UNITED STATES
 SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.  20549
_____________________________


UNITED STATES
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, 2015

Commission File No. 001-36695
PATHFINDER BANCORP, INC.
(Exact name of registrant as specified in its charter)
     
Maryland
 
38-3941859
(State or other jurisdiction of
incorporation or organization)
 
(I.R.S. Employer
Identification No.)
214 West First Street
Oswego, NY 13126
 (Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code (315 ) 343-0057
 
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 and posted on its corporate website, if any, every Interactive Data File required to be submitted and posted 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 and post such files).
  Yes No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See definition of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act. (Check one):

             
Large Accelerated Filer
 
Accelerated Filer
 
Non-Accelerated Filer
 
Smaller reporting company
   
 (Do not check if a smaller reporting company)
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes No

As of May 8, 2015, there were 4,352,203 shares issued and outstanding of the Registrant's Common Stock.




PATHFINDER BANCORP, INC.
INDEX



PART I - FINANCIAL INFORMATION
 
PAGE NO.
       
Item 1.
   
   
3
   
4
   
5
   
6
   
7
   
8
       
Item 2.
 
32
 
and Results of Operations (Unaudited)
   
       
Item 3.
 
44
       
Item 4.
 
45
       
 
46
       
Item 1.
Legal Proceedings
   
Item 1A.
Risk Factors
   
Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds
   
Item 3.
Defaults upon Senior Securities
   
Item 4.
Mine Safety Disclosures
   
Item 5.
Other information
   
Item 6.
Exhibits
   
       
 
47
       
       
 
 
PART I -  FINANCIAL INFORMATION
Item 1 Consolidated Financial Statements
Pathfinder Bancorp, Inc.
Consolidated Statements of Condition
(Unaudited)

   
March 31,
   
December 31,
 
(In thousands, except share and per share data)
 
2015
   
2014
 
ASSETS:
       
Cash and due from banks
 
$
7,955
   
$
6,822
 
Interest earning deposits
   
15,098
     
4,534
 
Total cash and cash equivalents
   
23,053
     
11,356
 
Available-for-sale securities, at fair value
   
114,615
     
88,073
 
Held-to-maturity securities, at amortized cost (fair value of $46,940 and $42,139, respectively)
   
45,278
     
40,875
 
Federal Home Loan Bank stock, at cost
   
2,595
     
3,454
 
Loans
   
390,613
     
387,538
 
Less: Allowance for loan losses
   
5,462
     
5,349
 
Loans receivable, net
   
385,151
     
382,189
 
Premises and equipment, net
   
13,299
     
13,200
 
Accrued interest receivable
   
2,064
     
1,849
 
Foreclosed real estate
   
465
     
261
 
Intangible assets, net
   
226
     
175
 
Goodwill
   
4,536
     
4,367
 
Bank owned life insurance
   
10,441
     
10,356
 
Other assets
   
5,052
     
4,869
 
Total assets
 
$
606,775
   
$
561,024
 
                 
LIABILITIES AND SHAREHOLDERS' EQUITY:
               
Deposits:
               
Interest-bearing
 
$
417,398
   
$
360,906
 
Noninterest-bearing
   
65,808
     
54,662
 
Total deposits
   
483,206
     
415,568
 
Short-term borrowings
   
32,000
     
55,100
 
Long-term borrowings
   
11,000
     
11,000
 
Junior subordinated debentures
   
5,155
     
5,155
 
Accrued interest payable
   
74
     
63
 
Other liabilities
   
5,370
     
4,934
 
Total liabilities
   
536,805
     
491,820
 
Shareholders' equity:
               
Preferred stock - SBLF, par value $0.01 per share; $1,000 liquidation preference;
               
13,000 shares authorized; 13,000 shares issued and outstanding
   
13,000
     
13,000
 
Common stock, par value $0.01; 25,000,000 authorized  shares;
               
4,352,203 shares issued and shares outstanding
   
44
     
44
 
Additional paid in capital
   
28,570
     
28,534
 
Retained earnings
   
31,458
     
31,085
 
Accumulated other comprehensive loss
   
(1,815
)
   
(2,119
)
Unearned ESOP
   
(1,709
)
   
(1,754
)
Total Pathfinder Bancorp, Inc. shareholders' equity
   
69,548
     
68,790
 
Noncontrolling interest
   
422
     
414
 
Total equity
   
69,970
     
69,204
 
Total liabilities and shareholders' equity
 
$
606,775
   
$
561,024
 
                 
The accompanying notes are an integral part of the consolidated financial statements.
               

Pathfinder Bancorp, Inc.
Consolidated Statements of Income
(Unaudited)

   
For the three
   
For the three
 
   
months ended
   
months ended
 
(In thousands, except per share data)
 
March 31, 2015
   
March 31, 2014
 
Interest and dividend income:
       
Loans, including fees
 
$
4,399
   
$
4,063
 
Debt securities:
               
Taxable
   
459
     
421
 
Tax-exempt
   
197
     
195
 
Dividends
   
29
     
33
 
Federal funds sold and interest earning deposits
   
2
     
3
 
       Total interest income
   
5,086
     
4,715
 
Interest expense:
               
Interest on deposits
   
445
     
529
 
Interest on short-term borrowings
   
37
     
19
 
Interest on long-term borrowings
   
101
     
147
 
       Total interest expense
   
583
     
695
 
          Net interest income
   
4,503
     
4,020
 
Provision for loan losses
   
383
     
245
 
          Net interest income after provision for loan losses
   
4,120
     
3,775
 
Noninterest income:
               
Service charges on deposit accounts
   
266
     
279
 
Earnings and gain on bank owned life insurance
   
85
     
60
 
Loan servicing fees
   
52
     
54
 
Net gains on sales and redemptions of investment securities
   
52
     
2
 
Net gains on sales of loans and foreclosed real estate
   
-
     
3
 
Debit card interchange fees
   
123
     
114
 
Other charges, commissions & fees
   
287
     
314
 
          Total noninterest income
   
865
     
826
 
Noninterest expense:
               
Salaries and employee benefits
   
2,381
     
2,197
 
Building occupancy
   
502
     
407
 
Data processing
   
388
     
364
 
Professional and other services
   
202
     
175
 
Advertising
   
140
     
133
 
FDIC assessments
   
95
     
95
 
Audits and exams
   
62
     
64
 
Other expenses
   
453
     
471
 
          Total noninterest expenses
   
4,223
     
3,906
 
Income before income taxes
   
762
     
695
 
Provision for income taxes
   
225
     
176
 
Net income attributable to noncontrolling interest and Pathfinder Bancorp, Inc.
   
537
     
519
 
Net income attributable to noncontrolling interest
   
8
     
30
 
Net income attributable to Pathfinder Bancorp Inc.
 
$
529
   
$
489
 
Preferred stock dividends
   
32
     
-
 
Net income available to common shareholders
 
$
497
   
$
489
 
                 
Earnings per common share - basic
 
$
0.12
   
$
0.12
 
Earnings per common share - diluted
 
$
0.12
   
$
0.12
 
Dividends per common share
 
$
0.03
   
$
0.03
 

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

Pathfinder Bancorp, Inc.
       
Consolidated Statements of Comprehensive Income
(Unaudited)
       
         
         
   
For the Three months ended
 
(In thousands)
 
March 31, 2015
   
March 31, 2014
 
         
Net Income
 
$
537
   
$
519
 
                 
Other Comprehensive Income (Loss)
               
                 
Retirement Plans:
               
Net unrealized gain on retirement plans
   
45
     
11
 
                 
Unrealized holding gains on financial derivative:
               
Change in unrealized holding losses on financial derivative
   
-
     
(3
)
Reclassification adjustment for interest expense included in net income
   
15
     
15
 
Net unrealized gain on financial derivative
   
15
     
12
 
                 
Unrealized holding gains on AFS
               
Unrealized holding gains arising during the period
   
465
     
320
 
Reclassification adjustment for net gains included in net income
   
(52
)
   
(2
)
Net unrealized gain on securities
   
413
     
318
 
                 
Accretion of net unrealized loss on securities transferred to held-to-maturity (1)
   
33
     
30
 
                 
Other comprehensive income,  before tax
   
506
     
371
 
Tax effect
   
(202
)
   
(148
)
Other comprehensive income, net of tax
   
304
     
223
 
Comprehensive income
 
$
841
   
$
742
 
Comprehensive income attributable to noncontrolling interest
 
$
8
   
$
30
 
Comprehensive income attributable to Pathfinder Bancorp, Inc.
 
$
833
   
$
712
 
                 
                 
Tax Effect Allocated to Each Component of Other Comprehensive Loss
               
Retirement plan net losses recognized in plan expenses
 
$
(18
)
 
$
(4
)
Change in unrealized holding  losses on financial derivative
   
-
     
1
 
Reclassification adjustment for interest expense included in net income
   
(6
)
   
(6
)
Unrealized holding (losses) gains arising during the period
   
(186
)
   
(128
)
Reclassification adjustment for net gains included in net income
   
21
     
1
 
Accretion of net unrealized loss on securities transferred to held-to-maturity (1)
   
(13
)
   
(12
)
Income tax effect related to other comprehensive income
 
$
(202
)
   
(148
)
                 
(1) The accretion of the unrealized holding losses in accumulated other comprehensive loss at the date of transfer at September 30, 2013 partially offsets the amortization of the difference between the par value and the fair value of the investment securities at the date of transfer, and is an adjustment of yield.
               
                 
The accompanying notes are an integral part of the consolidated financial statements.
               
 

 
 
PATHFINDER BANCORP, INC.
 
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
 
Three months ended March 31, 2015 and March 31, 2014
 
                                     
                   
Accumulated
                 
           
Additional
       
Other Com-
           
Non-
     
   
Preferred
   
Common
   
Paid in
   
Retained
   
prehensive
   
Unearned
   
Treasury
   
controlling
     
 (In thousands, except share and per share data)
 
Stock
   
Stock
   
Capital
   
Earnings
   
Loss
   
ESOP
   
Stock
   
Interest
   
Total
 
                                     
 Balance, January 1, 2015
 
$
13,000
   
$
44
   
$
28,534
   
$
31,085
   
$
(2,119
)
 
$
(1,754
)
 
$
-
   
$
414
   
$
69,204
 
                                                                         
 Net income
   
-
     
-
     
-
     
529
     
-
     
-
     
-
     
8
     
537
 
                                                                         
 Other comprehensive income, net of tax
   
-
     
-
     
-
     
-
     
304
     
-
     
-
     
-
     
304
 
 
                                                                       
 Preferred stock dividends - SBLF
   
-
     
-
     
-
     
(32
)
   
-
     
-
     
-
     
-
     
(32
)
                                                                         
 ESOP shares earned (6,111 shares)
   
-
     
-
     
15
     
-
     
-
     
45
     
-
     
-
     
60
 
                                                                         
 Stock based compensation
   
-
     
-
     
21
     
-
     
-
     
-
     
-
     
-
     
21
 
                                                                         
 Common stock dividends declared ($0.03 per share)
   
-
     
-
     
-
     
(124
)
   
-
     
-
     
-
     
-
     
(124
)
 Balance, March 31, 2015
 
$
13,000
   
$
44
   
$
28,570
   
$
31,458
   
$
(1,815
)
 
$
(1,709
)
 
$
-
   
$
422
   
$
69,970
 
                                                                         
 Balance, January 1, 2014
 
$
13,000
   
$
30
   
$
8,226
   
$
28,788
   
$
(1,745
)
 
$
(826
)
 
$
(4,761
)
 
$
358
   
$
43,070
 
                                                                         
 Net income
   
-
     
-
     
-
     
489
     
-
     
-
     
-
     
30
     
519
 
                                                                         
 Other comprehensive income, net of tax
   
-
     
-
     
-
     
-
     
223
     
-
     
-
     
-
     
223
 
                                                                         
 ESOP shares earned (3,125 shares)
   
-
     
-
     
17
     
-
     
-
     
28
     
-
     
-
     
45
 
                                                                         
 Stock based compensation
   
-
     
-
     
21
     
-
     
-
     
-
     
-
     
-
     
21
 
                                                                         
 Common stock dividends declared ($0.03 per share)
   
-
     
-
     
-
     
(76
)
   
-
     
-
     
-
             
(76
)
 Balance, March 31, 2014
 
$
13,000
   
$
30
   
$
8,264
   
$
29,201
   
$
(1,522
)
 
$
(798
)
 
$
(4,761
)
 
$
388
   
$
43,802
 

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

 
 
PATHFINDER BANCORP, INC.
 
CONSOLIDATED STATEMENTS OF CASH FLOWS
 
(UNAUDITED)
 
   
For the three months ended March 31,
 
(In thousands)
 
2015
   
2014
 
OPERATING ACTIVITIES
       
Net income attributable to Pathfinder Bancorp, Inc.
 
$
529
   
$
489
 
Adjustments to reconcile net income to net cash flows from operating activities:
               
Provision for loan losses
   
383
     
245
 
Realized gains on sales, redemptions and calls of:
               
Real estate acquired through foreclosure
   
-
     
(3
)
Available-for-sale investment securities
   
(52
)
   
(2
)
Depreciation
   
229
     
198
 
Amortization of mortgage servicing rights
   
4
     
4
 
Amortization of deferred loan costs
   
53
     
27
 
Earnings on bank owned life insurance
   
(85
)
   
(60
)
Net amortization of premiums and discounts on investment securities
   
221
     
157
 
Amortization of intangible assets
   
5
     
3
 
Stock based compensation and ESOP expense
   
81
     
66
 
Net change in accrued interest receivable
   
(215
)
   
(98
)
Net change in other assets and liabilities
   
126
     
(56
)
Net cash flows from operating activities
   
1,279
     
970
 
INVESTING ACTIVITIES
               
Purchase of investment securities available-for-sale
   
(37,017
)
   
(6,064
)
Purchase of investment securities held-to-maturity
   
(5,034
)
   
(8,767
)
Net proceeds of Federal Home Loan Bank stock
   
859
     
405
 
Proceeds from maturities and principal reductions of
               
investment securities available-for-sale
   
4,205
     
3,436
 
Proceeds from maturities and principal reductions of
               
investment securities held-to-maturity
   
628
     
185
 
Proceeds from sales, redemptions and calls of:
               
Available-for-sale investment securities
   
6,549
     
122
 
Real estate acquired through foreclosure
   
19
     
53
 
Acquisition of insurance agency
   
(225
)
   
-
 
Purchase of bank owned life insurance
   
-
     
(1,780
)
Net change in loans
   
(3,621
)
   
(6,953
)
Purchase of premises and equipment
   
(328
)
   
(386
)
Net cash flows from investing activities
   
(33,965
)
   
(19,749
)
FINANCING ACTIVITIES
               
Net change in demand deposits, NOW accounts, savings accounts,
               
money management deposit accounts, MMDA accounts and escrow deposits
   
57,885
     
32,369
 
Net change in time deposits and brokered deposits
   
9,753
     
(4,157
)
Net change in short-term borrowings
   
(23,100
)
   
(7,000
)
Payments on long-term borrowings
   
-
     
(27
)
Cash dividends paid to preferred shareholder - SBLF
   
(32
)
   
-
 
Cash dividends paid to common shareholders
   
(131
)
   
(78
)
Change in noncontrolling interest, net
   
8
     
30
 
Net cash flows from financing activities
   
44,383
     
21,137
 
Change in cash and cash equivalents
   
11,697
     
2,358
 
Cash and cash equivalents at beginning of period
   
11,356
     
16,575
 
Cash and cash equivalents at end of period
 
$
23,053
   
$
18,933
 
CASH PAID DURING THE PERIOD FOR:
               
Interest
 
$
572
   
$
683
 
Income taxes
   
2
     
1
 
NON-CASH INVESTING ACTIVITY
               
Real estate acquired in exchange for loans
   
223
     
130
 
 
The accompanying notes are an integral part of the consolidated financial statements.
               

 
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 2014 consolidated financial statements may have been reclassified to conform to the current period presentation.  These reclassifications impacted share and per share data as a result of the Conversion and Offering that occurred on October 16, 2014 and reported by the Company in its Annual Report on Form 10-K filed on March 18, 2015, and are further detailed in Note 3 to these unaudited consolidated financial statements located elsewhere on this form.  These reclassifications had no effect on net income or comprehensive income as previously reported.

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 financial statements; accordingly, as this information changes, the financial statements could reflect different estimates, assumptions, and judgments.  Certain 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 other 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.

Note 2:   New Accounting Pronouncements

None applicable to the Company.

Note 3:   Earnings per Common Share

Basic earnings per share are calculated by dividing net income available to common shareholders by the weighted average number of common shares outstanding during the period.  Net income available to common shareholders is net income to Pathfinder Bancorp, Inc. less the total of preferred dividends declared. Diluted earnings per share include the potential dilutive effect that could occur upon the assumed exercise of issued stock options using the Treasury Stock method.  Anti-dilutive stock options, not included in the computation below, were 16,472 for the three months ended March 31, 2015 and March 31, 2014, respectively.  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.

The following table sets forth the calculation of basic and diluted earnings per share.  Historical share and per share data have been adjusted by the exchange ratio of 1.6472 used in the Conversion and Offering.


   
Three months ended
 
   
March 31,
 
(In thousands, except per share data)
 
2015
   
2014
 
Basic Earnings Per Common Share
       
Net income available to common shareholders
 
$
497
   
$
489
 
Weighted average common shares outstanding
   
4,114
     
4,166
 
Basic earnings per common share
 
$
0.12
   
$
0.12
 
                 
Diluted Earnings Per Common Share
               
Net income available to common shareholders
 
$
497
   
$
489
 
Weighted average common shares outstanding
   
4,114
     
4,166
 
Effect of assumed exercise of stock options
   
56
     
36
 
Diluted weighted average common shares outstanding
   
4,170
     
4,202
 
Diluted earnings per common share
 
$
0.12
   
$
0.12
 







Note 4:   Investment Securities

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

 
 
March 31, 2015
 
       
Gross
   
Gross
   
Estimated
 
   
Amortized
   
Unrealized
   
Unrealized
   
Fair
 
(In thousands)
 
Cost
   
Gains
   
Losses
   
Value
 
Available-for-Sale Portfolio
               
Debt investment securities:
               
US Treasury, agencies and GSEs
 
$
39,897
   
$
48
   
$
(44
)
 
$
39,901
 
State and political subdivisions
   
8,332
     
126
     
(4
)
   
8,454
 
Corporate
   
20,429
     
152
     
(37
)
   
20,544
 
Residential mortgage-backed - US agency
   
29,397
     
490
     
(100
)
   
29,787
 
Collateralized mortgage obligations - US agency
   
13,832
     
188
     
(59
)
   
13,961
 
Total
   
111,887
     
1,004
     
(244
)
   
112,647
 
Equity investment securities:
                               
Mutual funds:
                               
Ultra short mortgage fund
   
643
     
4
     
-
     
647
 
Large cap equity fund
   
456
     
176
     
-
     
632
 
Other mutual funds
   
183
     
216
     
-
     
399
 
Common stock - financial services industry
   
270
     
20
     
-
     
290
 
Total
   
1,552
     
416
     
-
     
1,968
 
Total available-for-sale
 
$
113,439
   
$
1,420
   
$
(244
)
 
$
114,615
 
                                 
Held-to-Maturity Portfolio
                               
Debt investment securities:
                               
US Treasury, agencies and GSEs
 
$
7,839
   
$
142
   
$
(23
)
 
$
7,958
 
State and political subdivisions
   
22,299
     
999
     
-
     
23,298
 
Corporate
   
3,416
     
57
     
-
     
3,473
 
Residential mortgage-backed - US agency
   
8,820
     
285
     
-
     
9,105
 
Collateralized mortgage obligations - US agency
   
2,904
     
202
     
-
     
3,106
 
Total held-to-maturity
 
$
45,278
   
$
1,685
   
$
(23
)
 
$
46,940
 





 
 
December 31, 2014
 
       
Gross
   
Gross
   
Estimated
 
   
Amortized
   
Unrealized
   
Unrealized
   
Fair
 
(In thousands)
 
Cost
   
Gains
   
Losses
   
Value
 
Available-for-Sale Portfolio
               
Debt investment securities:
               
US Treasury, agencies and GSEs
 
$
17,896
   
$
3
   
$
(149
)
 
$
17,750
 
State and political subdivisions
   
8,346
     
110
     
(13
)
   
8,443
 
Corporate
   
13,763
     
116
     
(19
)
   
13,860
 
Residential mortgage-backed - US agency
   
30,321
     
403
     
(149
)
   
30,575
 
Collateralized mortgage obligations - US agency
   
15,432
     
168
     
(124
)
   
15,476
 
Total
   
85,758
     
800
     
(454
)
   
86,104
 
Equity investment securities:
                               
Mutual funds:
                               
Ultra short mortgage fund
   
643
     
5
     
-
     
648
 
Large cap equity fund
   
456
     
193
     
-
     
649
 
Other mutual funds
   
183
     
196
     
-
     
379
 
Common stock - financial services industry
   
270
     
23
     
-
     
293
 
Total
   
1,552
     
417
     
-
     
1,969
 
Total available-for-sale
 
$
87,310
   
$
1,217
   
$
(454
)
 
$
88,073
 
                                 
Held-to-Maturity Portfolio
                               
Debt investment securities:
                               
US Treasury, agencies and GSEs
 
$
4,834
   
$
58
   
$
-
   
$
4,892
 
State and political subdivisions
   
22,610
     
824
     
(9
)
   
23,425
 
Corporate
   
2,487
     
33
     
(17
)
   
2,503
 
Residential mortgage-backed - US agency
   
8,043
     
242
     
-
     
8,285
 
Collateralized mortgage obligations - US agency
   
2,901
     
133
     
-
     
3,034
 
Total held-to-maturity
 
$
40,875
   
$
1,290
   
$
(26
)
 
$
42,139
 


The amortized cost and estimated fair value of debt investments at March 31, 2015 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
 
   
Amortized
   
Estimated
   
Amortized
   
Estimated
 
 
 
Cost
   
Fair Value
   
Cost
   
Fair Value
 
(In thousands)
               
Due in one year or less
 
$
16,918
   
$
16,928
   
$
196
   
$
196
 
Due after one year through five years
   
46,124
     
46,338
     
7,752
     
7,838
 
Due after five years through ten years
   
5,616
     
5,633
     
17,184
     
17,810
 
Due after ten years
   
-
     
-
     
8,422
     
8,885
 
Sub-total
   
68,658
     
68,899
     
33,554
     
34,729
 
Residential mortgage-backed - US agency
   
29,397
     
29,787
     
8,820
     
9,105
 
Collateralized mortgage obligations - US agency
   
13,832
     
13,961
     
2,904
     
3,106
 
Totals
 
$
111,887
   
$
112,647
   
$
45,278
   
$
46,940
 
 
 

 
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, 2015
 
 
Less than Twelve Months
 
Twelve Months or More
 
Total
 
 
Number of
     
Number of
     
Number of
     
 
Individual
 
Unrealized
 
Fair
 
Individual
 
Unrealized
 
Fair
 
Individual
 
Unrealized
 
Fair
 
 
Securities
 
Losses
 
Value
 
Securities
 
Losses
 
Value
 
Securities
 
Losses
 
Value
 
(Dollars in thousands)
                 
Available-for-Sale
                 
US Treasury, agencies and GSE's
   
7
   
$
(3
)
 
$
12,003
     
6
   
$
(41
)
 
$
6,954
     
13
     
(44
)
 
$
18,957
 
State and political subdivisions
   
9
     
(4
)
   
1,538
     
1
     
-
     
90
     
10
     
(4
)
   
1,628
 
Corporate
   
9
     
(37
)
   
8,675
     
-
     
-
     
-
     
9
     
(37
)
   
8,675
 
Residential mortgage-backed - US agency
   
3
     
(14
)
   
4,029
     
5
     
(86
)
   
5,441
     
8
     
(100
)
   
9,470
 
Collateralized mortgage obligations - US agency
   
3
     
(7
)
   
1,656
     
3
     
(52
)
   
2,098
     
6
     
(59
)
   
3,754
 
Totals
   
31
   
$
(65
)
 
$
27,901
     
15
   
$
(179
)
 
$
14,583
     
46
   
$
(244
)
 
$
42,484
 
Held-to-Maturity
                                                                       
US Treasury, agencies and GSE's
   
2
   
$
(23
)
 
$
2,976
     
-
   
$
-
   
$
-
     
2
   
$
(23
)
 
$
2,976
 
State and political subdivisions
   
-
     
-
     
-
     
-
     
-
     
-
     
-
     
-
     
-
 
Corporate
   
-
     
-
     
-
     
-
     
-
     
-
     
-
     
-
     
-
 
Residential mortgage-backed - US agency
   
1
     
-
     
1,015
     
-
     
-
     
-
     
1
     
-
     
1,015
 
Collateralized mortgage obligations - US agency
   
-
     
-
     
-
     
-
     
-
     
-
     
-
     
-
     
-
 
Totals
   
3
   
$
(23
)
 
$
3,991
     
-
   
$
-
   
$
-
     
3
   
$
(23
)
 
$
3,991
 
                                                                         
                                                                         
 
December 31, 2014
 
 
Less than Twelve Months
 
Twelve Months or More
 
Total
 
 
Number of
                 
Number of
                 
Number of
                 
 
Individual
 
Unrealized
 
Fair
 
Individual
 
Unrealized
 
Fair
 
Individual
 
Unrealized
 
Fair
 
 
Securities
 
Losses
 
Value
 
Securities
 
Losses
 
Value
 
Securities
 
Losses
 
Value
 
(Dollars in thousands)
                                                                       
Available-for-Sale
                                                                       
US Treasury, agencies and GSE's
   
7
   
$
(18
)
 
$
7,991
     
7
   
$
(131
)
 
$
7,856
     
14
   
$
(149
)
 
$
15,847
 
State and political subdivisions
   
19
     
(13
)
   
3,047
     
1
     
-
     
90
     
20
     
(13
)
   
3,137
 
Corporate
   
7
     
(19
)
   
4,520
     
-
     
-
     
-
     
7
     
(19
)
   
4,520
 
Residential mortgage-backed - US agency
   
2
     
(8
)
   
1,424
     
6
     
(141
)
   
6,256
     
8
     
(149
)
   
7,680
 
Collateralized mortgage obligations - US agency
   
3
     
(22
)
   
2,692
     
5
     
(102
)
   
3,963
     
8
     
(124
)
   
6,655
 
Totals
   
38
   
$
(80
)
 
$
19,674
     
19
   
$
(374
)
 
$
18,165
     
57
   
$
(454
)
 
$
37,839
 
Held-to-Maturity
                                                                       
US Treasury, agencies and GSE's
   
-
   
$
-
   
$
-
     
-
   
$
-
   
$
-
     
-
   
$
-
   
$
-
 
State and political subdivisions
   
1
     
(9
)
   
1,463
     
-
     
-
     
-
     
1
     
(9
)
   
1,463
 
Corporate
   
2
     
(17
)
   
1,108
     
-
     
-
     
-
     
2
     
(17
)
   
1,108
 
Residential mortgage-backed - US agency
   
-
     
-
     
-
     
-
     
-
     
-
     
-
     
-
     
-
 
Collateralized mortgage obligations - US agency
   
-
     
-
     
-
     
-
     
-
     
-
     
-
     
-
     
-
 
Totals
   
3
   
$
(26
)
 
$
2,571
     
-
   
$
-
   
$
-
     
3
   
$
(26
)
 
$
2,571
 

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

Management does not believe any individual unrealized loss in the securities portfolio as of March 31, 2015 represents OTTI.  All securities are rated A3 or better by Moody's or S&P, with the exception of three corporate securities. The agency and municipal securities have relatively insignificant unrealized loss positions ranging from 1.3% to 0.01% of their current book values.  The unrealized losses reflected in the mortgage-backed security holdings and collateralized mortgage obligations are primarily attributable to changes in interest rates since the securities were acquired.  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. Management has determined that we have the intent and ability to retain the equity securities for a sufficient period of time to allow for recovery. All of the Company's equity securities had a fair value greater than the book value at March 31, 2015.

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

   
For the three months
 
   
ended March 31, 2015
 
(In thousands)
 
2015
   
2014
 
Realized gains
 
$
57
   
$
2
 
Realized losses
   
(5
)
   
-
 
 
 
$
52
   
$
2
 

As of March 31, 2015 and December 31, 2014, securities with a fair value of $97.5 million and $66.7 million, respectively, were pledged to collateralize certain municipal deposit relationships.  As of the same dates, securities with a fair value of $18.9 million and $19.9 million were pledged against certain borrowing arrangements.

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

Note 5:   Pension and Postretirement Benefits

The Company had a non-contributory defined benefit pension plan that covered substantially all employees. 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 freeze became effective June 30, 2012.  Compensation earned by employees up to June 30, 2012 is used for purposes of calculating benefits under the plan but there will be no future benefit accruals after this date.  Participants as of June 30, 2012, who continue to be employed by the Bank, continue to earn vesting credit with respect to their frozen accrued benefits.

Prior to being frozen, the plan provided defined benefits based on years of service and final average salary. Although the plan was frozen, the Company maintains the responsibility for funding the plan, and its funding practice is to contribute at least the minimum amount annually to meet minimum funding requirements.  The funded status of the plan has and will continue to be affected by market conditions.  The Company expects to continue to fund this plan on an as needed basis and does not foresee any issues or conditions that could negatively impact the payment of benefit obligations to plan participants.  In addition, the Company provides certain health and life insurance benefits for 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.
 

 
In October 2014, the Society of Actuaries released new mortality tables with future mortality improvement assumptions which are expected to become the required standard for purposes of year end pension liability disclosures.  As such, the Company has adopted the "White Collar" version of the new mortality tables which more closely approximates the Company's participants in the frozen defined benefit pension plan at December 31, 2014.

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

   
Pension Benefits
   
Postretirement Benefits
 
   
For the three months ended March 31,
 
(In thousands)
 
2015
   
2014
   
2015
   
2014
 
                 
Service cost
 
$
-
   
$
-
   
$
-
   
$
-
 
Interest cost
   
117
     
102
     
4
     
5
 
Expected return on plan assets
   
(244
)
   
(236
)
   
-
     
-
 
Amortization of transition obligation
   
-
     
-
     
-
     
-
 
Amortization of net losses
   
45
     
8
     
-
     
3
 
Net periodic benefit plan (benefit) cost
 
$
(82
)
 
$
(126
)
 
$
4
   
$
8
 

The Company will evaluate the need for further contributions to the defined benefit pension plan during 2015.  The prepaid pension asset is recorded in other assets on the statement of condition as of March 31, 2015.
 
 

 
Note 6:   Loans

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


   
March 31,
   
December 31,
 
(In thousands)
 
2015
   
2014
 
Residential mortgage loans:
       
1-4 family first-lien residential mortgages
 
$
173,576
   
$
172,159
 
Construction
   
2,714
     
3,209
 
Total residential mortgage loans
   
176,290
     
175,368
 
                 
Commercial loans:
               
Real estate
   
125,651
     
125,952
 
Lines of credit
   
17,628
     
17,407
 
Other commercial and industrial
   
35,207
     
34,660
 
Tax exempt loans
   
9,382
     
7,201
 
Total commercial loans
   
187,868
     
185,220
 
                 
Consumer loans:
               
Home equity and junior liens
   
22,308
     
22,713
 
Other consumer
   
4,107
     
4,160
 
Total consumer loans
   
26,415
     
26,873
 
 
               
Total loans
   
390,573
     
387,461
 
Net deferred loan costs
   
40
     
77
 
Less allowance for loan losses
   
(5,462
)
   
(5,349
)
Loans receivable, net
 
$
385,151
   
$
382,189
 

The Company originates residential mortgage, commercial, and consumer loans largely to customers throughout Oswego and Onondaga counties. Although the Company 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.

As of March 31, 2015 and December 31, 2014, residential mortgage loans with a carrying value of $123.9 million and $121.1 million, respectively, have been pledged by the Company to the Federal Home Loan Bank of New York ("FHLBNY") under a blanket collateral agreement to secure the Company's line of credit and term borrowings.

Loan Origination / Risk Management

The Company's lending policies and procedures are presented in Note 5 to the consolidated financial statements included in the 2014 Annual Report on Form 10-K filed with the Securities and Exchange Commission on March 18, 2015 and have not changed.

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

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


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, 2015
 
       
Special
             
(In thousands)
 
Pass
   
Mention
   
Substandard
   
Doubtful
   
Total
 
Residential mortgage loans:
                   
1-4 family first-lien residential mortgages
 
$
167,953
   
$
1,326
   
$
3,255
   
$
1,042
   
$
173,576
 
Construction
   
2,714
     
-
     
-
     
-
     
2,714
 
Total residential mortgage loans
   
170,667
     
1,326
     
3,255
     
1,042
     
176,290
 
Commercial loans:
                                       
Real estate
   
119,692
     
1,163
     
4,580
     
216
     
125,651
 
Lines of credit
   
16,376
     
507
     
745
     
-
     
17,628
 
Other commercial and industrial
   
33,086
     
1,113
     
937
     
71
     
35,207
 
Tax exempt loans
   
9,382
     
-
     
-
     
-
     
9,382
 
Total commercial loans
   
178,536
     
2,783
     
6,262
     
287
     
187,868
 
Consumer loans:
                                       
Home equity and junior liens
   
21,662
     
91
     
445
     
110
     
22,308
 
Other consumer
   
4,075
     
7
     
25
     
-
     
4,107
 
Total consumer loans
   
25,737
     
98
     
470
     
110
     
26,415
 
Total loans
 
$
374,940
   
$
4,207
   
$
9,987
   
$
1,439
   
$
390,573
 



 
 
As of December 31, 2014
 
       
Special
             
(In thousands)
 
Pass
   
Mention
   
Substandard
   
Doubtful
   
Total
 
Residential mortgage loans:
                   
1-4 family first-lien residential mortgages
 
$
166,352
   
$
1,384
   
$
3,370
   
$
1,053
   
$
172,159
 
Construction
   
3,209
     
-
     
-
     
-
     
3,209
 
Total residential mortgage loans
   
169,561
     
1,384