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

FORM 10-Q

[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
       EXCHANGE ACT OF 1934

       For the quarterly period ended September 30, 2015

OR
[  ]  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
       EXCHANGE ACT OF 1934
     For the transition period from _______ to _______

PATHFINDER BANCORP, INC.
(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's Telephone Number including area code)

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 T        NO *                                        

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (Section 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 T        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 definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act.

Large accelerated filer*    Accelerated filer*         Non-accelerated filer*         Smaller reporting company  T
                                                                                 (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 Exchange Act).   YES *    NO T

As of November 9, 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.
Consolidated Financial Statements (Unaudited)
   
   
3
   
4
   
5
   
6
   
7
   
8
       
Item 2.
 
32
 
and Results of Operations (Unaudited)
   
       
Item 3.
 
48
       
Item 4.
 
48
       
 
49
       
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
   
       
 
50
       
       
 
 
- 2 -

PART I - FINANCIAL INFORMATION
Item 1 – Consolidated Financial Statements

Pathfinder Bancorp, Inc.
Consolidated Statements of Condition
(Unaudited)
   
September 30,
   
December 31,
 
(In thousands, except share and per share data)
 
2015
   
2014
 
ASSETS:
       
Cash and due from banks
 
$
9,564
   
$
6,822
 
Interest earning deposits
   
7,810
     
4,534
 
Total cash and cash equivalents
   
17,374
     
11,356
 
Available-for-sale securities, at fair value
   
98,007
     
88,073
 
Held-to-maturity securities, at amortized cost (fair value of $44,952 and $42,139, respectively)
   
43,534
     
40,875
 
Federal Home Loan Bank stock, at cost
   
1,881
     
3,454
 
Loans
   
414,795
     
387,538
 
Less: Allowance for loan losses
   
5,732
     
5,349
 
Loans receivable, net
   
409,063
     
382,189
 
Premises and equipment, net
   
14,091
     
13,200
 
Accrued interest receivable
   
2,082
     
1,849
 
Foreclosed real estate
   
472
     
261
 
Intangible assets, net
   
218
     
175
 
Goodwill
   
4,536
     
4,367
 
Bank owned life insurance
   
10,621
     
10,356
 
Other assets
   
5,319
     
4,869
 
Total assets
 
$
607,198
   
$
561,024
 
                 
LIABILITIES AND SHAREHOLDERS' EQUITY:
               
Deposits:
               
Interest-bearing
 
$
430,456
   
$
360,906
 
Noninterest-bearing
   
65,886
     
54,662
 
Total deposits
   
496,342
     
415,568
 
Short-term borrowings
   
15,225
     
55,100
 
Long-term borrowings
   
14,000
     
11,000
 
Junior subordinated debentures
   
5,155
     
5,155
 
Accrued interest payable
   
50
     
63
 
Other liabilities
   
5,246
     
4,934
 
Total liabilities
   
536,018
     
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
   
28,659
     
28,534
 
Retained earnings
   
32,642
     
31,085
 
Accumulated other comprehensive loss
   
(1,960
)
   
(2,119
)
Unearned ESOP
   
(1,619
)
   
(1,754
)
Total Pathfinder Bancorp, Inc. shareholders' equity
   
70,766
     
68,790
 
Noncontrolling interest
   
414
     
414
 
Total equity
   
71,180
     
69,204
 
Total liabilities and shareholders' equity
 
$
607,198
   
$
561,024
 

The accompanying notes are an integral part of the consolidated financial statements.
 
 
- 3 -

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

   
For the three
   
For the three
   
For the nine
   
For the nine
 
   
months ended
   
months ended
   
months ended
   
months ended
 
(In thousands, except per share data)
 
September 30, 2015
   
September 30, 2014
   
September 30, 2015
   
September 30, 2014
 
Interest and dividend income:
               
Loans, including fees
 
$
4,699
   
$
4,344
   
$
13,649
   
$
12,512
 
Debt securities:
                               
Taxable
   
519
     
473
     
1,494
     
1,360
 
Tax-exempt
   
186
     
196
     
573
     
585
 
Dividends
   
40
     
35
     
109
     
85
 
Interest earning time deposits
   
-
     
2
     
-
     
6
 
Federal funds sold and interest earning deposits
   
5
     
2
     
12
     
4
 
       Total interest income
   
5,449
     
5,052
     
15,837
     
14,552
 
Interest expense:
                               
Interest on deposits
   
508
     
479
     
1,435
     
1,505
 
Interest on short-term borrowings
   
41
     
28
     
113
     
68
 
Interest on long-term borrowings
   
103
     
149
     
310
     
443
 
       Total interest expense
   
652
     
656
     
1,858
     
2,016
 
          Net interest income
   
4,797
     
4,396
     
13,979
     
12,536
 
Provision for loan losses
   
220
     
410
     
1,004
     
930
 
          Net interest income after provision for loan losses
   
4,577
     
3,986
     
12,975
     
11,606
 
Noninterest income:
                               
Service charges on deposit accounts
   
299
     
311
     
853
     
894
 
Earnings and gain on bank owned life insurance
   
250
     
64
     
400
     
190
 
Loan servicing fees
   
55
     
81
     
148
     
202
 
Net gains on sales and redemptions of investment securities
   
88
     
3
     
188
     
29
 
Net gains on sales of loans and foreclosed real estate
   
17
     
10
     
13
     
39
 
Debit card interchange fees
   
131
     
127
     
390
     
369
 
Other charges, commissions & fees
   
352
     
304
     
1,017
     
880
 
          Total noninterest income
   
1,192
     
900
     
3,009
     
2,603
 
Noninterest expense:
                               
Salaries and employee benefits
   
2,478
     
2,141
     
7,216
     
6,526
 
Building occupancy
   
535
     
421
     
1,479
     
1,193
 
Data processing
   
462
     
367
     
1,204
     
1,131
 
Professional and other services
   
206
     
160
     
654
     
508
 
Advertising
   
116
     
141
     
352
     
372
 
FDIC assessments
   
105
     
99
     
302
     
294
 
Audits and exams
   
58
     
61
     
179
     
186
 
Other expenses
   
598
     
422
     
1,628
     
1,273
 
          Total noninterest expenses
   
4,558
     
3,812
     
13,014
     
11,483
 
Income before income taxes
   
1,211
     
1,074
     
2,970
     
2,726
 
Provision for income taxes
   
316
     
317
     
829
     
767
 
Net income attributable to noncontrolling interest and Pathfinder Bancorp, Inc.
   
895
     
757
     
2,141
     
1,959
 
Net income attributable to noncontrolling interest
   
10
     
11
     
33
     
48
 
Net income attributable to Pathfinder Bancorp, Inc.
   
885
     
746
     
2,108
     
1,911
 
Preferred stock dividends
   
33
     
33
     
97
     
63
 
Net income available to common shareholders
 
$
852
   
$
713
   
$
2,011
   
$
1,848
 
                                 
Earnings per common share - basic
 
$
0.21
   
$
0.17
   
$
0.49
   
$
0.44
 
Earnings per common share - diluted
 
$
0.20
   
$
0.17
   
$
0.48
   
$
0.44
 
Dividends per common share
 
$
0.05
   
$
0.03
   
$
0.11
   
$
0.09
 

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
   
For the nine months ended
 
(In thousands)
 
September 30, 2015
   
September 30, 2014
   
September 30, 2015
   
September 30, 2014
 
                 
Net Income
 
$
895
   
$
757
   
$
2,141
   
$
1,959
 
                                 
Other Comprehensive Income (Loss)
                               
                                 
Retirement Plans:
                               
Net unrealized gain on retirement plans
   
45
     
11
     
135
     
33
 
                                 
Unrealized holding gains on financial derivative:
                               
Change in unrealized holding gains/(losses) on financial derivative
   
(2
)
   
2
     
(8
)
   
(6
)
Reclassification adjustment for interest expense included in net income
   
15
     
16
     
46
     
47
 
Net unrealized gain on financial derivative
   
13
     
18
     
38
     
41
 
                                 
Unrealized holding (losses) gains on available for sale securities
                               
Unrealized holding gains (losses) arising during the period
   
594
     
(69
)
   
181
     
561
 
Reclassification adjustment for net (losses)  included in net income
   
(88
)
   
(3
)
   
(188
)
   
(29
)
Net unrealized gain (loss) on available for sale securities
   
506
     
(72
)
   
(7
)
   
532
 
                                 
Accretion of net unrealized loss on securities transferred to held-to-maturity(1)
   
34
     
30
     
99
     
90
 
                                 
Other comprehensive income (loss),  before tax
   
598
     
(13
)
   
265
     
696
 
Tax effect
   
(239
)
   
3
     
(106
)
   
(281
)
Other comprehensive income (loss), net of tax
   
359
     
(10
)
   
159
     
415
 
Comprehensive income
 
$
1,254
   
$
747
   
$
2,300
   
$
2,374
 
Comprehensive income attributable to noncontrolling interest
 
$
10
   
$
11
   
$
33
   
$
48
 
Comprehensive income attributable to Pathfinder Bancorp, Inc.
 
$
1,244
   
$
736
   
$
2,267
   
$
2,326
 
                                 
                                 
Tax Effect Allocated to Each Component of Other Comprehensive Loss
                               
Retirement plan net losses recognized in plan expenses
 
$
(18
)
 
$
(4
)
 
$
(54
)
 
$
(13
)
Change in unrealized holding gains/(losses) on financial derivative
   
1
     
(1
)
   
3
     
2
 
Reclassification adjustment for interest expense included in net income
   
(6
)
   
(6
)
   
(18
)
   
(19
)
Unrealized holding (losses) gains arising during the period
   
(238
)
   
27
     
(72
)
   
(226
)
Reclassification adjustment for net losses included in net income
   
36
     
1
     
75
     
12
 
Accretion of net unrealized loss on securities transferred to held-to-maturity(1)
   
(14
)
   
(14
)
   
(40
)
   
(37
)
Income tax effect related to other comprehensive income
 
$
(239
)
 
$
3
   
$
(106
)
 
$
(281
)
                                 
(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.

 
- 5 -


Pathfinder Bancorp, Inc.
 
Consolidated Statements of Changes in Shareholders' Equity
 
Nine months ended September 30, 2015 and September 30, 2014
 
                                     
                   
Accumulated
                 
           
Additional
       
Other Com-
           
Non-
     
(In thousands, except share and per share data)
 
Preferred Stock
   
Common Stock
   
Paid in Capital
   
Retained Earnings
   
prehensive Loss
   
Unearned ESOP
   
Treasury Stock
   
Controlling Interest
   
Total
 
                                     
 Balance, January 1, 2015
 
$
13,000
   
$
44
   
$
28,534
   
$
31,085
   
$
(2,119
)
 
$
(1,754
)
 
$
-
   
$
414
   
$
69,204
 
                                                                         
 Net income
   
-
     
-
     
-
     
2,108
     
-
     
-
     
-
     
33
     
2,141
 
                                                                         
 Other comprehensive income, net of tax
   
-
     
-
     
-
     
-
     
159
     
-
     
-
     
-
     
159
 
 
                                                                       
 Preferred stock dividends - SBLF
   
-
     
-
     
-
     
(97
)
   
-
     
-
     
-
     
-
     
(97
)
                                                                         
 ESOP shares earned (18,332 shares)
   
-
     
-
     
62
     
-
     
-
     
135
     
-
     
-
     
197
 
                                                                         
 Stock based compensation
   
-
     
-
     
63
     
-
     
-
     
-
     
-
     
-
     
63
 
                                                                         
 Common stock dividends declared
($0.11 per share)
   
-
     
-
     
-
     
(454
)
   
-
     
-
     
-
     
-
     
(454
)
                                                                         
 Distributions from affiliates
   
-
     
-
     
-
     
-
     
-
     
-
     
-
     
(33
)
   
(33
)
 Balance, September 30, 2015
 
$
13,000
   
$
44
   
$
28,659
   
$
32,642
   
$
(1,960
)
 
$
(1,619
)
 
$
-
   
$
414
   
$
71,180
 
                                                                         
 Balance, January 1, 2014
 
$
13,000
   
$
30
   
$
8,226
   
$
28,788
   
$
(1,745
)
 
$
(826
)
 
$
(4,761
)
 
$
358
   
$
43,070
 
                                                                         
 Net income
   
-
     
-
     
-
     
1,911
     
-
     
-
     
-
     
48
     
1,959
 
                                                                         
 Other comprehensive income, net of tax
   
-
     
-
     
-
     
-
     
415
     
-
     
-
     
-
     
415
 
                                                                         
 Preferred stock dividends - SBLF
   
-
     
-
     
-
     
(63
)
   
-
     
-
     
-
     
-
     
(63
)
                                                                         
 ESOP shares earned (9,375 shares)
   
-
     
-
     
53
     
-
     
-
     
83
     
-
     
-
     
136
 
                                                                         
 Stock based compensation
   
-
     
-
     
63
     
-
     
-
     
-
     
-
     
-
     
63
 
                                                                         
 Stock options exercised
   
-
     
-
     
(8
)
   
-
     
-
     
-
     
26
     
-
     
18
 
                                                                         
 Common stock dividends declared
 ($0.09 per share)
   
-
     
-
     
-
     
(229
)
   
-
     
-
     
-
     
-
     
(229
)
 Balance, September 30, 2014
 
$
13,000
   
$
30
   
$
8,334
   
$
30,407
   
$
(1,330
)
 
$
(743
)
 
$
(4,735
)
 
$
406
   
$
45,369
 
                                                                         
The accompanying notes are an integral part of the consolidated financial statements.
                                                 



- 6 -


Pathfinder Bancorp, Inc.
 
Consolidated Statements of Cash Flows
 
(Unaudited)
 
   
For the nine months ended September 30,
 
(In thousands)
 
2015
   
2014
 
OPERATING ACTIVITIES
       
Net income attributable to Pathfinder Bancorp, Inc.
 
$
2,108
   
$
1,911
 
Adjustments to reconcile net income to net cash flows from operating activities:
               
Provision for loan losses
   
1,004
     
930
 
Proceeds from sales of loans
   
69
     
-
 
Originations of loans held-for-sale
   
(68
)
   
-
 
Realized gains on sales, redemptions and calls of:
               
Real estate acquired through foreclosure
   
(11
)
   
(39
)
Loans
   
(2
)
   
-
 
Available-for-sale investment securities
   
(188
)
   
(29
)
Depreciation
   
760
     
596
 
Amortization of mortgage servicing rights
   
10
     
11
 
Amortization of deferred loan costs
   
125
     
91
 
Earnings on bank owned life insurance
   
(265
)
   
(190
)
Net amortization of premiums and discounts on investment securities
   
673
     
530
 
Amortization of intangible assets
   
13
     
9
 
Stock based compensation and ESOP expense
   
260
     
199
 
Net change in accrued interest receivable
   
(233
)
   
(150
)
Net change in other assets and liabilities
   
15
     
(811
)
Net cash flows from operating activities
   
4,270
     
3,058
 
INVESTING ACTIVITIES
               
Purchase of investment securities available-for-sale
   
(49,220
)
   
(27,099
)
Purchase of investment securities held-to-maturity
   
(5,034
)
   
(8,767
)
Net proceeds from Federal Home Loan Bank stock
   
1,573
     
611
 
Proceeds from maturities and principal reductions of
               
investment securities available-for-sale
   
20,088
     
13,545
 
Proceeds from maturities and principal reductions of
               
investment securities held-to-maturity
   
2,378
     
692
 
Proceeds from sales, redemptions and calls of:
               
Available-for-sale investment securities
   
18,802
     
510
 
Real estate acquired through foreclosure
   
284
     
667
 
Acquisition of insurance agency
   
(225
)
   
-
 
Purchase of bank owned life insurance
   
-
     
(1,780
)
Proceeds from bank owned life insurance
   
(135
)
       
Net change in loans
   
(28,522
)
   
(33,989
)
Purchase of premises and equipment
   
(1,651
)
   
(1,897
)
Net cash flows from investing activities
   
(41,662
)
   
(57,507
)
FINANCING ACTIVITIES
               
Net change in demand deposits, NOW accounts, savings accounts,
               
money management deposit accounts, MMDA accounts and escrow deposits
   
61,382
     
52,925
 
Net change in time deposits and brokered deposits
   
19,392
     
19,964
 
Net change in short-term borrowings
   
(39,875
)
   
(10,000
)
Proceeds from long-term borrowings
   
3,000
     
168
 
Proceeds from exercise of stock options
   
-
     
18
 
Cash dividends paid to preferred shareholder - SBLF
   
(97
)
   
(31
)
Cash dividends paid to common shareholders
   
(392
)
   
(236
)
Change in noncontrolling interest, net
   
-
     
48
 
Net cash flows from financing activities
   
43,410
     
62,856
 
Change in cash and cash equivalents
   
6,018
     
8,407
 
Cash and cash equivalents at beginning of period
   
11,356
     
16,575
 
Cash and cash equivalents at end of period
 
$
17,374
   
$
24,982
 
CASH PAID DURING THE PERIOD FOR:
               
Interest
 
$
1,871
   
$
2,029
 
Income taxes
   
842
     
331
 
NON-CASH INVESTING ACTIVITY
               
Real estate acquired in exchange for loans
   
519
     
474
 
                 
The accompanying notes are an integral part of the consolidated financial statements.
               
 

 
- 7 -

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.  The results are not necessarily indicative of the results to be expected for the year ended December 31, 2015 or for any future period. 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 Agency's financial statements include the acquisition of the Huntington Agency, which occurred in the first quarter of 2015.  The 49% of which the Company does not own is accounted for separately as noncontrolling interests within the consolidated financial statements.

On May 8, 2015, the Company announced that the Bank filed an application with the New York State Department of Financial Services ("NYSDFS") and the Federal Deposit Insurance Corporation ("FDIC") to merge with the Bank's wholly-owned subsidiary, Pathfinder Commercial Bank, a New York State-chartered limited purpose commercial bank.  Prior to or simultaneously with the merger, Pathfinder Commercial Bank's charter will be amended such that Pathfinder Commercial Bank will become a full-service commercial bank, rather than a limited purpose commercial bank, and its name will be changed to "Pathfinder Bank".  The transaction is expected to be completed in the fourth quarter of 2015 and will not impact the current activities or investments of the Bank and Pathfinder Commercial Bank, although the Bank expects some annual cost savings as a result of the conversion.

Note 2:   New Accounting Pronouncements

In April 2015, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") ASU 2015-03 – Interest – Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs.  This ASU addresses accounting for debt issuance costs and states that debt issuance costs related to a note shall be reported in the balance sheet as a direct deduction from the face amount of that note. The discount, premium, or debt issuance costs associated with that note shall not be classified as a deferred charge or credit.  Amortization of discount or premium shall be reported as interest expense in the case of liabilities or as interest income in the case of assets. Amortization of debt issuance costs also shall be reported as interest expense. The amendment is effective for public business entities for fiscal years beginning after December 15, 2015, and interim periods within those fiscal years.  Early adoption of the amendments is permitted and a reporting entity must apply the new guidance retrospectively to all periods presented. The Company does not expect a material impact on its consolidated statements of condition, results of operations, or cash flows as a result of adopting this pronouncement.
 

 
- 8 -

In July 2015, the FASB issued ASU 2015-12 – Plan Accounting: Defined Benefit Pension Plans (Topic 960), Defined Contribution Pension Plans (Topic 962), Health and Welfare Benefit Plans (Topic 965): (Part I) Fully Benefit-Responsive Investment Contracts, (Part II) Plan Investment Disclosures, (Part III) Measurement Date Practical Expedient (consensuses of the FASB Emerging Issues Task Force). The amendments in this ASU cover a range of topics related to accounting for, and disclosures related to, specific employee pension, retirement and welfare plans; The topics included in this ASU are: (1) accounting for fully benefit-responsive investment contracts, (2) new plan investment disclosures and (3) an expedient for entities that do not end their fiscal years on a calendar month end.  The amendments are effective for all entities for fiscal years beginning after December 15, 2015, with earlier application permitted. These changes are not expected to have a significant effect on the Company's current accounting practices or create a significant administrative cost to most entities, including the Company.  Therefore, the Company does not expect a material impact on its consolidated statements of condition, results of operations, or cash flows as a result of adopting this pronouncement.

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 -0- for the three months ended September 30, 2015 and 5,491 for the nine months ended September 30, 2015 and 10,000 in the three and nine month periods ended September 30, 2014.  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
   
Nine months ended
 
   
September 30,
   
September 30,
 
(In thousands, except per share data)
 
2015
   
2014
   
2015
   
2014
 
Basic Earnings Per Common Share
               
Net income available to common shareholders
 
$
852
   
$
713
   
$
2,011
   
$
1,848
 
Weighted average common shares outstanding
   
4,126
     
4,179
     
4,120
     
4,172
 
Basic earnings per common share
 
$
0.21
   
$
0.17
   
$
0.49
   
$
0.44
 
                                 
Diluted Earnings Per Common Share
                               
Net income available to common shareholders
 
$
852
   
$
713
   
$
2,011
   
$
1,848
 
Weighted average common shares outstanding
   
4,126
     
4,179
     
4,120
     
4,172
 
Effect of assumed exercise of stock options
   
71
     
42
     
65
     
40
 
Diluted weighted average common shares outstanding
   
4,197
     
4,221
     
4,185
     
4,212
 
Diluted earnings per common share
 
$
0.20
   
$
0.17
   
$
0.48
   
$
0.44
 


- 9 -

Note 4:   Investment Securities

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

 
 
September 30, 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
 
$
27,887
   
$
58
   
$
(23
)
 
$
27,922
 
State and political subdivisions
   
8,275
     
105
     
(6
)
   
8,374
 
Corporate
   
18,257
     
97
     
(85
)
   
18,269
 
Residential mortgage-backed - US agency
   
26,148
     
248
     
(129
)
   
26,267
 
Collateralized mortgage obligations - US agency
   
14,819
     
152
     
(54
)
   
14,917
 
Total
   
95,386
     
660
     
(297
)
   
95,749
 
Equity investment securities:
                               
Mutual funds:
                               
Ultra short mortgage fund
   
643
     
1
     
-
     
644
 
Large cap equity fund
   
456
     
126
     
-
     
582
 
Other mutual funds
   
183
     
242
     
-
     
425
 
Common stock - financial services industry
   
583
     
24
     
-
     
607
 
Total
   
1,865
     
393
     
-
     
2,258
 
Total available-for-sale
 
$
97,251
   
$
1,053
   
$
(297
)
 
$
98,007
 
                                 
Held-to-Maturity Portfolio
                               
Debt investment securities:
                               
US Treasury, agencies and GSEs
 
$
7,853
   
$
129
   
$
(14
)
 
$
7,968
 
State and political subdivisions
   
21,253
     
802
     
-
     
22,055
 
Corporate
   
3,421
     
158
     
(1
)
   
3,578
 
Residential mortgage-backed - US agency
   
8,096
     
197
     
-
     
8,293
 
Collateralized mortgage obligations - US agency
   
2,911
     
147
     
-
     
3,058
 
Total held-to-maturity
 
$
43,534
   
$
1,433
   
$
(15
)
 
$
44,952
 


- 10 -


 
 
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 September 30, 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
 
(In thousands)
 
Cost
   
Fair Value
   
Cost
   
Fair Value
 
Due in one year or less
 
$
6,527
   
$
6,564
   
$
195
   
$
195
 
Due after one year through five years
   
38,699
     
38,803
     
8,674
     
8,787
 
Due after five years through ten years
   
8,213
     
8,204
     
17,010
     
17,535
 
Due after ten years
   
980
     
994
     
6,648
     
7,084
 
Sub-total
   
54,419
     
54,565
     
32,527
     
33,601
 
Residential mortgage-backed - US agency
   
26,148
     
26,267
     
8,096
     
8,293
 
Collateralized mortgage obligations - US agency
   
14,819
     
14,917
     
2,911
     
3,058
 
Totals
 
$
95,386
   
$
95,749
   
$
43,534
   
$
44,952
 



- 11 -


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

   
September 30, 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
 
(Dollars in thousands)
 
Securities
 
Losses
 
Value
   
Securities
 
Losses
 
Value
   
Securities
 
Losses
 
Value
 
Available-for-Sale
                       
US Treasury, agencies and GSE's
   
3
   
$
(7
)
 
$
2,996
     
3
   
$
(16
)
 
$
2,982
     
6
     
(23
)
 
$
5,978
 
State and political subdivisions
   
9
     
(4
)
   
858
     
3
     
(2
)
   
616
     
12
     
(6
)
   
1,474
 
Corporate
   
7
     
(85
)
   
7,291
     
-
     
-
     
-
     
7
     
(85
)
   
7,291
 
Residential mortgage-backed - US agency
   
3
     
(32
)
   
5,894
     
5
     
(97
)
   
5,035
     
8
     
(129
)
   
10,929
 
Collateralized mortgage obligations - US agency
   
2
     
(5
)
   
1,209
     
3
     
(49
)
   
1,881
     
5
     
(54
)
   
3,090
 
Totals
   
24
   
$
(133
)
 
$
18,248
     
14
   
$
(164
)
 
$
10,514
     
38
   
$
(297
)
 
$
28,762
 
Held-to-Maturity
                                                                       
US Treasury, agencies and GSE's
   
1
   
$
(14
)
 
$
1,985
     
-
   
$
-
   
$
-
     
1
     
(14
)
 
$
1,985
 
State and political subdivisions
   
-
     
-
     
-
     
-
     
-
     
-
     
-
     
-
     
-
 
Corporate
   
1
     
(1
)
   
228
     
-
     
-
     
-
     
1
     
(1
)
   
228
 
Residential mortgage-backed - US agency
   
-
     
-
     
-
     
-
     
-
     
-
     
-
     
-
     
-
 
Collateralized mortgage obligations - US agency
   
-
     
-
     
-
     
-
     
-
     
-
     
-
     
-
     
-
 
Totals
   
2
   
$
(15
)
 
$
2,213
     
-
   
$
-
   
$
-
     
2
   
$
(15
)
 
$
2,213
 
                                                                         
                                                                         
   
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
 
(Dollars in thousands)
 
Securities
 
Losses
 
Value
   
Securities
 
Losses
 
Value
   
Securities
 
Losses
 
Value
 
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
   
$