deferred loan costs |
|
| 328 |
|
|
| 75 |
|
|
| 188 |
|
|
| 328 |
|
Amortization of deferred financing from subordinated debt |
|
| 43 |
|
|
| 8 |
|
|
| 41 |
|
|
| 43 |
|
Earnings on bank owned life insurance |
|
| (125 | ) |
|
| (116 | ) |
|
| (162 | ) |
|
| (125 | ) |
Net amortization of premiums and discounts on investment securities |
|
| 430 |
|
|
| 268 |
|
|
| 702 |
|
|
| 430 |
|
Amortization of intangible assets |
|
| 4 |
|
|
| 4 |
|
|
| 5 |
|
|
| 4 |
|
Stock based compensation and ESOP expense |
|
| 175 |
|
|
| 149 |
|
|
| 152 |
|
|
| 175 |
|
Net change in accrued interest receivable |
|
| (169 | ) |
|
| 12 |
|
|
| (220 | ) |
|
| (169 | ) |
Net change in other assets and liabilities |
|
| (1,699 | ) |
|
| (1,262 | ) |
|
| 189 |
|
|
| (1,699 | ) |
Net cash flows from operating activities |
|
| 3,273 |
|
|
| 37,995 |
|
|
| 4,101 |
|
|
| 3,474 |
|
INVESTING ACTIVITIES |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase of investment securities available-for-sale |
|
| (52,064 | ) |
|
| (38,422 | ) |
|
| (21,026 | ) |
|
| (52,064 | ) |
Purchase of investment securities held-to-maturity |
|
| (9,131 | ) |
|
| (7,492 | ) |
|
| (13,957 | ) |
|
| (9,131 | ) |
Purchase of Federal Home Loan Bank stock |
|
| (903 | ) |
|
| (1,121 | ) |
|
| (29 | ) |
|
| (903 | ) |
Proceeds from redemption of Federal Home Loan Bank stock |
|
| 702 |
|
|
| 1,197 |
|
|
| 685 |
|
|
| 702 |
|
Purchase of marketable securities |
|
| (504 | ) |
|
| 0 |
| ||||||||
Proceeds from maturities and principal reductions of investment securities available-for-sale |
|
| 19,671 |
|
|
| 24,244 |
|
|
| 4,174 |
|
|
| 19,671 |
|
Proceeds from maturities and principal reductions of investment securities held-to-maturity |
|
| 13,605 |
|
|
| 8,824 |
|
|
| 6,736 |
|
|
| 13,605 |
|
Proceeds from sales, redemptions and calls of: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available-for-sale investment securities |
|
| 500 |
|
|
| - |
|
|
| 0 |
|
|
| 500 |
|
Held-to-maturity investment securities |
|
| 1,051 |
|
|
| 1,068 |
|
|
| 50 |
|
|
| 1,051 |
|
Real estate acquired through foreclosure |
|
| - |
|
|
| 81 |
| ||||||||
Marketable equity securities |
|
| 19 |
|
|
| 0 |
| ||||||||
Purchase of bank owned life insurance |
|
| (5,000 | ) |
|
| - |
|
|
| 0 |
|
|
| (5,000 | ) |
Net change in loans |
|
| (40,252 | ) |
|
| (5,119 | ) |
|
| (23,350 | ) |
|
| (40,252 | ) |
Purchase of premises and equipment |
|
| (411 | ) |
|
| (19 | ) |
|
| (635 | ) |
|
| (411 | ) |
Proceeds from sale of premises and equipment |
|
| 231 |
|
|
| - |
|
|
| 0 |
|
|
| 231 |
|
Net cash flows from investing activities |
|
| (72,001 | ) |
|
| (16,759 | ) | ||||||||
Net cash outflows from investing activities |
|
| (47,837 | ) |
|
| (72,001 | ) | ||||||||
FINANCING ACTIVITIES |
|
|
|
|
|
|
|
| ||||||||
Net change in demand deposits, NOW accounts, savings accounts, money management deposit accounts, MMDA accounts and escrow deposits |
|
| 54,191 |
|
|
| 73,422 |
| ||||||||
Net change in time deposits |
|
| 4,616 |
|
|
| 5,414 |
| ||||||||
Net change in brokered deposits |
|
| (76 | ) |
|
| (5,835 | ) | ||||||||
Net change in short-term borrowings |
|
| (10,000 | ) |
|
| 0 |
| ||||||||
Payments on long-term borrowings |
|
| (5,227 | ) |
|
| 0 |
| ||||||||
Proceeds from long-term borrowings |
|
| 650 |
|
|
| 4,450 |
| ||||||||
Proceeds from exercise of stock options |
|
| 0 |
|
|
| 104 |
|
- 7 -
Cash dividends paid to common voting shareholders |
|
| (322 | ) |
|
| (271 | ) |
Cash dividends paid to common non-voting shareholders |
|
| (97 | ) |
|
| 0 |
|
Cash dividends paid to preferred shareholders |
|
| 0 |
|
|
| (83 | ) |
Cash dividends paid on warrants |
|
| (9 | ) |
|
| (8 | ) |
Change in noncontrolling interest, net |
|
| 45 |
|
|
| 38 |
|
Net cash flows from financing activities |
|
| 43,771 |
|
|
| 77,232 |
|
Change in cash and cash equivalents |
|
| 35 |
|
|
| 8,705 |
|
Cash and cash equivalents at beginning of period |
|
| 37,149 |
|
|
| 43,464 |
|
Cash and cash equivalents at end of period |
| $ | 37,184 |
|
| $ | 52,169 |
|
CASH PAID DURING THE PERIOD FOR: |
|
|
|
|
|
|
|
|
Interest |
| $ | 1,499 |
|
| $ | 2,383 |
|
Income taxes |
|
| 0 |
|
|
| 5 |
|
RESTRICTED CASH |
|
|
|
|
|
|
|
|
Collateral deposits for hedge position included in cash and due from banks |
|
| 1,600 |
|
|
| 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 |
|
The accompanying notes are an integral part of the consolidated financial statements.
- 8 -
Notes to Consolidated Financial Statements (Unaudited)
Note 1: Basis of Presentation
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 20202021 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 months ended March 31, 20212022 are not necessarily indicative of the results that may be expected for the full year ending December 31, 20212022 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.
- 9 -
Note 2: New Accounting Pronouncements
The Financial Accounting Standards FASBBoard (“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 presentationtable provides a description of standards adopted in the first quarter of 2021 as well asaccounting standards that are not currently effective, but could have an impact on the Company's consolidated financial statements upon adoption.
- 9 -
Standards Adopted as of March 31, | ||||||||
Standard |
| Description |
| Required Date of Implementation |
| Effect on Consolidated Financial Statements | ||
|
|
| The amendments in this | The amendments in this Update amend Topic 842, which has different effective dates for public business entities and most entities other than public business entities. The amendments are effective for fiscal years |
| The adoption of this ASU |
- 10 -
Standard |
| Description |
| Required Date of Implementation |
| Effect on Consolidated Financial Statements |
|
| The amendments in this Update |
|
|
- 11 -
|
|
|
| |||
|
260, Earnings Per Share. The amendments in this Update
Topics. The amendments in this Update
|
|
| |||
|
|
|
| |||
|
|
| The amendments in this Update are effective for all entities for fiscal years beginning after December 15, 2021, including interim periods within those fiscal years. An entity should apply the amendments prospectively to modifications or exchanges occurring on or after the effective date of the amendments. Early adoption is permitted for all entities, including adoption in an interim period. If an entity elects to early adopt the amendments in this Update in an interim period, the guidance should be applied as of |
| The adoption of this ASU had no |
- 1211 -
Standards Not Yet Adopted as of March 31, | ||||||
Standard |
| Description |
| Required Date of Implementation |
| Effect on Consolidated Financial Statements |
Measurement of Credit Losses on Financial Instruments (ASU 2016-13: Financial Instruments—Credit Losses [Topic 326]: Measurement of Credit Losses on Financial Instruments) |
| The amended guidance replaces the current incurred loss model for determining the allowance for credit losses. The guidance requires financial assets measured at amortized cost to be presented at the net amount expected to be collected. The allowance for credit losses will represent a valuation account that is deducted from the amortized cost basis of the financial assets to present their net carrying value at the amount expected to be collected. The income statement will reflect the measurement of credit losses for newly recognized financial assets as well as expected increases or decreases of expected credit losses that have taken place during the period. When determining the allowance, expected credit losses over the contractual term of the financial asset(s) (taking into account prepayments) will be estimated considering relevant information about past events, current conditions, and reasonable and supportable forecasts that affect the collectability of the reported amount. The amended guidance also requires recording an allowance for credit losses for purchased financial assets with a more-than-insignificant amount of credit deterioration since origination. The initial allowance for these assets will be added to the purchase price at acquisition rather than being reported as an expense. Subsequent changes in the allowance will be recorded through the income statement as an expense adjustment. In addition, the amended guidance requires credit losses relating to available-for-sale debt securities to be recorded through an allowance for credit losses. The calculation of credit losses for available-for-sale securities will be similar to how it is determined under existing guidance. | January 1, 2023 (early adoption permitted as of January 1, 2019) | The Company is assessing new guidance to determine what modifications to existing credit estimation processes may be required. The new guidance is complex and management is evaluating preliminary output from models that have been developed during this evaluative phase. In addition, future levels of allowances will also reflect new requirements to include estimated credit losses on investment securities classified as held-to-maturity, if any. The Company has formed an Implementation Committee, whose membership includes representatives of senior management, to develop plans that will encompass: (1) internal methodology changes (2) data collection and management activities, (3) internal communication requirements, and (4) estimation of the projected impact of this guidance. It has been generally assumed that the conversion from the incurred loss model, required under current GAAP, to the current expected credit loss (CECL) methodology (as required upon implementation of this Update) will, more likely than not, result in increases to the allowances for credit losses at many financial institutions. However, the amount of any change in the allowance for credit losses resulting from the new guidance will ultimately be impacted by the provisions of this guidance as well as by the loan and debt security portfolios composition and asset quality at the adoption date, and economic conditions and forecasts at the time of adoption. The amendments in this Update should be applied on a modified retrospective basis by means of a cumulative-effect adjustment to the opening retained earnings balance in the statement of financial position as of the date of adoption. The cumulative impact of the economic effects of the COVID-19 pandemic on the changes to the allowance for loan losses, that will be required upon the implementation of the CECL methodology, cannot be estimated at this time. |
- 12 -
Standard | Description | Required Date of Implementation | Effect on Consolidated Financial Statements | |||
Transition Relief for the Implementation of ASU-2016-13 (ASU 2019-5: Financial Instruments—Credit Losses [Topic 326]: Targeted Transition Relief) | The amendments in this ASU provide entities that have certain instruments within the scope of Subtopic 326-20, Financial Instruments—Credit Losses—Measured at Amortized Cost, with an option to irrevocably elect the fair value option in Subtopic 825-10, Financial Instruments—Overall, applied on an instrument-by-instrument basis for eligible instruments, upon adoption of Topic 326. The fair value option election does not apply to held-to-maturity debt securities. An entity that elects the fair value option should subsequently apply the guidance in Subtopics 820-10, Fair Value Measurement—Overall, and 825-10. General guidance for the use of the fair value option is contained in Subtopic 825-10. The irrevocable election of the fair value option must be applied on an instrument-by-instrument basis for eligible instruments, whose characteristics are within the scope of Subtopic 326-20. Upon adoption of Topic 326, for items measured at fair value in accordance with paragraph 326-10-65-1(i), the difference between the carrying amount and the fair value shall be recorded by means of a cumulative-effect adjustment to the opening retained earnings balance as of the beginning of the first reporting period that an entity has adopted ASU 2016-13. Those differences may include, but are not limited to: (1) unamortized deferred costs, fees, premiums, and discounts (2) valuation allowances (for example, allowance for loan losses), or (3) accrued interest. |
| January 1, 2023 (early adoption permitted as of January 1, 2019) |
| The Company is assessing the new guidance to determine what modifications to existing credit estimation processes may be required. The new guidance is complex and management is still evaluating the preliminary output from models that have been developed during this evaluative phase. In addition, future levels of allowances will also reflect new requirements to include estimated credit losses on investment securities classified as held-to-maturity, if any. The Company has formed an Implementation Committee, whose membership includes representatives of senior management, to develop plans that will encompass: (1) internal methodology changes (2) data collection and management activities, (3) internal communication requirements, and (4) estimation of the projected impact of this guidance. It has been generally assumed that the conversion from the incurred loss model, required under current GAAP, to the current expected credit loss (CECL) methodology (as required upon implementation of this Update) will, more likely than not, result in increases to the allowances for credit losses at many financial institutions. However, the amount of any change in the allowance for credit losses resulting from the new guidance will ultimately be impacted by the provisions of this guidance as well as by the loan and debt security portfolios composition and asset quality at the adoption date, and economic conditions and forecasts at the time of adoption. The amendments in this Update should be applied on a modified retrospective basis by means of a cumulative-effect adjustment to the opening retained earnings balance in the statement of financial position as of the date that an entity adopted the amendments in Update 2016-13. The cumulative impact of the economic effects of the COVID-19 pandemic on the changes to the allowance for loan losses, that will be required upon the implementation of the CECL methodology, cannot be estimated at this time. |
- 13 -
|
|
|
| |||
|
|
|
|
- 14 -
Standard |
| Description |
| Required Date of Implementation |
| Effect on Consolidated Financial Statements |
Financial Instruments—Credit Losses (ASU 2019-11- Codification Improvements to Topic 326) |
| On June 16, 2016, the FASB issued Accounting Standards Update No. 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, which introduced an expected credit loss model for the impairment of financial assets measured at amortized cost basis. That model replaces the probable, incurred loss model for those assets. Through the amendments in that Update, the Board added Topic 326, Financial Instruments—Credit Losses, and made several consequential amendments to the Codification. The Board has an ongoing project on its agenda for improving the Codification or correcting its unintended application. The items addressed in that project generally are not expected to have a significant effect on current accounting practice or create a significant administrative cost for most entities. The amendments in this Update are similar to those items. However, the Board decided to issue a separate Update for improvements to the amendments in Update 2016-13 to increase stakeholder awareness of those amendments and to expedite the improvement process. The amendments include items brought to the Board's attention by stakeholders. The amendments in this Update clarify or address stakeholders' specific issues about certain aspects of the amendments in Update 2016-13 as described below: 1. Expected Recoveries for Purchased Financial Assets with Credit Deterioration (PCDs): The amendments clarify that the allowance for credit losses for PCD assets should include in the allowance for credit losses expected recoveries of amounts previously written off and expected to be written off by the entity and should not exceed the aggregate of amounts of the amortized cost basis previously written off and expected to be written off by an entity. In addition, the amendments clarify that when a method other than a discounted cash flow method is used to estimate expected credit losses, expected recoveries should not include any amounts that result in an acceleration of the noncredit discount. An entity may include increases in expected cash flows after acquisition. 2. Transition Relief for Troubled Debt Restructurings (TDRs): The amendments provide transition relief by permitting entities an accounting policy election to adjust the effective interest rate on existing TDRs using prepayment assumptions on the date of adoption of Topic 326 rather than the prepayment assumptions in effect immediately before the restructuring. 3. Disclosures Related to Accrued Interest Receivables: The amendments extend the disclosure relief for accrued interest receivable balances to additional relevant disclosures involving amortized cost basis. 4. Financial Assets Secured by Collateral Maintenance Provisions: The amendments clarify that an entity should assess whether it reasonably expects the borrower will be able to continually replenish collateral securing the financial asset to apply the practical expedient. The amendments clarify that an entity applying the practical expedient should estimate expected credit losses for any difference between the amount of the amortized cost basis that is greater than the fair value of the collateral securing the financial asset (that is, the unsecured portion of the amortized cost basis). An entity may determine that the expectation of nonpayment for the amount of the amortized cost basis equal to the fair value of the collateral securing the financial asset is 5. Conforming Amendment to Subtopic 805-20: The amendment to Subtopic 805-20, Business Combinations—Identifiable Assets and Liabilities, and Any Noncontrolling Interest, clarifies the guidance by removing the cross-reference to Subtopic 310-30 in paragraph 805-20-50-1 and replacing it with a cross-reference to the guidance on PCD assets in Subtopic 326-20. |
| January 1, 2023 (early adoption permitted as of January 1, 2019). The effective dates and transition requirements for the amendments are the same as the effective dates and transition requirements in Update 2016-13. |
| The Company is assessing the new guidance to determine what modifications to existing credit estimation processes may be required. The new guidance is complex and management is still evaluating the preliminary output from models that have been developed during this evaluative phase. In addition, future levels of allowances will also reflect new requirements to include estimated credit losses on investment securities classified as held-to-maturity, if any. The Company has formed an Implementation Committee, whose membership includes representatives of senior management, to develop plans that will encompass: (1) internal methodology changes (2) data collection and management activities, (3) internal communication requirements, and (4) estimation of the projected impact of this guidance. It has been generally assumed that the conversion from the incurred loss model, required under current GAAP, to the CECL methodology will, more likely than not, result in increases to the allowances for credit losses at many financial institutions. However, the amount of any change in the allowance for credit losses resulting from the new guidance will ultimately be impacted by the provisions of this guidance as well as by the loan and debt security portfolios composition and asset quality at the adoption date, and economic conditions and forecasts at the time of adoption. The amendments in this Update should be applied on a modified retrospective basis by means of a cumulative-effect adjustment to the opening retained earnings balance in the statement of financial position as of the date that an entity adopted the amendments in Update 2016-13. |
- 14 -
Standard |
| Description |
| Required Date of Implementation |
| Effect on Consolidated Financial Statements |
Debt (ASU 2020-06- Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging— Contracts in Entity's Own Equity (Subtopic 815-40) | The amendments reduce the number of accounting models for convertible debt instruments and convertible preferred stock. The amendments also reduce form-over-substance-based guidance for the derivatives scope exception for contacts in an entity’s own equity. For convertible instruments, embedded conversion features no longer are separated from the host contract for convertible instruments with conversion features that are not required to be accounted for as derivatives, or that do not result in substantial premiums accounted for as paid-in capital. Consequently, a convertible debt instrument will be accounted for as a single liability measured at its amortized cost and a convertible preferred stock will be accounted for as a single equity instrument measured at its historical cost, as long as no other features require bifurcation and recognition as derivatives. By removing those separation models, the interest rate of convertible debt instruments typically will be closer to the coupon interest rate on the instrument. The amendments also require certain changes to EPS calculations for convertible instruments as well as additional disclosures relating to conditions that cause conversion features to be met. For contracts in an entity’s own equity, the amendments revise the derivatives scope exception guidance as follows: 1. Remove the settlement in unregistered shares, collateral, and shareholder rights conditions from the settlement guidance. 2. Clarify that payment penalties for failure to timely file do not preclude equity classification. 3. Require instruments that are required to be classified as an asset or liability to be measured subsequently at fair value, with changes reported in earnings and disclosed in the financial statements. 4. Clarify that the scope of the disclosure requirements in the Contracts in an Entity’s Own Equity section of the Derivatives guidance applies only to freestanding instruments. 5. Clarify that the scope of the reassessment guidance in the Contracts in an Entity’s Own Equity section of the Derivatives guidance applies to both freestanding instruments and embedded features. | The amendments in this update are effective for public business entities, excluding entities eligible to be smaller reporting companies as defined by the SEC, for fiscal years beginning after December 15, 2021, including interim periods within those fiscal years. For all other entities, the amendments are effective for fiscal years beginning after December 15, 2023, including interim periods within those fiscal years. Early adoption is permitted, but no earlier than fiscal years beginning after December 15, 2020, including interim periods within those fiscal years. The Board specified that an entity should adopt the guidance as of the beginning of its annual fiscal year. | The amendments can be applied either on a modified retrospective method of transition or a fully retrospective method of transition. In applying the modified retrospective method, the guidance should be applied to transactions outstanding as of the beginning of the fiscal year in which the amendments are adopted. Transactions that were settled (or expired) during prior reporting periods are unaffected. The cumulative effect of the change should be recognized as an adjustment to the opening balance of retained earnings at the date of adoption. If applying the fully retrospective method of transition, the cumulative effect of the change should be recognized as an adjustment to the opening balance of retained earnings in the first comparative period presented. The fair value option is allowed to be irrevocably elected for any financial instrument that is a convertible security upon adoption of the amendments. The Company has not yet determined which transition method will be applied to the extent that such transition adjustments are applicable. The Company does not expect that the guidance will have a material effect on its consolidated statements of financial condition or income. |
- 15 -
Standard | Description | Required Date of Implementation | Effect on Consolidated Financial Statements | |||
Derivatives and Hedging (Topic 815): Fair Value Hedging - Portfolio Layer Method (ASU 2022-01) | Under current guidance, the last-of-layer method enables an entity to apply fair value hedging to a stated amount of a closed portfolio of prepayable financial assets (or one or more beneficial interests secured by a portfolio of prepayable financial instruments) without having to consider prepayment risk or credit risk when measuring those assets. ASU 2022-01 expands the scope of this guidance to allow entities to apply the portfolio layer method to portfolios of all financial assets, including both prepayable and nonprepayable financial assets. This scope expansion is consistent with the FASB’s efforts to simplify hedge accounting and allows entities to apply the same method to similar hedging strategies. ASU 2022-01 expands and clarifies the current guidance on accounting for fair value hedge basis adjustments under the portfolio layer method for both single-layer and multiple-layer hedges. An entity should adjust the basis of the hedged item for the change in fair value that is attributable to changes in the hedged risk (i.e., interest rate risk) as of each reporting date. However, the hedged item (i.e., the hedged layer) in a portfolio layer method hedge is related to multiple assets within a closed portfolio, but it is not necessarily related to all of the assets within that portfolio. Accordingly, ASU 2022-01 clarifies that an entity would adjust the basis at the portfolio level and should not allocate it to individual assets within the portfolio. The ASU does not change an entity’s current requirement to allocate the portfolio-level basis adjustment to the individual assets within a closed portfolio upon a dedesignation of a hedging relationship. The entity must, however, 1. recognize the reversal of all basis adjustments associated with a breach in interest income and, 2. disclose the specific amount and cause of the breach. Companies are allowed to reclassify debt securities from held-to-maturity to available-for-sale upon adoption of the rules but only if they intend to apply portfolio layer method hedging to a closed portfolio that includes those debt securities. The decision of which securities to reclassify must be made within 30 days after the date of adoption, and the securities must be included in a closed portfolio that is designated in a portfolio layer method hedge within that 30-day period. | For public business entities, fiscal years beginning after December 15, 2022, and interim periods within those fiscal years. For all other entities, fiscal years beginning after December 15, 2023, and interim periods within those fiscal years. The guidance may be early adopted if an entity has adopted ASU 2017-12 for the corresponding period. | The Company has not yet determined which transition method will be applied to the extent that such transition adjustments are applicable. The Company does not expect that the guidance will have a material effect on its consolidated statements of financial condition or income. |
- 16 -
Standard | Description | Required Date of Implementation | Effect on Consolidated Financial Statements | |||
Financial Instruments - Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures ASU 2022-02 | ASU 2022-02 supersedes the accounting guidance for TDRs for creditors in ASC 310-40 in its entirety and requires entities to evaluate all receivable modifications under ASC 310-20-35-9 through 35-11 to determine whether a modification made to a borrower results in a new loan or a continuation of the existing loan. The ASU also amends other subtopics to remove references to TDRs for creditors. In addition to the elimination of TDR guidance, an entity that has adopted ASU 2022-02 no longer considers renewals, modifications, and extensions that result from reasonably expected TDRs in their calculation of the allowance for credit losses in accordance with ASC 326-20. Due to the removal of the TDR accounting model, all loan modifications will be accounted for under the general loan modification guidance in Subtopic 310-20. On a prospective basis, entities will be subject to new disclosure requirements covering modifications of receivables to borrowers experiencing financial difficulty. Public entities within the scope of Topic 326 vintage disclosure requirements also will be required to prospectively disclose current-period gross write-off information by vintage, or year of origination. In lieu of the TDR accounting model, creditors now will apply the general loan modification guidance in Subtopic 310-20 to all loan modifications, including modifications made for borrowers experiencing financial difficulty. Under the general loan modification guidance, a modification is treated as a new loan only if the following two conditions are met: 1. The terms of the new loan are at least as favorable to the lender as the terms for comparable loans to other customers with similar collection risks. 2. Modifications to the terms of the original loan are more than minor. If either condition is not met, the modification is accounted for as the continuation of the old loan with any effect of the modification treated as a prospective adjustment to the loan’s effective interest rate. Whether a modification is a new loan or the continuation of the original loan will determine whether net deferred fees or costs from the original loan are recognized in earnings (new loan) or continue to be accreted or amortized (continuation of original loan). | For entities that have adopted the amendments in ASU 2016-13, the amendments in ASU 2022-02 are effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. For entities that have not yet adopted the amendments in ASU 2016-13, the effective dates for the amendments in ASU 2022-02 are the same as the effective dates in ASU 2016-13. The amendments in ASU 2022-02 should be applied prospectively, except as provided in the next sentence. For the transition method related to the recognition and measurement of TDRs, an entity has the option to apply a modified retrospective transition method, resulting in a cumulative-effect adjustment to retained earnings in the period of adoption. Early adoption of the amendments in ASU 2022-02 is permitted if an entity has adopted the amendments in ASU 2016-13, including adoption in an interim period. If an entity elects to early adopt the amendments in ASU 2022-02 in an interim period, the guidance should be applied as of the beginning of the fiscal year that includes the interim period. | The Company is assessing the new guidance to determine what modifications to existing TDRs may be required. The new guidance is being evaluated as part of the CECL methodology and will be considered in conjunction with the preliminary output from CECL models that have been developed during this evaluative phase. The Company has formed an Implementation Committee, whose membership includes representatives of senior management, to develop plans that will encompass: (1) internal methodology changes (2) data collection and management activities, (3) internal communication requirements, and (4) estimation of the projected impact of this guidance. |
- 1517 -
Note 3: Earnings per Common Share
Following shareholder approval received on June 4, 2021, the Company converted 1,380,283 shares of its Series B Convertible Perpetual Preferred Stock to an equal number of shares of its newly-created Series A Non-Voting Common Stock. The conversion, which was effective on June 28, 2021, represented 100% of the Company's Convertible Perpetual Preferred Stock outstanding at the time of the conversion and retired the Convertible Perpetual Preferred Stock in perpetuity.
The Company has voting common stock, preferrednon-voting common stock and a warrant that are all eligible to participate in dividends equal to the voting common stock dividends on a per share basis. Securities that participate in dividends, such as the Company’s preferrednon-voting common stock and warrant, are considered “participating securities.”securities”. The Company calculates net income available to voting common shareholders using the two-class method required for capital structures that include participating securities.
In applying the two-class method, basic net income per share was calculated by dividing net income (less any dividends on participating securities) by the weighted average number of shares of voting common stock and participating securities outstanding for the period. Diluted earnings per share may include the additional effect of other securities, if dilutive, in which case the dilutive effect of such securities is calculated by applying either the two-class method or the Treasury Stock method to the assumed exercise or vesting of potentially dilutive common shares. The method yielding the more dilutive result is ultimately reported for the applicable period. Potentially dilutive common stock equivalents primarily consist of employee stock options and restricted stock units. Unallocated common shares held by the ESOP are not included in the weighted average number of common shares outstanding for purposes of calculating earnings per common share until they are committed to be released to plan participants.
Anti-dilutive shares are common stock equivalents with average exercise prices in excess of the weighted average market price for the period presented. Anti-dilutive stock options, not included in the computation below, were -0- for both the three months ended March 31, 20212022 and March 31, 2020.2021.
The following table sets forth the calculation of basic and diluted earnings per share.
|
| Three months ended |
| |||||
|
| March 31, |
| |||||
(In thousands, except per share data) |
| 2021 |
|
| $ | 2,020 |
| |
Net income attributable to Pathfinder Bancorp, Inc. |
| $ | 2,154 |
|
| $ | 1,690 |
|
Convertible preferred stock dividends |
|
| 97 |
|
|
| 69 |
|
Warrant dividends |
|
| 9 |
|
|
| 8 |
|
Undistributed earnings allocated to participating securities |
|
| 439 |
|
|
| 290 |
|
Net income available to common shareholders |
| $ | 1,609 |
|
| $ | 1,323 |
|
|
|
|
|
|
|
|
|
|
Basic weighted average common shares outstanding |
|
| 4,442 |
|
|
| 4,607 |
|
Effect of assumed exercise of stock options and unvested restricted stock units |
|
| - |
|
|
| - |
|
Diluted weighted average common shares outstanding |
|
| 4,442 |
|
|
| 4,607 |
|
|
|
|
|
|
|
|
|
|
Basic earnings per common share |
| $ | 0.36 |
|
| $ | 0.29 |
|
Diluted earnings per common share |
| $ | 0.36 |
|
| $ | 0.29 |
|
|
| Three months ended |
| |||||
|
| March 31, |
| |||||
(In thousands, except share and per share data) |
| 2022 |
|
| 2021 |
| ||
Net income attributable to Pathfinder Bancorp, Inc. |
| $ | 2,950 |
|
| $ | 2,154 |
|
Convertible preferred stock dividends |
|
| - |
|
|
| 97 |
|
Series A Non-Voting Common Stock dividends |
|
| 124 |
|
|
| - |
|
Warrant dividends |
|
| 11 |
|
|
| 9 |
|
Undistributed earnings allocated to participating securities |
|
| 600 |
|
|
| 439 |
|
Net income available to common shareholders- Voting |
| $ | 2,215 |
|
| $ | 1,666 |
|
|
|
|
|
|
|
|
|
|
Net income attributable to Pathfinder Bancorp, Inc. |
| $ | 2,950 |
|
| $ | - |
|
Voting Common Stock dividends |
|
| 409 |
|
|
| - |
|
Warrant dividends |
|
| 11 |
|
|
| - |
|
Undistributed earnings allocated to participating securities |
|
| 1,857 |
|
|
| - |
|
Net income available to common shareholders- Series A Non-Voting |
| $ | 673 |
|
| $ | - |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic weighted average common shares outstanding- Voting |
|
| 4,535,967 |
|
|
| 4,442,231 |
|
Basic weighted average common shares outstanding- Series A Non-Voting |
|
| 1,380,283 |
|
|
| - |
|
Diluted weighted average common shares outstanding- Voting |
|
| 4,535,967 |
|
|
| 4,442,231 |
|
Diluted weighted average common shares outstanding- Series A Non-Voting |
|
| 1,380,283 |
|
|
| - |
|
|
|
|
|
|
|
|
|
|
Basic earnings per common share- Voting |
| $ | 0.49 |
|
| $ | 0.36 |
|
Basic earnings per common share- Series A Non-Voting |
| $ | 0.49 |
|
| $ | - |
|
Diluted earnings per common share- Voting |
| $ | 0.49 |
|
| $ | 0.36 |
|
Diluted earnings per common share- Series A Non-Voting |
| $ | 0.49 |
|
| $ | - |
|
|
|
|
|
|
|
|
|
|
- 1618 -
Note 4: Investment Securities
The amortized cost and estimated fair value of investment securities are summarized as follows:
|
| March 31, 2021 |
|
| March 31, 2022 |
| ||||||||||||||||||||||||||
|
|
|
|
|
| Gross |
|
| Gross |
|
| Estimated |
|
|
|
|
|
| Gross |
|
| Gross |
|
| Estimated |
| ||||||
|
| Amortized |
|
| Unrealized |
|
| Unrealized |
|
| Fair |
|
| Amortized |
|
| Unrealized |
|
| Unrealized |
|
| Fair |
| ||||||||
(In thousands) |
| Cost |
|
| Gains |
|
| Losses |
|
| Value |
|
| Cost |
|
| Gains |
|
| Losses |
|
| Value |
| ||||||||
Available-for-Sale Portfolio |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Debt investment securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
US Treasury, agencies and GSEs |
| $ | 23,428 |
|
| $ | 16 |
|
| $ | (42 | ) |
| $ | 23,402 |
|
| $ | 31,624 |
|
| $ | 15 |
|
| $ | (1,617 | ) |
| $ | 30,022 |
|
State and political subdivisions |
|
| 22,115 |
|
|
| 1,141 |
|
|
| (68 | ) |
|
| 23,188 |
|
|
| 43,117 |
|
|
| 887 |
|
|
| (1,133 | ) |
|
| 42,871 |
|
Corporate |
|
| 12,847 |
|
|
| 431 |
|
|
| (59 | ) |
|
| 13,219 |
|
|
| 14,591 |
|
|
| 579 |
|
|
| (144 | ) |
|
| 15,026 |
|
Asset backed securities |
|
| 13,182 |
|
|
| 45 |
|
|
| (31 | ) |
|
| 13,196 |
|
|
| 15,837 |
|
|
| 0 |
|
|
| (300 | ) |
|
| 15,537 |
|
Residential mortgage-backed - US agency |
|
| 24,644 |
|
|
| 324 |
|
|
| (6 | ) |
|
| 24,962 |
|
|
| 23,087 |
|
|
| 36 |
|
|
| (1,083 | ) |
|
| 22,040 |
|
Collateralized mortgage obligations - US agency |
|
| 30,525 |
|
|
| 117 |
|
|
| (661 | ) |
|
| 29,981 |
|
|
| 11,881 |
|
|
| 0 |
|
|
| (766 | ) |
|
| 11,115 |
|
Collateralized mortgage obligations - Private label |
|
| 30,634 |
|
|
| 384 |
|
|
| (92 | ) |
|
| 30,926 |
|
|
| 62,991 |
|
|
| 20 |
|
|
| (1,698 | ) |
|
| 61,313 |
|
Total |
|
| 157,375 |
|
|
| 2,458 |
|
|
| (959 | ) |
|
| 158,874 |
|
|
| 203,128 |
|
|
| 1,537 |
|
|
| (6,741 | ) |
|
| 197,924 |
|
Equity investment securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock - financial services industry |
|
| 206 |
|
|
| - |
|
|
| - |
|
|
| 206 |
|
|
| 206 |
|
|
| 0 |
|
|
| 0 |
|
|
| 206 |
|
Total |
|
| 206 |
|
|
| - |
|
|
| - |
|
|
| 206 |
|
|
| 206 |
|
|
| 0 |
|
|
| 0 |
|
|
| 206 |
|
Total available-for-sale |
| $ | 157,581 |
|
| $ | 2,458 |
|
| $ | (959 | ) |
| $ | 159,080 |
|
| $ | 203,334 |
|
| $ | 1,537 |
|
| $ | (6,741 | ) |
| $ | 198,130 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Held-to-Maturity Portfolio |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Debt investment securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
US Treasury, agencies and GSEs |
| $ | - |
|
| $ | - |
|
| $ | - |
|
| $ | - |
|
| $ | 0 |
|
| $ | 0 |
|
| $ | 0 |
|
| $ | 0 |
|
State and political subdivisions |
|
| 16,424 |
|
|
| 408 |
|
|
| (337 | ) |
|
| 16,495 |
|
|
| 14,735 |
|
|
| 25 |
|
|
| (928 | ) |
|
| 13,832 |
|
Corporate |
|
| 39,930 |
|
|
| 1,183 |
|
|
| (109 | ) |
|
| 41,004 |
|
|
| 47,304 |
|
|
| 291 |
|
|
| (524 | ) |
|
| 47,071 |
|
Asset backed securities |
|
| 18,922 |
|
|
| 331 |
|
|
| (117 | ) |
|
| 19,136 |
|
|
| 13,759 |
|
|
| 0 |
|
|
| (359 | ) |
|
| 13,400 |
|
Residential mortgage-backed - US agency |
|
| 11,338 |
|
|
| 380 |
|
|
| (74 | ) |
|
| 11,644 |
|
|
| 9,514 |
|
|
| 77 |
|
|
| (227 | ) |
|
| 9,364 |
|
Collateralized mortgage obligations - US agency |
|
| 17,281 |
|
|
| 596 |
|
|
| (4 | ) |
|
| 17,873 |
|
|
| 14,093 |
|
|
| 57 |
|
|
| (255 | ) |
|
| 13,895 |
|
Collateralized mortgage obligations - Private label |
|
| 61,718 |
|
|
| 980 |
|
|
| (184 | ) |
|
| 62,514 |
|
|
| 68,592 |
|
|
| 0 |
|
|
| (1,363 | ) |
|
| 67,229 |
|
Total held-to-maturity |
| $ | 165,613 |
|
| $ | 3,878 |
|
| $ | (825 | ) |
| $ | 168,666 |
|
| $ | 167,997 |
|
| $ | 450 |
|
| $ | (3,656 | ) |
| $ | 164,791 |
|
- 1719 -
|
| December 31, 2020 |
|
| December 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 |
| $ | 6,428 |
|
| $ | 12 |
|
| $ | (24 | ) |
| $ | 6,416 |
|
| $ | 32,669 |
|
| $ | 17 |
|
| $ | (413 | ) |
| $ | 32,273 |
|
State and political subdivisions |
|
| 23,235 |
|
|
| 538 |
|
|
| (20 | ) |
|
| 23,753 |
|
|
| 37,860 |
|
|
| 1,383 |
|
|
| (44 | ) |
|
| 39,199 |
|
Corporate |
|
| 12,393 |
|
|
| 275 |
|
|
| - |
|
|
| 12,668 |
|
|
| 13,603 |
|
|
| 562 |
|
|
| (38 | ) |
|
| 14,127 |
|
Asset backed securities |
|
| 8,572 |
|
|
| 39 |
|
|
| (4 | ) |
|
| 8,607 |
|
|
| 13,693 |
|
|
| 9 |
|
|
| (89 | ) |
|
| 13,613 |
|
Residential mortgage-backed - US agency |
|
| 24,856 |
|
|
| 355 |
|
|
| - |
|
|
| 25,211 |
|
|
| 22,482 |
|
|
| 148 |
|
|
| (466 | ) |
|
| 22,164 |
|
Collateralized mortgage obligations - US agency |
|
| 26,776 |
|
|
| 149 |
|
|
| (461 | ) |
|
| 26,464 |
|
|
| 12,658 |
|
|
| 30 |
|
|
| (403 | ) |
|
| 12,285 |
|
Collateralized mortgage obligations - Private label |
|
| 24,662 |
|
|
| 384 |
|
|
| (110 | ) |
|
| 24,936 |
|
|
| 56,848 |
|
|
| 285 |
|
|
| (402 | ) |
|
| 56,731 |
|
Total |
|
| 126,922 |
|
|
| 1,752 |
|
|
| (619 | ) |
|
| 128,055 |
|
|
| 189,813 |
|
|
| 2,434 |
|
|
| (1,855 | ) |
|
| 190,392 |
|
Equity investment securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock - financial services industry |
|
| 206 |
|
|
| - |
|
|
| - |
|
|
| 206 |
|
|
| 206 |
|
|
| 0 |
|
|
| 0 |
|
|
| 206 |
|
Total |
|
| 206 |
|
|
| - |
|
|
| - |
|
|
| 206 |
|
|
| 206 |
|
|
| 0 |
|
|
| 0 |
|
|
| 206 |
|
Total available-for-sale |
| $ | 127,128 |
|
| $ | 1,752 |
|
| $ | (619 | ) |
| $ | 128,261 |
|
| $ | 190,019 |
|
| $ | 2,434 |
|
| $ | (1,855 | ) |
| $ | 190,598 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Held-to-Maturity Portfolio |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Debt investment securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
US Treasury, agencies and GSEs |
| $ | 1,000 |
|
| $ | 2 |
|
| $ | - |
|
| $ | 1,002 |
|
| $ | 0 |
|
| $ | 0 |
|
| $ | 0 |
|
| $ | 0 |
|
State and political subdivisions |
|
| 16,482 |
|
|
| 527 |
|
|
| (58 | ) |
|
| 16,951 |
|
|
| 14,790 |
|
|
| 416 |
|
|
| (140 | ) |
|
| 15,066 |
|
Corporate |
|
| 36,441 |
|
|
| 1,101 |
|
|
| (7 | ) |
|
| 37,535 |
|
|
| 46,290 |
|
|
| 1,252 |
|
|
| (102 | ) |
|
| 47,440 |
|
Asset backed securities |
|
| 18,414 |
|
|
| 217 |
|
|
| (176 | ) |
|
| 18,455 |
|
|
| 14,636 |
|
|
| 67 |
|
|
| (188 | ) |
|
| 14,515 |
|
Residential mortgage-backed - US agency |
|
| 11,807 |
|
|
| 475 |
|
|
| - |
|
|
| 12,282 |
|
|
| 9,740 |
|
|
| 277 |
|
|
| (18 | ) |
|
| 9,999 |
|
Collateralized mortgage obligations - US agency |
|
| 24,482 |
|
|
| 850 |
|
|
| (1 | ) |
|
| 25,331 |
|
|
| 11,362 |
|
|
| 367 |
|
|
| (9 | ) |
|
| 11,720 |
|
Collateralized mortgage obligations - Private label |
|
| 62,598 |
|
|
| 902 |
|
|
| (121 | ) |
|
| 63,379 |
|
|
| 64,105 |
|
|
| 222 |
|
|
| (262 | ) |
|
| 64,065 |
|
Total held-to-maturity |
| $ | 171,224 |
|
| $ | 4,074 |
|
| $ | (363 | ) |
| $ | 174,935 |
|
| $ | 160,923 |
|
| $ | 2,601 |
|
| $ | (719 | ) |
| $ | 162,805 |
|
The amortized cost and estimated fair value of debt investments at March 31, 20212022 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 |
| $ | 17,580 |
|
| $ | 17,833 |
|
| $ | 674 |
|
| $ | 677 |
|
| $ | 5,883 |
|
| $ | 6,437 |
|
| $ | 2,821 |
|
| $ | 2,839 |
|
Due after one year through five years |
|
| 7,760 |
|
|
| 7,904 |
|
|
| 17,026 |
|
|
| 17,709 |
|
|
| 6,153 |
|
|
| 6,117 |
|
|
| 9,843 |
|
|
| 9,932 |
|
Due after five years through ten years |
|
| 15,512 |
|
|
| 15,484 |
|
|
| 34,556 |
|
|
| 35,261 |
|
|
| 33,839 |
|
|
| 32,156 |
|
|
| 43,247 |
|
|
| 42,736 |
|
Due after ten years |
|
| 30,720 |
|
|
| 31,784 |
|
|
| 23,020 |
|
|
| 22,988 |
|
|
| 59,294 |
|
|
| 58,746 |
|
|
| 19,887 |
|
|
| 18,796 |
|
Sub-total |
|
| 71,572 |
|
|
| 73,005 |
|
|
| 75,276 |
|
|
| 76,635 |
|
|
| 105,169 |
|
|
| 103,456 |
|
|
| 75,798 |
|
|
| 74,303 |
|
Residential mortgage-backed - US agency |
|
| 24,644 |
|
|
| 24,962 |
|
|
| 11,338 |
|
|
| 11,644 |
|
|
| 23,087 |
|
|
| 22,040 |
|
|
| 9,514 |
|
|
| 9,364 |
|
Collateralized mortgage obligations - US agency |
|
| 30,525 |
|
|
| 29,981 |
|
|
| 17,281 |
|
|
| 17,873 |
|
|
| 11,881 |
|
|
| 11,115 |
|
|
| 14,093 |
|
|
| 13,895 |
|
Collateralized mortgage obligations - Private label |
|
| 30,634 |
|
|
| 30,926 |
|
|
| 61,718 |
|
|
| 62,514 |
|
|
| 62,991 |
|
|
| 61,313 |
|
|
| 68,592 |
|
|
| 67,229 |
|
Totals |
| $ | 157,375 |
|
| $ | 158,874 |
|
| $ | 165,613 |
|
| $ | 168,666 |
|
| $ | 203,128 |
|
| $ | 197,924 |
|
| $ | 167,997 |
|
| $ | 164,791 |
|
- 1820 -
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:
|
| March 31, 2021 |
|
| March 31, 2022 |
| ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
| Less than Twelve Months |
|
| Twelve Months or More |
|
| Total |
|
| Less than Twelve Months |
|
| Twelve Months or More |
|
| Total |
| ||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
| Number of |
|
|
|
|
|
|
|
|
|
| Number of |
|
|
|
|
|
|
|
|
|
| Number of |
|
|
|
|
|
|
|
|
|
| Number of |
|
|
|
|
|
|
|
|
|
| Number of |
|
|
|
|
|
|
|
|
|
| Number of |
|
|
|
|
|
|
|
|
| ||||||
|
| Individual |
|
| Unrealized |
|
| Fair |
|
| Individual |
|
| Unrealized |
|
| Fair |
|
| Individual |
|
| Unrealized |
|
| Fair |
|
| Individual |
|
| Unrealized |
|
| Fair |
|
| Individual |
|
| Unrealized |
|
| Fair |
|
| Individual |
|
| Unrealized |
|
| Fair |
| ||||||||||||||||||
(Dollars in thousands) |
| Securities |
|
| Losses |
|
| Value |
|
| Securities |
|
| Losses |
|
| Value |
|
| Securities |
|
| Losses |
|
| Value |
|
| Securities |
|
| Losses |
|
| Value |
|
| Securities |
|
| Losses |
|
| Value |
|
| Securities |
|
| Losses |
|
| Value |
| ||||||||||||||||||
Available-for-Sale Portfolio |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
US Treasury, agencies and GSE's |
|
| 1 |
|
| $ | (19 | ) |
| $ | 2,067 |
|
|
| 1 |
|
| $ | (23 | ) |
| $ | 4,956 |
|
|
| 2 |
|
| $ | (42 | ) |
| $ | 7,023 |
|
|
| 3 |
|
| $ | (1,617 | ) |
| $ | 29,017 |
|
|
| 0 |
|
| $ | 0 |
|
| $ | 0 |
|
|
| 3 |
|
| $ | (1,617 | ) |
| $ | 29,017 |
|
State and political subdivisions |
|
| 3 |
|
|
| (68 | ) |
|
| 4,621 |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 3 |
|
|
| (68 | ) |
|
| 4,621 |
|
|
| 15 |
|
|
| (983 | ) |
|
| 18,445 |
|
|
| 1 |
|
|
| (150 | ) |
|
| 2,155 |
|
|
| 16 |
|
|
| (1,133 | ) |
|
| 20,600 |
|
Corporate |
|
| 2 |
|
|
| (59 | ) |
|
| 1,717 |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 2 |
|
|
| (59 | ) |
|
| 1,717 |
|
|
| 4 |
|
|
| (49 | ) |
|
| 3,212 |
|
|
| 1 |
|
|
| (95 | ) |
|
| 660 |
|
|
| 5 |
|
|
| (144 | ) |
|
| 3,872 |
|
Asset backed securities |
|
| 2 |
|
|
| (4 | ) |
|
| 3,100 |
|
|
| 2 |
|
|
| (27 | ) |
|
| 2,236 |
|
|
| 4 |
|
|
| (31 | ) |
|
| 5,336 |
|
|
| 9 |
|
|
| (300 | ) |
|
| 15,380 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 9 |
|
|
| (300 | ) |
|
| 15,380 |
|
Residential mortgage-backed - US agency |
|
| 1 |
|
|
| (6 | ) |
|
| 5,667 |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 1 |
|
|
| (6 | ) |
|
| 5,667 |
|
|
| 12 |
|
|
| (1,083 | ) |
|
| 19,407 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 12 |
|
|
| (1,083 | ) |
|
| 19,407 |
|
Collateralized mortgage obligations - US agency |
|
| 5 |
|
|
| (171 | ) |
|
| 11,195 |
|
|
| 2 |
|
|
| (490 | ) |
|
| 5,361 |
|
|
| 7 |
|
|
| (661 | ) |
|
| 16,556 |
|
|
| 11 |
|
|
| (255 | ) |
|
| 6,323 |
|
|
| 3 |
|
|
| (511 | ) |
|
| 4,455 |
|
|
| 14 |
|
|
| (766 | ) |
|
| 10,778 |
|
Collateralized mortgage obligations - Private label |
|
| 1 |
|
|
| (71 | ) |
|
| 3,165 |
|
|
| 3 |
|
|
| (21 | ) |
|
| 2,171 |
|
|
| 4 |
|
|
| (92 | ) |
|
| 5,336 |
|
|
| 26 |
|
|
| (1,682 | ) |
|
| 51,149 |
|
|
| 2 |
|
|
| (16 | ) |
|
| 1,533 |
|
|
| 28 |
|
|
| (1,698 | ) |
|
| 52,682 |
|
Totals |
|
| 15 |
|
| $ | (398 | ) |
| $ | 31,532 |
|
|
| 8 |
|
| $ | (561 | ) |
| $ | 14,724 |
|
|
| 23 |
|
| $ | (959 | ) |
| $ | 46,256 |
|
|
| 80 |
|
| $ | (5,969 | ) |
| $ | 142,933 |
|
|
| 7 |
|
| $ | (772 | ) |
| $ | 8,803 |
|
|
| 87 |
|
| $ | (6,741 | ) |
| $ | 151,736 |
|
Held-to-Maturity Portfolio |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
State and political subdivisions |
|
| 6 |
|
| $ | (332 | ) |
| $ | 6,169 |
|
|
| 1 |
|
| $ | (4 | ) |
| $ | 3,005 |
|
|
| 7 |
|
| $ | (336 | ) |
| $ | 9,174 |
|
|
| 9 |
|
| $ | (421 | ) |
| $ | 7,898 |
|
|
| 2 |
|
| $ | (507 | ) |
| $ | 3,590 |
|
|
| 11 |
|
| $ | (928 | ) |
| $ | 11,488 |
|
Corporate |
|
| 13 |
|
|
| (109 | ) |
|
| 11,787 |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 13 |
|
|
| (109 | ) |
|
| 11,787 |
|
|
| 20 |
|
|
| (481 | ) |
|
| 18,325 |
|
|
| 1 |
|
|
| (43 | ) |
|
| 707 |
|
|
| 21 |
|
|
| (524 | ) |
|
| 19,032 |
|
Asset backed securities |
|
| - |
|
|
| - |
|
|
| - |
|
|
| 5 |
|
|
| (117 | ) |
|
| 4,917 |
|
|
| 5 |
|
|
| (117 | ) |
|
| 4,917 |
|
|
| 6 |
|
|
| (347 | ) |
|
| 7,201 |
|
|
| 1 |
|
|
| (12 | ) |
|
| 1,403 |
|
|
| 7 |
|
|
| (359 | ) |
|
| 8,604 |
|
Residential mortgage-backed - US agency |
|
| 1 |
|
|
| (74 | ) |
|
| 1,924 |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 1 |
|
|
| (74 | ) |
|
| 1,924 |
|
|
| 6 |
|
|
| (227 | ) |
|
| 5,744 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 6 |
|
|
| (227 | ) |
|
| 5,744 |
|
Collateralized mortgage obligations - US agency |
|
| 1 |
|
|
| (4 | ) |
|
| 1,388 |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 1 |
|
|
| (4 | ) |
|
| 1,388 |
|
|
| 5 |
|
|
| (244 | ) |
|
| 8,393 |
|
|
| 1 |
|
|
| (11 | ) |
|
| 1,029 |
|
|
| 6 |
|
|
| (255 | ) |
|
| 9,422 |
|
Collateralized mortgage obligations - Private label |
|
| 5 |
|
|
| (183 | ) |
|
| 7,607 |
|
|
| 1 |
|
|
| (1 | ) |
|
| 638 |
|
|
| 6 |
|
|
| (184 | ) |
|
| 8,245 |
|
|
| 26 |
|
|
| (1,110 | ) |
|
| 41,634 |
|
|
| 2 |
|
|
| (253 | ) |
|
| 3,494 |
|
|
| 28 |
|
|
| (1,363 | ) |
|
| 45,128 |
|
Totals |
|
| 26 |
|
| $ | (702 | ) |
| $ | 28,875 |
|
|
| 7 |
|
| $ | (122 | ) |
| $ | 8,560 |
|
|
| 33 |
|
| $ | (824 | ) |
| $ | 37,435 |
|
|
| 72 |
|
| $ | (2,830 | ) |
| $ | 89,195 |
|
|
| 7 |
|
| $ | (826 | ) |
| $ | 10,223 |
|
|
| 79 |
|
| $ | (3,656 | ) |
| $ | 99,418 |
|
|
| December 31, 2020 |
|
| December 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 |
|
| $ | (24 | ) |
| $ | 4,954 |
|
|
| 1 |
|
| $ | (24 | ) |
| $ | 4,954 |
|
|
| 3 |
|
| $ | (413 | ) |
| $ | 31,195 |
|
|
| 0 |
|
| $ | 0 |
|
| $ | 0 |
|
|
| 3 |
|
| $ | (413 | ) |
| $ | 31,195 |
|
State and political subdivisions |
|
| 1 |
|
|
| (20 | ) |
|
| 2,521 |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 1 |
|
|
| (20 | ) |
|
| 2,521 |
|
|
| 3 |
|
|
| (44 | ) |
|
| 4,847 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 3 |
|
|
| (44 | ) |
|
| 4,847 |
|
Corporate |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 2 |
|
|
| (5 | ) |
|
| 1,162 |
|
|
| 1 |
|
|
| (33 | ) |
|
| 722 |
|
|
| 3 |
|
|
| (38 | ) |
|
| 1,884 |
|
Asset backed securities |
|
| 2 |
|
|
| (2 | ) |
|
| 2,487 |
|
|
| 1 |
|
|
| (2 | ) |
|
| 80 |
|
|
| 3 |
|
|
| (4 | ) |
|
| 2,567 |
|
|
| 5 |
|
|
| (89 | ) |
|
| 11,206 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 5 |
|
|
| (89 | ) |
|
| 11,206 |
|
Residential mortgage-backed - US agency |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 3 |
|
|
| (466 | ) |
|
| 13,090 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 3 |
|
|
| (466 | ) |
|
| 13,090 |
|
Collateralized mortgage obligations - US agency |
|
| 2 |
|
|
| (45 | ) |
|
| 6,974 |
|
|
| 2 |
|
|
| (416 | ) |
|
| 5,683 |
|
|
| 4 |
|
|
| (461 | ) |
|
| 12,657 |
|
|
| 3 |
|
|
| (126 | ) |
|
| 6,504 |
|
|
| 2 |
|
|
| (277 | ) |
|
| 2,204 |
|
|
| 5 |
|
|
| (403 | ) |
|
| 8,708 |
|
Collateralized mortgage obligations - Private label |
|
| 3 |
|
|
| (78 | ) |
|
| 8,071 |
|
|
| 4 |
|
|
| (32 | ) |
|
| 2,574 |
|
|
| 7 |
|
|
| (110 | ) |
|
| 10,645 |
|
|
| 18 |
|
|
| (388 | ) |
|
| 38,816 |
|
|
| 2 |
|
|
| (14 | ) |
|
| 1,539 |
|
|
| 20 |
|
|
| (402 | ) |
|
| 40,355 |
|
Totals |
|
| 8 |
|
| $ | (145 | ) |
| $ | 20,053 |
|
|
| 8 |
|
| $ | (474 | ) |
| $ | 13,291 |
|
|
| 16 |
|
| $ | (619 | ) |
| $ | 33,344 |
|
|
| 37 |
|
| $ | (1,531 | ) |
| $ | 106,820 |
|
|
| 5 |
|
| $ | (324 | ) |
| $ | 4,465 |
|
|
| 42 |
|
| $ | (1,855 | ) |
| $ | 111,285 |
|
Held-to-Maturity Portfolio |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
US Treasury, agencies and GSE's |
|
| - |
|
| $ | - |
|
| $ | - |
|
|
| - |
|
| $ | - |
|
| $ | - |
|
|
| - |
|
| $ | - |
|
| $ | - |
| ||||||||||||||||||||||||||||||||||||
State and political subdivisions |
|
| 3 |
|
|
| (58 | ) |
|
| 7,063 |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 3 |
|
|
| (58 | ) |
|
| 7,063 |
|
|
| 4 |
|
| $ | (28 | ) |
| $ | 2,013 |
|
|
| 2 |
|
| $ | (112 | ) |
| $ | 3,988 |
|
|
| 6 |
|
| $ | (140 | ) |
| $ | 6,001 |
|
Corporate |
|
| 4 |
|
|
| (7 | ) |
|
| 3,775 |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 4 |
|
|
| (7 | ) |
|
| 3,775 |
|
|
| 9 |
|
|
| (102 | ) |
|
| 7,636 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 9 |
|
|
| (102 | ) |
|
| 7,636 |
|
Asset backed securities |
|
| 4 |
|
|
| (36 | ) |
|
| 4,209 |
|
|
| 3 |
|
|
| (140 | ) |
|
| 4,683 |
|
|
| 7 |
|
|
| (176 | ) |
|
| 8,892 |
|
|
| 2 |
|
|
| (130 | ) |
|
| 2,974 |
|
|
| 2 |
|
|
| (58 | ) |
|
| 1,610 |
|
|
| 4 |
|
|
| (188 | ) |
|
| 4,584 |
|
Residential mortgage-backed - US agency |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 1 |
|
|
| (18 | ) |
|
| 1,941 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 1 |
|
|
| (18 | ) |
|
| 1,941 |
|
Collateralized mortgage obligations - US agency |
|
| 1 |
|
|
| (1 | ) |
|
| 1,496 |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 1 |
|
|
| (1 | ) |
|
| 1,496 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 1 |
|
|
| (9 | ) |
|
| 1,109 |
|
|
| 1 |
|
|
| (9 | ) |
|
| 1,109 |
|
Collateralized mortgage obligations - Private label |
|
| 4 |
|
|
| (115 | ) |
|
| 6,442 |
|
|
| 1 |
|
|
| (6 | ) |
|
| 780 |
|
|
| 5 |
|
|
| (121 | ) |
|
| 7,222 |
|
|
| 6 |
|
|
| (163 | ) |
|
| 13,070 |
|
|
| 3 |
|
|
| (99 | ) |
|
| 3,820 |
|
|
| 9 |
|
|
| (262 | ) |
|
| 16,890 |
|
Totals |
|
| 16 |
|
| $ | (217 | ) |
| $ | 22,985 |
|
|
| 4 |
|
| $ | (146 | ) |
| $ | 5,463 |
|
|
| 20 |
|
| $ | (363 | ) |
| $ | 28,448 |
|
|
| 22 |
|
| $ | (441 | ) |
| $ | 27,634 |
|
|
| 8 |
|
| $ | (278 | ) |
| $ | 10,527 |
|
|
| 30 |
|
| $ | (719 | ) |
| $ | 38,161 |
|
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
- 19 -
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
- 21 -
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 investment securities within the securities portfolio as of March 31, 2021 represented2022 represents OTTI. AtThere were a total of 7 securities classified as available-for-sale (aggregate amortized historical cost of $9.6 million, unrealized aggregate loss of $772,000, or -8.1%) and 7 securities classified as held-to-maturity (aggregate amortized historical cost of $11.0 million, unrealized aggregate loss of $826,000, or -7.5%) that were in an unrealized loss position for 12 months or longer at March 31, 2021, the Bank had the following securities, not issued by the United States Government or GSE,2022.
Each security which has been in aan unrealized loss position for 12 months or more relativehas been analyzed and is not considered to theirbe impaired. These securities have unrealized losses primarily due to fluctuations in general interest rates or changes in expected prepayments. In substantially all cases, price improvement in future months is expected as the issuances approach maturity. Of the total of 14 securities in an unrealized loss position for 12 months or more at March 31, 2022, 4 securities, with aggregate amortized historical cost which werebalances of $6.0 million and representing 29.1% of the unamortized cost of the total securities in an unrealized loss position for 12 months or more, are issued by United States agencies and consist of a collateralized mortgage obligation. These positions in US government agency are deemed to have no credit impairment, thus, the disclosed unrealized losses related directlyrelate primarily to changesincreases in general interest rates subsequentrates.
In addition to the acquisition of the individual securities. The Company does not intend to sell these four securities, nor is it more likely than not that the Company will be required to sell theseheld the following ten non-government-issued/backed securities prior to the recovery of the amortized cost.
One privately-issued asset-backed security, categorized as available-for-sale, and collateralized by leases on rail car rolling stock, withthat were in an aggregate amortized historical cost of $2.0 million (unrealizedunrealized loss of $27,000, or 1.4%). This security maintains a credit rating established by oneposition for 12 or more NRSRO above the minimum level required to be considered as investment grade and therefore, no credit-related OTTI is deemed to be present.
One privately-issued asset-backed security, categorized as available-for-sale, and collateralized by consumer installment loans with an aggregate amortized historical cost of $244,000 (unrealized loss of less than $1,000). This security was not ratedmonths at the time of their issuances by any NRSRO but each security remains significantly collateralized through subordination and other credit enhancements. Therefore, no credit-related OTTI is deemed to be presentMarch 31, 2022:
•NaN corporate bond, categorized as available for sale, with an amortized historical cost of $755,000 (unrealized loss of $95,000, or -12.51%). This security maintains a credit rating established by one or more NRSRO above the minimum level required to be considered as investment grade and therefore, no credit-related OTTI is deemed to be present. •NaN corporate bond, categorized as held-to-maturity, with an amortized historical cost of $750,000 (unrealized loss of $43,000, or -5.68%). This security retains a credit rating by one or more NRSRO that is above investment grade and is considered to be stable in terms of future outlook. Therefore, no credit-related OTTI is deemed to be present. •NaN privately-issued mortgage-backed securities, categorized as available-for-sale, and collateralized by various forms of commercial mortgages, with an aggregate amortized historical cost of $1.5 million (unrealized aggregate loss of $16,000, or -0.967%). These securities were not rated at the time of their issuances by any NRSRO but each - 22 - •NaN securities, categorized as issued by unrelated state and/or political subdivisions (generally referred to as “municipal’ securities), categorized as held-to-maturity, with an aggregate amortized historical cost of $4.1 million (unrealized loss of $507,000, or -12.37%). These securities each maintain a credit rating established by one or more NRSRO above the minimum level required to be considered as investment grade and therefore, no credit-related OTTI is deemed to be present. •NaN security, categorized as issued by unrelated state and/or political subdivisions (generally referred to as “municipal’ securities), categorized as available-for-sale, with an aggregate amortized historical cost of $2.3 million (unrealized loss of $150,000 or -6.53%). This security maintains a credit rating established by one or more NRSRO above the minimum level required to be considered as investment grade and therefore, no credit-related OTTI is deemed to be present. •NaN privately-issued asset-backed security, collateralized by private-issue student loans and categorized as held-to-maturity, with an amortized historical cost of $1.4 million and a market value of $1.4 million (unrealized loss of $12,000 or -0.83%). This security was unrated at issuance but remains sufficiently collateralized through subordination. Therefore, no credit-related OTTI is deemed to be present. •NaN privately-issued collateralized mortgage obligation securities, collateralized by commercial mortgage loans and categorized as held-to-maturity, with an aggregate amortized historical cost of $3.7 million and an aggregate market value of $3.5 million (unrealized aggregate loss of $253,000, or -6.76%). These securities each maintains a credit rating established by one or more NRSRO above the minimum level required to be considered as investment grade and therefore, no credit-related OTTI is deemed to be present. 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 Gross realized gains (losses) on salesandredemptions of securities for the indicated periods are detailed below: For the three months For the three months ended March 31, ended March 31, (In thousands) 2021 2020 2022 2021 Realized gains on investments $ 7 $ 33 $ 0 $ 7 Realized losses on investments (7 ) (7 ) (6 ) (7 ) $ - $ 26 $ (6 ) $ 0 As of March 31, Management has reviewed its loan and mortgage-backed securities portfolios and determined that, to the best of its knowledge, - 23 - Note 5: Pension and Postretirement Benefits 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 For the three months ended March 31, For the three months ended March 31, (In thousands) 2021 2020 2021 2020 2022 2021 2022 2021 Service cost $ - $ - $ - $ - $ - $ - $ - $ - Interest cost 110 116 3 4 116 110 3 3 Expected return on plan assets (286 ) (273 ) - - (267 ) (286 ) - - Amortization of prior service credits - - (1 ) (1 ) - - (1 ) (1 ) Amortization of net losses 25 57 2 2 - 25 1 2 Net periodic benefit plan (benefit) cost $ (151 ) $ (100 ) $ 4 $ 5 $ (151 ) $ (151 ) $ 3 $ 4 The Company will evaluate the need for further contributions to the defined benefit pension plan during - 24 - Note 6: Loans Major classifications of loans at the indicated dates are as follows: March 31, December 31, March 31, December 31, (In thousands) 2021 2020 2022 2021 Residential mortgage loans: 1-4 family first-lien residential mortgages $ 226,058 $ 227,185 $ 232,809 $ 240,434 Construction 7,789 6,681 21,594 6,329 Loans held-for-sale 437 1,526 679 513 Total residential mortgage loans 234,284 235,392 255,082 247,276 Commercial loans: Real estate 289,182 286,271 303,250 288,450 Lines of credit 63,158 49,103 75,370 61,884 Other commercial and industrial 77,915 78,629 69,695 69,135 Paycheck Protection Program loans 71,885 60,643 13,292 19,338 Tax exempt loans 6,959 7,166 5,550 5,811 Total commercial loans 509,099 481,812 467,157 444,618 Consumer loans: Home equity and junior liens 36,181 38,624 30,781 31,737 Other consumer 87,976 70,905 103,825 110,108 Total consumer loans 124,157 109,529 134,606 141,845 Total loans 867,540 826,733 856,845 833,739 Net deferred loan fees (2,233 ) (1,238 ) (1,244 ) (1,280 ) Less allowance for loan losses (13,693 ) 12,777 13,017 12,935 Loans receivable, net $ 851,614 $ 812,718 $ 842,584 $ 819,524 Although the Bank may sometimes purchase or fund loan participation interests outside of its primary market areas, the Bank generally originates residential mortgage, commercial, and consumer loans largely to customers throughout Oswego and Onondaga counties. Although the Bank has a diversified loan portfolio, a substantial portion of its borrowers’ abilities to honor their loan contracts is dependent upon the counties’ employment and economic conditions. The Bank acquires diversified pools of loans, originated by unrelated third parties, as part of the Company’s overall balance sheet management strategies. These acquisitions occurred in March 31, December 31, (In thousands, except number of loans) 2021 2020 Purchased residential real estate loans Original Balance $ 4,300 $ 4,300 Current Balance $ 4,200 $ 4,300 Unamortized Premium (Discount) $ 270 $ 273 Percent Owned 100 % 100 % Number of Loans 51 51 Maturity range 17-24 years 17-25 years Cumulative net charge-offs $ - $ - Purchased other commercial and industrial loans Original Balance $ 6,800 $ 6,800 Current Balance $ 5,400 $ 5,500 Unamortized Premium (Discount) $ - $ - Percent Owned 100 % 100 % Number of Loans 39 39 Maturity range 4-8 years 5-9 years Cumulative net charge-offs $ - $ - Purchased home equity lines of credit: Original Balance $ 21,900 $ 21,900 Current Balance $ 12,400 $ 13,900 Unamortized Premium (Discount) $ 291 $ 309 Percent Owned 100 % 100 % Number of Loans 252 275 Maturity range 3-28 years 3-29 years Cumulative net charge-offs $ - $ - Purchased automobile loans: Original Balance $ 50,400 $ 50,400 Current Balance $ 14,600 $ 17,000 Unamortized Premium (Discount) $ 527 $ 602 Percent Owned 90 % 90 % Number of Loans 1,133 1,257 Maturity range 0-6 years 0-6 years Cumulative net charge-offs $ 232 $ 230 - March 31, December 31, (In thousands, except number of loans) 2021 2020 Purchased unsecured consumer loan pool 1: Original Balance $ 5,400 $ 5,400 Current Balance $ 3,300 $ 3,600 Unamortized Premium (Discount) $ - $ - Percent Owned 100 % 100 % Number of Loans 72 76 Maturity range 3-6 years 3-6 years Cumulative net charge-offs $ - $ - Purchased unsecured consumer loan pool 2: Original Balance $ 26,600 $ 26,600 Current Balance $ 12,900 $ 15,400 Unamortized Premium (Discount) $ 53 $ 63 Percent Owned 59 % 59 % Number of Loans 2,075 2,246 Maturity range 1-5 years 2-4 years Cumulative net charge-offs $ - $ - 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 $ - $ - (In thousands, except number of loans) March 31, 2022 Original Balance Current Balance Unamortized Premium/ (Discount) Number of Loans Maturity Range Cumulative net charge-offs Residential real estate loans 4,300 4,100 253 50 19-24 years - Secured consumer installment loans 21,300 20,900 (3,492 ) 880 19-26 years - Commercial and industrial loans 6,800 3,700 33 0-5 years - Commercial Line of Credit 1 11,600 12,300 23 1 0-1 year - Commercial Line of Credit 2 10,500 9,300 32 1 0-1 year - Home equity lines of credit 21,900 7,500 229 173 2-28 years - Automobile loans 50,400 7,300 242 758 0-5 years 239 Unsecured consumer loan pool 1 5,400 2,400 65 0-5 years - Unsecured consumer loan pool 2 26,600 4,500 24 1,239 0-3 years 1,551 Unsecured consumer installment loans pool 3 10,300 1,800 63 977 0-6 years 31 Secured consumer installment loans pool 4 14,500 12,300 (1,699 ) 553 Over 15 years - Unsecured consumer loans pool 5 24,400 19,100 (554 ) 733 Over 15 years - Unsecured consumer loans pool 6 22,200 21,600 (2,694 ) 560 Over 15 years - Total 230,200 126,800 (7,573 ) 6,023 1,821 (In thousands, except number of loans) December 31, 2021 Original Balance Current Balance Unamortized Premium/ (Discount) Number of Loans Maturity Range Cumulative net charge-offs Residential real estate loans 4,300 4,100 257 51 17-23 years - Secured consumer installment loans 21,300 21,400 (3,642 ) 900 19-25 years - Commercial and industrial loans 6,800 3,900 33 4-8 years - Commercial Line of Credit 1 11,600 7,100 26 1 0-1 year - Commercial Line of Credit 2 10,500 9,300 35 1 0-1 year - Home equity lines of credit 21,900 8,400 243 187 2-28 years - Automobile loans 50,400 8,800 301 855 0-5 years 239 Unsecured consumer loan pool 1 5,400 2,600 66 3-5 years - Unsecured consumer loan pool 2 26,600 6,300 30 1,438 1-3 years 42 Unsecured consumer installment loans pool 3 10,300 2,200 74 1,356 0-6 years 296 Secured consumer installment loans pool 4 14,500 12,600 (1,776 ) 563 Over 15 years - Unsecured consumer loans pool 5 24,400 19,700 (583 ) 756 Over 15 years - Unsecured consumer loans pool 6 22,200 22,100 (2,785 ) 564 Over 15 years - Total 230,200 128,500 (7,820 ) 6,771 577 As of March 31, Loan Origination / Risk Management The Company’s lending policies and procedures are presented in Note 5 to the audited consolidated financial statements included in the To develop and document a systematic methodology for determining the allowance for loan losses, the Company has divided the loan portfolio into - 26 - appropriate. Loan classes contain unique measurement attributes, risk characteristics, and methods for monitoring and assessing risk that are necessary to develop the allowance for loan losses. Unique characteristics such as borrower type, loan type, collateral type, and risk characteristics define each class. The following table illustrates the portfolio segments and classes for the Company’s loan portfolio: Portfolio Segment Class Residential Mortgage Loans 1-4 family first-lien residential mortgages Construction Commercial Loans Real estate Lines of credit Other commercial and industrial Tax exempt loans Consumer Loans Home equity and junior liens Other consumer - The following tables present the classes of the loan portfolio, not including net deferred loan costs, summarized by the aggregate pass rating and the classified ratings of special mention, substandard and doubtful within the Company's internal risk rating system as of the dates indicated: As of March 31, 2021 As of March 31, 2022 Special Special (In thousands) Pass Mention Substandard Doubtful Total Pass Mention Substandard Doubtful Total Residential mortgage loans: 1-4 family first-lien residential mortgages $ 221,499 $ 1,111 $ 2,841 $ 607 $ 226,058 $ 231,039 $ 510 $ 599 $ 661 $ 232,809 Construction 7,789 - - - 7,789 21,594 0 0 0 21,594 Loans held-for-sale 437 - - - 437 679 0 0 0 679 Total residential mortgage loans 229,725 1,111 2,841 607 234,284 253,312 510 599 661 255,082 Commercial loans: Real estate 267,008 13,108 8,547 519 289,182 282,336 9,768 10,569 577 303,250 Lines of credit 54,838 5,125 3,114 81 63,158 67,908 4,078 3,337 48 75,370 Other commercial and industrial 64,420 5,130 7,932 433 77,915 58,521 3,457 7,534 183 69,695 Paycheck Protection Program loans 71,885 - - - 71,885 13,292 0 0 0 13,292 Tax exempt loans 6,959 - - - 6,959 5,550 0 0 0 5,550 Total commercial loans 465,110 23,363 19,593 1,033 509,099 427,607 17,302 21,440 808 467,157 Consumer loans: Home equity and junior liens 35,138 130 681 232 36,181 29,776 145 634 225 30,781 Other consumer 87,480 140 274 82 87,976 103,755 18 52 0 103,825 Total consumer loans 122,618 270 955 314 124,157 133,532 163 686 225 134,606 Total loans $ 817,453 $ 24,744 $ 23,389 $ 1,954 $ 867,540 $ 814,451 $ 17,975 $ 22,724 $ 1,694 $ 856,845 As of December 31, 2020 As of December 31, 2021 Special Special (In thousands) Pass Mention Substandard Doubtful Total Pass Mention Substandard Doubtful Total Residential mortgage loans: 1-4 family first-lien residential mortgages $ 222,386 $ 1,151 $ 3,196 $ 452 $ 227,185 $ 238,823 $ 269 $ 811 $ 531 $ 240,434 Construction 6,681 - - - 6,681 6,329 0 0 0 6,329 Loans held-for-sale 1,526 - - - 1,526 513 0 0 0 513 Total residential mortgage loans 230,593 1,151 3,196 728 235,392 245,665 269 811 531 247,276 Commercial loans: Real estate 267,736 9,541 8,615 379 286,271 267,388 9,879 10,604 579 288,450 Lines of credit 40,733 5,132 3,154 84 49,103 54,408 4,036 3,387 53 61,884 Other commercial and industrial 65,441 4,770 8,153 265 78,629 56,719 3,907 8,321 188 69,135 Paycheck Protection Program loans 60,643 - - - 60,643 19,338 0 0 0 19,338 Tax exempt loans 7,166 - - - 7,166 5,811 0 0 0 5,811 Total commercial loans 441,719 19,443 19,922 728 481,812 403,664 17,822 22,312 820 444,618 Consumer loans: Home equity and junior liens 37,926 54 411 233 38,624 30,740 133 606 258 31,737 Other consumer 70,502 104 218 81 70,905 109,979 44 77 8 110,108 Total consumer loans 108,428 158 629 314 109,529 140,719 177 683 266 141,845 Total loans $ 780,740 $ 20,752 $ 23,747 $ 1,494 $ 826,733 $ 790,048 $ 18,268 $ 23,806 $ 1,617 $ 833,739 Management has reviewed its loan portfolio and determined that, to the best of its knowledge, no material exposure exists to sub-prime or other high-risk residential mortgages. The Company is not in the practice of originating these types of loans. Nonaccrual and Past Due Loans Loans are placed on nonaccrual when the contractual payment of principal and interest has become 90 days past due or management has serious doubts about further collectability of principal or interest, even though the loan may be currently performing. Loans are considered past due if the required principal and interest payments have not been received within thirty days of the payment due date. - An age analysis of past due loans, not including net deferred loan costs, segregated by portfolio segment and class of loans, as of March 31, As of March 31, 2021 As of March 31, 2022 30-59 Days 60-89 Days 90 Days Total Total Loans 30-59 Days 60-89 Days 90 Days Total Total Loans (In thousands) Past Due Past Due and Over Past Due Current Receivable Past Due Past Due and Over Past Due Current Receivable Residential mortgage loans: 1-4 family first-lien residential mortgages $ 132 $ 482 $ 776 $ 1,390 $ 224,668 $ 226,058 $ 1,072 $ 322 $ 1,098 $ 2,492 $ 230,317 $ 232,809 Construction - - - - 7,789 7,789 0 0 0 0 21,594 21,594 Loans held-for-sale - - - - 437 437 0 0 0 0 679 679 Total residential mortgage loans 132 482 776 1,390 232,894 234,284 1,072 322 1,098 2,492 252,590 255,082 Commercial loans: Real estate 2,943 3,555 2,574 9,072 280,110 289,182 1,054 3,800 4,212 9,066 294,184 303,250 Lines of credit 1,461 900 196 2,557 60,601 63,158 274 365 94 733 74,637 75,370 Other commercial and industrial 515 1,420 1,214 3,149 74,766 77,915 1,572 1,016 1,001 3,589 66,106 69,695 Paycheck Protection Program loans - - - - 71,885 71,885 0 0 0 0 13,292 13,292 Tax exempt loans - - - - 6,959 6,959 0 0 0 0 5,550 5,550 Total commercial loans 4,919 5,875 3,984 14,778 494,321 509,099 2,900 5,181 5,307 13,388 453,769 467,157 Consumer loans: Home equity and junior liens 63 13 291 367 35,814 36,181 117 64 388 569 30,212 30,781 Other consumer 411 279 186 876 87,100 87,976 389 412 895 1,696 102,129 103,825 Total consumer loans 474 292 477 1,243 122,914 124,157 506 476 1,283 2,265 132,341 134,606 Total loans $ 5,525 $ 6,649 $ 5,237 $ 17,411 $ 850,129 $ 867,540 $ 4,478 $ 5,979 $ 7,688 $ 18,145 $ 838,700 $ 856,845 As of December 31, 2020 As of December 31, 2021 30-59 Days 60-89 Days 90 Days Total Total Loans 30-59 Days 60-89 Days 90 Days Total Total Loans (In thousands) Past Due Past Due and Over Past Due Current Receivable Past Due Past Due and Over Past Due Current Receivable Residential mortgage loans: 1-4 family first-lien residential mortgages $ 1,250 $ 570 $ 1,098 $ 2,918 $ 224,267 $ 227,185 $ 960 $ 416 $ 891 $ 2,268 $ 238,166 $ 240,434 Construction - - - - 6,681 6,681 0 0 0 0 6,329 6,329 Loans held-for-sale - - - - 1,526 1,526 0 0 0 0 513 513 Total residential mortgage loans 1,250 570 1,098 2,918 232,474 235,392 960 416 891 2,268 245,008 247,276 Commercial loans: Real estate 480 100 2,271 3,324 250,933 286,271 1,735 1,029 4,379 7,143 281,307 288,450 Lines of credit 734 25 68 4,557 54,060 49,103 156 1,180 576 1,913 59,971 61,884 Other commercial and industrial 441 315 591 3,653 78,439 78,629 1,799 1,686 1,056 4,541 64,594 69,135 Paycheck Protection Program loans 170 - - 170 60,473 60,643 0 0 0 0 19,338 19,338 Tax exempt loans - - - - 7,166 7,166 0 0 0 0 5,811 5,811 Total commercial loans 1,825 4,500 4,396 10,721 471,091 481,812 3,691 3,895 6,011 13,597 471,091 444,618 Consumer loans: Home equity and junior liens 248 78 473 799 37,825 38,624 17 49 251 317 31,420 31,737 Other consumer 443 252 187 882 70,023 70,905 571 257 852 1,680 108,428 110,108 Total consumer loans 691 330 660 1,681 107,848 109,529 588 306 1,103 1,998 139,847 141,845 Total loans $ 3,766 $ 5,400 $ 6,154 $ 15,320 $ 811,413 $ 826,733 $ 5,239 $ 4,617 $ 8,006 $ 17,862 $ 815,877 $ 833,739 - Nonaccrual loans, segregated by class of loan, were as follows: March 31, December 31, (In thousands) 2021 2020 Residential mortgage loans: 1-4 family first-lien residential mortgages $ 2,899 $ 2,608 2,899 2,608 Commercial loans: Real estate 11,449 11,286 Lines of credit 196 194 Other commercial and industrial 6,197 6,498 17,842 17,978 Consumer loans: Home equity and junior liens 337 473 Other consumer 265 274 Total consumer loans 602 747 Total nonaccrual loans $ 21,343 $ 21,333 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 March 31, December 31, (In thousands) 2022 2021 Residential mortgage loans: 1-4 family first-lien residential mortgages $ 1,098 $ 891 1,098 891 Commercial loans: Real estate 4,235 4,407 Lines of credit 141 629 Other commercial and industrial 1,191 1,261 5,567 6,297 Consumer loans: Home equity and junior liens 388 252 Other consumer 895 852 Total consumer loans 1,283 1,104 Total nonaccrual loans $ 7,948 $ 8,292 The Company is required to disclose certain activities related to Troubled Debt Restructurings (“TDR”) in accordance with accounting guidance. Certain loans have been modified 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 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 Commercial loans 2 $ 961 $ 967 6 Residential real estate loans 2 $ 389 $ 389 $ 12 Home equity and junior liens 1 $ 200 $ 504 $ 219 For the three months ended March 31, 2022 (In thousands) Number of loans Pre-modification outstanding recorded investment Post-modification outstanding recorded investment Additional provision for loan losses Commercial real estate loans 1 $ 355 $ 355 $ - The 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 The Company had 1 loan that was modified as a TDR during the twelve months prior to March 31, 2021, which had subsequently defaulted during the three months ended March 31, 2021. 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 - 30 - 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. Impaired Loans The following March 31, 2021 December 31, 2020 March 31, 2022 December 31, 2021 Unpaid Unpaid Unpaid Unpaid Recorded Principal Related Recorded Principal Related Recorded Principal Related Recorded Principal Related (In thousands) Investment Balance Allowance Investment Balance Allowance Investment Balance Allowance Investment Balance Allowance With no related allowance recorded: 1-4 family first-lien residential mortgages $ 566 $ 566 $ - $ 665 $ 665 $ - $ 662 $ 662 $ - $ 666 $ 666 $ - Commercial real estate 11,437 11,676 - 11,053 11,136 - 4,206 4,301 - 4,708 4,801 - Commercial lines of credit - - - - - - 100 100 - 100 104 - Other commercial and industrial 4,896 4,921 - 5,114 5,132 - 299 335 - 357 396 - Home equity and junior liens 74 74 - 75 75 - 91 91 - 93 93 - Other consumer 82 82 - 81 81 - With an allowance recorded: 1-4 family first-lien residential mortgages 941 941 161 1,182 1,182 205 528 528 97 539 539 90 Commercial real estate 2,084 2,084 252 1,729 1,729 231 2,908 2,908 352 2,450 2,450 300 Commercial lines of credit 960 960 960 925 925 925 48 53 48 53 53 53 Other commercial and industrial 1,818 1,818 1,285 1,864 1,864 1,278 1,887 1,893 1,353 1,852 1,852 1,318 Home equity and junior liens 504 504 221 142 142 142 539 539 114 539 539 114 Other consumer 10 10 - - - - Total: 1-4 family first-lien residential mortgages 1,507 1,507 161 1,847 1,847 205 1,191 1,190 97 1,205 1,205 90 Commercial real estate 13,521 13,760 252 12,782 12,865 231 7,114 7,209 352 7,158 7,251 300 Commercial lines of credit 960 960 960 925 925 925 148 153 48 153 157 53 Other commercial and industrial 6,714 6,739 1,285 6,978 6,996 1,278 2,185 2,228 1,353 2,209 2,248 1,318 Home equity and junior liens 578 578 221 217 217 142 630 630 114 632 632 114 Other consumer 92 92 - 81 81 - Totals $ 23,372 $ 23,636 $ 2,879 $ 22,830 $ 22,931 $ 2,781 $ 11,268 $ 11,410 $ 1,964 $ 11,357 $ 11,493 $ 1,875 The following table presents the average recorded investment in impaired loans for the periods indicated: For the three months ended For the three months ended March 31, March 31, (In thousands) 2021 2020 2022 2021 1-4 family first-lien residential mortgages $ 1,677 $ 1,608 $ 1,197 $ 1,677 Commercial real estate 13,152 4,437 7,135 13,152 Commercial lines of credit 943 183 151 943 Other commercial and industrial 6,846 908 2,198 6,846 Home equity and junior liens 398 220 631 398 Other consumer 87 91 0 87 Total $ 23,103 $ 7,447 $ 11,312 $ 23,103 - 31 - The following table presents the cash basis interest income recognized on impaired loans for the periods indicated: For the three months ended For the three months ended March 31, March 31, (In thousands) 2021 2020 2022 2021 1-4 family first-lien residential mortgages $ 16 $ 12 $ 16 $ 16 Commercial real estate 65 31 63 65 Commercial lines of credit 10 2 2 10 Other commercial and industrial 25 16 20 25 Home equity and junior liens 1 3 6 1 Other consumer 5 1 - 5 Total $ 122 $ 65 $ 107 $ 122 Note 7: Allowance for Loan Losses Management extensively reviews recent trends in these portfolios. Summarized in the tables below are changes in the allowance for loan losses for the indicated periods and information pertaining to the allocation of the allowance for loan losses, balances of the allowance for loan losses, loans receivable based - 32 - on 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 March 31, 2021 For the three months ended March 31, 2022 1-4 family 1-4 family first-lien Residential Other Paycheck first-lien Residential Other Paycheck residential construction Commercial Commercial commercial Protection residential construction Commercial Commercial commercial Protection (In thousands) mortgage mortgage real estate lines of credit and industrial Program mortgage mortgage real estate lines of credit and industrial Program Allowance for loan losses: Beginning Balance $ 931 $ - $ 4,776 $ 1,670 $ 2,992 $ - $ 872 $ 0 $ 5,308 $ 935 $ 2,762 $ 0 Charge-offs - - (100 ) - - - 0 0 0 (17 ) 0 0 Recoveries - - - 1 - - 0 0 0 0 0 0 Provisions 44 - 1,045 245 24 - Provisions (credits) (42 ) 0 (10 ) 143 (25 ) 0 Ending balance $ 975 $ - $ 5,721 $ 1,916 $ 3,016 $ - $ 830 $ 0 $ 5,298 $ 1,061 $ 2,737 $ 0 Ending balance: related to loans individually evaluated for impairment $ 161 $ - $ 252 $ 960 $ 1,285 $ - $ 97 $ 0 $ 352 $ 48 $ 1,353 $ 0 Ending balance: related to loans collectively evaluated for impairment $ 814 $ - $ 5,469 $ 956 $ 1,731 $ - $ 733 $ 0 $ 4,946 $ 1,013 $ 1,384 $ 0 Loans receivables: Ending balance $ 226,058 $ 7,789 $ 289,182 $ 63,158 $ 77,915 $ 71,885 $ 232,809 $ 21,594 $ 303,250 $ 75,370 $ 69,695 $ 13,292 Ending balance: individually evaluated for impairment $ 1,507 $ - $ 13,521 $ 960 $ 6,714 $ - $ 1,191 $ 0 $ 7,114 $ 148 $ 2,185 $ 0 Ending balance: collectively evaluated for impairment $ 224,551 $ 7,789 $ 275,661 $ 62,198 $ 71,201 $ 71,885 $ 231,618 $ 21,594 $ 296,136 $ 75,222 $ 67,510 $ 13,292 Home equity Other Home equity Other Tax exempt and junior liens Consumer Unallocated Total Tax exempt and junior liens Consumer Unallocated Total Allowance for loan losses: Beginning Balance $ 1 $ 739 $ 1,123 $ 545 $ 12,777 $ 3 $ 774 $ 1,297 $ 984 12,935 Charge-offs - - (43 ) - (143 ) 0 0 (29 ) 0 (46 ) Recoveries - - 30 - 31 0 0 26 0 26 Provisions - 88 127 (545 ) 1,028 1 (98 ) 128 5 102 Ending balance $ 1 $ 827 $ 1,237 $ - $ 13,693 $ 4 $ 676 $ 1,422 $ 989 $ 13,017 Ending balance: related to loans individually evaluated for impairment $ - $ 221 $ - $ - $ 2,879 $ 0 $ 114 $ 0 $ 0 $ 1,964 Ending balance: related to loans collectively evaluated for impairment $ 1 $ 606 $ 1,237 $ - $ 10,814 $ 4 $ 562 $ 1,422 $ 989 $ 11,053 Loans receivables: Ending balance $ 6,959 $ 36,181 $ 87,976 $ 437 $ 867,540 $ 5,550 $ 30,781 $ 103,825 $ 679 $ 856,845 Ending balance: individually evaluated for impairment $ - $ 578 $ 92 $ - $ 23,372 $ 0 $ 630 $ 0 $ 0 $ 11,268 Ending balance: collectively evaluated for impairment $ 6,959 $ 35,603 $ 87,884 $ 437 $ 844,168 $ 5,550 $ 30,151 $ 103,825 $ 679 $ 845,577 - 33 - For the three months ended March 31, 2020 For the three months ended March 31, 2021 1-4 family 1-4 family first-lien Residential Other first-lien Residential Other Paycheck residential construction Commercial Commercial commercial residential construction Commercial Commercial commercial Protection (In thousands) mortgage mortgage real estate lines of credit and industrial mortgage mortgage real estate lines of credit and industrial Program Allowance for loan losses: Beginning Balance $ 580 $ - $ 4,010 $ 1,195 $ 1,645 $ 931 $ 0 $ 4,776 $ 1,670 $ 2,992 $ 0 Charge-offs (26 ) - - - - 0 0 (100 ) 0 0 0 Recoveries 1 - - 2 - 0 0 0 1 0 0 Provisions (credits) 176 - 233 21 113 Provisions 44 0 1,045 245 24 0 Ending balance $ 731 $ - $ 4,243 $ 1,218 $ 1,758 $ 975 $ 0 $ 5,721 $ 1,916 $ 3,016 $ 0 Ending balance: related to loans individually evaluated for impairment $ 95 $ - $ 76 $ 98 $ 379 $ 161 $ 0 $ 252 $ 960 $ 1,285 $ 0 Ending balance: related to loans collectively evaluated for impairment $ 636 $ - $ 4,167 $ 1,120 $ 1,379 $ 814 $ 0 $ 5,469 $ 956 $ 1,731 $ 0 Loans receivables: Ending balance $ 212,149 $ 2,338 $ 261,929 $ 59,354 $ 84,774 $ 226,058 $ 7,789 $ 289,182 $ 63,158 $ 77,915 $ 71,885 Ending balance: individually evaluated for impairment $ 1,604 $ - $ 4,427 $ 181 $ 881 $ 1,507 $ 0 $ 13,521 $ 960 $ 6,714 $ 0 Ending balance: collectively evaluated for impairment $ 210,545 $ 2,338 $ 257,502 $ 59,173 $ 83,893 $ 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 ) (133 ) - (187 ) 0 0 (43 ) 0 (143 ) Recoveries - 29 25 - 57 0 0 30 0 31 Provisions - 57 541 (74 ) 1,067 0 88 127 (545 ) 1,028 Ending balance $ 1 $ 611 $ 846 $ 198 $ 9,606 $ 1 $ 827 $ 1,237 $ 0 $ 13,693 Ending balance: related to loans individually evaluated for impairment $ - $ 128 $ 1 $ - $ 777 $ 0 $ 221 $ 0 $ 0 2,879 Ending balance: related to loans collectively evaluated for impairment $ 1 $ 483 $ 845 $ 198 $ 8,829 $ 1 $ 606 $ 1,237 $ 0 10,814 Loans receivables: Ending balance $ 7,937 $ 44,732 $ 76,839 $ 150 $ 750,202 $ 6,959 $ 36,181 $ 87,976 $ 437 867,540 Ending balance: individually evaluated for impairment $ - $ 219 $ 90 $ - $ 7,402 $ 0 $ 578 $ 92 $ 0 23,372 Ending balance: collectively evaluated for impairment $ 7,937 $ 44,513 $ 76,749 $ 150 $ 742,800 $ 6,959 $ 35,603 $ 87,884 $ 437 $ 844,168 The Company’s methodology for determining its allowance for loan losses includes an analysis of qualitative factors that are added to the historical loss rates in arriving at the total allowance for loan losses needed for this general pool of loans. The qualitative factors include: • Changes in national and local economic trends; • The rate of growth in the portfolio; • Trends of delinquencies and nonaccrual balances; • Changes in loan policy; and • Changes in lending management experience and related staffing. Each factor is assigned a value to reflect improving, stable or declining conditions based on management’s best judgment using relevant information available at the time of the evaluation. These qualitative factors, applied to each product class, make the evaluation inherently subjective, as it requires material estimates that may be susceptible to significant revision as more information becomes available. Adjustments to the factors are supported through documentation of changes in conditions in a narrative accompanying the allowance for loan losses analysis and calculation. The allocation of the allowance for loan losses summarized on the basis of the Company’s calculation methodology was as follows: March 31, 2021 1-4 family first-lien Residential Other residential construction Commercial Commercial commercial March 31, 2022 (In thousands) mortgage mortgage real estate lines of credit and industrial 1-4 family first-lien residential mortgage Residential construction mortgage Commercial real estate Commercial lines of credit Other Commercial and industrial Specifically reserved $ 161 $ - $ 252 $ 960 $ 1,285 $ 97 $ 0 $ 352 $ 48 $ 1,353 Historical loss rate 84 - 1 89 61 85 0 2 26 96 Qualitative factors 730 - 5,468 867 1,670 648 0 4,944 987 1,288 Total $ 975 $ - $ 5,721 $ 1,916 $ 3,016 $ 830 $ 0 $ 5,298 $ 1,061 $ 2,737 Home equity Other Tax exempt and junior liens consumer Unallocated Total Tax exempt Home equity and junior liens Other consumer Unallocated Total Specifically reserved $ - $ 221 $ - $ - $ 2,879 $ 0 $ 114 $ 0 $ 0 $ 1,964 Historical loss rate - 325 957 - 1,517 0 324 1,147 0 1,680 Qualitative factors 1 281 280 - 9,297 4 238 275 0 8,384 Other 0 0 0 989 989 Total $ 1 $ 827 $ 1,237 $ - $ 13,693 $ 4 $ 676 $ 1,422 $ 989 $ 13,017 March 31, 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 $ 95 $ - $ 76 $ 98 $ 379 $ 161 $ 0 $ 252 $ 960 $ 1,285 Historical loss rate 66 - 101 100 57 84 0 1 89 61 Qualitative factors 570 - 4,066 1,020 1,322 730 0 5,468 867 1,670 Total $ 731 $ - $ 4,243 $ 1,218 $ 1,758 $ 975 $ 0 $ 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 $ - $ 128 $ 1 $ - $ 777 $ 0 $ 221 $ 0 $ 0 $ 2,879 Historical loss rate - 146 584 - 1,054 0 325 957 0 1,517 Qualitative factors 1 337 261 - 7,577 1 281 280 0 9,297 Other - - - 198 198 - - - - - Total $ 1 $ 611 $ 846 $ 198 $ 9,606 $ 1 $ 827 $ 1,237 $ 0 $ 13,693 Note 8: Foreclosed Real Estate 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. - 35 - Note 9: Guarantees 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 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. Note 10: Fair Value Measurements 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 - 36 - anticipates that The Company holds one equity security investment, with an aggregate value of $1.2 million at March 31, 2022, valued utilizing readily available market pricing (Level 1) observed from active trading on major national stock exchanges. Interest rate derivatives: The fair value of the interest rate derivatives, characterized as either fair value or cash flow hedges, are calculated based on a discounted cash flow model. All future floating rate cash flows are projected and both floating rate and fixed rate cash flows are discounted to the valuation date. The benchmark interest rate curve utilized for projecting cash flows and applying appropriate discount rates is built by obtaining publicly available third party market quotes for various swap maturity terms. Impaired loans: Impaired loans are those loans in which the Company has measured impairment based on the fair value of the loan’s collateral or the discounted value of expected future cash flows. Fair value is generally determined based upon market value evaluations by third parties of the properties and/or estimates by management of working capital collateral or discounted cash flows based upon expected proceeds. These appraisals may include up to three approaches to value: the sales comparison approach, the income approach (for income-producing property), and the cost approach. Management modifies the appraised values, if needed, to take into account recent developments in the market or other factors, such as, changes in absorption rates or market conditions from the time of valuation and anticipated sales values considering management’s plans for disposition. Such modifications to the appraised values could result in lower valuations of such collateral. Estimated costs to sell are based on current amounts of disposal costs for similar assets. These measurements are classified as Level 3 within the valuation hierarchy. Impaired loans are subject to nonrecurring fair value adjustment upon initial recognition or subsequent impairment. A portion of the allowance for loan losses is allocated to impaired loans if the value of such loans is deemed to be less than the unpaid balance. 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: March 31, 2022 Total Fair (In thousands) Level 1 Level 2 Level 3 Value Available-for-Sale Portfolio Debt investment securities: US Treasury, agencies and GSEs $ - $ 30,022 $ - $ 30,022 State and political subdivisions - 42,871 - 42,871 Corporate - 10,374 - 10,374 Asset backed securities - 15,537 - 15,537 Residential mortgage-backed - US agency - 22,040 - 22,040 Collateralized mortgage obligations - US agency - 11,115 - 11,115 Collateralized mortgage obligations - Private label - 61,313 - 61,313 Total 193,272 193,272 Corporate measured at NAV - - - 4,652 Total available-for-sale securities $ - $ 193,272 $ - $ 197,924 Marketable equity securities measured at NAV $ 1,230 $ - $ - $ 1,230 Interest rate swap derivative fair value hedges $ - $ (894 ) $ - $ (894 ) Interest rate swap derivative cash flow hedges $ - $ 262 $ - $ 262 March 31, 2021 Total Fair (In thousands) 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 - 23,188 - 23,188 Corporate - 10,415 - 10,415 Asset backed securities - 13,196 - 13,196 Residential mortgage-backed - US agency - 24,962 - 24,962 Collateralized mortgage obligations - US agency - 29,981 - 29,981 Collateralized mortgage obligations - Private label - 30,926 - 30,926 Total 156,070 156,070 Corporate measured at NAV - - - 2,804 Total available-for-sale securities $ - $ 156,070 $ - $ 158,874 Marketable equity securities $ 2,084 $ - $ - $ 2,084 Interest rate swap derivative fair value hedges $ - $ 1,318 $ - $ 1,318 Interest rate swap derivative cash flow hedges $ - $ (1,074 ) $ - $ (1,074 ) - 37 - December 31, 2020 December 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 $ - $ 6,416 $ - $ 6,416 $ - $ 32,273 $ - $ 32,273 State and political subdivisions - 23,753 - 23,753 - 39,199 - 39,199 Corporate - 9,943 - 9,943 - 9,630 - 9,630 Asset backed securities - 8,607 - 8,607 - 13,613 - 13,613 Residential mortgage-backed - US agency - 25,211 - 25,211 - 22,164 - 22,164 Collateralized mortgage obligations - US agency - 26,464 - 26,464 - 12,285 - 12,285 Collateralized mortgage obligations - Private label - 24,936 - 24,936 - 56,731 - 56,731 Total - 125,330 - 125,330 - 185,895 - 185,895 Corporate measured at NAV - - - 2,725 - - - 4,497 Total available-for-sale securities $ - $ 125,330 $ - $ 128,055 $ - $ 185,895 $ - $ 190,392 Marketable equity securities $ 1,850 $ - $ - $ 1,850 Marketable equity securities measured at NAV $ 677 $ - $ - $ 677 Interest rate swap derivative fair value hedge 136 136 $ - $ (152 ) $ - $ (152 ) Interest rate swap derivative fair value hedge $ - $ (1,308 ) $ - $ (1,308 ) Interest rate swap derivative cash flow hedges $ - $ (387 ) $ - $ (387 ) Pathfinder Bank had the following assets measured at fair value on a nonrecurring basis as of March 31, 2021: March 31, 2021 March 31, 2022 Total Fair Total Fair (In thousands) Level 1 Level 2 Level 3 Value Level 1 Level 2 Level 3 Value Impaired loans $ - $ - $ 1,698 $ 1,698 $ - $ - $ 793 $ 793 December 31, 2020 December 31, 2021 Total Fair Total Fair (In thousands) Level 1 Level 2 Level 3 Value Level 1 Level 2 Level 3 Value Impaired loans $ - $ - $ 14,701 $ 14,701 $ - $ - $ 4,182 $ 4,182 The following table presents additional quantitative information about assets measured at fair value on a nonrecurring basis and for which Level 3 inputs were used to determine fair value at the indicated dates. Quantitative Information about Level 3 Fair Value Measurements Valuation Unobservable Range Techniques Input (Weighted Avg.) At March 31, Impaired loans Appraisal of collateral Appraisal Adjustments 5% - (Sales Approach) Costs to Sell 7% - Discounted Cash Flow Quantitative Information about Level 3 Fair Value Measurements Valuation Unobservable Range Techniques Input (Weighted Avg.) At December 31, Impaired loans Appraisal of collateral Appraisal Adjustments 5% - (Sales Approach) Costs to Sell 7% - Discounted Cash Flow There have been no transfers of assets into or out of any fair value measurement level during the three months ended March 31, - 38 - Required disclosures include fair value information of financial instruments, whether or not recognized in the consolidated statement of condition, for which it is practicable to estimate that value. In cases where quoted market prices are not available, fair values are based on estimates using present value or other valuation techniques. Those techniques are significantly affected by the assumptions used, including the discount rate and estimates of future cash flows. In that regard, the derived fair value estimates cannot be substantiated by comparison to independent markets and, in many cases, could not be realized in immediate settlement of the instrument. The Company has various processes and controls in place to ensure that fair value is reasonably estimated. The Company performs due diligence procedures over third-party pricing service providers in order to support their use in the valuation process. While the Company believes its valuation methods are appropriate and consistent with other market participants, the use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different estimate of fair value at the reporting date. Management uses its best judgment in estimating the fair value of the Company’s financial instruments; however, there are inherent weaknesses in any estimation technique. Therefore, for substantially all financial instruments, the fair value estimates herein are not necessarily indicative of the amounts the Company could have realized in a sales transaction on the dates indicated. The estimated fair value amounts have been measured as of their respective period-ends, and have not been re-evaluated or updated for purposes of these financial statements subsequent to those respective dates. As such, the estimated fair values of these financial instruments subsequent to the respective reporting dates may be different than the amounts reported at each period-end. Under FASB ASC Topic 820 for Fair Value Measurements and Disclosures, the financial assets and liabilities were valued at a price that represents the Company’s exit price or the price at which these instruments would be sold or transferred. The following information should not be interpreted as an estimate of the fair value of the entire Company since a fair value calculation is only provided for a limited portion of the Company’s assets and liabilities. Due to a wide range of valuation techniques and the degree of subjectivity used in making the estimates, comparisons between the Company’s disclosures and those of other companies may not be meaningful. The Company, in estimating its fair value disclosures for financial instruments, used the following methods and assumptions: Cash and cash equivalents – The carrying amounts of these assets approximate their fair value and are classified as Level 1. Federal Home Loan Bank stock – The carrying amount of these assets approximates their fair value and are classified as Level 2. Net loans – For variable-rate loans that re-price frequently, fair value is based on carrying amounts. The fair value of other loans (for example, fixed-rate commercial real estate loans, mortgage loans, and commercial and industrial loans) is estimated using discounted cash flow analysis, based on interest rates currently being offered in the market for loans with similar terms to borrowers of similar credit quality. Loan value estimates include judgments based on expected prepayment rates. The measurement of the fair value of loans, including impaired loans, is classified within Level 3 of the fair value hierarchy. Accrued interest receivable and payable – The carrying amount of these assets approximates their fair value and are classified as Level 1. - 39 - 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: March 31, 2021 December 31, 2020 March 31, 2022 December 31, 2021 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 $ 51,968 $ 51,968 $ 43,464 $ 43,464 1 $ 37,184 $ 37,184 $ 37,149 $ 37,149 Investment securities - available-for-sale 2 156,070 156,070 125,330 125,330 2 193,272 193,272 185,895 185,895 Investment securities - available-for-sale NAV 2,804 2,804 2,725 2,725 NAV 4,652 4,652 4,497 4,497 Investment securities - marketable equity 1 2,084 2,084 1,850 1,850 Investment securities - marketable equity 2 - - - - 1 1,230 1,230 677 677 Investment securities - held-to-maturity 2 165,613 168,666 171,224 174,935 2 167,997 164,791 160,923 162,805 Federal Home Loan Bank stock 2 4,591 4,591 4,390 4,390 2 3,533 3,533 4,189 4,189 Net loans 3 851,614 856,436 812,718 816,626 3 842,584 835,644 819,524 819,721 Accrued interest receivable 1 4,718 4,718 4,549 4,549 1 4,740 4,740 4,520 4,520 Interest rate swap derivative fair value hedges 2 1,323 1,287 191 191 2 4,229 4,229 1,308 1,308 Financial liabilities: Demand Deposits, Savings, NOW and MMDA 1 $ 676,330 $ 676,330 $ 598,683 $ 598,683 1 $ 748,162 $ 748,162 $ 694,089 $ 694,089 Time Deposits 2 392,578 392,895 397,224 398,863 2 365,915 361,757 361,257 360,680 Borrowings 2 86,500 87,740 82,050 84,065 2 62,521 59,951 77,098 76,957 Subordinated loans 2 39,443 39,437 39,400 39,416 2 29,604 29,896 29,563 30,627 Accrued interest payable 1 192 192 193 193 1 122 122 106 106 Interest rate swap derivative fair value hedges 2 5 5 55 55 2 894 894 152 152 Interest rate swap derivative cash flow hedges 2 1,074 1,074 1,308 1,308 2 (262 ) (262 ) 387 387 - 40 - Note 11: Interest Rate Derivatives The Company is exposed to certain risks from both its business operations and changes in economic conditions. As part of managing interest rate risk, the Company enters into standardized interest rate derivative contracts (designated as hedging agreements) to modify the repricing characteristics of certain portions of the Company’s portfolios of earning assets and interest-bearing liabilities. The Company designates interest rate hedging agreements utilized in the management of interest rate risk as either fair value hedges or cash flow hedges. Interest rate hedging agreements are generally entered into with counterparties that meet 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 March 31, 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 Cash flows related to floating rate assets and liabilities will fluctuate with changes in 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 - 41 - (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 Carrying Amount of the Hedged Assets at March 31, 2022 Cumulative Amount of Fair Value Hedging Adjustment Included in the Carrying Amount of the Hedged Assets at March 31, 2022 Carrying Amount of the Hedged Assets at December 31, 2021 Cumulative Amount of Fair Value Hedging Adjustment Included in The Carrying Amount of the Hedged Assets at December 31, 2021 Line item on the balance sheet in which the hedged item is included: Line item on the balance sheet in which the hedged item is included: Line item on the balance sheet in which the hedged item is included: Loans receivable (1) $ 11,345 $ 5 $ 12,944 $ 53 Available-for-sale securities (1) $ 65,636 $ (4,229 ) $ 61,808 $ (1,308 ) Loans receivable (2) $ 39,887 $ (894 ) $ 41,651 $ (152 ) (1) These amounts represent the amortized cost basis of specifically identified municipal securities designated as the underlying assets for the hedging relationship. The notional amount of the designated hedged item was $65.6 million and $61.8 million at March 31, 2022 and December 31, 2021, respectively. At March 31, 2022, the fair value of the derivative resulted in a net asset position of $4.2 million and $1.3 million recorded by the Company in other assets at March 31, 2022 and December 31, 2021. The Company’s participation in the fair value hedge had an immaterial effect on recorded interest income at March 31, 2022 and December 31, 2021. (2) These amounts include the amortized cost (In thousands) March 31, 2021 December 31, 2020 March 31, 2022 December 31, 2021 Cash flow hedges: Cash flow hedges: Cash flow hedges: Total unamortized premium $ 192 $ 204 Fair market value adjustment interest rate cap (169 ) (197 ) Total unamortized cap 23 7 Fair market value adjustment interest rate swap Fair market value adjustment interest rate swap (905 ) (1,111 ) Fair market value adjustment interest rate swap 262 (387 ) Total loss in comprehensive income Total loss in comprehensive income $ (1,074 ) $ (1,308 ) Total loss in comprehensive income $ 262 $ (387 ) The amounts of hedge ineffectiveness, recognized (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) 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) $ 23,479 $ (36 ) $ - $ - The Company manages its potential credit exposure on interest rate swap transactions by entering into bilateral credit support agreements with each contractual counterparty. These agreements require collateralization of credit exposures beyond specified minimum threshold amounts. For the three months ended (In thousands) March 31, 2021 March 31, 2020 Balance as of December 31: $ (1,308 ) $ - Amount of gains (losses) recognized in other comprehensive income 234 (1,344 ) Losses in other comprehensive income: $ (1,074 ) $ (1,344 ) - Note 12: Accumulated Other Comprehensive Income (Loss) Changes in the components of accumulated other comprehensive income (loss) (“AOCI”), net of tax, for the periods indicated are summarized in the For the three months ended March 31, 2021 For the three months ended March 31, 2022 (In thousands) Retirement Plans Unrealized Gains and Losses on Available-for- Sale Securities Unrealized Losses on Derivatives and Hedging Activities Unrealized Loss on Securities Transferred to Held-to-Maturity Total Retirement Plans Unrealized Loss on Available-for- Sale Securities Unrealized Gain on Derivatives and Hedging Activities Unrealized Gain on Securities Transferred to Held-to-Maturity Total Beginning balance $ (2,093 ) $ 837 $ (966 ) $ (14 ) $ (2,236 ) $ (1,412 ) $ 428 $ (286 ) $ 2 $ (1,268 ) Other comprehensive income before reclassifications - 271 173 5 449 0 (4,271 ) 480 0 (3,791 ) Amounts reclassified from AOCI 19 - - - 19 1 0 0 0 1 Ending balance $ (2,074 ) $ 1,108 $ (793 ) $ (9 ) $ (1,768 ) $ (1,411 ) $ (3,843 ) $ 194 $ 2 $ (5,058 ) For the three months ended March 31, 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 Gain on Available-for- Sale Securities Unrealized Loss on Derivatives and Hedging Activities Unrealized Loss on Securities Transferred to Held-to-Maturity Total Beginning balance $ (2,717 ) $ (216 ) $ - $ (38 ) $ (2,971 ) $ (2,093 ) $ 837 $ (966 ) $ (14 ) $ (2,236 ) Reevaluation of deferred tax asset valuation allowance (1) (188 ) (15 ) - (3 ) (206 ) Other comprehensive income before reclassifications - (2,869 ) (1,062 ) 6 (3,925 ) 0 271 173 5 449 Amounts reclassified from AOCI 46 (21 ) - - 25 19 0 0 0 19 Ending balance $ (2,859 ) $ (3,121 ) $ (1,062 ) $ (35 ) $ (7,077 ) $ (2,074 ) $ 1,108 $ (793 ) $ (9 ) $ (1,768 ) The following table presents the amounts reclassified out of each component of AOCI for the indicated period: Amount Reclassified Amount Reclassified from AOCI (1) from AOCI (1) (Unaudited) (Unaudited) (In thousands) For the three months ended For the three months ended Details about AOCI (1) components March 31, 2021 March 31, 2020 Affected Line Item in the Statement of Income Affected Line Item in the Statement of Income March 31, 2022 March 31, 2021 Retirement plan items Retirement plan net losses recognized in plan expenses (2) $ (26 ) $ (58 ) Salaries and employee benefits Salaries and employee benefits $ (1 ) $ (26 ) Tax effect 7 12 Provision for income taxes Provision for income taxes 0 7 $ (19 ) $ (46 ) Net Income Net Income $ (1 ) $ (19 ) Available-for-sale securities Realized gain on sale of securities $ - $ 26 Net gains on sales and redemptions of investment securities Tax effect - (5 ) Provision for income taxes �� $ - $ 21 Net Income (1) Amounts in parentheses indicates debits in net income. (2) These items are included in net periodic pension cost. See Note 5 for additional information. - Note 13: Noninterest Income The Company has included the following table regarding the Company’s noninterest income for the periods presented. For the three months For the three months ended March 31, ended March 31, (In thousands) 2021 2020 2022 2021 Service fees Insufficient funds fees $ 190 $ 275 $ 118 $ 190 Deposit related fees 97 55 102 97 ATM fees 44 26 39 44 Total service fees 331 356 259 331 Fee Income Insurance commissions 279 335 299 279 Investment services revenue 83 68 97 83 ATM fees surcharge 51 54 48 51 Banking house rents collected 63 71 55 63 Total fee income 476 528 499 476 Card income Debit card interchange fees 221 163 228 221 Merchant card fees 15 16 16 15 Total card income 236 179 244 236 Mortgage fee income and realized gain on sale of loans and foreclosed real estate Loan servicing fees 90 49 117 90 Net gains on sales of loans and foreclosed real estate 120 672 63 120 Total mortgage fee income and realized gain on sale of loans and foreclosed real estate 210 721 180 210 Total 1,253 1,784 1,182 1,253 Earnings and gain on bank owned life insurance 125 116 162 125 Net gains on sales and redemptions of investment securities - 26 Gains/(losses) on marketable equity securities 234 (194 ) Net loss on sale and redemption of investment securities (6 ) - Gains on marketable equity securities 68 234 Net gains on sale of premises and equipment - 201 Other miscellaneous income 233 16 197 32 Total noninterest income $ 1,845 $ 1,748 $ 1,603 $ 1,845 The following is a discussion of key revenues within the scope of the new revenue guidance: • Service fees – Revenue is earned through insufficient funds fees, customer initiated activities or passage of time for deposit related fees, and ATM service fees. Transaction-based fees are recognized at the time the transaction is executed, which is the same time the Company’s performance obligation is satisfied. Account maintenance fees are earned over the course of the month as the monthly maintenance performance obligation to the customer is satisfied. • Fee income – Revenue is earned through commissions on insurance and securities sales, ATM surcharge fees, and banking house rents collected. The Company earns investment advisory fee income by providing investment management services to customers under investment management contracts. As the direction of investment management accounts is provided over time, the performance obligation to investment management customers is satisfied over time, and therefore, revenue is recognized over time. • Card income – Card income consists of interchange fees from consumer debit card networks and other related services. Interchange rates are set by the card networks. Interchange fees are based on purchase volumes and other factors and are recognized as transactions occur. • Mortgage fee income and realized gain on sale of loans and foreclosed real estate – Revenue from mortgage fee income and realized gain on sale of loans and foreclosed real estate is earned through the origination of residential - and commercial mortgage loans, sales of one-to-four family residential mortgage loans, sales of government guarantees portions of Small Business Administration loans (“SBA loans”), and sales of foreclosed real estate, and is earned as the transaction occurs. Note 14: Leases The Company has operating and finance leases for certain banking offices and land under noncancelable agreements. Our leases have remaining lease terms that vary from less than The components of For the three months ended For the three months ended (In thousands) March 31, 2021 March 31, 2020 March 31, 2022 March 31, 2021 Operating lease cost $ 57 $ 61 $ 57 $ 57 Finance lease cost 20 20 21 20 Supplemental cash flow information related to leases was as follows: For the three months ended For the three months ended (In thousands) March 31, 2021 March 31, 2020 March 31, 2022 March 31, 2021 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 $ 52 $ 56 $ 52 $ 52 Operating cash flows from finance leases 20 20 21 20 Financing cash flows from finance leases 18 18 18 18 Supplemental balance sheet information related to leases was as follows: For the three months ended (In thousands, except lease term and discount rate) March 31, 2021 December 31, 2020 March 31, 2022 March 31, 2021 Operating Leases: Operating lease right-of-use assets $ 2,206 $ 2,240 $ 2,102 $ 2,136 Operating lease liabilities $ 2,495 $ 2,525 $ 2,409 $ 2,440 Finance Leases: Financial Liability $ 590 $ 587 $ 599 $ 596 Weighted Average Remaining Lease Term: Operating Leases 18.94 years 19.08 years 18.16 years 18.29 years Finance Leases 28.17 years 28.42 years 27.17 years 27.42 years Weighted Average Discount Rate: Operating Leases 3.73 % 3.73 % 3.73 % 3.73 % Finance Leases 13.75 % 13.75 % 13.75 % 13.75 % - Maturities of lease liabilities were as follows: Twelve Months Ending March 31, Three Months Ending March 31, 2022 (In thousands) 2022 $ 97 2023 102 $ 85 2024 111 118 2025 120 118 2026 128 126 2027 133 Thereafter 2,527 2,428 Total minimum lease payments $ 3,085 $ 3,008 The Company owns certain properties that it leases to unaffiliated third parties at market rates. Lease rental income was Note 15: COVID-19 The Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”), signed into law on March 27, 2020, provided financial assistance in various forms to both businesses and consumers, including the establishment and funding of the Paycheck Protection Program (“PPP”). In addition, the CARES Act also created many directives affecting the operations of financial services 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 Note 16: Related Party Transactions: In the ordinary course of business, the Company has granted - (Dollars in thousands) Balance Number of Loans Average Loan Balance Minimum/ Maximum Loan Balance Allowance for Loan Losses Percent of Total Loans Residential Mortgage Loans $ 234,284 2,121 $ 110 $ 0 - $ 1,536 $ 975 27 % Commercial Real Estate: Mixed Use $ 50,392 56 $ 900 $ 44 - $ 7,433 $ 997 6 % Multi-Family Residential 43,886 60 731 25 - 6,275 868 5 % Hotels and Motels 35,198 10 3,520 334 - 11,500 696 4 % Office 34,587 62 558 7 - 4,835 684 4 % Retail 23,200 45 516 32 - 5,124 459 3 % 1-4 Family Residential 19,449 150 130 8 - 1,222 385 2 % Automobile Dealership 16,250 10 1,625 167 - 6,741 321 2 % Warehouse 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 7,443 15 496 91 - 1,415 147 1 % Restaurant 6,300 24 263 43 - 1,251 125 1 % Automobile Repair 4,756 11 432 52 - 2,312 94 1 % Not-For-Profit & Community Service Real Estate 3,451 3 1,150 106 - 1,778 68 1 % Hospitals 3,375 3 1,125 77 - 3,105 67 0 % Land 2,406 4 602 70 - 2,000 48 0 % All Other 6,099 31 197 5 - 739 121 1 % Total Commercial Real Estate Loans $ 289,182 514 $ 563 $ 5,721 34 % Commercial and Industrial: Secured Term Loans $ 61,201 378 $ 162 $ - - $ 4,485 $ 2,369 7 % Unsecured Term Loans 16,715 118 142 1 - 2,244 647 2 % Secured Lines of Credit 53,857 263 205 - - 11,588 1,634 6 % Unsecured Lines of Credit 9,300 139 67 - - 2,750 282 1 % Total Commercial and Industrial Loans $ 141,073 898 $ 157 $ 4,932 16 % Tax Exempt Loans $ 6,959 22 $ 316 $ 6 - $ 2,248 $ 1 1 % Paycheck Protection Loans $ 71,885 708 $ 102 $ 0 - $ 3,001 $ - 8 % Consumer: Home Equity Lines of Credit $ 36,181 986 $ 37 $ - - $ 504 $ 827 4 % Vehicle 24,196 1,633 15 - - 353 340 3 % Consumer Secured 41,069 1,527 27 20 - 125 577 5 % Consumer Unsecured 20,392 5,026 4 - - 105 287 2 % All Others 2,319 1,006 2 - - 476 33 0 % Total Consumer Loans $ 124,157 10,178 $ 12 $ 2,064 14 % Net deferred loan fees (2,233 ) - - - - Unallocated allowance for loan losses - - - - - Total Loans $ 865,307 14,441 $ 60 $ 13,693 100 % (In thousands) 2022 2021 Balance at the beginning of the period $ 22,427 $ 22,445 Originations and related party additions 18 8,007 Principal payments and related party removals (1,220 ) (8,025 ) Balance at the end of the period $ 21,225 $ 22,427 Item 2 - Management's Discussion and Analysis of Financial Condition and Results of Operations (Unaudited) General The Company is a Maryland corporation headquartered in Oswego, New York. The Company is 100% owned by public shareholders. The primary business of the Company is its investment in Pathfinder Bank (the "Bank"), a New York State chartered commercial bank, which is 100% owned by the Company. The Bank has two wholly owned operating subsidiaries, Pathfinder Risk Management Company, Inc. (“PRMC”) and Whispering Oaks Development Corp. All significant inter-company accounts and activity have been eliminated in consolidation. Although the Company owns, through its subsidiary PRMC, 51% of the membership interest in FitzGibbons Agency, LLC (“ The following discussion reviews the Company's financial condition at March 31, 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 Statement Regarding Forward-Looking Statements Certain statements contained herein are “forward looking statements” within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. This report contains forward-looking statements that are based on assumptions and may describe future plans, strategies and expectations of the Company. These forward-looking statements are generally identified by use of the words “believe,” “expect,” “intend,” “anticipate,” “estimate,” “project” or similar expressions. The Company’s ability to predict results or the actual effect of future plans or strategies is inherently uncertain. Factors which could have a material adverse effect on the operations of the Company and its subsidiaries include, but are not limited to: • Credit quality and the effect of credit quality on the adequacy of our allowance for loan losses; • Deterioration in financial markets that may result in impairment charges relating to our securities portfolio; • Competition in our primary market areas; • Changes in interest rates, inflation and national or regional economic conditions; • Changes in monetary and fiscal policies of the U.S. Government, including policies of the U.S. Treasury and the Federal Reserve Board; - • Significant government regulations, legislation and potential changes thereto; • A reduction in our ability to generate or originate revenue-producing assets as a result of compliance with heightened capital standards; • Increased cost of operations due to greater regulatory oversight, supervision and examination of banks and bank holding companies, and higher deposit insurance premiums; • Cyberattacks, computer viruses and other technological threats that may breach the security of our websites or other systems; • Technological changes that may be more difficult or expensive than expected; • Government action in response to the COVID-19 pandemic and its effects on our business and operations, including vaccination mandates and their effects on our workforce, human capital resources and infrastructure; • Limitations on our ability to expand consumer product and service offerings due to anticipated stricter consumer protection laws and regulations; and • Other risks described herein and in the other reports and statements we file with the SEC. 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. COVID-19 Response As a result of the initial and continuing outbreak, and governmental responses thereto, the spread of the coronavirus The Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”), signed into law on March 27, 2020, provided financial assistance in various forms to both businesses and consumers, including the establishment and funding of the Paycheck Protection Program (“PPP”). In addition, the CARES Act also created many directives affecting the operations of financial - 48 - effects of COVID-19. The Company has worked to assist its business and consumer customers affected by COVID-19. As of the date of this filing, variants of the coronavirus, referred to as the “Omicron” variant, along with sub-variants of Omicron, have emerged in the United States and remain a concern in some regions and potentially, throughout the country. These variants are believed to be more contagious than earlier variants of the coronavirus. Certain previously-relaxed social distancing and safety protocols may have to be reinstated locally or in other regions of the country and it is possible that such protocols will be reinstated broadly in the future. The economic effects of these varying protocol reinstatement actions on the Company’s operations cannot be determined with certainty at this time. Paycheck Protection Program The Bank participated in all rounds of the PPP funded by the U.S. Treasury Department and administered by the U.S. SBA pursuant to the CARES Act and subsequent legislation. PPP loans have an interest rate of 1.0% and a two-year or five-year loan term to maturity. The SBA guarantees 100% of the PPP loans made to eligible borrowers. The entire principal amount of the borrower’s PPP loan, including any accrued interest, is eligible to be reduced by the loan forgiveness amount under the PPP so long as employee and compensation levels of the business are maintained and the loan proceeds are used for qualifying expenses. Unaudited For the three months ended (In thousands, except number of loans) March 31, 2022 March 31, 2021 Number of PPP loans originated in the period - 421 Funded balance of PPP loans originated in the period $ - $ 34,487 Number of PPP loans forgiven in the period 93 206 Balance of PPP loans forgiven in the period $ 6,096 $ 18,581 Deferred PPP fee income recognized in the period $ 278 $ 412 For the three months ended (In thousands, except number of loans) March 31, 2022 March 31, 2021 Unearned PPP deferred fee income at end of period $ 440 $ 1,468 (In thousands, except number of loans) Number Balance Total PPP loans originated since inception 1,177 $ 111,721 Total PPP loans forgiven since inception 1,025 $ 98,429 Total PPP loans remaining at March 31, 2022 152 $ 13,292 Application of Critical Accounting The Company's consolidated quarterly financial statements are prepared in accordance with accounting principles generally accepted in the United States and follow practices within the banking industry. Application of these principles requires management to make estimates, assumptions, and judgments that affect the amounts reported in the consolidated - 49 - 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 The allowance for loan losses represents management's estimate of probable loan losses inherent in the loan portfolio. Determining the amount of the allowance for loan losses is considered a critical accounting estimate because it requires significant judgment on the use of estimates related to the amount and timing of expected future cash flows on impaired loans, estimated losses on pools of homogeneous loans based on historical loss experience, and consideration of current economic trends and conditions, all of which may be susceptible to significant change. Our Allowance for Loan and Lease Losses policy establishes criteria for selecting loans to be measured for impairment based on the following: Residential and Consumer Loans: • All loans rated substandard or worse, on nonaccrual status, and above our total related credit (“TRC”) threshold balance of $300,000. • All Troubled Debt Restructured Loans. Commercial Lines and Loans, Commercial Real Estate, and Tax-exempt loans: • All loans rated substandard or worse, on nonaccrual status, and above our TRC threshold balance of $100,000. • All Troubled Debt Restructured Loans. 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 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. real estate transfer tax. The legislation increases the corporate franchise tax rate to 7.25% from 6.5% for tax years beginning on or after January 1, 2021 and before January 1, 2024 for taxpayers with a business income base greater than $5.0 million. In addition, the previously scheduled phase-out of the capital base tax has been delayed. The rate of the capital base was set to - 50 - issued New York State tax legislation on the Company’s financial condition and results of operations and believes that these provisions The Company’s effective tax rate typically differs from the 21% federal statutory tax rate due primarily to New York State income taxes, partially offset by tax-exempt income from specific types of investment securities and loans, bank owned life insurance, and to a much lesser degree, the utilization of low income housing tax 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 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 The estimation of fair value is significant to several of our assets; including available-for-sale and marketable equity investment securities, intangible assets, foreclosed real estate, and the value of loan collateral when valuing loans. These are all recorded at either fair value, or the lower of cost or fair value. Fair values are determined based on third party sources, when available. Furthermore, accounting principles generally accepted in the United States require disclosure of the fair value of financial instruments as a part of the notes to the annual audited consolidated financial statements. Fair values on our available-for-sale securities may be influenced by a number of 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. - 51 - 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, Recent Events On March Overview and Results of Operations The following represents the significant highlights of the Company’s operating results between the first quarter of • Net income increased $796,000, or 37.0%, to $3.0 million. • Basic and diluted earnings per share were both $0.49 per share and increased $0.13 per share from $0.36 per share. • Return on average assets increased 22 basis points to 0.90% as the increase in income outpaced the increase in average assets. • Net interest income, after provision for loan losses, increased $1.8 million, or 24.3%, to $9.4 million. Excluding the provision, net interest income increased $907,000, or 10.6%, to $9.5 million. The increase in net interest income, after provision for loan losses, was primarily due to the increase in the average balance of interest-earning assets, coupled with a decrease in the average rate paid on average interest-bearing liabilities. These increases were offset by a 10 basis point decrease in the average yield earned on the average balance of interest-earning assets. Additionally, a reduction in the provision for loan losses of $926,000 was reflective of improving asset quality metrics. The credit sensitive portfolios continue to be carefully monitored. • The net interest margin for the first quarter of 2022 was 3.06%, a 21 basis point increase compared to 2.85% for the first quarter of 2021. This improvement reflects a 36 basis point decline in the average cost paid on interest-bearing liabilities, with a 10 basis point decrease in the average yield earned on interest-earning assets. • The effective income tax rate increased .40% to 21.0% for the three months ended March 31, 2022 as compared to 20.6% for the same three month period in 2021. The increase in the tax rate in the first quarter of 2022, as compared to the same quarter in 2021, was primarily related to an increase in pretax income and an increase in New York State permanent differences, which created higher state taxable income subject to the tax rate of 7.25%. The following reflects the significant changes in financial condition between • Total assets increased $43.2 million, or 3.4% to $1.33 billion at March 31, 2022, as compared to December 31, 2021, primarily driven by higher investment securities’ balances and loan balances. • Asset quality metrics, as measured by net loan charge-offs, remained stable, in comparison to recent reporting periods. The annualized net loan charge-offs to average loans ratio was 0.02% for the first quarter of 2022, compared to 0.05% for the first quarter of 2021, and 0.10% for the fourth quarter of 2021. Nonperforming loans to total loans decreased 154 basis points to 0.93% at March 31, 2022, compared to 2.5% at March 31, 2021. Nonperforming loans to total loans decreased 7 basis points to 0.93% at March 31, 2022 compared to 1.0% at December 31, 2021. Correspondingly, the ratio of the allowance for loan losses to nonperforming loans was 163.8% at March 31, 2022, as compared to 64.2% at March 31, 2021, and 156.0% at December 31, 2021. - 52 - The Company had net income of $3.0 million for the three months ended March 31, 2022 compared to net income of $2.2 million for the three months ended March 31, Net interest income before the provision for loan losses increased $907,000, or 10.6%, to $9.5 million for the three months ended March 31, In comparing the year-over-year first quarter periods, the return on average assets increased For the first three months of 2022, we recorded $102,000 in provision for loan losses as compared to $1.0 million in the same prior year three month period. The provision is reflective of (1) the qualitative factors used in determining the adequacy of the allowance for loan losses, (2) the size of the loan portfolio, and (3) delinquent and nonaccrual loans. The decline in the provision for loan losses in the first quarter of 2022, as compared to the same period in the first quarter of 2021, was primarily related to the improvement in the qualitative factors used by the Company to determine the provision in 2022, as compared to the same period in the previous year. The improvement in these qualitative factors was due to observed improvements in economic conditions during the second half of 2021 and the first quarter of 2022 that followed the easing of the most restrictive phases of the COVID-19 pandemic that had existed in 2020 and the first half of 2021. The credit sensitive portfolios continue to be carefully monitored. Please refer to the asset quality section below for a further discussion of asset quality as it relates to the allowance for loan losses. Net Interest Income Net interest income is the Company's primary source of operating income for payment of operating expenses and providing for loan losses. It is the amount by which interest earned on loans, interest-earning deposits, and investment securities, exceeds the interest paid on deposits and other interest-bearing liabilities. Changes in net interest income and net interest margin result from the interaction between the volume and composition of interest-earning assets, interest-bearing liabilities, related yields, and associated funding costs. - The following 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 (Unaudited) (Unaudited) For the three months ended March 31, For the three months ended March 31, 2021 2020 2022 2021 Average Average Average Average (Unaudited) Average Yield / Average Yield / Unaudited Average Yield / Average �� Yield / (Dollars in thousands) Balance Interest Cost Balance Interest Cost Balance Interest Cost Balance Interest Cost Interest-earning assets: Loans $ 849,676 $ 8,847 4.16 % $ 761,214 $ 9,242 4.86 % $ 845,461 $ 8,692 4.11 % $ 849,676 $ 8,847 4.16 % Taxable investment securities 308,259 2,063 2.68 % 247,651 1,762 2.85 % 329,291 2,168 2.63 % 308,259 2,063 2.68 % Tax-exempt investment securities 12,234 29 0.95 % 1,364 7 2.05 % 32,721 118 1.44 % 12,234 29 0.95 % Fed funds sold and interest-earning deposits 32,414 3 0.04 % 15,683 32 0.82 % 31,830 4 0.05 % 32,414 3 0.04 % Total interest-earning assets 1,202,583 10,942 3.64 % 1,025,912 11,043 4.31 % 1,239,303 10,982 3.54 % 1,202,583 10,942 3.64 % Noninterest-earning assets: Other assets 82,353 77,009 91,622 82,353 Allowance for loan losses (13,057 ) (8,704 ) (13,031 ) (13,057 ) Net unrealized gains on available-for-sale securities 1,314 119 Net unrealized (losses)/gains on available-for-sale securities (1,334 ) 1,314 Total assets $ 1,273,193 $ 1,094,336 $ 1,316,560 $ 1,273,193 Interest-bearing liabilities: NOW accounts $ 94,951 $ 57 0.24 % $ 75,845 $ 29 0.15 % $ 106,894 $ 71 0.27 % $ 94,951 $ 57 0.24 % Money management accounts 15,597 4 0.10 % 14,184 5 0.14 % 16,072 4 0.10 % 15,597 4 0.10 % MMDA accounts 235,289 255 0.43 % 194,458 402 0.83 % 261,898 246 0.38 % 235,289 255 0.43 % Savings and club accounts 111,317 33 0.12 % 87,118 26 0.12 % 138,585 48 0.14 % 111,317 33 0.12 % Time deposits 399,176 1,178 1.18 % 403,214 2,094 2.08 % 377,907 596 0.63 % 399,176 1,178 1.18 % Subordinated loans 39,412 557 5.65 % 15,131 206 5.45 % 29,578 412 5.57 % 39,412 557 5.65 % Borrowings 85,070 298 1.40 % 87,019 502 2.31 % 63,528 138 0.87 % 85,070 298 1.40 % Total interest-bearing liabilities 980,812 2,382 0.97 % 876,969 3,264 1.49 % 994,462 1,515 0.61 % 980,812 2,382 0.97 % Noninterest-bearing liabilities: Demand deposits 180,442 112,358 199,164 180,442 Other liabilities 11,944 12,059 11,904 11,944 Total liabilities 1,173,198 1,001,386 1,205,530 1,173,198 Shareholders' equity 99,995 92,950 111,030 99,995 Total liabilities & shareholders' equity $ 1,273,193 $ 1,094,336 $ 1,316,560 $ 1,273,193 Net interest income $ 8,560 $ 7,779 $ 9,467 $ 8,560 Net interest rate spread 2.67 % 2.82 % 2.93 % 2.67 % Net interest margin 2.85 % 3.03 % 3.06 % 2.85 % Ratio of average interest-earning assets to average interest-bearing liabilities 122.61 % 116.98 % 124.62 % 122.61 % As indicated in the above table, net interest income, before provision for loan losses, increased - Interest and dividend income Interest expense for the three months ended March 31, Net interest income for the three months ended March 31, 2022 was $9.5 million, compared to $9.7 million for the three months ended December 31, 2021. The average balance of For the full year ended December 31, 2022, management projects a net interest margin of resultant forward projections. Rate/Volume Analysis Net interest income can also be analyzed in terms of the impact of changing interest rates on interest-earning assets and interest-bearing liabilities and changes in the volume or amount of these assets and liabilities. The following table represents the extent to which changes in interest rates and changes in the volume of interest-earning assets and interest-bearing liabilities have affected the Company’s interest income and interest expense during the periods indicated. Information is provided in each category with respect to: (i) changes attributable to changes in volume (change in volume - 55 - multiplied by prior rate); (ii) changes attributable to changes in rate (changes in rate multiplied by prior volume); and (iii) total increase or decrease. Changes attributable to both rate and volume have been allocated ratably. Tax-exempt securities have not been adjusted for tax equivalency. Please refer to the PPP table in the previous section for information on PPP loans and the impact on loan income for the three months ended March 31, 2022 and 2021. Three months ended March 31, Three months ended March 31, 2021 vs. 2020 2022 vs. 2021 Increase/(Decrease) Due to Increase/(Decrease) Due to Total Total Increase Unaudited Increase (In thousands) Volume Rate (Decrease) Volume Rate (Decrease) Interest Income: Loans $ 4,567 $ (4,962 ) $ (395 ) $ (47 ) $ (108 ) $ (155 ) Taxable investment securities 928 (627 ) 301 312 (207 ) 105 Tax-exempt investment securities 67,867 (67,845 ) 22 68 21 89 Interest-earning deposits 114 (143 ) (29 ) - 1 1 Total interest income 73,476 (73,577 ) (101 ) 333 (293 ) 40 Interest Expense: NOW accounts 8 20 28 8 6 14 Money management accounts 3 (4 ) (1 ) - - - MMDA accounts 426 (573 ) (147 ) 116 (125 ) (9 ) Savings and club accounts 9 (2 ) 7 9 6 15 Time deposits (21 ) (895 ) (916 ) (60 ) (522 ) (582 ) Subordinated loans 343 8 351 (137 ) (8 ) (145 ) Borrowings (11 ) (193 ) (204 ) (64 ) (96 ) (160 ) Total interest expense 757 (1,639 ) (882 ) (128 ) (739 ) (867 ) Net change in net interest income $ 72,719 $ (71,938 ) $ 781 $ 461 $ 446 $ 907 Provision for Loan Losses We establish a provision for loan losses, which is charged to operations, at a level management believes is appropriate to absorb probable incurred credit losses in the loan portfolio. In evaluating the level of the allowance for loan losses, management considers historical loss experience, the types of loans and the amount of loans in the loan portfolio, adverse situations that may affect the borrower’s ability to repay, estimated value of any underlying collateral, and prevailing economic conditions. This evaluation is inherently subjective as it requires estimates that are susceptible to significant revision as more information becomes available or as future events change. The provision for loan losses represents management’s estimate of the amount necessary to maintain the allowance for loan losses at an adequate level. Management extensively reviews recent trends in monitored. 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 - 56 - of At March 31, Noninterest Income The Company's noninterest income is primarily comprised of fees on deposit account balances and transactions, loan servicing, commissions, including insurance agency commissions, and net gains on sales of securities, loans, and foreclosed real estate. The following table sets forth certain information on noninterest income for the periods indicated: For the three months ended Unaudited For the three months ended (Dollars in thousands) March 31, 2021 March 31, 2020 Change March 31, 2022 March 31, 2021 Change Service charges on deposit accounts $ 331 $ 356 $ (25 ) -7.0 % $ 259 $ 331 $ (72 ) -21.8 % Earnings and gain on bank owned life insurance 125 116 9 7.8 % 162 125 37 29.6 % Loan servicing fees 90 49 41 83.7 % 117 90 27 30.0 % Debit card interchange fees 221 163 58 35.6 % 228 221 7 3.2 % Insurance agency revenue 280 337 (57 ) -16.9 % 299 280 19 6.8 % Other charges, commissions and fees 243 223 20 9.0 % 413 243 170 70.0 % Noninterest income before gains (losses) 1,290 1,244 46 3.7 % Net gains on sales and redemptions of investment securities - 26 (26 ) -100.0 % Gains/(losses) on marketable equity securities 234 (194 ) 428 220.6 % Net gains on sales of loans and foreclosed real estate 120 672 (552 ) -82.1 % Gains on sale of premises and equipment 201 - 201 100.0 % Noninterest income before (losses) gains 1,478 1,290 188 14.6 % Net gains on sales of securities, fixed assets, loans and foreclosed real estate 57 321 (264 ) -82.2 % Gains on marketable equity securities 68 234 (166 ) -70.9 % Total noninterest income $ 1,845 $ 1,748 $ 97 5.5 % $ 1,603 $ 1,845 $ (242 ) -13.1 % First quarter 2022 noninterest income was $1.6 million, a decrease of $242,000, or 13.1%, compared to $1.8 million for the same three-month period in 2021. The Offsetting these increases in noninterest income before (losses) and gains for the three month period, were decreases of $264,000 in gains on sales of securities, fixed assets, loans and foreclosed real estate, and a $166,000 decrease in gains on marketable equity securities in the quarter ended March 31, - Noninterest Expense The following table sets forth certain information on noninterest expense for the periods indicated: For the three months ended Unaudited For the three months ended (Dollars in thousands) March 31, 2021 March 31, 2020 Change March 31, 2022 March 31, 2021 Change Salaries and employee benefits $ 3,341 $ 3,247 $ 94 2.9 % $ 4,049 $ 3,341 $ 708 21.2 % Building and occupancy 793 754 39 5.2 % 826 793 33 4.2 % Data processing 676 600 76 12.7 % 550 676 (126 ) -18.6 % Professional and other services 417 316 101 32.0 % 393 417 (24 ) -5.8 % Advertising 246 176 70 39.8 % 187 246 (59 ) -24.0 % FDIC assessments 198 189 9 4.8 % 222 198 24 12.1 % Audits and exams 202 125 77 61.6 % 141 202 (61 ) -30.2 % Insurance agency expense 202 192 10 5.2 % 204 206 (2 ) -1.0 % Community service activities 48 107 (59 ) -55.1 % 62 88 (26 ) -29.5 % Foreclosed real estate expenses 6 30 (24 ) -80.0 % 13 6 7 116.7 % Other expenses 507 509 (2 ) -0.4 % 605 463 142 30.7 % Total noninterest expenses $ 6,636 $ 6,245 $ 391 6.3 % $ 7,252 $ 6,636 $ 616 9.3 % Total noninterest expense for the first quarter of The The $239,000 reduction in personnel-related costs deferred under generally accepted accounting principles in the first quarter of 2022, as compared to the same quarter in 2021, related to reduced levels of PPP loans loan originated in 2022 as compared to the previous year. The Company originated no PPP loans in the first quarter of 2022, as compared to $34.5 million in the first quarter of 2021. The $207,000 increase in salaries expense was primarily due to increases in individual salaries, The $206,000 increase in incentives expense in the first quarter of 2022, as compared to the same quarter in 2021, was Partially offsetting the increase in salaries and employee At March 31, 2022, the Bank serviced 507 residential mortgage loans in the - 58 - 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 Income Tax Expense Income tax expense increased On April 7, 2021, the New York State Legislature approved comprehensive tax legislation as part of the State’s 2022 Fiscal Year budget. The legislation includes increased taxes on businesses and high-income individuals among other tax law revisions. Other provisions include amendments to the real estate transfer tax. The legislation increases the corporate franchise tax rate to 7.25% from 6.5% for tax years beginning on or after January 1, 2021 and before January 1, 2024 for taxpayers with a business income base greater than $5.0 million. In addition, the previously scheduled phase-out of the capital base tax has been delayed. The rate of the capital base was to have been reduced to 0% starting in 2021. The legislation imposes the tax at the rate of 0.1875% for tax years beginning on or after January 1, 2021 and before January 1, 2024, with the 0% rate to take effect in 2024. Management The Company’s effective tax rate Earnings per Share Basic and diluted earnings per share were Changes in Financial Condition Assets Total assets increased Investment securities increased Liabilities Total - 59 - billion at December 31, 2021. Interest-bearing deposits were the primary driver of growth between the comparable periods and totaled $909.3 million at March 31, Borrowed funds balances from the FHLB-NY Shareholders’ Equity The Company’s shareholders’ equity, exclusive of the noncontrolling interest, Capital Capital adequacy is evaluated primarily by the use of ratios which measure capital against total assets, as well as against total assets that are weighted based on defined risk characteristics. The Company’s goal is to maintain a strong capital position, consistent with the risk profile of its banking operations. This strong capital position serves to support growth and expansion activities while at the same time exceeding regulatory standards. At March 31, 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. As a result of the Pathfinder Bank’s capital amounts and ratios as of the indicated dates are presented in the following table: 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 As of March 31, 2021: Total Core Capital (to Risk-Weighted Assets) $ 118,007 13.48 % $ 70,052 8.00 % $ 87,565 10.00 % $ 91,943 10.50 % Tier 1 Capital (to Risk-Weighted Assets) $ 107,027 12.22 % $ 52,539 6.00 % $ 70,052 8.00 % $ 74,430 8.50 % Tier 1 Common Equity (to Risk-Weighted Assets) $ 107,027 12.22 % $ 39,404 4.50 % $ 56,917 6.50 % $ 61,296 7.00 % Tier 1 Capital (to Assets) $ 107,027 8.49 % $ 50,409 4.00 % $ 63,011 5.00 % $ 63,011 5.00 % As of December 31, 2020 Total Core Capital (to Risk-Weighted Assets) $ 115,289 13.13 % $ 70,270 8.00 % $ 87,838 10.00 % $ 92,230 10.50 % Tier 1 Capital (to Risk-Weighted Assets) $ 104,287 11.87 % $ 52,703 6.00 % $ 70,270 8.00 % $ 74,662 8.50 % Tier 1 Common Equity (to Risk-Weighted Assets) $ 104,287 11.87 % $ 39,527 4.50 % $ 57,095 6.50 % $ 61,487 7.00 % Tier 1 Capital (to Assets) $ 104,287 8.63 % $ 48,314 4.00 % $ 60,392 5.00 % $ 60,392 5.00 % - 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 As of March 31, 2022: Total Core Capital (to Risk-Weighted Assets) $ 132,741 15.29 % $ 69,453 8.00 % $ 86,816 10.00 % $ 91,157 10.50 % Tier 1 Capital (to Risk-Weighted Assets) $ 121,862 14.04 % $ 52,089 6.00 % $ 69,453 8.00 % $ 73,793 8.50 % Tier 1 Common Equity (to Risk-Weighted Assets) $ 121,862 14.04 % $ 39,067 4.50 % $ 56,430 6.50 % $ 60,771 7.00 % Tier 1 Capital (to Assets) $ 121,862 9.29 % $ 52,460 4.00 % $ 65,575 5.00 % $ 65,575 5.00 % As of December 31, 2021 Total Core Capital (to Risk-Weighted Assets) $ 129,166 15.19 % $ 68,013 8.00 % $ 85,016 10.00 % $ 89,266 10.50 % Tier 1 Capital (to Risk-Weighted Assets) $ 118,511 13.94 % $ 51,009 6.00 % $ 68,013 8.00 % $ 72,263 8.50 % Tier 1 Common Equity (to Risk-Weighted Assets) $ 118,511 13.94 % $ 38,257 4.50 % $ 55,260 6.50 % $ 59,511 7.00 % Tier 1 Capital (to Assets) $ 118,511 9.52 % $ 49,804 4.00 % $ 62,255 5.00 % $ 62,255 5.00 % Non-GAAP Financial Measures Regulation G, a rule adopted by the Securities and Exchange Commission (SEC), applies to certain SEC filings, including earnings releases, made by registered companies that contain “non-GAAP financial measures.” GAAP is generally accepted accounting principles in the United States of America. Under Regulation G, companies making public disclosures containing non-GAAP financial measures must also disclose, along with each non-GAAP financial measure, certain additional information, including a reconciliation of the non-GAAP financial measure to the closest comparable GAAP financial measure (if a comparable GAAP measure exists) and a statement of the Company’s reasons for utilizing the non-GAAP financial measure as part of its financial disclosures. The SEC has exempted from the definition of “non-GAAP financial measures” certain commonly used financial measures that are not based on GAAP. When these exempted measures are included in public disclosures, supplemental information is not required. Financial institutions like the Company and its subsidiary bank are subject to an array of bank regulatory capital measures that are financial in nature but are not based on GAAP. The Company follows industry practice in disclosing its financial condition under these various regulatory capital measures, including period-end regulatory capital ratios for its subsidiary bank, in its periodic reports filed with the SEC. The Company March 31, December 31, (Dollars in thousands) 2021 2020 Regulatory Capital Ratios (Bank Only) Total capital (to risk-weighted assets) Total equity (GAAP) $ 109,924 $ 106,720 Goodwill (4,536 ) (4,536 ) Intangible assets (129 ) (133 ) Addback: Accumulated other comprehensive income 1,768 2,236 Total Tier 1 Capital $ 107,027 $ 104,287 Allowance for loan and lease losses 10,980 11,002 Total Tier 2 Capital $ 10,980 $ 11,002 Total Tier 1 plus Tier 2 Capital (numerator) $ 118,007 $ 115,289 Risk-weighted assets (denominator) 875,652 878,380 Total core capital to risk-weighted assets 13.48 % 13.13 % Tier 1 capital (to risk-weighted assets) Total Tier 1 capital (numerator) $ 107,027 $ 104,287 Risk-weighted assets (denominator) 875,652 878,380 Total capital to risk-weighted assets 12.22 % 11.87 % Tier 1 capital (to adjusted assets) Total Tier 1 capital (numerator) $ 107,027 $ 104,287 Total average assets 1,264,881 1,212,512 Goodwill (4,536 ) (4,536 ) Intangible assets (129 ) (133 ) Adjusted assets (denominator) $ 1,260,216 $ 1,207,843 Total capital to adjusted assets 8.49 % 8.63 % Tier 1 Common Equity (to risk-weighted assets) Total Tier 1 capital (numerator) $ 107,027 $ 104,287 Risk-weighted assets (denominator) 875,652 878,380 Total Tier 1 Common Equity to risk-weighted assets 12.22 % 11.87 % - March 31, December 31, (Dollars in thousands) 2022 2021 Regulatory Capital Ratios (Bank Only) Total capital (to risk-weighted assets) Total equity (GAAP) $ 131,569 $ 121,896 Goodwill (4,536 ) (4,536 ) Intangible assets (113 ) (117 ) Addback: Accumulated other comprehensive income (5,058 ) 1,268 Total Tier 1 Capital $ 121,862 $ 118,511 Allowance for loan and lease losses 10,879 10,655 Total Tier 2 Capital $ 10,879 $ 10,655 Total Tier 1 plus Tier 2 Capital (numerator) $ 132,741 $ 129,166 Risk-weighted assets (denominator) 868,158 850,157 Total core capital to risk-weighted assets 15.29 % 15.19 % Tier 1 capital (to risk-weighted assets) Total Tier 1 capital (numerator) $ 121,862 $ 118,511 Risk-weighted assets (denominator) 868,158 850,157 Total capital to risk-weighted assets 14.04 % 13.94 % Tier 1 capital (to adjusted assets) Total Tier 1 capital (numerator) $ 121,862 $ 118,511 Total average assets 1,316,158 1,249,752 Goodwill (4,536 ) (4,536 ) Intangible assets (113 ) (117 ) Adjusted assets (denominator) $ 1,311,509 $ 1,245,099 Total capital to adjusted assets 9.29 % 9.52 % Tier 1 Common Equity (to risk-weighted assets) Total Tier 1 capital (numerator) $ 121,862 $ 118,511 Risk-weighted assets (denominator) 868,158 850,157 Total Tier 1 Common Equity to risk-weighted assets 14.04 % 13.94 % Loan and Asset Quality and Allowance for Loan Losses The following table represents information concerning the aggregate amount of March 31, December 31, March 31, March 31, December 31, March 31, (Dollars In thousands) 2021 2020 2020 2022 2021 2021 Nonaccrual loans: Commercial and commercial real estate loans $ 17,842 $ 17,978 $ 2,969 $ 5,567 $ 6,297 $ 17,842 Consumer 602 747 657 1,283 1,104 602 Residential mortgage loans 2,899 2,608 1,040 1,098 891 2,899 Total nonaccrual loans 21,343 21,333 4,666 7,948 8,292 21,343 Total nonperforming loans 21,343 21,333 4,666 7,948 8,292 21,343 Foreclosed real estate - - 58 - - - Total nonperforming assets $ 21,343 $ 21,333 $ 4,724 $ 7,948 $ 8,292 $ 21,343 Accruing troubled debt restructurings $ 5,378 $ 3,554 $ 2,033 $ 3,926 $ 3,605 $ 5,378 Nonperforming loans to total loans 2.47 % 2.58 % 0.62 % 0.93 % 1.00 % 2.47 % Nonperforming assets to total assets 1.63 % 1.74 % 0.43 % 0.60 % 0.65 % 1.63 % 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 - 62 - 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 Pursuant to the CARES Act, financial institutions As indicated in the table above, nonperforming assets at March 31, 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 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 At March 31, - 63 - 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 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 sells residential mortgage loans and has infrequently sold participation interests in commercial loans. As is typical in the industry, the Bank makes certain representations and warranties to the The future performance of the Company’s loan portfolios with respect to credit losses will be highly dependent upon the course and duration, both nationally and within the Company’s market area, of the public health and economic factors related to the pandemic, as well as the concentrations in the Company’s loan portfolio. Concentrations of loans within a portfolio that are made to a single borrower, to a related group of borrowers, or to a limited number of industries, are generally considered to be additional risk factors in estimating future credit losses. Therefore, the Company monitors all of its credit relationships to ensure that the total loan amounts extended to one borrower, or to a related group of borrowers, does not exceed the maximum permissible levels defined by applicable regulation or the Company’s generally more restrictive internal policy limits. Liquidity Liquidity management involves the Company’s ability to generate cash or otherwise obtain funds at reasonable rates to support asset growth, meet deposit withdrawals, maintain reserve requirements, and otherwise operate the Company on an ongoing basis. The Company's primary sources of funds are deposits, borrowed funds, amortization and prepayment of loans and maturities of investment securities and other short-term investments, and earnings and funds provided from operations. While scheduled principal repayments on loans are a relatively predictable source of funds, deposit flows and loan prepayments are greatly influenced by general interest rates, economic conditions and competition. The Company manages the pricing of deposits to maintain a desired deposit composition and balance. In addition, the Company invests excess funds in short-term interest-earning and other assets, which provide liquidity to meet lending requirements. The Company's liquidity has been enhanced by its ability to borrow from the Federal Home Loan Bank of New York (“FHLBNY”), whose competitive advance programs and lines of credit provide the Company with a safe, reliable, and convenient source of funds. A significant decrease in deposits in the future could result in the Company having to seek other sources of funds for liquidity purposes. Such sources could include, but are not limited to, additional borrowings, brokered deposits, negotiated time deposits, the sale of "available-for-sale" investment securities, the sale of securitized loans, or the sale of whole loans. Such actions could result in higher interest expense and/or losses on the sale of securities or loans. The Company has a number of existing credit facilities available to it. At March 31, - 64 - 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 March 31, Off-Balance Sheet Arrangements The Company is also a party to financial instruments with off-balance sheet risk in the normal course of business to meet the financing needs of its customers. These financial instruments include commitments to extend credit and standby letters of credit. At March 31, Item 3 – Quantitative and Qualitative Disclosures About Market Risk A smaller reporting company is not required to provide the information relating to this item. Item 4 – Under the supervision and with the participation of our Chief Executive Officer (“CEO”) and our Chief Financial Officer (“CFO”) (the Company’s principal executive officer and principal financial officer), management conducted an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15(e) and 15d-15(e) under the Exchange Act) as of March 31, 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, There were no changes made in our internal controls during the quarter ended March 31, - PART II – At March 31, A smaller reporting company is not required to provide the information relating to this item. Item 2 – Unregistered Sales of Equity Securities and Use of Proceeds Period Total Number of Shares Purchased (1) Average Price Paid Per Share Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs Maximum Number of Shares That May Yet Be Purchased Under the Plans or Programs January 1, - $ - - 74,292 February 1, - $ - - 74,292 March 1, - $ - - 74,292 (1) On August 29, 2016, our Board of Directors authorized the repurchase of up to 217,692 shares of our common stock, or 5% of the Company’s shares outstanding as of that date. Item 3 – Defaults Upon Senior Securities None Item 4 – Mine Safety Disclosures Not applicable None Exhibit No. Description 31.1 Rule 13a-14(a)/15d-14(a) Certification of the Chief Executive Officer 31.2 Rule 13a-14(a)/15d-14(a) Certification of the Chief Financial Officer 32 Section 1350 Certification of the Chief Executive Officer and Chief Financial Officer 101 Interactive data files pursuant to Rule 405 of Regulation S-T formatted in Inline Extensible Business Reporting Language 104 Cover Page Interactive Data File (embedded within the Inline XBRL document). - SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. PATHFINDER BANCORP, INC. May /s/ President and Chief Executive Officer May /s/ Walter F. Rusnak Walter F. Rusnak Senior Vice President, - Three privately-issued collateralized mortgage obligation securities, collateralized by residential and commercial mortgage loans and categorized as available-for-sale, with an aggregate amortized historical cost of $2.2 million and an aggregate market value of $2.2 million (unrealized aggregate loss of $21,000 or -0.9% security remains significantly collateralized through subordination and other credit enhancements. Therefore, no credit-related OTTI is deemed to be present.One municipal security, categorized as held-to-maturity with an amortized historical cost of $3.0 million and a market value of $3.0 million (unrealized loss of $4,000 or -0.1%). This security was unrated at issuance but the underlying issuer has maintained strong financial metrics. Therefore, no credit-related OTTI is deemed to be present. Four privately-issued asset-backed securities, collateralized by various non-real estate assets, and categorized as held-to-maturity, with an aggregate amortized historical cost of $3.2 million and an aggregate market value of $3.2 million (unrealized aggregate loss of $24,000 or -0.8%). These securities were not rated at the time of their- 20 -issuances by any NRSRO but each security remains significantly collateralized through subordination and other credit enhancements. Therefore, no credit-related OTTI is deemed to be present.One privately-issued asset-backed security, categorized as held-to-maturity and collateralized by private-issue student loans, with an aggregate amortized historical cost of $1.8 million and an aggregate market value of $1.7 million (unrealized loss of $92,000 or -5.3%). This security was unrated at issuance but remains sufficiently collateralized through subordination. Therefore, no credit-related OTTI is deemed to be present.One privately-issued collateralized mortgage obligation security, collateralized by residential mortgage loans and categorized as held-to-maturity, with an aggregate amortized historical cost of $639,000 and a market value of $638,000 (unrealized loss of $1,000 or -0.2%). This security maintains a credit rating established by one or more NRSRO above the minimum level required to be considered as investment grade and therefore, no credit-related OTTI is deemed to be present.relatedrelate 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 securities that were impaired at March 31, 2021 or December 31, 2020.20212022 and December 31, 2020,2021, securities with a fair value of $125.3$154.0 million and $96.4$103.2 million, respectively, were pledged to collateralize certain municipal deposit relationships. As of the same dates, securities with a fair value of $11.9$8.9 million and $13.2$9.4 million, respectively, were pledged against certain borrowing arrangements. littleonly minimal exposure exists to sub-prime or other high-risk residential mortgages. With limited exceptions in the Company’s investment portfolio involving the most senior tranches of securitized bonds, the Company is not in the practice of investing in, or originating, these types of investments or loans.- 21 -2021.2022. The prepaid pension asset is recorded in other assets on the statementconsolidated statements of condition as of March 31, 20212022 and December 31, 2020.2021.(1)- 22 -teneleven separate transactions commencing in 2019 and continuing through 2021, including two separate transactionsfour new pools were added during the three months ended March 31, 2021. The following table sets forth certain information related to these loan transactions:2325 -- 24 -20212022 and December 31, 2020,2021, residential mortgage loans with a carrying value of $119.8$123.0 million and $115.6$123.2 million, respectively, have been pledged by the Company to the Federal Home Loan Bank of New York (“FHLBNY”) under a blanket collateral agreement to secure the Company’s line of credit and term borrowings. 20202021 Annual Report on Form 10-K filed with the Securities and Exchange Commission on March 30, 202125, 2022 and have not changed. As part of the execution of the Company’s overall balance sheet management strategies, the Bank will acquire participating interests in loans originated by unrelated third parties on an occasional basis. The purchase of participations in loans that are originated by third parties only occurs after the completion of thorough pre-acquisition due diligence. Loans in which the Company acquires a participating interest are determined to meet, in all material respects, the Company’s internal underwriting policies, including credit and collateral suitability thresholds, prior to acquisition. In addition, the financial condition of the originating financial institutions, which are generally retained as the ongoing loan 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.three3 portfolio segments, each with different risk characteristics but with similar methodologies for assessing risk. Each portfolio segment is broken down into loan classes where2527 -- 26 -2728 -20212022 and December 31, 2020,2021, are detailed in the following tables:2829 -The following table summarizes nonaccrual loans by category and status at March 31, 2021:inas a TDR where economic concessions have been granted to a borrower who is experiencing, or expected to experience, financial difficulties. These economic concessions could include a reduction in the loan interest rate, extension of payment terms, reduction of principal amortization, or other actions that it would not otherwise consider for a new loan with similar risk characteristics.- 29 -table below details loansCompany has 1 loan that had beenwas modified as TDRsa TDR for the three months ended March 31, 2021.2022.loansloan evaluated for impairment for the three months ended March 31, 2021 have2022 has been classified as TDRsa TDR due to economic concessions granted, which consisted of a reduction in the stated interest rate, a significant delay in the timing of the payment or an extended maturity date that will result in a significant delay in payment from the original terms.The Company had no loans that have been modified as TDRs for the three months ended March 31, 2020.no2 loans that had beenwere modified as TDRs during the twelve months prior to March 31, 2022, which had subsequently defaulted during the three months ended March 31, 2022.The Company had no loans that had been modified as TDRs during the twelve months prior to March 31, 2020, which had subsequently defaulted during the three months ended March 31, 2020.- 30 -tables summarizetable summarizes impaired loan information by portfolio class at the indicated dates:- 31 -changes in the sizehistorical losses, qualitative factors, including concentrations of loans to related borrowers and compositionconcentrations of the loan portfolio, historical loss experience, qualitative factors,loans by collateral type, and specific reserve needs on loans individually evaluated for impairment in its determination of the adequacy of the allowance for loan losses. The CompanyWe recorded $1.0 million$102,000 in provision for loan losses for the three-monththree month period ended March 31, 2021,2022, as compared to $1.1$1.0 million for the three-monththree month period ended March 31, 2020. 2021. The provision forprovisioning in 2022 and 2021 reflects management’s determination of prudent additions to reserves considering loan lossesmix changes, concentrations of loans in the first quarter of 2021certain business sectors, factors related to loan quality metrics, and 2020, 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.continued COVID-19 related economic uncertainty. The increase in the quantitative factors used in determining the provision for loan losses reflects the substantial increase in economic uncertaintycredit-sensitive portfolios continue to be carefully monitored, and the resultant potential for increased credit losses in future periods as a consequence of the COVID-19 pandemic. OutstandingBank will consistently apply its conservative loan balances, excluding PPP loans, increased $42.9 million, or 5.7%, in the quarter ended March 31, 2021, as comparedclassification and reserve building methodologies 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 March 31, 2021 was further increased by the effectsanalysis of an increase in nonaccrual loans that increased $16.6 million to $21.3 million at March 31, 2021 as compared to $4.7 million at March 31, 2020.- 32 -Changes in national and local economic trends;The rate of growth in the portfolio;Trends of delinquencies and nonaccrual balances;Changes in loan policy; andChanges in lending management experience and related staffing.- 34 -- 34 -The Company had no foreclosed residential real estate atAt March 31, 20212022 and December 31, 2020. At March 31, 2021, and December 31, 2020, the Company reported $612,000$722,000 and $182,000,$594,000, respectively, in residential real estate loans in the process of foreclosure.$2.4$2.7 million of standby letters of credit as of March 31, 2021.2022. Management believes that the proceeds obtained through a liquidation of collateral and the enforcement of guarantees would be sufficient to cover the potential- 35 -onetwo corporate investment security, categorized based on its net asset value (NAV),securities with an aggregate amortized historical cost of $2.6$4.1 million and an aggregate fair market value of $2.8$4.7 million as of March 31, 2021. This security has valuations2022. These securities have a valuation that areis determined using published net asset values (NAV) derived by analysesan analysis of the security’ssecurities’ underlying assets. This security isThese securities are 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 this security isthese securities are redeemable at least annually through tender offers made by itstheir respective issuer,issuers, the liquidation value of the securitysecurities may be below itstheir stated NAVs and also subject to restrictions as to the amount of securities that can be redeemed at any single scheduled redemption. The Companythis securitythese securities will be redeemed by itstheir respective issuers on indeterminate future dates as a consequence of the ultimate liquidation strategies employed by the management of this investment.these investments.- 36 -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.20212022 and December 31, 2020:2021202225% (15%30% (17%)13%14% (12%)2020202125% (18%30% (15%)13% (12%14% (10%)- 38 -2021.2022.- 40 -2021.2022. Interest rate hedging agreements are recorded at fair value as other assets or liabilities. The Company had no material derivative contracts not designated as hedging agreements at March 31, 20212022 or December 31, 2020.2021.fluctuationschanges 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. the underlying rate index.indices. When effectively hedged, the increases or decreases in cash flows related to the floating-rate asset or liability will generally be offset by changes in cash flows of the derivative instruments designated as a hedge. This strategy is referred to as a cash flow hedge. In a cash flow hedge, the effective portion of the derivative’s gain or loss is initially reported as a component of other comprehensive income and subsequently reclassified into earnings when the forecasted transaction affects earnings. The ineffective portion of the derivative’s gain or loss on cash flow hedges is accounted for similar to that associated with fair value hedges.entered into a pay-fixed/receive variable interest rate swap with a notional amountrecords various hedges in the consolidated statements of $9.2 million in April 2019.condition at fair value. The swap agreement was designated as aCompany’s accounting treatment for these derivative instruments is based on the instruments hedge designation determined at the inception of each derivative instrument's contractual term. The following tables show the Company’s outstanding fair value hedge and was linked to a specific pool of loans within the Company’s fixed-rate consumer loan portfolio. Under the swap agreement, the Company 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 ofhedges at March 31, 20212022 and December 31, 2020, the following amounts were recorded on the balance sheet related to the cumulative basis adjustments for this fair value hedge:2021:basis of a specific loan pool designated as the hedged portfolio used to designateunderlying asset for the hedging relationship in which the hedged item is the remainingunderlying asset's amortized cost of the last layer expected(last layer) projected to be remaining at the end of the hedging contract term. At March 31, 2021 and December 31, 2020, the amortized costcontractual term of the basis of the closed portfolio used in the hedging- 41 -relationship was $11.3 million and $12.9 million, the cumulative basis adjustment associated with the hedging relationship was $5,000 and $53,000, and theinstrument. The amount of the designated hedged item was $9.2$39.9 million and $9.2$41.7 million as of March 31, 2022 and December 31, 2021, respectively. At March 31, 2022, the fair value of the derivative resulted in a net asset position of $894,000, recorded by the Company in other assets. The Company’s participation in the fair value hedge had an immaterial effect on recorded interest income at March 31, 2022 and December 31, 2021.AtThe following table shows the pre-tax gains and losses of the Company’s derivatives designated as cash flow hedges in OCI at March 31, 20212022 and December 31, 2020, the fair value of the fair value derivative resulted in a net liability position of $5,000 and $55,000 under the agreement, respectively, recorded by the Company in other liabilities. The Company’s participation in the swap contract had an immaterial effect on recorded interest income for the three months ended 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 quarter ended 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 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 quarter ended March 31, 2021.2021:during the quarter endedat March 31, 2022 and December 31, 2021 for cash flow hedges were not material to the Company’s consolidated results of operations. SomeA portion of, or the entire amount included in accumulated other comprehensive loss would be reclassified into current earnings should a portion of, or the entire hedge, no longer be considered effective, but at this time, management expectseffective. Management believes that the hedge tohedges will remain fully effective during the remaining term of the swap.respective hedging contracts. The changes in the fair values of the interest rate hedging agreements and the hedged items primarily result from the effects of changing index interest rates and spreads. 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 datesreduction of the swaps are matched exactly totime each quarter between the first callmeasurements date and the contractual maturity 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- 42 -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.instrument.- 43 -TheAt March 31, 2022 the Company posted cash, held in an interest-bearing refundable escrow arrangement, in the amount of $1.6 million under collateral arrangementsin order to satisfy collateral requirements associated with the interest rate swap contract.its hedging contracts. 4442 -tabletables below.(1)In the first quarter of 2020, consistent with policy, management reviewed all facts and circumstances related to its deferred taxes and determined that based on the expected filings of future New York State tax returns, the valuation allowance created in 2019 was no longer needed. Therefore management elected to eliminate its New York State net deferred tax asset valuation allowance during the quarter ended March 31, 2020. 4543 -Service fees – Revenue is earned through insufficient funds fees, customer initiated activities or passage of time for deposit related fees, and ATM service fees. Transaction-based fees are recognized at the time the transaction is executed, which is the same time the Company’s performance obligation is satisfied. Account maintenance fees are earned over the course of the month as the monthly maintenance performance obligation to the customer is satisfied.Fee income – Revenue is earned through commissions on insurance and securities sales, ATM surcharge fees, and banking house rents collected. The Company earns investment advisory fee income by providing investment management services to customers under investment management contracts. As the direction of investment management accounts is provided over time, the performance obligation to investment management customers is satisfied over time, and therefore, revenue is recognized over time. Card income – Card income consists of interchange fees from consumer debit card networks and other related services. Interchange rates are set by the card networks. Interchange fees are based on purchase volumes and other factors and are recognized as transactions occur.4644 -Mortgage fee income and realized gain on sale of loans and foreclosed real estate – Revenue from mortgage fee income and realized gain on sale of loans and foreclosed real estate is earned through the origination of residential and commercial mortgage loans, sales of one-to-four family residential mortgage loans, sales of government guarantees portions of SBA loans, and sales of foreclosed real estate, and is earned as the transaction occurs.one yeartwo years up to 2930 years, some of which include options to extend the leases for various renewal periods. All options to renew are included in the current lease term when we believe it is reasonably certain that the renewal options will be exercised.the lease expense are as follows:4745 -$63,000$55,000 and $71,000$63,000 for the three months ended March 31, 20212022 and 2020,2021 respectively. All lease agreements, in which the Company is the lessor, are accounted for as operating leases.In early January 2020, theThe World Health Organization issued an alert that a novel coronavirus outbreak was emanating from Wuhan, Hubei Province in China. Over the course of the next several weeks, the outbreak continued to spread to various regions of the world, prompting the World Health Organization to declare(the “WHO”) declared COVID-19 a global pandemic on March 11, 2020. In the United States, by the end of March 2020, the rapid spread of the COVID-19 virus invoked various Federal and New York State authorities to make emergency declarations and issue executive orders to limit the spread of the disease. Measures included severe restrictions on international and domestic travel, limitations on public gatherings, implementation of social distancing and sanitization protocols, school closings, orders to shelter in place and mandates to close all non-essential businesses to the public. To widely varying degrees, largely dependent upon the level of regional and national outbreaks and the resultant levels of strain on available medical resources, these very substantial mandated curtailments of social and economic activity had been progressively relaxed in the United States during the first quarterand second quarters of 2021. This relaxation of the curtailmentssocial and economic restrictions followed a patternthe increasingly wide-spread availability of very gradual relaxationvaccines that were first made available to the most vulnerable population segments in late 2020. These vaccines are generally considered to be effective in reducing the severity of those curtailmentsthe infection, if contracted, and in slowing the later partrate of 2020.spread of the coronavirus. However, there are still virtually no localities withinthe percentage of unvaccinated people in the United States, that have completely returned to substantively normal business and social activities at the time of this filing. This discussion would apply directly to the curtailments that have occurred and continue to occur, to lessening degrees, within the Company’s primary service areas.As a result of the initial and continuing outbreak, and governmental responses thereto, the spreadpotential for future mutations of the coronavirus, has caused us to modify our business practices, including employee travel, employee work locations,remain significant long-term public health 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. 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, 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.economic concerns.Concerns about the spread of the disease and its anticipated negative impact on economic activity, severely disrupted both domestic and international financial markets prompting the world’s central banks to inject significant amounts of monetary stimulus into their respective economies. In the United States, the Federal Reserve System’s Federal Open Market Committee, swiftly cut the target Federal Funds rate to a range of 0% to 0.25%, where it remains as of the date of this filing. The reductions in the Fed funds target rate included a 50 basis point reduction in the target federal funds rate on March 3, 2020 and an additional 100 basis point reduction on March 15, 2020. In addition, the Federal Reserve initiated various market support programs to ease the stress on financial markets. This significant reduction in short-term interest rates has reduced, and will continue to reduce, the Bank’s cost of funds and interest earning-asset yields. The long-term effects of the current interest rate environment, resulting from government and central bank responses to the pandemic, on the Bank’s net interest margin cannot be predicted with certainty at this time.- 48 -have likewise issued guidance encouraging financial institutions to work prudently with borrowers who are,were, or may be, unable to meet their contractual payment obligations because of the effects of COVID-19. The Company has worked to assist its business and consumer customers affected by COVID-19. On December 27, 2020, following passage byWhile the United States Congress, President Donald Trump signed into law the Consolidated AppropriationsCARES Act 2021 which included the Coronavirus Response and Relief Supplemental Appropriations Act (“CRRSAA”). The intent of this legislation wasis widely-considered to provide another round of Economic Impact Paymentshave been beneficial 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 long-term effect of this legislation on the operations of the Company cannot be determined with certainty at this time.On March 11, 2021, President Joseph Biden, signed into lawAs of the American Rescue Plan Act of 2021. The intentdate 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 supportivefiling, a variant of the Company’s business activities,coronavirus, referred to as the effect“Omicron” variant, has emerged in the United States and remains a significant concern in some regions and potentially, throughout the country. As a result, certain previously-relaxed social distancing and safety protocols have been reinstated in some areas of this legislationthe country and it is possible that such protocols will be reinstated broadly in the future. The economic effects of these varying protocol reinstatement actions on the Company’s operations of the Company cannot be determined with certainty at this time.The Bankloan payment deferralsloans to the substantial majority of commercialcertain directors, executive officers 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 uptheir affiliates (collectively referred to 90 days were granted following the expirationas “related parties”). None 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 deferredrelated party loans were either residential mortgageclassified as nonaccrual, past due, restructured, or potential problem 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 loans2022 or consumer loans in deferral status at MarchDecember 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 deferral 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 $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 180 days through granted additional deferral periods. 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 long-term collectability of2021.4946 -deferred loan payments will depend on many factors, includingThe following represents the future progression ofactivity associated with loans to related parties during 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 relaxedthree months ended March 31, 2022 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(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 single borrower, to a related group of borrowers, or to a limited number of industries, are generally considered to be additional risk factors in estimating future credit losses. Therefore, the Company monitors all of its credit relationships to ensure that the total loan amounts extended to one borrower, or to a related group of borrowers, does not exceed the maximum permissible levels defined by applicable regulation or the Company’s generally more restrictive internal policy limits. Loans to a single borrower, or to a related group of borrowers, are referred to as related credits. Total related credits encompass all related or affiliated borrower loan balances, including available unused lines of credit, for both personal and business loans. At March 31, 2021, the Company had 29 total related credit relationships, comprised of 294 individual loans, with outstanding balances in excess of $5.0 million. These total related credits ranged from $5.0 million to $16.5 million at March 31, 2021 with aggregate balances of $258.7 million. Of the $258.7 million in total related credits, $236.7 million was secured by various collateral assets, primarily commercial real estate, $6.5 million was unsecured, and $15.5 million were PPP loans.- 50 -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 Marchyear ended December 31, 2021:- 51 -Including the potential effects of the COVID-19 outbreak on the Company’s loan portfolios, the ongoing and dynamic nature of the pandemic and the resultant, potentially severe and long-lasting, economic dislocations, it is difficult to predict the full impact of the COVID-19 outbreak on our business. The extent of such impact will depend on future developments, which are highly uncertain, including when the coronavirus can be controlled and abated and when and how the economy may be reopened. As the result of the COVID-19 pandemic and the related adverse local and national economic consequences, we could be subject to any of the following risks, any of which could have a material, adverse effect on our business, financial condition, liquidity, and results of operations:Demand for our products and services may decline, making it difficult to grow assets and income;If the economy is unable to substantially reopen, and high levels of unemployment continue for an extended period of time, loan delinquencies, problem assets, and foreclosures may increase, resulting in increased charges and reduced income;Collateral for loans, especially real estate, may decline in value, which could cause loan losses to increase;Our allowance for loan losses may have to be increased if borrowers experience financial difficulties beyond forbearance periods, which will adversely affect our net income;The net worth and liquidity of loan guarantors may decline, impairing their ability to honor commitments to us;As the result of the decline in the Federal Reserve Board’s target federal funds rate to near 0%, the yield on our assets may decline to a greater extent than the decline in our cost of interest-bearing liabilities, reducing our net interest margin and spread and reducing net income;A material decrease in net income or a net loss over several quarters could result in a decrease in the rate of our quarterly cash dividend;Our cyber security risks are increased as the result of an increase in the number of employees working remotely;We rely on third party vendors for certain services and the unavailability of a critical service due to the COVID-19 outbreak could have an adverse effect on us; andFederal Deposit Insurance Corporation premiums may increase if the agency experiences additional resolution costs.Moreover, our future success and profitability substantially depends on the management skills of our executive officers and directors, many of whom have held officer and director positions with us for many years. The unanticipated loss or unavailability of key employees due to the outbreak could harm our ability to operate our business or execute our business strategy. 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.Note 16: Subsequent EventsOn 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.- 52 -Agency”Fitzgibbons” or “Agency”), the Company is required to consolidate 100% of FitzGibbons within the consolidated financial statements. The 49% of which the Company does not own, is accounted for separately as a noncontrolling interestsinterest within the consolidated financial statements. At March 31, 2021,2022, the Company and subsidiaries had total consolidated assets of $1.3$1.33 billion, total consolidated liabilities of $1.2$1.22 billion and shareholders' equity of $99.9$109.1 million, plus noncontrolling interest of $304,000,$390,000, which represents the 49% of FitzGibbons not owned by the Company.20212022 and the results of operations for the three month periodsperiod ended March 31, 20212022 and 2020.2021. Operating results for the three months ended March 31, 20212022 are not necessarily indicative of the results that may be expected for the year ending December 31, 2021.2022 or any other period.20202021 Annual Report on Form 10-K filed with the Securities and Exchange Commission on March 30, 202125, 2022 (“the consolidated annual financial statements”) as of December 31, 20202021 and 20192020 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.Credit quality and the effect of credit quality on the adequacy of our allowance for loan losses;Deterioration in financial markets that may result in impairment charges relating to our securities portfolio;Competition in our primary market areas;Changes in interest rates and national or regional economic conditions;Changes in monetary and fiscal policies of the U.S. Government, including policies of the U.S. Treasury and the Federal Reserve Board;Significant government regulations, legislation and potential changes thereto;A reduction in our ability to generate or originate revenue-producing assets as a result of compliance with heightened capital standards;Increased cost of operations due to greater regulatory oversight, supervision and examination of banks and bank holding companies, and higher deposit insurance premiums;Cyberattacks, computer viruses and other technological threats that may breach the security of our websites or other systems;Technological changes that may be more difficult or expensive than expected;Limitations on our ability to expand consumer product and service offerings due to anticipated stricter consumer protection laws and regulations; andOther risks described herein and in the other reports and statements we file with the SEC.5347 -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 caused significant economic dislocation in the United States as many state and local governments ordered non-essential businesses to close and residents to shelter in place. While certain restrictions have started to ease, particularly with the recent widespread availability of novel vaccines, the pace at which the economic recovery unfolds and the sustainability of that recovery cannot be predicted with certainty at this time. Given the ongoing and dynamic nature of the circumstances, it is difficult to predict the full impact of the COVID-19 outbreak on our business. The extent of such impact will depend on future developments, which are highly uncertain, including when the coronavirus can be controlled and abated and when and how the economy may be reopened. As the result of the COVID-19 pandemic and the related adverse local and national economic consequences, we could be subject to any of the following additional risks, any of which could have a material, adverse effect on our business, financial condition, liquidity, and results of operations:Demand for our products and services may decline, making it difficult to grow assets and income;If the economy is unable to substantially reopen, and high levels of unemployment continue for an extended period of time, loan delinquencies, problem assets, and foreclosures may increase, resulting in increased charges and reduced income;Collateral for loans, especially real estate, may decline in value, which could cause loan losses to increase;Our allowance for loan losses may have to be increased if borrowers experience financial difficulties beyond forbearance periods, which will adversely affect our net income;The net worth and liquidity of loan guarantors may decline, impairing their ability to honor commitments to us;As the result of the decline in the Federal Reserve Board’s target federal funds rate to near 0%, the yield on our assets may decline to a greater extent than the decline in our cost of interest-bearing liabilities, reducing our net interest margin and spread and reducing net income;A material decrease in net income or a net loss over several quarters could result in a decrease in the rate of our quarterly cash dividend;Our cyber security risks are increased as the result of an increase in the number of employees working remotely;We rely on third party vendors for certain services and the unavailability of a critical service due to the COVID-19 outbreak could have an adverse effect on us; andFederal Deposit Insurance Corporation premiums may increase if the agency experiences additional resolution costs.Moreover, our future success and profitability substantially depends on the management skills of our executive officers and directors, many of whom have held officer and director positions with us for many years. The unanticipated loss or unavailability of key employees due to the outbreak could harm our ability to operate our business or execute our business strategy. We may not be successful in finding and integrating suitable successors in the event of key employee loss or unavailability.- 54 -In early January 2020, theThe World Health Organization issued an alert that a novel coronavirus outbreak was emanating from Wuhan, Hubei Province in China. Over the course of the next several weeks, the outbreak continued to spread to various regions of the world, prompting the World Health Organization to declare(the “WHO”) declared COVID-19 a global pandemic on March 11, 2020. In the United States, by the end of March 2020, the rapid spread of the COVID-19 virus invoked various Federal and New York State authorities to make emergency declarations and issue executive orders to limit the spread of the disease. Measures included severe restrictions on international and domestic travel, limitations on public gatherings, implementation of social distancing and sanitization protocols, school closings, orders to shelter in place and mandates to close all non-essential businesses to the public. To widely varying degrees, largely dependent upon the level of regional and national outbreaks and the resultant levels of strain on available medical resources, these very substantial mandated curtailments of social and economic activity had been progressively relaxed in the United States during 2021, and were partially reinstated in some cases due to new variant breakouts in various areas of the first quarter of 2021.country. This relaxation of the curtailmentssocial and economic restrictions followed a patternthe increasingly wide-spread availability of very gradual relaxationvaccines that were first made available to the most vulnerable population segments in late 2020. These vaccines are generally considered to be effective in reducing the severity of those curtailmentsthe infection, if contracted, and in slowing the later partrate of 2020.spread of the coronavirus. However, there are still virtually no localities withinthe percentage of unvaccinated people in the United States, that have completely returned to substantively normal business and social activities at the timepotential for future mutations of this filing. This discussion would apply directly to the curtailments that have occurredcoronavirus, remain significant long-term public health and continue to occur, to lessening degrees, within the Company’s primary service areas.economic concerns.has caused us to modify our business practices, includingin some cases substantially. These modifications included restrictions on employee travel, employee work locations, and the cancellation of physical participation in meetings, events and conferences. TheDuring the most restrictive periods during the pandemic, the Company hashad many of its employees working remotely and has significantly reduced physical customer contact with employees and other customers. Initially, branch activitiescustomers until the second quarter of 2021, when New York State relaxed the majority of its safety mandates. At March 31, 2022, the Bank’s offices and branches were limited to drive-thru transactions whenever possible, teleconferencing and in-branch “appointments only” services. The Bank’s branches are now fully accessible to the public but remain in strict compliance with all applicable social distancing and sanitization guidelines. Since the start of the pandemic, transactional volume has also increased through the Bank’s telephone, mobile and internet banking channels. We will take further actions, focused on safety, as may be required by government authorities or that we determine to be inpublic. In the best interests of our employees, customers, and business partners.Concerns about the spread of the disease and its anticipated negative impactpartners, we will take further action, focused on economic activity, severely disrupted both domestic and international financial markets prompting the world’s central banks to inject significant amounts of monetary stimulus into their respective economies. In the United States, the Federal Reserve System’s Federal Open Market Committee, swiftly cut the target Federal Funds rate to a range of 0% to 0.25%, where it remainssafety, as of the date of this filing. The reductionsmay be required 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, resulting fromfuture by government and central bank responses to the pandemic, on the Bank’s net interest margins cannot be predicted with certainty at this time.authorities.servicesservice providers, such as the Company, including a forbearance program for federally-backed mortgage loans and protections for borrowers from negative credit reporting due to loan accommodations related to the national emergency. The banking regulatory agencies have likewise issued guidance encouraging financial institutions to work prudently with borrowers who are,were, or may be, unable to meet their contractual payment obligations because of theOn December 27, 2020, following passage byWhile the United States Congress, President Donald Trump signed into law the Consolidated AppropriationsCARES Act 2021 which included the Coronavirus Response and Relief Supplemental Appropriations Act (“CRRSAA”). The intent of this legislation wasis widely-considered to provide another round of Economic Impact Paymentshave been beneficial 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. - 55 -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 long-term effect of this legislation on the operations of the Company cannot be determined with certainty at this time.Through March 31, 2021, the Bank has received approval from the SBA for 1,120 loans totaling approximately $109.8 million through this program. The program was initially extended throughPPP ended in 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 million2021. Information related to the SBA for forgiveness and has received approximately $41.5 million fromCompany’s PPP loans are included in the SBA for 414 loans.following tables: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 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 be reported as delinquent during the deferment period based on their delinquency status as of that date. 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(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 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 borrowers fail to make the first scheduled payment following the end of the deferral period.- 56 -PoliciesEstimatesannualquarterly 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.annualquarterly 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.All loans rated substandard or worse, on nonaccrual, and above our total related credit (“TRC”) threshold balance of $300,000.All Troubled Debt Restructured Loans.All loans rated substandard or worse, on nonaccrual, and above our TRC threshold balance of $100,000.All Troubled Debt Restructured Loans. carry forwards.carry-forwards. Deferred tax assets and liabilities are measured using enacted tax rates applied- 57 -Effective in January 2018, the Company adopted a modification methodology that was at the time newly made available underOn April 7, 2021, the New York State Legislature approved comprehensive tax code, affecting howlegislation as part of the Company’s state incomeState’s 2022 Fiscal Year budget. The legislation includes increased taxes on businesses and high-income individuals among other tax liability is computed. Under this adopted methodology, management determined inlaw revisions. Other provisions include amendments to the first quarter of 2019, it was unlikely that the Company would pay material income taxes to New York State in future periods under then-existing income tax laws in the State, and therefore in the 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. 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. Management is continuously monitoring its future tax consequences to determine if the Company’s deferred taxes are properly stated. In the first quarter of 2020, consistent with policy, management reviewed all facts and circumstances related to its deferred taxes and determined that based on the expected filings of future New York State tax returns, the valuation allowance created in 2019 was no longer needed. Therefore management elected to eliminate its New York State net deferred tax asset valuation allowance during the quarter ended March 31, 2020. On April 7, 2021, the New York State Legislature approved comprehensive tax legislation as part of the State’s 2022 Fiscal Year budget. The legislation includes increased taxes on businesses and high-income individuals among other tax law revisions. Other provisions include amendments to the real estate transfer tax.have beenbe reduced to 0% starting in 2021. The legislation imposes the tax at the rate of 0.1875% for tax years beginning on or after January 1, 2021 and before January 1, 2024, with the 0% rate to take effect in 2024. Management is evaluatingcontinues to evaluate the projected impact of this newlymayrequire an increase in the Company’s income tax expense for the three months ended March 31, 2022, thereby requiring an increase in the future. However, these potential increases in New York State income taxes are not expectedCompany’s effective tax rate to be material21% for the three months ended March 31, 2022 as compared to the future resultseffective tax rate of 20.6%, for the Company’s operations.same three month period in 2021. credits, as well as acredits. Other variances from the federal statutory federal tax rate are due to the effects of transitional adjustments related to state income taxes andtaxes. In addition, the tax effects of certain taxes payable to states other than New York. Theincentive stock option activity may reduce the Company’s effective tax rate was 20.6% for the three month period ended March 31, 2021.on a sporadic basis.securitiessecurities’ impairment losses and other-than-temporary impairment (“OTTI”) of equity securities which are charged to earnings. The Company's ability to fully realize the value of its investments in various securities, including corporate debt securities, is dependent on the underlying creditworthiness of the issuing organization. In evaluating the debt securities (both available-for-sale and held-to-maturity) portfolio for other-than-temporary impairment losses, management considers (1) if we intend to sell the security; (2) if it is “more likely than not”- 58 -not sufficientinsufficient to recover the entire amortized cost basis. When the fair value of a held-to-maturity or available-for-sale security is less than its amortized cost basis, an assessment is made as to whether OTTI is present. The Company considers numerous factors when determining whether a potential OTTI exists and the period over which the debt security is expected to recover. The principal factors considered are (1) the length of time and the extent to which the fair value has been less than the amortized cost basis, (2) the financial condition of the issue and (guarantor, if any) and adverse conditions specifically related to the security, industry or geographic area, (3) failure of the issuer of the security to make scheduled interest or principal payments, (4) any changes to the rating of the security by a nationally recognized statistical rating organization (“NRSRO”), and (5) the presence of credit enhancements, if any, including the guarantee of the federal government or any of its agencies.factors;factors including market interest rates, prepayment speeds, discount rates, and the shape of yield curves.20202021 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.29, 2021,25, 2022, the Company announced that its Board of Directors had declared a cash dividend of $0.07$0.09 per share on the Company's voting common and preferred share,non-voting common stock, and a cash dividend of $0.07$0.09 per notional share for the issued common stock Warrant.warrant relating to the fiscal quarter ended March 31, 2022. The dividend was payable on May 7, 2021 to all shareholders of record on April 15, 2021.22, 2022 and was paid on May 6, 2022.20212022 and the first quarter of 2020.2021.Net income increased $464,000, or 27.5%, to $2.2 million.Basic and diluted earnings per share both increased $0.07 to $0.36 per share.Return on average assets increased six basis points to 0.68% as the increase in income outpaced the increase in average assets.Net interest income, after provision for loan losses, increased $820,000, or 12.2%, to $7.5 million. This increase was primarily a result of an $882,000, or 27%, decrease in total interest expense, combined with an increase in the average balances of interest-earning assets.- 59 -Net interest margin decreased by 18 basis points to 2.85%, primarily a result of a 67 basis point decrease in the average yield earned on average interest-earning assets, offset by a 52 basis point decrease in the average interest rate paid on average interest-bearing liabilities. Total average interest-earning assets were $1.2 billion, an increase of $176.7 million, or 17.2%.Total deposits increased $169.0 million, or 18.8%, to $1.1 .billion.The effective income tax rate decreased 1.4% to 20.6% for the three months ended March 31, 2021, as compared to 22.0% for the same three month period in 2020. MarchDecember 31, 2021 December 31, 2020 and March 31, 2020.Total assets increased $199.5 million, or 18.0%, to $1.3 billion at2022. In addition, the following reflects significant changes in asset quality metrics between December 31, 2021, March 31, 2021 from $1.1 billion at2022 and March 31, 2020 and an increase of $79.7 million, or 6.5% at December 31, 2020. The increase was primarily due to increases in loans and investment securities. The increases in loans were funded largely by increases in deposits, including brokered deposits.2021.The annualized net loan charge-offs to average loans ratio was 0.05% for the first quarter of 2021, compared to 0.07% for the first quarter of 2020, and 0.08% for the fourth quarter of 2020. Nonperforming loans to total loans increased 185 basis points to 2.47% at March 31, 2021, compared to 0.62% at March 31, 2020. Nonperforming loans to total loans decreased 11 basis points to 2.47% at March 31, 2021, compared to 2.58% at December 31, 2020. Correspondingly, the ratio of the allowance for loan losses to nonperforming loans for first quarter 2021 was 64.16%, as compared to 205.87%, at March 31, 2020, and 59.89% at December 31, 2020.2021 compared2021. The $796,000 increase in net income was due primarily to a $40,000 increase in interest and dividend income, an $867,000 decrease in interest expense, and a $926,000 decrease in the provision for loan losses. Partially offsetting the increases to net income of $1.7was a $242,000 decrease in noninterest income, a $616,000 increase in noninterest expense and a $172,000 increase in income tax expense.2020. The $464,000 increase in net income was primarily the result of an $882,000 decrease in interest expense, a $97,000 increase in noninterest income, and a decrease of $39,000 in provision for loan losses. These fluctuations were partially offset by a $391,000 increase in noninterest expenses, a $101,000 decrease in interest and dividend income, and an increase in income tax expense of $94,000.First quarter 2021 net interest income before the provision for loan losses was $8.6 million, an increase of $781,000, or 10.0%,2022 as compared to $7.8$8.6 million for the same quarterthree month period in 2020, primarily a result of an $882,000, or 27.0%, decrease in total interest expense. Interest and dividend income in the first quarter of 2021 was $10.9 million, compared to $11.0 million in the first quarter of 2020.2021. The decrease in 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 2021, compared to the same quarter in 2020, partially offset by an increase of $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 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 primarily a result of a 5236 basis pointpoints decrease in the average interest rate paid on averagecost of interest-bearing deposits. Asliabilities between the year-over-year first quarter periods. Further, the increase was a result of the factors noted above, the net interest margin for the first quarter 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 periodincreases 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 $97,000 increase in noninterest incomeaverage interest-earning asset balances, primarily in the quarter ended March 31, 2021, as compared to the same quarterly period in 2020, was primarily the result of an increase of $428,000 in net gains on marketable equity securities, a $201,000 increase on the gain on sale of premises and equipment, a $58,000 increase in debit card interchange fees, and a $41,000 increase in loan servicing fees. These increases were partiallyinvestment categories, offset by a decrease in the average yield of $552,000 in net gains on salesinterest-earning assets of loans and foreclosed real estate and a $57,000 decrease in insurance agency revenue.10 basis points to 3.54% for the three months ended March 31, 2022 from 3.6% for the same three month period of the previous year. The increase in gains on marketable equity securitiesinterest income was directly correlated with the 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 $42,000, or 8.4%,partially reduced in the three months ended March 31, 2021,2022 by reductions in the level of deferred PPP fee income recognized in the period due to the decreased levels of forgiveness in the three months ended March 31, 2022 as compared to the same prior year period.- 60 -Total noninterest expense for the first quarter of 2021 was $6.6 million, an increase of $391,000, or 6.3%, in comparison to $6.2 million for the same three-monththree month period in 2020. The increase was primarily a result of higher professional and other services fees, salaries and employee benefits expense and audits and exams expense. Management believes that the increases in professional and other services fees, and audits and exams expense are primarily related to the Bank’s first year of increased internal controls testing under FDICIA requirements for institutions with assets greater than $1 billion and additional expenses for the Company as a result of the COVID-19 pandemic. Accordingly, the increases within these two categories of expenses are not expected to be representative of the levels of expenses expected in the remaining quarters of 2021.previous year. 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 2021 provision for loan losses was $1.0 million, compared to $1.1 million for the prior year quarter. The first quarter 2021 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 Bank will consistently apply its proven conservative loan classification and reserve building methodologies to the analysis of these portfolios.six22 basis points to 0.68%0.90% 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 loanstaxable securities of $21.0 million and average taxable investmenttax-exempt securities of $88.5$20.5 million and $60.6 million, respectively in the first quarter of 20212022, as compared to the same quarter of 2020.2021. Average interest-bearing deposits increased $149.6$45.0 million in the first quarter of 2021,2022, as compared with the same quarter in 2020, due2021. Noninterest-bearing deposits totaled $199.2 million at March 31, 2022, an increase of $18.7 million, or 10.4%, compared to strong growthMarch 31, 2021. The increases in retail and commercial relationshipnoninterest-bearing deposits along with brokered deposit inflows,were primarily the seasonally-normal strong deposit inflows related to the Bank’s municipal depositor relationships andresult of the Bank’s participation in the PPP.PPP, as well as ongoing growth in business banking relationships. In addition, the Bank has seen a general increase in the average account balance for consumer deposits consistent with similar increases generally reported throughout the industry. These increases are expected to be transitory and relate primarily to significant levels of economic stimulus combined with reduced levels of consumer spending related to the pandemic. At this time, it cannot be determined with certainty how long it will be before these deposits return to historically normal levels.6153 -tabletables 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.$781,000,$907,000, or 10.0%10.6%, to $8.6$9.5 million for the three months ended March 31, 2021,2022 as compared to $7.8$8.6 million for the same prior year period. TheThis 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 52 basis point decrease in the average rate paid on these liabilities, partially offset by the $103.8$36.7 million, or 11.8%3.1%, increase in the average balance of interest-bearing liabilities.interest-earning assets, offset by a decrease of 10 basis points on the average yield earned on those assets. These positive factors on net interest income were partially offset by thean increase in the average balance of interest-bearing liabilities of $13.7 million, or 1.4%. The negative effect of this increase in the average balance of interest-bearing liabilities on net interest earning assets of $176.7 million,income however, was partially offset by a 67decrease of 36 basis point reduction inpoints on the average yield earnedinterest rate paid on these assets.those liabilities. In total, net interest margin increased 21 basis points to 3.06%. The abovefollowing analysis should also be viewed in conjunction with the table below which reports the changes in net interest income attributable to rate and volume.6254 -decreased $101,000,increased $40,000, or 0.9%0.1%, to $10.9$11.0 million for the three months ended March 31, 20212022 compared to $11.0$10.9 million for the same three-monththree month period in 2020. The decrease in interest and dividend income2021. This increase was due principally to an increase in the average balance of interest earning assets, which increased between the year-over-year first quarter periods by 3.1%, primarily as a 70 basis pointresult of an increase in the average balance of investment securities. The average balance of investment securities increased by $41.2 million primarily due to increased purchases of investment securities throughout the twelve months ended March 31, 2022. These increased investment security purchases were primarily funded by increased levels of customer deposits placed with the Bank during 2021. The decrease in the average yield earned on loans was primarily due to the loan portfolio, partially offset byrecognition of deferred PPP fee income in the period due to the increased levels of forgiveness in the three month period ended March 31, 2022. PPP deferred fee recognition (recorded as an increase of $88.5 millionto loan interest income) was $278,000 in the average balance of loans betweenthree months ended March 31, 2022 as compared to $459,000 for the year-over-year first quarter periods. The increasesame three month period in the average balance of loans reflected participation in2021. Please refer to the PPP tables above for the full impact of PPP loans on average loan 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.yields. 20212022 decreased $882,000,$867,000, or 27.0%36.4%, to $2.4$1.5 million when compared to the same prior year period. This decrease was primarily due to a 36 basis points decline in the cost of interest-bearing liabilities. Deposit interest expense decreased $1.0 million,$562,000, or 40.3%36.8%, to $1.5 million$965,000 due to a 6128 basis pointpoints decrease in the annualized average annualized rate paid on deposits to 0.43% for the three months ended March 31, 2022, as compared to 0.71% for the three months ended March 31, 2021, as compared to 1.32% in the same three-month period in 2020. These decreases were2021. This was partially offset by the $81.5a $45.0 million increase in the average balance of interest-bearing deposits. Thedeposits during the same time periods due to increases in average consumer, business and municipal deposit balances. These increases in average deposit balances were substantially derived from the effects of the various economic stimulus programs instituted in response to the Covid-19 pandemic, principally the PPP program and significant stimulus grant payments made to various municipalities and municipal agencies within the Bank’s customer base. This decrease in the average ratecost of deposits was primarily due to 90 and 40a 55 basis point decreasespoints decrease in the average rates paid on time deposits and money market deposit accounts (“MMDA”), respectively, during the three months ended 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, 20212022, as compared to the same three month period in 2020.2021, due to the general decline in market interest rates during 2021 after the first quarter of that year. subordinated loansinterest-earning assets increased $24.2$54.2 million for the quarter ended March 31, 2022 to $1,239 million from $1,185 million for the quarter ended December 31, 2021. The net interest margin percentage decreased from 3.28% for the three months ended December 31, 2021 to 3.06% for the three months ended March 31, 2022. The primary driver of the decrease in net interest income and margin was a $205,000, or 160.5%1.8%, betweendecrease in interest dividend income to $11.0 million for the two periodsthree months ended March 31, 2022 compared to $11.2 million for the three months ended December 31, 2021. This decrease was primarily due to a $238,000 quarter-over-quarter decline in loan income in the issuancequarter ended March 31, 2022, as compared to the immediately preceding quarter, This decline in loan income was primarily due to $102,000 in non-recurring settlement adjustments made in January of $25.02022, causing a quarter over quarter variance of $204,000 in loan income. The nonrecurring settlement adjustments related to two purchased loan pools, with an aggregate amortized cost of $43.5 million, acquired in subordinated debtthe fourth quarter of 2021. In addition, loan income in Octoberthe three months ended March 31, 2022 was lower than in the previous quarter as PPP deferred fee recognition (recorded as an increase to loan interest income) declined to $278,000 in the three months ended March 31, 2022 as compared to $408,000 for the three months ended December 31, 2021.2020. The Company exercised its option to redeem $10.0 million of subordinated loans that were outstanding3.13-3.18%. This is a forward looking projection relying on internal analyses performed by the Company’s management. These analyses are based on the interest-earning assets and liabilities held on the Company’s balance sheet at March 31, 2021 on April 1, 2021.2022. This projection considers both forecasted asset and liability repricing expectations as well as anticipated reinvestment rates for expected future asset and liability cash flows. The redemptionanalyses were prepared in consideration of this $10.0 million componentforward and spot Treasury and swap markets observations at March 31, 2022. These markets are subject to frequent and potentially significant changes and, therefore, no absolute assurance can be made as to the accuracy of the Company’s outstanding subordinated debt will prospectively reduce interest expense after April 1, 2021 by $625,000 annually.- 63 -changes in the size and composition of the loan portfolio, historical loss experience,losses, qualitative factors and specific reserve needs on loans individually evaluated for impairment in its determination of the adequacy of the allowance for loan losses. We recorded $1.0 million in provision for loan losses for the three-month period ended March 31, 2021 and $1.1 million$102,000 in provision for loan losses for the three month period ended March 31, 2020.2022, as compared to $1.0 million for the three month period ended March 31, 2021. The provisioning in the first quarter of 2022 and 2021 and 2020 reflects amanagement’s determination of prudent additionadditions to reserves considering loan growth, assetmix changes, concentrations of loans in certain business sectors, factors related to loan quality metrics, and continued COVID-19 related economic uncertainty. The decrease in the provision for loan losses in the first quarter of 2022, as compared to the same period in 2021, was primarily related to the improvement in the qualitative factors used by the Company to determine the provision in the first quarter of 2022, as compared to the previous year’s first quarter. The improvement in these qualitative factors was due to observed improvements in economic conditions during 2022 that followed the easing of the most restrictive phases of the COVID-19 pandemic that had existed in 2021.The Company’s credit-sensitive portfolios continue to be carefully monitored, and the Bank will consistently apply its proven conservative loan classification and reserve building methodologies to the analysis of these portfolios. Outstanding loan balances, excluding PPP loans, increased $42.9 million, or 5.7%, in the quarter ended 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. - 64 -increaseddecreased to 2.01%2.12% at March 31, 20212022 as compared to 1.85%2.14% at December 31, 2020.2021. Delinquent loans (numerator) increased $283,000 while total loan balances (denominator) increased $23.1 million at a rate that was modestly more than the rate ofMarch 31, 2022, as compared to December 31, 2021. The increase in total loan balances,past due loans was primarily driven by an increase$1.8$1.4 million in loans delinquent 60-89 days, partially offset by a $761,000 decrease in loans delinquent 30-59 days and an increase of $1.2 million in loans 60-89 days past due, partially offset by an $917,000and a $318,000 decrease in loans delinquent more than 90 days. days and over.2021,2022, there were $17.4$18.1 million in loans past due including $5.5$4.5 million in loans 30-59 days past due, $6.6$6.0 million in loans 60-89 days past due and $5.2$7.7 million in loans 90 or more days past due. At December 31, 2020,2021, there were $15.3$17.9 million in loans past due including $3.8$5.2 million in loans 30-59 days past due, $5.4$4.6 million in loans 60-89 days past due and $6.2$8.0 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. $97,000, or 5.5%, increasedecrease in noninterest income, as compared to the same quarter of the previous year, was primarily due to a $201,000 non-recurring gain, recorded in the first quarter of 2021, related to the Bank’s sale of land previously held for development. Noninterest income categorized as recurring noninterest income was $1.5 million for the first quarter of 2022, reflecting a $188,000, or 14.6%, improvement over the first quarter of the prior year. Recurring noninterest income excludes unrealized gains on equity securities, gains on sales of loans, foreclosed real estate, and premises and equipment, as well as losses on investment securities.2021,2022, as compared to the prior year in the same quarterly period in 2020, was primarily the result of an increase of $428,000 in gains on marketable equity securities andquarter.6557 -$201,000 in gains on sale of premises and equipment. The increase in gains on marketable equity securities was directly correlated with the underlying stock price of those securities which increased with improving market conditions. The increase in gains on premises and equipment was a result of the sale of property held in the Whispering Oaks subsidiary. These increases were offset by a decrease in net gains on sales of loans and foreclosed real estate and net gains on sales and redemptions of investment securities, which decreased $552,000 and $26,000 when compared to the first quarter of 2020, respectively. All other noninterest income categories increased by $46,000, or 3.7%, in the three months ended March 31, 2021 as compared to the same prior year period primarily due to increases in debit interchange fees, loan servicing fees, and other charges, commissions and fees. These increases were partially offset by a decrease in insurance agency revenue and deposit account fees of $57,000 and $25,000, respectively. 20212022 was $6.6$7.3 million, an increase of $391,000,$616,000, or 6.3%9.3%, in comparisoncompared to $6.2$6.6 million for the same three-month period in 2020.2021. The increase was primarily a result of higher professional and other services fees,driven by increases in salaries and employee benefitbenefits expense and audits and exams expense.of $708,000, or 21.2%.detail of the components of the overall increase in noninterest expense is as follows:The $101,000 increase in professional and other services and the $77,000 increase in audits and exams expense is primarily related to the Bank’s first year of increased internal controls testing under FDICIA requirements for institutions with assets greater than $1 billion and additional expenses placed on the Company as a result of the COVID-19 pandemic. Therefore, management does not believe that the levels of expenses within these two categories of expense are representative of the levels expected in the remaining quarters of 2021.The$708,000 year-over-year increase in salaries and employee benefits expense was comprised of $94,000a $239,000 reduction in deferrals of personnel-related loan origination costs, a $207,000, or 7.9%, increase in salaries, a $206,000 increase in incentives expense and a $56,000 net increase in all other salaries and employee benefits expenses.commissions, bonuseseffective in the first quarter of 2022, as well as modest additions to staff headcount. The Company increased its salary structure for employees, where deemed to be appropriate, in late 2021 and associated payroll taxesearly 2022 in order to effectively respond to inflationary and competitive pressures within our marketplace relative to the recruitment and retention of talent. offset byprimarily due to reductions in the amounts paid in the first quarter of 2021 for management and sales incentives in response to reduced sales and business activity in 2020 as a decreaseresult of the pandemic and adjustments made to the Bank’s performance incentive plans. Management believes that the level of incentive expense in the first quarter of 2022 is indicative of the quarterly level of such expenses expected for the remainder of 2022.benefits.The $76,000 and $39,000 increasebenefits expense was a $126,000, or 18.6%, reduction in data processing and building occupancy expenses, respectively, is consistent with the Company’s customer and operational growth. Advertising expenses increased $70,000 and was primarily the result of increasesa reduction in ATM processing fees that was in turn primarily driven by third-party vendor refunds obtained through contract renegotiation activities.levelaggregate amount of brand awareness advertising expenditures primarily focused$52.0 million that have been sold on a non-recourse basis to FNMA. FNMA is the Onondaga County market.All other noninterest expenses decreased in aggregateonly unrelated third-party that has acquired loans originated by the Bank. On an infrequent basis, loans previously sold to FNMA that subsequently default may be found to have underwriting defects that place the loans out of compliance with the representations and warranties made by the Bank. This can occur at any time while the loan is outstanding. In such cases, the Bank is required to repurchase the defaulted loans from FNMA. Repurchase losses sustained by the Bank include all costs incurred by FNMA as part of the foreclosure process, including items such as delinquent property taxes and legal fees. No such claims against the Bank were made by FNMA in the year-over-year three-monththree month periods by a total of $66,000,ended in either March 31, 2022 or 6.4%. The Bank is continuously monitoring operatingMarch 31, 2021. Managementreduce the annual rate of growth in those operating expenses. The decrease in the various categories of operating expense is consistent with this initiative.be isolated instances.$94,000$172,000 to $721,000, with an effective tax rate of 21.0%, for the quarter ended March 31, 2022, as compared to $549,000, with an effective tax rate of 20.6% for the quarter ended March 31, 2021, as compared to $455,000, with an effective tax rate of 22.0%, for the same three month period in 2020.- 66 -Effective2021. The increase in January 2018, the Company adopted a modification methodology that was at the time newly made available under the New York State tax code, affecting how the Company’s state income tax liability is computed. Under this adopted methodology, management determinedexpense in the firstcurrent quarter, of 2019, itas compared to the same quarter in 2021, was unlikely thatprimarily attributable to the Company would pay materialyear-over-year quarterly increase in pre-tax net income. The federal statutory rate applied to pretax income taxes to New York State in futurewas 21% for the three month periods under then-existing income tax laws in the State, and therefore in the 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. 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. Management is continuously monitoring its future tax consequences to determine if the Company’s deferred taxes are properly stated. In the first quarter of 2020, consistent with policy, management reviewed all facts2022 and circumstances related to its deferred taxes and determined that based on the expected filings of future New York State tax returns, the valuation allowance created in 2019 was no longer needed. Therefore management elected to eliminate its New York State net deferred tax asset valuation allowance during the quarter ended March 31, 2020. 2021.is evaluatingcontinues to evaluate the projected impact of this amended New York State tax legislation on the Company’s financial condition and results of operations and believes thathas incorporated these provisions may increaseanalyses into the Company’s incomerecorded effective tax expense inrate for the future. However, these potential increases in New York State income taxes are not expected to be material to the future results of the Company’s operations. three months ended March 31, 2022.typically differs from theof 21% federal statutory tax rateis due primarily to increased pretax income, New York State income taxes, partially offset by tax-exempt income from specific types of investment securities and loans, bank owned life insurance, and, to a much lesser degree, the utilization of low income housing tax credits, as well ascredits. Other variances from the federal statutory federal tax rate are due to the effects of transitional adjustments related to state income taxes and certain taxes payable to states other than New York.taxes. 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 quarter ended March 31, 2021, these effects reduced the Company’s effective tax rate by 0.3%. The increase in income tax expense, as compared to the previous year’s same period, was primarily attributable to the year-over-year first quarter increase in pre-tax net income. $0.36$0.49 per share for the first quarter of 2021,2022, as compared to $0.29$0.36 per basic and diluted share for the same quarter of 2020. These $0.07 increases2021. The increase in basic and fully diluted earnings per share respectively, were driven principally bybetween these two periods was due to the increase in net income between these two time periods. Further information on earnings per share can be found in Note 3 of this Form 10-Q.$79.7$43.2 million, or 6.5%3.4%, to $1.3$1.33 billion at March 31, 2021,2022 as compared to $1.2$1.29 billion at December 31, 2020.2021. This increase was due primarily to increases in cash and cash equivalents, investment securities, loans and bank owned life insurance. investment securities.CashLoans totaled $855.6 million, an increase of $23.1 million compared to $832.5 million at December 31, 2021. Primarily due to increases of $14.4 million in commercial real estate loans and cash equivalents$14.0 million in commercial business loans.$8.5$14.5 million, or 19.6%4.1%, to $52.0$370.9 million at March 31, 2021,2022, as compared to $43.5$356.4 million at December 31, 2020. This increase in cash and cash equivalents was transitory in nature. Total restricted cash was $1.6 million at March 31, 2021, and December 31, 2020. - 67 -Investment securities increased $25.6 million, or 8.4%, to $331.4 million at March 31, 2021, as compared to $305.7 million at December 31, 2020, due principally to purchases of securities during the first quarterthree months of 2021.2022, that were only partially offset by sales and redemptions of securities and unrealized losses in the portion of the investment portfolio characterized as available-for-sale. net loans receivableliabilities increased $38.9$44.4 million, or 4.8%3.8%, to $851.6$1.22 billion at March 31, 2022, compared to $1.17 billion at December 31, 2021. Deposits increased $58.7 million, or 5.6%, to $1.11 billion at March 31, 2022, compared to $1.062021 from $812.7 million at December 31, 2020. This increase was primarily the result of2022, 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. LiabilitiesTotal liabilities increased $77.2 million to $1.2 billion at March 31, 2021 compared to $1.1 billion at December 31, 2020. Deposits increased $73.0$45.9 million, or 7.3%, to $1.1 billion at March 31, 2021, compared to $995.9 million at December 31, 2020. Noninterest-bearing deposits were up $35.4 million, or 21.9%,5.3% 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 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 deposits. At March 31, 2021 deposits obtained through the use of these services decreased $5.8 million to $164.1 million as compared to $170.0 million at December 31, 2020. year-end.increased $4.4decreased $14.6 million, or 5.4%18.9%, to $86.5$62.5 million at March 31, 20212022 from $82.1$77.1 million at December 31, 2020.2021 as the Bank primarily used net incoming deposit cash flows to repay borrowings at their scheduled maturity dates.increased $2.5decreased $1.2 million, or 1.1%, to $99.9$109.1 million at March 31, 20212022, from $97.5$110.3 million at December 31, 2020.2021. This increase in shareholders’ equity during the quarter ended March 31, 2021decrease was principally due to a $1.7$3.8 million increase in retained earnings, a $468,000 decreaseaccumulated other comprehensive loss. Partially offsetting this increase in in accumulated other comprehensive loss a $234,000 increase in paid-in capital, and a $45,000 increase in earned ESOP shares.Thewas an increase in retained earnings resultedof $2.4 million, or 3.9%, to $63.4 million at March 31, 2022, from $2.2$60.9 million in net income recordedat December 31, 2021. Comprehensive loss increased primarily as the result of increases in the firstunrealized losses on the available-for sale investment portfolio in the three months ended March 31, 2022 as a result of 2021. Retained earnings was partially offset by $312,000 for cash dividends declared on our common stock, $97,000 for cash dividends declared on our preferred stock, and $9,000 for cash dividends declared on our issued warrant.increases in market interest rates.2021,2022, 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%.The capital conservation buffer requirement is now fully implemented at 2.5% of risk-weighted- 68 -assets. At March 31, 2021,2022, the Bank exceeded all regulatory required minimum capital ratios, including the capital buffer requirements. 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 Bank did not elect to become subject to the Community Bank Leverage Ratio.6960 -providedprovides, below, an explanation of the calculations, as supplemental information, for non-GAAP measures included in the consolidated annual financial statements. In addition, the Company provides a reconciliation of its subsidiary bank’s disclosed regulatory capital measures, below.7061 -non-performing assetsnon-accrual loans at the indicated dates:interest at the dates indicated in the table above.interest. Loans are considered modified in a TDR when, due to a borrower’swere three nonaccruingwas one TDR loans, with an aggregate carrying value of $1.6 million included among theloan in nonaccrual loans detailed in the table abovestatus at March 31, 2021.2022. havehad the option to temporarily suspend certain requirements under U.S. generally accepted accounting principles related to troubled debt restructurings for a limited period of time to account for the effects of COVID-19. This provision allows a financial institution the option to not apply the guidance on accounting for troubled debt restructurings to loan modifications, such as extensions or deferrals, related to COVID-19 made between March 1, 2020 and the earlier of (i) January 1, 2022 or (ii) 60 days after the end of the COVID-19 national emergency.2022. 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.20212022 were $21.3$7.9 million and were consistent with$344,000 lower than the $21.3$8.3 million reported at December 31, 20202021 and increased $16.6$13.4 million fromlower than the reported $21.3 million at March 31, 2020.2021. The increase fromdecrease at March 31, 20202021 was due primarily to a decrease in commercial and commercial real estate loans of $12.3 million and a decrease of $1.8 million in residential mortgage loans. This decrease was partially offset by an increase of $14.9 million in nonperforming commercial loans and a $1.9 million increase in nonperforming residential loans, partially offset by a decrease of $55,000$681,000 in nonperforming consumer loans and residential mortgages loans and a $58,000 decrease in FRE.loans.- 71 -$13.7$13.0 million and $12.8$12.9 million at March 31, 20212022 and December 31, 2020,2021, respectively. The ratio of the allowance for loan losses to total loans increaseddecreased 3 basis points to 1.58%1.52% at March 31, 20212022 from 1.55% at December 31, 2020.2021. Management performs a quarterly evaluation of the allowance for loan losses based on quantitative and qualitative factors and has determined that the current level of the allowance for loan losses is adequate to absorb the losses in the loan portfolio as of March 31, 2021.2022.quickermore quickly to arrive at the estimated selling price of the collateral, which is considered to be the estimated fair value. The discounts also include estimated costs to sell the property.20212022 and December 31, 2020,2021, the Company had $23.4$11.2 million and $22.8$11.4 million in loans, respectively, which were deemed to be impaired, having established specific reserves of $2.9$2.0 million and $2.8$1.9 million, respectively, on these loans. $26.7$42.4 million as of March 31, 2021, an increase2022, a decrease of $3.6$1.3 million, or 15.3%3.0%, as compared to $23.1$43.7 million at December 31, 2020.2021. These loans have been internally classified as special mention, substandard, or doubtful, yet are not currently considered impaired. buyerbuyers of those loans.these loans or loan participations. The Bank maintains a quality control program for closed loans and considers the risks and uncertainties associated with potential repurchase requirements related to sold loans to be minimal.- 72 -ForThrough the first three months of 2021,2022, as indicated in the consolidated statement of cash flows, the Company reported net cash flow from operating activities of $4.1 million and net cash equivalents increased by $8.5 million.outflow of $47.8 million related to investing activities. The net cash outflow from investing activities primarily was due to a $23.8 million increase in net investment activity, a $23.4 million increase in net loan activity and a $635,000 net increase in all other investing activities in aggregate. The Company reported net cash flows from financing activities of $77.2$43.8 million generated primarilyprincipally by increased customer deposit balances of $78.8 million. The increase$58.8 million, partially offset by a $14.6 million decrease in deposits was the result of organic growth in consumer, businessnet borrowings, and municipal segments within our existing marketplace. This increase was combined with an increaseaggregate decrease in net cash of $4.5 million$384,000 from borrowings and was offset byall other financing sources, including dividends paid to common voting and preferrednon-voting shareholders and decreased balances in brokered deposits. The Company reported net cash outflows from investing activitieswarrants of $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. $428,000.2021,2022, total credit available to the Company under the existing lines of credit was approximately $146.7$146.9 million at FHLBNY, the Federal Reserve Bank, and two other correspondent banks. As of March 31, 2021,2022, the Company had $86.5$62.5 million of the available lines of credit utilized on its existing lines of credit with $60.2$84.4 million available.2021,2022, management reported to the Board of Directors that the Company wasis in compliance with its liquidity policy guidelines.2021,2022, the Company had $180.1$237.2 million in outstanding commitments to extend credit and standby letters of credit. Controls and ProceduresDisclosure Controls and Procedures2021.2022. The term “disclosure controls and procedures,” under the Exchange Act, means controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to our management, including its principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure.2021,2022, our CEO and CFO concluded that solely as a result of the material weaknesses in internal control over financial reporting described below, which continued to exist as of March 31, 2021, our disclosure controls and procedures were not effective as of March 31, 2021.- 73 -Previously Disclosed Material WeaknessThe 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.Management’s Financial Reporting Remediation InitiativesIn order to remediate the material weakness related to transactions with Related Parties, management has commenced to initiate enhanced training programs and revise internal operating procedures designed to identify, summarize and monitor all such transactions and relationships.In order to remediate the material weakness related to loan authorization, disbursement and file maintenance controls, management has commenced the redesign of specific processes and controls associated with each of the loan operations and will increase staffing levels where appropriate, improve training, increase the use of certain automated productivity tools, and install enhanced process oversight and functional controls to ensure that these internal controls are effective.Management is committed to maintaining a strong internal control environment and believes these remediation efforts will result in an improvement in existing controls. Management anticipates that the new controls, as implemented and when tested for a sufficient period of time, will remediate the material weaknesses. As we continue to evaluate and work to improve our internal control over financial reporting, we may determine to take additional measures to address control deficiencies or modify certain activities of the remediation measures described above.Changes in Internal Control over Financial Reportingdate.20212022 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.7465 -OTHEROTHER INFORMATION2021,2022, the Company is not currently a named party in a legal proceeding, the outcome of which would have a material and adverse effect on the financial condition or results of operations of the Company.20212022 through January 31, 2021202220212022 through February 28, 2021202220212022 through March 31, 20212022(XBRL)(iXBRL): (i) the Consolidated Statements of Condition, (ii) the Consolidated Statements of Income (iii) the Consolidated Statements of Comprehensive Income, (iv) the Consolidated Statements of Changes in Shareholders’ Equity, (v) Consolidated Statements of Cash Flows, and (vi) the Notes to the Consolidated Financial Statements tagged as blocks of text.7566 -(Registrant)(registrant)17, 202116, 2022Thomas W. SchneiderJames A. DowdThomas W. SchneiderJames A. Dowd17, 202116, 2022and Chief Financial Officer7667 -