Pathfinder Bancorp, Inc. Announces Second Quarter 2021 Quarterly Net Income of $3.0 Million, an Increase of 63.4% over 2020

Year-To-Date Net Income Up 46.2% Over 2020

Strong Revenue Growth, Stable Asset Quality Metrics, Record Quarterly Earnings

OSWEGO, N.Y., Aug. 02, 2021 (GLOBE NEWSWIRE) -- Pathfinder Bancorp, Inc. (“Company”) (NASDAQ: PBHC), the holding company for Pathfinder Bank (“Bank”), announced second quarter 2021 net income of $3.0 million compared to $1.8 million for the same three month period in 2020. Second quarter 2021 net income available to common shareholders was $3.0 million, or $0.50 per basic and diluted voting common share, compared to $1.8 million, or $0.31 per basic and diluted share, for the second quarter of 2020. Second quarter 2021 total revenue (net interest income and total noninterest income) of $11.6 million increased $2.5 million, or 27.0%, compared to $9.2 million for the second quarter of 2020. Net income attributable to Pathfinder Bancorp, Inc. for the first six months of 2021 was $5.2 million, compared to $3.5 million for the same six-month period of 2020.  Basic and diluted earnings per voting common share for the first six months of 2021 was $0.87, compared to $0.60 per basic and diluted share in the comparable period in 2020.

2021 Second Quarter and Six Month Performance Highlights

• Total interest-earning assets at June 30, 2021 were $1.19 billion, an increase of $94.8 million, or 8.7%, compared to $1.09 billion at June 30, 2020, and an increase of $29.9 million compared to $1.16 billion at December 31, 2020.
• Total loans at June 30, 2021 were $835.0 million, an increase of $28.9 million, or 3.6%, compared to $806.0 million at June 30, 2020, and an increase of $9.5 million compared to $825.5 million at December 31, 2020.
• Total deposits at June 30, 2021 were $1.03 billion, an increase of $61.1 million, or 6.3%, compared to $970.6 million at June 30, 2020, and an increase of $35.8 million compared to $995.9 million at December 31, 2020.
• Total net interest income for the second quarter 2021 increased by $2.6 million, or 33.7%, to $10.2 million from $7.6 million for the prior year period, and total six-month net interest income was $18.8 million, up $3.4 million, or 21.8%, compared to $15.4 million for the prior year period.
• Funding costs declined to 0.77%, a reduction of 49 basis points from 1.26% in the second quarter of 2020.
• Noninterest expense increased to $6.8 million for the second quarter of 2021, representing an increase of $1.1 million, or 18.9%, compared to $5.8 million in the prior year quarter. Total noninterest expense was $13.5 million in the first half of 2021, an increase of $1.5 million, or 12.3%, compared to $12.0 million for the prior year period. The increase in noninterest expenses in 2021, as compared to the previous year, followed the progressive resumption of normalized business activities during 2021 that resulted from the gradual lessening of the severe safety and social-distancing restrictions previously imposed during the Covid-19 pandemic.

“During the second quarter of 2021, Pathfinder achieved strong increases in earning asset balances, corresponding revenue growth and improved operating margins that collectively contributed to record quarterly results and our exceptional financial performance for the first half of the year,” said Thomas W. Schneider, President and Chief Executive Officer. “We remain focused on effectively managing both interest and noninterest expenses to enhance our operating leverage. Our quarterly net income of $3.0 million resulted from both the focused efforts of our management team in overseeing meaningful progress towards the attainment of our strategic objectives and the continued excellent work of our entire staff in meeting the financial services needs of our valued customers.”

“Effective April 1, 2021, in a strategic step aligned with our focus on overall expense management, we redeemed a portion of our existing subordinated debt in the amount of $10.0 million. This action will prospectively reduce annual interest expenses by $625,000. The Company’s interest expense was also positively impacted by the continued improvement of our deposit mix, as noninterest-bearing deposits grew by $21.6 million, or 13.3%, through the first six months of 2021 and made up approximately 18% of total deposits at quarter-end. This improvement, along with the recognition of deferred fees associated with the forgiveness of Paycheck Protection Program, or PPP, loans, drove double-digit growth in net interest income and robust net interest margin expansion for both the three and six months ended June 30, 2021, compared to the prior year periods.”

“On June 28, 2021, the Company converted all of its Series B Convertible Perpetual Preferred Stock into an equal number of shares of newly-created Series A Non-Voting Common Stock. This conversion was authorized by the Company’s shareholders on June 4, 2021. Neither the Preferred shares, nor the Non-Voting Common shares had, or will have, dividend or liquidation preference over the Company’s existing Voting Common Stock. However, this simplification of the Company’s capital structure, with the Voting and Non-Voting Common Stock now incorporated into a combined balance of tangible common equity, will help investors to better understand the ownership structure of our business.”

“The conversion of the Convertible Preferred shares to a form of common shares does not impact previously reported diluted earnings per share calculations. Importantly, however, the conversion increases reported tangible common equity and its related ratios, including the Tangible Common Equity to Tangible Assets ratio (the “TCE/TA ratio).” Due in large part to the conversion of the Preferred Shares in June 2021, the TCE/TA ratio increased to 7.85% at June 30, 2021, compared to 6.22% at June 30, 2020. This conversion therefore represents an important step in the evolution of our Company.”

“While new loan originations were somewhat muted in the most recent quarter, we have a strong pipeline of potential new commercial lending opportunities and anticipate a strong third quarter in residential mortgage lending. We have also been active participants in the PPP, helping small business customers access this critically-important funding and navigate the subsequent forgiveness process. As of June 30, 2021, we had approximately $53.6 million in PPP loans outstanding, following the forgiveness of $58.1 million since the inception of the PPP, resulting in the recognition of $1.1 million of net deferred PPP loan origination fees in 2021. It should be noted that the Bank has approximately $1.7 million in net deferred PPP origination fees remaining at June 30, 2021 that it expects to recognize as income in future periods.”

“We continue to closely monitor credit quality amid a recovering, but still uncertain, economy. It is highly important to note that no loans were classified as being in pandemic-related payment deferral status at June 30, 2021. We improved our ratio of non-performing loans to total loans during the first half of the year to 1.9%, while continuing to build our loan loss reserves appropriately, with our allowance for loan losses standing at 1.8% of total loans and 91.3% of nonperforming loans at quarter-end.”

“By many measures, our second quarter performance was exceptional and included both significant capital management and financial performance milestones. While we do not anticipate sustaining the rate of earnings growth we achieved in the most recent quarter going forward, our loan pipelines remain solid heading into the second half of the year and our team stands ready to continue supporting new and existing customers throughout the Central New York markets that we proudly serve.”

Income Statement for the Quarter and Year Ended June 30, 2021

Net Interest Income

		For the three months ended															For the six months ended
Unaudited (In thousands, except per share data)		June 30, 2021				June 30, 2020				Change							June 30, 2021				June 30, 2020				Change
Interest and dividend income:
Loans, including fees		$	9,784			$	8,832			$	952			10.8	%		$	18,631			$	18,074			$	557			3.1	%
Debt securities:
Taxable			2,152				1,549				603			38.9	%			4,128				3,241				887			27.4	%
Tax-exempt			42				52				(10	)		-19.2	%			71				59				12			20.3	%
Dividends			87				64				23			35.9	%			174				134				40			29.9	%
Federal funds sold and interest earning deposits			1				17				(16	)		-94.1	%			4				49				(45	)		-91.8	%
Total interest and dividend income			12,066				10,514				1,552			14.8	%			23,008				21,557				1,451			6.7	%
Interest expense:
Interest on deposits			1,144				2,204				(1,060	)		-48.1	%			2,671				4,760				(2,089	)		-43.9	%
Interest on short-term borrowings			3				39				(36	)		-92.3	%			6				96				(90	)		-93.8	%
Interest on long-term borrowings			296				439				(143	)		-32.6	%			591				884				(293	)		-33.1	%
Interest on subordinated loans			408				192				216			112.5	%			965				398				567			142.5	%
Total interest expense			1,851				2,874				(1,023	)		-35.6	%			4,233				6,138				(1,905	)		-31.0	%
Net interest income			10,215				7,640				2,575			33.7	%			18,775				15,419				3,356			21.8	%
Provision for loan losses			929				1,146				(217	)		-18.9	%			1,957				2,213				(256	)		-11.6	%
Net interest income after provision for loan losses		$	9,286			$	6,494			$	2,792			43.0	%		$	16,818			$	13,206			$	3,612			27.4	%

As noted in the table above, second quarter 2021 net interest income was $10.2 million, an increase of $2.6 million, or 33.7%, compared to $7.6 million for the same quarter in 2020, primarily a result of a $1.5 million, or 14.8%, increase in total interest and dividend income. Interest and dividend income in the second quarter was $12.1 million, compared to $10.5 million in the second quarter of 2020. The increase in interest and dividend income was a result of a $60.1 million increase in average loans combined with a 13 basis-point increase in the average yield earned on those loans, and a $72.9 million increase in the average balance of taxable investment securities combined with a 16 basis-point increase in the average yield earned on those investments. Total interest expense for the second quarter of 2021 was $1.9 million, a decrease of $1.0 million from $2.9 million for the prior year quarter. The decrease in the second quarter interest expense was primarily a result of an 87 basis-point decrease in the average interest rate paid on time deposits. The net interest margin for the second quarter of 2021 was 3.42%, a 67 basis-point increase compared to 2.75% for the second quarter of 2020. This improvement reflects both a 49 basis-point decline in the average cost for interest-bearing liabilities, and a 25 basis-point increase in the average yield earned on interest-earning assets.

Net interest income for the first six months of 2021 increased $3.4 million, or 21.8%, to $18.8 million compared to $15.4 million for the first half of 2020. Interest and dividend income for the six months ended June 30, 2021 was $23.0 million, an increase of $1.5 million, or 6.7%, compared to $21.6 million for the same period in 2020. The increase was primarily a result of average loan growth of $74.3 million, or 9.5%, compared to the prior year period, and a $67.0 million increase in taxable investment securities. Interest expense of $4.2 million for the six-month period decreased by $1.9 million, or 31.0%, from the prior year period, primarily because of a 50 basis point decrease in the interest rate paid on interest bearing liabilities.  

Paycheck Protection Program Discussion

From April 2020 to May 2021, the Company participated in all phases of the Paycheck Protection Program (“PPP”) as administered by the U.S. Small Business Administration (the “SBA”). PPP loans are substantially guaranteed as to timely repayment by the SBA and have unique forgiveness features whereby loan principal amounts may be discharged, for the benefit of the borrowers, by direct payments from the SBA to the lending institution holding the indebtedness. The Company has received both interest (calculated at a stated rate of 1%) and various levels of fee income related to the origination of PPP loans. Information related to the Company’s PPP loans are included in the following tables:

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

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

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

Provision for Loan Losses

The second quarter 2021 provision for loan losses was $929,000, compared to $1.1 million for the prior year quarter. The second quarter provision for loan losses reflects a prudent addition to reserves considering loan growth other than PPP loans and general pandemic-related uncertainties remaining, particularly in certain industrial sectors. 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. The provision for loan losses for the first six months of 2021 was $2.0 million, compared to $2.2 million for the same period in 2020. Please refer to the asset quality section below for a further discussion of asset quality as it relates to the allowance for loan loss.

Noninterest Income

Second quarter 2021 noninterest income was $1.4 million, a decrease of $97,000, or 6.3%, compared to $1.5 million for the same three-month period in 2020. The reduction in noninterest income primarily reflects a $972,000 reduction in gains on sales and redemptions of investment securities, offset by a $771,000 increase in net gains on marketable equity securities. Noninterest income was $3.3 million for both the six months ended June 30, 2021 and 2020.

The following table details the components of noninterest income for the three and six months ended June 30, 2021 and 2020:

		For the three months ended																For the six months ended,
Unaudited (Dollars in thousands)		June 30, 2021				June 30, 2020				Change								June 30, 2021				June 30, 2020				Change
Service charges on deposit accounts		$	357			$	303			$	54				17.8	%		$	689			$	659			$	30				4.6	%
Earnings and gain on bank owned life insurance			129				106				23				21.7	%			254				222				32				14.4	%
Loan servicing fees			11				79				(68	)			-86.1	%			101				128				(27	)			-21.1	%
Debit card interchange fees			241				205				36				17.6	%			462				368				94				25.5	%
Insurance agency revenue			234				185				49				26.5	%			514				522				(8	)			-1.5	%
Other charges, commissions and fees			323				255				68				26.7	%			565				478				87				18.2	%
Noninterest income before gains (losses)			1,295				1,133				162				14.3	%			2,585				2,377				208				8.8	%
Net gains on sales and redemptions of investment securities			51				1,023				(972	)			-95.0	%			51				1,049				(998	)			-95.1	%
Gains/(losses) on marketable equity securities			49				(722	)			771				106.8	%			283				(916	)			1,199				-130.9	%
Net gains on sales of loans and foreclosed real estate			39				97				(58	)			-59.8	%			159				769				(610	)			-79.3	%
Gains on sale of premises and equipment			-				-				-				-				201				-				201			>100%
Total noninterest income		$	1,434			$	1,531			$	(97	)			-6.3	%		$	3,279			$	3,279			$	-				0.0	%

Noninterest Expense

Total noninterest expense for the second quarter of 2021 was $6.8 million, an increase of $1.0 million, or 18.9%, in comparison to $5.8 million for the same three-month period in 2020. The increase was primarily a result of higher salaries and employee benefits expense, building and occupancy costs, data processing expenses, and professional and other services.   Total noninterest expense for the six-month period of 2021 was $13.5 million, an increase of $1.5 million, or 12.3%, compared with $12.0 million for the prior year period, and driven by increases in the same expense areas discussed above.

The following table details the components of noninterest expense for the three and six months ended June 30, 2021 and 2020:

		For the three months ended																For the six months ended,
Unaudited (Dollars in thousands)		June 30, 2021				June 30, 2020				Change								June 30, 2021				June 30, 2020				Change
Salaries and employee benefits		$	3,501			$	2,972			$	529				17.8	%		$	6,842			$	6,219			$	623				10.0	%
Building and occupancy			870				707				163				23.1	%			1,663				1,461				202				13.8	%
Data processing			654				552				102				18.5	%			1,330				1,152				178				15.5	%
Professional and other services			451				301				150				49.8	%			868				617				251				40.7	%
Advertising			259				261				(2	)			-0.8	%			505				437				68				15.6	%
FDIC assessments			232				150				82				54.7	%			430				339				91				26.8	%
Audits and exams			177				125				52				41.6	%			379				250				129				51.6	%
Insurance agency expense			194				212				(18	)			-8.5	%			400				404				(4	)			-1.0	%
Community service activities			34				12				22				183.3	%			122				119				3				2.5	%
Foreclosed real estate expenses			16				5				11				220.0	%			22				35				(13	)			-37.1	%
Other expenses			457				461				(4	)			-0.9	%			920				970				(50	)			-5.2	%
Total noninterest expenses		$	6,845			$	5,758			$	1,087				18.9	%		$	13,481			$	12,003			$	1,478				12.3	%

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

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

Balance Sheet at June 30, 2021

The Company’s total assets at June 30, 2021 were $1.26 billion, an increase of $32.2 million, or 2.6%, from $1.23 billion at December 31, 2020. This increase was primarily driven by higher investment securities and loan balances. Investment securities totaled $322.1 million, an increase of $20.8 million compared to $301.3 million at December 31, 2020, and an increase of $63.4 million compared to $258.7 million on June 30, 2020. Total loans of $835.0 million grew by $9.5 million, or 1.15%, compared with $825.5 million at December 31, 2020, and by $28.9 million, or 3.6%, compared to June 30, 2020.

Total deposits at June 30, 2021 were $1.03 billion, an increase of $35.8 million, or 3.6%, from $995.9 million at December 31, 2020, and an increase of $61.1 million, or 6.29%, compared to June 30, 2020. Noninterest-bearing deposits totaled $183.7 million at June 30, 2021, an increase of $21.6 million, or 13.3%, from the 2020 year end, and an increase of $23.5 million, or 14.7%, compared to June 30, 2020. Interest-bearing deposit growth was a result of municipal deposit inflows related to seasonal tax collections, as well as increases in retail and commercial deposits.  The increase in noninterest-bearing deposits was primarily a result of the Bank’s participation in the PPP, as well as ongoing growth in business banking relationships.

Subordinated loans were $29.5 million at June 30, 2021, a 25.2% decrease from $39.4 million as of the 2020 year end. On April 1, 2021, the Company exercised its option to redeem $10.0 million of the loans that were outstanding on December 31, 2020. This redemption of outstanding debt will reduce interest expense related to subordinated loans by $625,000 annually and reduced interest expense related to subordinated loans in the second quarter of 2021 by $156,000, in comparison to the first quarter of 2021.

Shareholders’ equity was $103.2 million at June 30, 2021, compared with $97.5 million on December 31, 2020. The increase was primarily a result of a $4.3 million increase in retained earnings, a $1.0 million decrease in the accumulated other comprehensive loss, a $427,000 increase in additional paid in capital, and a $90,000 increase due to ESOP shares earned.

Asset Quality

The Bank’s asset quality metrics, as measured by net loan charge-offs to average loans, remained stable for second quarter 2021. Net loan charge-offs to average loans were 0.03% for the second quarter 2021, compared with 0.08% for the second quarter of 2020 and 0.05% for the quarter ended March 31, 2021. Nonperforming loans to total loans were 1.92% at June 30, 2021, a decrease of 66 basis points compared to 2.58% at December 31, 2020.

The decrease in nonperforming loan portfolio at June 30, 2021, as compared to December 31, 2020 was primarily the result of one commercial real estate loan being removed from nonaccrual as of June 30, 2021 due to the resumption of timely principal and interest payments for six consecutive months. Management is monitoring all nonaccrual loans closely and has incorporated our current estimate of the ultimate collectability of these loans into the reported allowance for loan losses at June 30, 2021. No loans were classified as being on pandemic-related payment deferral at June 30, 2021.

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

Unaudited
(Dollars in thousands)

Loan Type	Collateral Type	Number of Loans				Loan Balance				Average Loan Balance				Weighted LTV at Origination/ Modification				Status
Secured residential mortgage:
	Real Estate		33			$	2,881			$	87				88	%		Under active resolution management by the Bank.
Secured commercial real estate:
	Private Museum		1				1,385				1,385				79	%		The Bank is working on a modification with the borrower. The borrower has substantial deposits with the Bank.
	Recreational		1				1,234				1,234				50	%		The loan is currently classified as a Troubled Debt Restructuring (TDR). Next payment is due August 1, 2021.
	All other		14				2,210				158				79	%		Under active resolution management by the Bank.
Commercial lines of credit			4				172				43			N/A				Under active resolution management by the Bank.
Commercial and industrial:
	Real Estate		1				4,485				4,485				41	%		The Bank modified the loan and the next payment is due August 1, 2021. Repayment is expected from operations, pledges and collateral value.
	All Others		11				2,317				211			N/A				Under active resolution management by the Bank.
Consumer loans			31				1,310				42			N/A				Under active resolution management by the Bank.
			96			$	15,994

The allowance for loan losses to non-performing loans at June 30, 2021 was 91.30%, compared with 59.89% at December 31, 2020 and 125.86% at June 30, 2020. The change in the allowance for loans losses to non-performing loans is reflective of the changes in nonaccrual loans discussed above.

COVID-19 Additional Discussion

Pathfinder Bank has participated in all rounds of the PPP to date. The Program was initially established by the Coronavirus Aid, Relief, and Economic Security (“CARES”) Act, and is a specialized low-interest loan program funded by the U.S. Treasury Department and administered by the U.S. Small Business Administration (“SBA”). The PPP was renewed under the Consolidated Appropriations Act, 2021 and the American Rescue Plan Act of 2021. While these legislative actions, and the programs that resulted therefrom, appear to have significantly reduced the negative near-term economic impact of the pandemic, the future trajectory of the economy and the economy’s effect on the financial condition and results of the Company’s operations cannot be predicted with certainty.

Non-Voting Common Stock Issued    

During the second quarter of 2021, the Company converted 1,380,283, or 100%, of its previously-outstanding shares of Series B Convertible Perpetual Preferred Stock to an equal number of newly-created Series A Non-Voting Common Stock.   Neither the previously-issued Series B Perpetual Preferred Stock, nor the newly-issued Series A Non-Voting Common Stock had, or will have, dividend or liquidation preference over the Company’s existing Voting Common Stock. Holders of the new Series A Non-Voting Common Stock will be entitled to receive dividends, if and when declared by the Company’s Board of Directors, in the same per share amount as paid on Company’s Voting Common Stock.

Cash Dividend Declared    

On June 28, 2021, the Company announced that its Board of Directors has declared a cash dividend of $0.07 per share on the Company's voting common and non-voting common stock, and a cash dividend of $0.07 per notional share for the issued warrant relating to the fiscal quarter ending June 30, 2021. The dividend will be payable to all shareholders of record on July 16, 2021 and will be paid on August 13, 2021.  Based on the closing price of the Company’s common stock of $16.00 on July 30, 2021, the implied dividend yield is 1.75%. The quarterly cash dividend of $0.07 equates to a dividend payout ratio of 14.0%.

About Pathfinder Bancorp, Inc.

Pathfinder Bank is a New York State chartered commercial bank headquartered in Oswego, whose deposits are insured by the Federal Deposit Insurance Corporation.  The Bank is a wholly owned subsidiary of Pathfinder Bancorp, Inc., (NASDAQ SmallCap Market; symbol: PBHC).  The Bank has ten full-service offices located in its market areas consisting of Oswego and Onondaga Counties and one limited purpose office in Oneida County.  Through its subsidiary, Pathfinder Risk Management Company, Inc., the Bank owns a 51% interest in the FitzGibbons Agency, LLC.  At June 30, 2021, there were 4,562,301 shares of common stock issued and outstanding, as well as 1,380,283 shares of non-voting common stock issued and outstanding.  The Company's common stock trades on the NASDAQ market under the symbol "PBHC."  At June 30, 2021, the Company and subsidiaries had total consolidated assets of $1.26 billion, total deposits of $1.03 billion and shareholders' equity of $103.2 million.

Forward-Looking Statement

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. These forward-looking statements are generally identified by use of the words "believe," "expect," "intend," "anticipate," "estimate," "project" or similar expressions, or future or conditional verbs, such as “will,” “would,” “should,” “could,” or “may.”   This release may contain certain forward-looking statements, which are based on management's current expectations regarding economic, legislative, and regulatory issues that may impact the Company's earnings in future periods.  Factors that could cause future results to vary materially from current management expectations include, but are not limited to, general economic conditions, changes in interest rates, deposit flows, loan demand, real estate values, and competition; changes in accounting principles, policies, or guidelines; changes in legislation or regulation; and economic, competitive, governmental, regulatory, and technological factors affecting the Company's operations, pricing, products, and services.  

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

The Company disclaims any obligation to revise or update any forward-looking statements contained in this press release to reflect future events or developments.

PATHFINDER BANCORP, INC.
FINANCIAL HIGHLIGHTS
(Dollars and shares in thousands except per share amounts)

	For the three months								For six months
	ended June 30,								ended June 30,
	(Unaudited)								(Unaudited)
	2021				2020				2021				2020
Condensed Income Statement
Interest and dividend income	$	12,066			$	10,514			$	23,008			$	21,557
Interest expense		1,851				2,874				4,233				6,138
Net interest income		10,215				7,640				18,775				15,419
Provision for loan losses		929				1,146				1,957				2,213
		9,286				6,494				16,818				13,206
Noninterest income excluding net gains on sales of securities, fixed assets, loans and foreclosed real estate		1,295				1,133				2,585				2,377
Net gains on sales of securities, fixed assets, loans and foreclosed real estate		90				1,120				411				1,818
Gains (losses) on marketable equity securities		49				(722	)			283				(916	)
Noninterest expense		6,845				5,758				13,481				12,003
Income before income taxes		3,875				2,267				6,616				4,482
Provision for income taxes		851				439				1,400				894
Net income attributable to noncontrolling interest and Pathfinder Bancorp, Inc.	$	3,024			$	1,828			$	5,216			$	3,588
Net income (loss) attributable to noncontrolling interest		15				(13	)			53				57
Net income attributable to Pathfinder Bancorp Inc.	$	3,009			$	1,841			$	5,163			$	3,531

	For the Periods Ended
	(Unaudited)
	June 30,				December 31,				June 30,
	2021				2020				2020
Selected Balance Sheet Data
Assets	$	1,259,691			$	1,227,443			$	1,167,024
Earning assets		1,189,711				1,159,778				1,094,896
Total loans		834,952				825,495				806,009
Deposits		1,031,670				995,907				970,593
Borrowed funds		83,734				82,050				75,397
Allowance for loan losses		14,603				12,777				10,553
Subordinated loans		29,482				39,400				15,145
Pathfinder Bancorp, Inc. Shareholders' equity		103,235				97,456				92,315
Asset Quality Ratios
Net loan charge-offs (annualized) to average loans		0.03	%			0.08	%			0.08	%
Allowance for loan losses to period end loans		1.75	%			1.55	%			1.31	%
Allowance for loan losses to nonperforming loans		91.30	%			59.89	%			125.86	%
Nonperforming loans to period end loans		1.92	%			2.58	%			1.04	%
Nonperforming assets to total assets		1.27	%			1.74	%			0.72	%

PATHFINDER BANCORP, INC.
FINANCIAL HIGHLIGHTS
(Dollars and shares in thousands except per share amounts)

	For the three months								For six months
	ended June 30,								ended June 30,
	(Unaudited)								(Unaudited)
	2021				2020				2021				2020
Key Earnings Ratios
Return on average assets		0.95	%			0.63	%			0.81	%			0.62	%
Return on average common equity		14.17	%			9.69	%			12.36	%			9.18	%
Return on average equity		11.73	%			8.06	%			10.19	%			7.65	%
Net interest margin		3.42	%			2.75	%			3.13	%			2.88	%
Share, Per Share and Ratio Data
Basic weighted average shares outstanding- Voting		4,464				4,639				4,453				4,623
Basic earnings per share- Voting	$	0.50			$	0.31			$	0.87			$	0.60
Basic weighted average shares outstanding- Series A Non-Voting		197				-				99				-
Basic earnings per share- Series A Non-Voting	$	0.51			$	-			$	0.87			$	-
Diluted weighted average shares outstanding- Voting		4,464				4,639				4,453				4,623
Diluted earnings per share- Voting	$	0.50			$	0.31			$	0.87			$	0.60
Diluted weighted average shares outstanding- Series A Non-Voting		197				-				99				-
Diluted earnings per share- Series A Non-Voting	$	0.51			$	-			$	0.87			$	-
Cash dividends per share	$	0.07			$	0.06			$	0.14			$	0.12
Book value per common share at June 30, 2021 and 2020									$	17.37			$	16.19
Tangible book value per common share at June 30, 2021 and 2020									$	16.59			$	15.20
Tangible common equity to tangible assets at June 30, 2021 and 2020										7.85	%			6.22	%
Tangible common equity to tangible assets at June 30, 2021 and 2020, adjusted										8.20	%			6.64	%

Non-GAAP Reconciliation
Tangible book value per common share
Total equity			$	103,235			$	92,315
Intangible assets				(4,661	)			(4,677	)
Convertible preferred equity				-				(15,369	)
Common tangible equity			$	98,574			$	72,269
Common shares outstanding				5,943				4,754
Tangible book value per common share			$	16.59			$	15.20
Tangible common equity to tangible assets
Tangible common equity			$	98,574			$	72,269
Tangible assets				1,255,030				1,162,347
Tangible common equity to tangible assets ratio				7.85	%			6.22	%
Tangible common equity to tangible assets, adjusted
Tangible common equity			$	98,574			$	72,269
Tangible assets				1,255,030				1,162,347
Less: Paycheck Protection Program (PPP) loans				(53,610	)			(73,774	)
Total assets excluding PPP loans			$	1,201,420			$	1,088,573
Tangible common equity to tangible assets ratio, excluding PPP loans				8.20	%			6.64	%

* Basic and diluted earnings per share are calculated based upon the two-class method for the three and six months ended June 30, 2021 and 2020.

Weighted average shares outstanding do not include unallocated ESOP shares.                

PATHFINDER BANCORP, INC.
FINANCIAL HIGHLIGHTS
(Dollars and shares in thousands except per share amounts)

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

	For the three months ended June 30,
	2021												2020
									Average												Average
Unaudited	Average								Yield /				Average								Yield /
(Dollars in thousands)	Balance				Interest				Cost				Balance				Interest				Cost
Interest-earning assets:
Loans	$	856,380			$	9,784				4.57	%		$	796,267			$	8,832					4.44		%
Taxable investment securities		303,858				2,239				2.95	%			230,943				1,613					2.79		%
Tax-exempt investment securities		11,226				42				1.50	%			9,552				52					2.18		%
Fed funds sold and interest-earning deposits		24,948				1				0.02	%			76,203				17					0.09		%
Total interest-earning assets		1,196,412				12,066				4.03	%			1,112,965				10,514					3.78		%
Noninterest-earning assets:
Other assets		80,159												73,721
Allowance for loan losses		(14,016	)											(10,076	)
Net unrealized gains on available-for-sale securities		1,872												(1,804	)
Total assets	$	1,264,427											$	1,174,806
Interest-bearing liabilities:
NOW accounts	$	92,412			$	74				0.32	%		$	80,712			$	35					0.17		%
Money management accounts		15,988				4				0.10	%			15,826				4					0.10		%
MMDA accounts		238,791				241				0.40	%			202,136				355					0.70		%
Savings and club accounts		121,584				40				0.13	%			94,684				22					0.09		%
Time deposits		372,807				785				0.84	%			418,722				1,788					1.71		%
Subordinated loans		32,643				408				5.00	%			15,139				192					5.07		%
Borrowings		88,109				299				1.36	%			87,415				478					2.19		%
Total interest-bearing liabilities		962,334				1,851				0.77	%			914,634				2,874					1.26		%
Noninterest-bearing liabilities:
Demand deposits		187,877												156,001
Other liabilities		11,598												12,828
Total liabilities		1,161,809												1,083,463
Shareholders' equity		102,618												91,343
Total liabilities & shareholders' equity	$	1,264,427											$	1,174,806
Net interest income					$	10,215											$	7,640
Net interest rate spread										3.26	%												2.52		%
Net interest margin										3.42	%												2.75		%
Ratio of average interest-earning assets to average interest-bearing liabilities										124.32	%												121.68		%

PATHFINDER BANCORP, INC.
FINANCIAL HIGHLIGHTS
(Dollars and shares in thousands except per share amounts)

		For the six months ended June 30,
		2021												2020
										Average												Average
Unaudited		Average								Yield /				Average								Yield /
(Dollars in thousands)		Balance				Interest				Cost				Balance				Interest				Cost
Interest-earning assets:
Loans		$	852,972			$	18,631				4.37	%		$	778,709			$	18,074				4.64	%
Taxable investment securities			306,278				4,302				2.81	%			239,297				3,375				2.82	%
Tax-exempt investment securities			11,495				71				1.24	%			5,458				59				2.16	%
Fed funds sold and interest-earning deposits			28,660				4				0.03	%			45,943				49				0.21	%
Total interest-earning assets			1,199,405				23,008				3.84	%			1,069,407				21,557				4.03	%
Noninterest-earning assets:
Other assets			81,248												75,263
Allowance for loan losses			(13,539	)											(9,390	)
Net unrealized losses on available for sale securities			1,595												(843	)
Total assets		$	1,268,709											$	1,134,437
Interest-bearing liabilities:
NOW accounts		$	93,598			$	130				0.28	%		$	78,247			$	65				0.17	%
Money management accounts			15,794				8				0.10	%			15,005				9				0.12	%
MMDA accounts			237,050				496				0.42	%			198,298				756				0.76	%
Savings and club accounts			116,479				72				0.12	%			90,901				48				0.11	%
Time deposits			385,918				1,965				1.02	%			410,967				3,882				1.89	%
Subordinated loans			36,009				965				5.36	%			15,135				398				5.26	%
Borrowings			86,598				597				1.38	%			87,217				980				2.25	%
Total interest-bearing liabilities			971,446				4,233				0.87	%			895,770				6,138				1.37	%
Noninterest-bearing liabilities:
Demand deposits			184,180												134,179
Other liabilities			11,769												12,446
Total liabilities			1,167,395												1,042,395
Shareholders' equity			101,314												92,042
Total liabilities & shareholders' equity		$	1,268,709											$	1,134,437
Net interest income						$	18,775											$	15,419
Net interest rate spread											2.97	%											2.66	%
Net interest margin											3.13	%											2.88	%
Ratio of average interest-earning assets to average interest-bearing liabilities											123.47	%											119.38	%

PATHFINDER BANCORP, INC.
FINANCIAL HIGHLIGHTS
(Dollars and shares in thousands except per share amounts)

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 years indicated. Information is provided in each category with respect to: (i) changes attributable to changes in volume (change in volume multiplied by prior rate); (ii) changes attributable to changes in rate (changes in rate multiplied by prior volume); and (iii) total increase or decrease. Changes attributable to both rate and volume have been allocated ratably. Tax-exempt securities have not been adjusted for tax equivalency.

		Three months ended June 30,												Six months ended June 30,
		2021 vs. 2020												2021 vs. 2020
		Increase/(Decrease) Due to												Increase/(Decrease) Due to
										Total												Total
Unaudited										Increase												Increase
(In thousands)		Volume				Rate				(Decrease)				Volume				Rate				(Decrease)
Interest Income:
Loans		$	686			$	266			$	952			$	2,966			$	(2,409	)		$	557
Taxable investment securities			531				95				626				965				(38	)			927
Tax-exempt investment securities			43				(53	)			(10	)			81				(69	)			12
Interest-earning deposits			(7	)			(9	)			(16	)			(14	)			(31	)			(45	)
Total interest income			1,253				299				1,552				3,998				(2,547	)			1,451
Interest Expense:
NOW accounts			5				34				39				15				50				65
Money management accounts			-				-				-				1				(2	)			(1	)
MMDA accounts			325				(439	)			(114	)			332				(592	)			(260	)
Savings and club accounts			7				11				18				17				7				24
Time deposits			(178	)			(825	)			(1,003	)			(224	)			(1,693	)			(1,917	)
Subordinated loans			235				(19	)			216				559				8				567
Borrowings			26				(205	)			(179	)			(7	)			(376	)			(383	)
Total interest expense			420				(1,443	)			(1,023	)			693				(2,598	)			(1,905	)
Net change in net interest income		$	833			$	1,742			$	2,575			$	3,305			$	51			$	3,356

The above information is preliminary and based on the Company's data available at the time of presentation.

Investor/Media Contacts

Thomas W. Schneider, President, CEO
Walter F. Rusnak, Senior Vice President, CFO
Telephone: (315) 343-0057