Quarterly Report for Quarter Ending September 30, 2025 (Form 10-Q)

Management's Discussion and Analysis of Financial Condition and Results of Operations (Unaudited)

General

The Company is a Maryland corporation headquartered in Oswego, New York. The Company is 100% owned by public shareholders. The primary business of the Company is its investment in Pathfinder Bank (the "Bank"), a New York State chartered commercial bank, which is 100% owned by the Company. The Bank has two wholly owned operating subsidiaries, Pathfinder Risk Management Company, Inc. ("PRMC") and Whispering Oaks Development Corp. All significant inter-company accounts and activity have been eliminated in consolidation.

The Bank owns 100% of Pathfinder Risk Management Company, Inc., ("PRMC") which was established to record the 51% controlling interest upon the December 2013 purchase of FitzGibbons Agency, LLC (the "Agency"), an Oswego County property, casualty and life insurance brokerage business. The Company completed the sale of its majority membership interest in the Agency to Marshall & Sterling Enterprises, Inc. in October 2024.

Although the Company previously owned, through its wholly owned subsidiary PRMC, 51% of the membership interest in the Agency until its October 2024 sale, the Company is required to consolidate 100% of the Agency within the consolidated financial statements. The 49% of the Agency, which the Company did not own, is accounted for separately as noncontrolling interests within the consolidated financial statements.

At September 30, 2025, the Company and subsidiaries had total consolidated assets of $1.47 billion, total consolidated liabilities of $1.35 billion and shareholders' equity of $126.3 million.

The following discussion reviews the Company's financial condition at September 30, 2025 and the results of operations for the three and nine month periods ended September 30, 2025 and 2024. Operating results for the three and nine months ended September 30, 2025 are not necessarily indicative of the results that may be expected for the year ending December 31, 2025 or any other period.

The following material under the heading "Management's Discussion and Analysis of Financial Condition and Results of Operations" is written with the presumption that the users of the interim financial statements have read, or have access to, the Company's latest audited financial statements and notes thereto, together with Management's Discussion and Analysis of Financial Condition and Results of Operations included in the 2024 Annual Report on Form 10-K filed with the Securities and Exchange Commission on March 31, 2025 ("the consolidated annual financial statements") as of December 31, 2024 and 2023 and for the two years then ended. Therefore, only material changes in financial condition and results of operations are discussed in the remainder of Item 2.

Statement Regarding Forward-Looking Statements

This report includes forward-looking statements within the meaning of Sections 27A of the Securities Act of 1933, as amended, and 21E of the Securities Exchange Act of 1934, as amended, that involve inherent risks and uncertainties. These forward-looking statements concern the financial condition, results of operations, plans, objectives, future performance and business of Pathfinder Bancorp, Inc. and its subsidiaries, including statements preceded by, followed by or that include words or phrases such as "believes," "expects," "anticipates," "plans," "trend," "objective," "continue," "remain," "pattern" or similar expressions or future or conditional verbs such as "will," "would," "should," "could," "might," "can," "may" or similar expressions. There are a number of important factors that could cause future results to differ materially from historical performance and these forward-looking statements. Factors that might cause such a difference include, but are not limited to: (1) general economic conditions may be less favorable than expected; (2) competitive pressures among depository institutions may increase significantly; (3) changes in the interest rate environment may reduce interest margins; (4) loan origination and sale volumes, charge-offs and credit loss provisions may vary substantially from period to period; (5) the impact of a pandemic or other health crises and the government's response to such pandemic or crises on our operations as well as those of our customers and on the economy generally and in our market area specifically; (6) political developments such as the U.S. Government shutdown, wars or other hostilities may disrupt or increase volatility in securities markets or other economic conditions; (7) legislative or regulatory changes or actions may adversely affect the businesses in which Pathfinder Bancorp, Inc. is engaged; (8) changes and trends in the securities markets may adversely impact Pathfinder Bancorp, Inc.; (9) a delayed or incomplete resolution of regulatory issues could adversely impact our planning;

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(10) difficulties in integrating any businesses that we may acquire, including our recently completed acquisition of the East Syracuse branch of Berkshire Bank, which may increase our expenses and delay the achievement of any benefits that we may expect from such acquisitions; (11) the impact of reputation risk created by the developments discussed below in Recent Events on such matters as business generation and retention, funding and liquidity could be significant; (12) our ability to prevent or mitigate fraudulent activity and cybersecurity threats; and (13) the outcome of any future regulatory and legal investigations and proceedings may not be anticipated.

Because of these and other uncertainties, our actual future results may be materially different from the results indicated by these forward-looking statements. Except as required by law, we disclaim any obligation to revise or update any forward-looking statements contained in this Quarterly Report on Form 10-Q to reflect future events or developments.

Application of Critical Accounting Estimates

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

The most significant accounting policies followed by the Company are presented in Note 1 to the annual audited consolidated financial statements. These policies, along with the disclosures presented in the other financial statement notes and in this discussion, provide information on how significant assets and liabilities are valued in the consolidated quarterly financial statements and how those values are determined. Based on the valuation techniques used and the sensitivity of financial statement amounts to the methods, assumptions, and estimates underlying those amounts, management has identified the allowance for credit losses, deferred income taxes, pension obligations, the evaluation of investment securities for credit losses, the estimation of fair values for accounting and disclosure purposes, and the evaluation of goodwill for impairment to be the accounting areas that require the most subjective and complex judgments. These areas could be the most subject to revision as new information becomes available.

The ACL represents management's estimate of lifetime credit losses inherent in the loan portfolio. Determining the amount of the allowance for credit losses is considered a critical accounting estimate because it requires significant judgment on the use of estimates related to the amount and timing of expected future cash flows on individually evaluated loans, estimated losses on pools of homogeneous loans based on historical loss experience, and environmental factors, all of which may be susceptible to significant change. The Company establishes a specific allowance for all commercial loans in excess of the total related credit threshold of $100,000 and single borrower residential mortgage loans in excess of the total related credit threshold of $300,000 identified as being individually evaluated which are on nonaccrual and have been risk rated under the Company's risk rating system as substandard, doubtful, or loss. In addition, an accruing substandard loan could be identified as being individually evaluated.

The measurement of individually evaluated loans is measured by determining the present value of expected future cash flows or, for collateral-dependent loans, the fair value of the collateral adjusted for market conditions and selling expenses as compared to the loan carrying value. For all other loans and leases, the Company uses the general allocation methodology that establishes an allowance to estimate the lifetime incurred loss for each risk-rating category. The measurement of individually evaluated loans is generally based upon the present value of future cash flows discounted at the historical effective interest rate, except that all collateral-dependent loans are measured based on the fair value of the collateral, less costs to sell. At September 30, 2025, the Bank's position in individually evaluated loans consisted of 49 loans totaling $32.1

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million. Of these loans, 13 loans, totaling $847,000, were valued using the present value of future cash flows method; and 36 loans, totaling $31.2 million, were valued based on a collateral analysis. For all other loans, the Company uses the general allocation methodology that establishes an allowance to estimate the lifetime incurred loss for each risk-rating category.

In estimating the ACL on loans, management considers the sensitivity of the model and significant judgments and assumptions that could result in an amount that is materially different from management's estimate. At September 30, 2025, the Bank held $543.7 million in commercial real estate and commercial & industrial loans (collectively, commercial loans) representing 60.5% of the Bank's entire loan portfolio. The Bank allocated $12.5 million to the ACL for these loans, including $1.6 million derived from the use of qualitative factors in the calculation. Given the concentration of ACL allocation to the total commercial loan portfolio and the significant judgments made by management in deriving the qualitative loss factors, management considers the impact that changes in judgments could have on the ACL. The ACL could increase (or decrease) by approximately $400,000, assuming a 25% negative (or positive) change within the group of qualitative factors used to determine the ACL for commercial loans. The sensitivity and related range of impacts for various judgments on the ACL is a hypothetical analysis and is used to determine management's judgments or assumptions of qualitative loss factors that were utilized at September 30, 2025 in the final recorded estimation of the ACL on loans recognized on the Statements of Financial Condition.

Deferred income tax assets and liabilities are determined using the liability method. Under this method, the net deferred tax asset or liability is recognized for the future tax consequences. This is attributable to the differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases as well as net operating and capital loss carry-forwards. Deferred tax assets and liabilities are measured using enacted tax rates applied to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income tax expense in the period that includes the enactment date. If current available evidence about the future raises doubt about the likelihood of a deferred tax asset being realized, a valuation allowance is established. The judgment about the level of future taxable income, including that which is considered capital, is inherently subjective and is reviewed on a continual basis as regulatory and business factors change.

The Company's effective tax rate typically differs from the 21% federal statutory tax rate due primarily to New York State income taxes, partially offset by tax-exempt income from specific types of investment securities and loans, bank owned life insurance, and to a much lesser degree, the utilization of low income housing tax credits. In addition, the tax effects of certain incentive stock option activity may reduce the Company's effective tax rate on a sporadic basis.

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

When the fair value of a security categorized as available-for-sale ("AFS") or held-to-maturity ("HTM") is less than its amortized cost basis, an assessment is made as to whether or not credit loss is present. Management makes a quantitative determination of potential credit loss for all HTM securities even if the risk of credit loss is considered remote and uses a best estimate threshold for securities categorized as AFS. The Company considers numerous factors when determining whether a potential credit loss exists. The principal factors considered are (1) the financial condition of the issue and (guarantor, if any) and adverse conditions specifically related to the security, industry or geographic area, (2) failure of the issuer of the security to make scheduled interest or principal payments, (3) any changes to the rating of the security by a nationally recognized statistical rating organization ("NRSRO"), and (4) the presence of contractual credit enhancements, if any, including the guarantee of the federal government or any of its agencies.

The Company carries all of its AFS investments at fair value with any unrealized gains or losses reported, net of tax, as an adjustment to shareholders' equity and included in accumulated other comprehensive income (loss), except for the credit-related portion of debt securities' credit losses securities which are charged to earnings. The Company's ability to fully realize the value of its investments in various securities, including corporate debt securities, is dependent on the underlying

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creditworthiness of the issuing organization. In evaluating the debt securities portfolio, for both AFS and HTM securities for credit losses, management considers (1) if we intend to sell the security; (2) if it is "more likely than not" we will be required to sell the security before recovery of its amortized cost basis; or (3) if the present value of expected cash flows is insufficient to recover the entire amortized cost basis.

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

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

Management performs an annual evaluation of our goodwill for possible impairment at each of our reporting units. Management has determined that the carrying value of goodwill was not impaired as of September 30, 2025. Management will continuously evaluate all relevant economic and operational factors potentially affecting the Bank or the fair value of its assets, including goodwill. Should future economic consequences require a significant and sustained change in the operations of the Bank, re-evaluations of the Bank's goodwill valuation will be conducted on a more frequent basis.

Recent Events

On September 29, 2025, the Company announced that its Board of Directors declared a cash dividend of $0.10 per share on the Company's voting common and non-voting common stock, and a cash dividend of $0.10 per notional share for the issued warrant relating to the fiscal quarter ended September 30, 2025. The dividends were payable to all shareholders of record on October 17, 2025 and were paid on November 7, 2025.

In July 2025, the Company completed the sale of nonperforming and classified loans associated with a local commercial relationship dating back to 2013. The loans, which had an original principal balance of $9.3 million and a June 30, 2025 principal balance of $6.3 million, were reclassified to held-for-sale status in June 2025 and subsequently sold to a financial buyer in July 2025 for $3.2 million. The related fair value impact was reflected in the second quarter of 2025 as a $3.1 million lower of cost or market ("LOCOM") fair value adjustment to loans held-for-sale.

Summary of 2025 Third Quarter Results

The Company recorded net income of $626,000 for the three months ended September 30, 2025, compared to a net loss of $4.6 million for the three months ended September 30, 2024. Third quarter 2025 results included a $3.5 million provision for credit losses due to $670,000 of net charge offs during the period. Third quarter 2024 results included a $9.0 million provision for credit losses due to $8.7 million of net charge offs resulting from a comprehensive loan portfolio review and $1.6 million in one-time transaction-related expenses for the July 2024 East Syracuse branch acquisition.

Net interest income before the provision for credit losses decreased $132,000, or 1.1%, to $11.6 million for the three months ended September 30, 2025, as compared to the same three month period in 2024. This decrease was predominately the result of a decrease in interest and dividend income of $1.5 million, partially offset by a decrease in interest expense of $1.3 million.

Interest and dividend income declined $1.5 million to $19.7 million for the third quarter of 2025, primarily driven by a decline of $626,000 in interest income on loans as a result of a decrease of 22 basis points in the average yield on loans and

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lower average balances for loans. In addition, interest and dividend income included benefits of $200,000 in the third quarter of 2025 from loan prepayment penalty income and $887,000 in the third quarter of 2024 from a catch-up interest payment associated with purchased loan pool positions. Interest income on total investment securities decreased $476,000 as a result of the lower average yield in portfolio assets. Interest income on Fed funds sold and interest-earning deposits declined $361,000 due to decreases in both average balances and average yields as a result of the decrease in the federal funds rate.

The decrease in interest expense of $1.3 million to $8.1 million for the third quarter of 2025, compared to the prior year quarter, was primarily attributed to average cost decreases of 40 basis points for interest-bearing deposits, 18 basis points for subordinated debt, and 61 basis points for borrowings coupled with average balance decreases for time deposits and borrowings. The corresponding decreases in interest-bearing deposits and borrowings expense for the current quarter as compared to the year-ago period were $676,000 and $645,000 respectively. These reductions reflect continued changes in the Bank's funding mix, including growing core deposits, as well as deliberate deposit pricing adjustments and significant reductions in borrowings.

Net interest margin was 3.34%, including 7 basis points attributed to prepayment penalty income in the third quarter of 2025, and 3.34% including 25 basis points from the catch-up interest payment in the third quarter of 2024. Excluding prepayment penalty and catch-up interest payment income, net interest margin reflected lower average deposit and borrowing costs that more than offset lower average yields on interest earning assets in the third quarter of 2025, compared to the same period one year ago.

The provision for credit losses was $3.5 million in the third quarter of 2025 compared to $9.0 million in the third quarter of 2024. The provision for credit losses for the third quarter of 2025 was due to an increase in credit loss reserves primarily associated with two local commercial relationships that moved to nonperforming status, in addition to $670,000 of net charge offs during the period. Net charge offs during the recent quarter represent 0.30% of average loans on an annualized basis, compared to $8.7 million in charge offs, or 3.82% of average loans on an annualized basis in the third quarter of 2024. See the "Provision for Credit Losses" and "Loan and Asset Quality and Allowance for Credit Losses" sections of this Management's Discussion and Analysis for further discussion.

Noninterest income totaled $1.5 million in the third quarter of 2025, compared to $1.7 million during the same period in 2024. Third quarter 2024 noninterest income included $367,000 in insurance revenue from the insurance agency business sold in October 2024.

Compared to the third quarter of 2024, noninterest income decreased by $204,000 in the third quarter of 2025. The decline reflects the impact of new BOLI policy purchases made during the current year and differences in net death benefits recorded in the third quarter of 2025 and the year-ago period of $32,000 and $175,000, respectively. In addition, third quarter 2025 noninterest income, compared to the year-ago period, included a $12,000 increase in service charges on deposit accounts and a decrease of $83,000 in debit card interchange fees. Compared to the year-ago period, third quarter 2025 noninterest income also reflected increases of $83,000 in net unrealized gains on marketable equity securities, $34,000 in loan servicing fees, and $31,000 in gains on sales of loans and foreclosed real estate, as well as a decrease of $176,000 in net realized losses on sales and redemptions of investment securities.

Noninterest expense totaled $8.9 million in the third quarter of 2025, decreasing from $10.3 million in the year-ago period. The decrease from the third quarter of 2024 was primarily due to $1.6 million in one-time transaction-related expenses for last year's East Syracuse branch acquisition, in addition to $308,000 in costs associated with the insurance agency business sold in October 2024.

Salaries and benefits were $5.0 million in the third quarter of 2025, increasing $46,000 from the third quarter of 2024. The increase from the year-ago period was primarily due to an increase in medical claims expected to be reimbursed by stop loss insurance.

Building and occupancy was $1.4 million in the third quarter of 2025, increasing $265,000 from the year-ago quarter. The increase from the third quarter of 2024 was primarily due to a $121,000 increase in building maintenance during the current quarter. Additionally, higher costs related to building and land leases, property taxes, and utilities of $54,000, $46,000, and $27,000, respectively, were primarily due to timing of ongoing facilities-related costs associated with operating the East Syracuse branch acquired in the third quarter of 2024.

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Data processing expense was $641,000 in the third quarter of 2025, decreasing $31,000 from the year-ago period. The decrease from the third quarter of 2024 was driven by decreases of $78,000 in data processing supplies and $24,000 in ATM processing costs. These decreases were partially offset by third quarter year-over-year increases in recurring data processing costs amounting to $71,000, primarily due to software upgrades completed as part of the Company's ongoing technology modernization initiatives.

For the third quarter of 2025, annualized noninterest expense represented 2.40% of average assets in the third quarter of 2025, compared to 2.75% in the year-ago period. The efficiency ratio was 68.78%, for the third quarter of 2025, compared to 75.78% in the year-ago period. For the nine months ended September 30, 2025, annualized noninterest expense represented 2.30% of average assets in the first nine months of 2025, compared to 2.39% in the year-ago period. The efficiency ratio was 67.24%, for the nine months ended September 30, 2025, compared to 73.01% in the year-ago period. The efficiency ratio, which is not a financial metric under GAAP, is a measure that the Company believes is helpful to understanding its level of non-interest expense as a percentage of total revenue.

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Results of Operations

Net Interest Income

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

The following tables set forth information concerning average interest-earning assets and interest-bearing liabilities and the average yields and rates thereon for the periods indicated. Interest income and resultant yield information in the tables have 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. Nonaccrual loans have been included in interest-earning assets for purposes of these calculations.

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Third quarter 2025 net interest income was $11.6 million, a decrease of 1.1% from the third quarter of 2024. This decrease was the result of a $1.5 million, or 6.9% decrease in interest and dividend income, partially offset by a decrease of $1.3 million, or 14.1%, in total interest expense.

The decrease in interest and dividend income of $1.5 million for the third quarter of 2025, compared to the prior year quarter, was the result of a decrease of $626,000 in interest income for loans, driven by lower average balances of loans and a decrease of 22 basis points for loans. In addition, interest and dividend income included benefits of $200,000 in the third quarter of 2025 from loan prepayment penalty income and $887,000 in third quarter of 2024 from a catch-up interest payment associated with purchased loan pool positions. The decrease in interest and dividend income was also driven by a decrease of $476,000 in total investments securities, as a result of the decline in average yield of such assets, and decreases of $361,000 in fed funds sold and interest-earning deposits, driven by lower average balances and lower average yields due to the decline in the fed funds rate.

The decrease in interest expense of $1.3 million for the third quarter of 2025, compared to the prior year quarter, was primarily attributed to average cost decreases of 40 basis points for interest-bearing deposits, 18 basis points for subordinated debt, and 61 basis points for borrowings coupled with average balance decreases for time deposits and borrowings. The corresponding decreases in interest-bearing deposits and borrowings expense for the current quarter as compared to the year-ago period were $676,000 and $645,000 respectively. These reductions reflect continued changes in the Bank's funding mix, including growing core deposits, as well as deliberate deposit pricing adjustments and significant reductions in borrowings.

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Net interest margin was 3.34%, including 7 basis points attributed to prepayment penalty income in the third quarter of 2025, and 3.34%, including 25 basis points from the catch-up interest payment in the third quarter of 2024. Excluding prepayment penalty and catch-up interest payment income, net interest margin reflected lower average deposit and borrowing costs that more than offset lower average yields on interest earning assets in the third quarter of 2025, compared to the same period one year ago.

For the nine months ended September 30, 2025, net interest income increased $3.2 million, or 10.5%, to $33.8 million compared to the same nine month period in 2024. The change from the prior nine month period was due to a decrease in interest expense of $3.7 million, partially offset by a decrease in interest and dividend income of $472,000.

The decrease in interest expense of $3.7 million for the nine months ended September 30, 2025, compared to the same nine month prior year period, was primarily attributed to average cost decreases of 36 basis points for interest-bearing deposits, 18 basis points for subordinated debt, and 55 basis points for borrowings coupled with average balance decreases for time deposits and borrowings. The corresponding decreases in interest-bearing deposits and borrowings expense for the current period as compared to the year-ago period were $1.5 million and $2.2 million respectively. These reductions reflect continued changes in the Bank's funding mix, including growing core deposits, as well as deliberate deposit pricing adjustments and significant reductions in borrowings.

The decrease in interest and dividend income of $472,000 for the first nine months of 2025, compared to the prior year period, was primarily due to decreases in income from taxable investment securities, tax-exempt investment securities, and fed funds sold and interest-earning deposits of $1.3 million, $153,000, and $423,000, respectively, primarily as a result of the decrease in the average yield of such assets. These decreases were partially offset by a 12 basis points increase in the average yield on loans and a $13.1 million increase in the average balance of loans, resulting in a $1.4 million increase in interest income on loans. In addition, interest and dividend income included benefits of $607,000 in the first nine months of 2025 from 2024 interest recovered from loans removed from nonaccrual status and loan and investment prepayment penalty income and $887,000 in the first nine months of 2024 from the third quarter catch-up interest payment associated with purchased loan pool positions.

Net interest margin was 3.25%, including 6 basis points attributed to interest recovery and prepayment penalty income for the first nine months of 2025, and 2.97%, including 9 basis points from the catch-up interest payment for the same period of 2024. The increase reflected lower average deposit and borrowing costs and higher average loan yields in the nine months ended September 30, 2025 as compared to the same prior year period.

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Rate/Volume Analysis

Net interest income can also be analyzed in terms of the impact of changing interest rates on interest-earning assets and interest-bearing liabilities and changes in the volume or amount of these assets and liabilities. The following table represents the extent to which changes in interest rates and changes in the volume of interest-earning assets and interest-bearing liabilities have affected the Company's interest income and interest expense during the periods indicated. Information is provided in each category with respect to: (i) changes attributable to changes in volume (change in volume 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.

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Deposits

The Company's deposit base is drawn from eleven full-service branches and one motor bank in its market area. The deposit base consists of demand deposits, money management and money market deposit accounts, savings, and time deposits. Total deposits increased by $20.6 million, or 1.7% from December 31, 2024. The increase in deposits during the nine months ended September 30, 2025, reflected the Bank's increased market penetration among both non-business and business customers.

At September 30, 2025, 78.4% of the Company's deposit base of $1.23 billion consisted of core deposits. Core deposits, which exclude brokered deposits and certificates of deposit of $250,000 or more, are considered to be more stable and generally provide the Company with a lower cost of funds than time deposits of $250,000 or more. The Company will continue to emphasize retail and business core deposits in the future by providing depositors with a full range of deposit product offerings and will maintain its recent focus on deposit gathering within the Syracuse market.

A summary of deposits by category at September 30, 2025 and December 31, 2024 is as follows:

In addition to deposits obtained from its business operations within its target market areas, the Bank also obtains brokered deposits through various programs administered by IntraFi Network and through other unaffiliated third-party financial institutions.

The following table sets forth our nonbrokered and brokered deposit activities at the dates indicated:

Provision for Credit Losses

We establish a provision for credit losses, which is charged to operations, at a level management believes is appropriate to absorb lifetime credit losses in the loan portfolio. In evaluating the level of the allowance for credit losses, management considers historical loss experience, the types of loans and the amount of loans in the loan portfolio, adverse situations that may affect the borrower's ability to repay, estimated value of any underlying collateral, and prevailing economic conditions. This evaluation is inherently subjective as it requires estimates that are susceptible to significant revision as more information becomes available or as future events change. The provision for credit losses represents management's estimate of the amount necessary to maintain the allowance for credit losses at an adequate level.

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The Company recorded $3.5 million in provision for credit losses for the three month period ended September 30, 2025, as compared to $9.0 million for the three month period ended September 30, 2024. The provisioning in the third quarter of 2025 and 2024 reflects management's determination of the appropriate level of additions to reserves, the composition of the loan portfolio, changes in quantifiable econometric data statistically correlated to historical charge-off rates, subjective qualitative assessments of changes in a broad array of factors including changes to underwriting criteria, loan staffing and local market conditions, and changes in the levels of delinquent and nonaccrual loans. This represents a $5.5 million decrease in provision for credit losses in the third quarter of 2025, as compared to the same period in 2024. This decrease can be primarily attributed to lower net charge offs of $670,000 in the quarter, compared to $8.7 million from a year ago period. The Bank's credit sensitive portfolios continue to be carefully monitored, and the Bank will consistently apply its loan classification and reserve building methodologies to the analysis of these portfolios. In addition, the Company continued to undertake proactive measures in the third quarter of 2025 to mitigate credit risk and enhance asset quality metrics for the long term, including the initiation of a comprehensive loan portfolio review in September 2025, encompassing performing and nonperforming loans of $500,000 or more, representing approximately 90% of all outstanding loans. This review is expected to be completed by the end of 2025. Please refer to the asset quality section below for a further discussion of asset quality as it relates to the allowance for credit losses.

For the nine months ended September 30, 2025 and 2024, the Company recorded a provision for credit losses of $5.1 million and $10.0 million, respectively. The lower provision for credit losses in the first nine months of 2025 as compared with the similar 2024 period reflects lower net charge offs of $3.6 million for the nine months ended September 30, 2025, compared to $8.8 million for the nine months ended September 30, 2024.

The Company measures delinquency based on the amount of past due loans (defined as loans equal to or greater than 30 days past due) as a percentage of total loans. The ratio of delinquent loans to total loans was 4.1% and 3.8% at September 30, 2025, and December 31, 2024, respectively. Delinquent loans (numerator) increased $1.8 million from December 31, 2024 to September 30, 2025. Total loan balances (denominator) decreased $20.7 million from December 31, 2024 to September 30, 2025. The increase in delinquent loans from December 31, 2024 to September 30, 2025 was driven by loans delinquent 30-59 days and loans delinquent 90 days and over, which increased by $761,000 and $1.2 million, respectively, partially offset by a decrease of $189,000 in loans delinquent 60-89 days.

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Noninterest Income

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

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

Noninterest income for the third quarter of 2025 totaled $1.5 million, a decrease of $204,000 or 12.0% from the third quarter of 2024. The decline primarily reflects no insurance agency revenue contributions for the current quarter as a result of the sale of the Bank's insurance agency business, which was sold in October 2024. In addition, the decline in noninterest income was driven by lower earnings and gains on BOLI and debit card interchange fees, partially offset by lower losses on sales and redemptions of investment securities. The change in earnings and gains on BOLI between the third quarter of 2025 and the year-ago period reflects the impact of new BOLI policy purchases made during the current year and differences in net death benefits recorded during the two periods of $32,000 and $175,000, respectively.

For the nine months ended September 30, 2025, the Company reported $1.2 million in noninterest income, decreasing $3.5 million from $4.7 million in the same period of 2024. The year-over-year decrease reflects a $1.0 million decline in insurance agency revenue that is associated with the sale of the Bank's insurance agency business in October 2024 and lower noninterest income of $3.1 million due to the aforementioned LOCOM HFS adjustment associated with the loan sale in July 2025. These decreases in noninterest income for the nine months ended September 30, 2025 were partially offset by increases of $752,000 in net unrealized gains on marketable equity securities.

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Noninterest Expense

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

Noninterest expense totaled $8.9 million in the third quarter of 2025, a decrease of $1.3 million or 12.9% from the year-ago quarter. The decrease was primarily due to $1.6 million in one-time transaction-related expenses from the prior year East Syracuse branch acquisition, in addition to $308,000 in costs associated with the insurance agency business sold in October 2024.

Salaries and benefits were $5.0 million in the third quarter of 2025, an increase of $46,000 from the year-ago quarter, primarily due to increased medical claims which are expected to be reimbursed by stop loss insurance. Building and occupancy was $1.4 million for the quarter ended September 30, 2025, compared to $1.1 million for the quarter ended September 30, 2024. The increase was driven by periodic building and maintenance expenses totaling $121,000 during the third quarter of 2025, in addition to increased costs related to building and land leases, property taxes, and utilities of $54,000, $46,000, and $27,000, respectively. These increases from the year-ago period were primarily due to timing of ongoing facilities-related costs and costs associated with operating the East Syracuse branch acquired in the third quarter of 2024. Data processing expense was $641,000 in the third quarter of 2025, decreasing $31,000 from $672,000 in the third quarter of 2024. The decrease from the year-ago period was due to lower costs associated with check and ATM processing charges.

For the nine months ended September 30, 2025, noninterest expense decreased $443,000 to $25.4 million from $25.9 million for the same period in 2024. The drivers of the year-to-date decrease included $985,000 in one-time costs related to the East Syracuse branch acquisition and $825,000 of lower insurance agency expenses due to the sale of the Bank's insurance agency business in October 2024, partially offset by $1.1 million in higher building and occupancy expenses due to periodic building and branch maintenance and costs associated with operating the East Syracuse branch. Salaries and benefits increased to $13.9 million for the nine months ended September 30, 2025, increasing $293,000 from the year ago period. The increase was driven by increased medical claims expected to be reimbursed by stop loss insurance.

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Income Tax Expense

Income tax expense increased $1.2 million to $46,000, with an effective tax rate of 6.8%, for the quarter ended September 30, 2025, as compared to an income tax benefit of $1.2 million with an effective tax rate of 20.3% for the same three month period in 2024. The increase in income tax expense for the quarter ended September 30, 2025, as compared to the same quarter in 2024, was primarily driven by an increase of $6.5 million in income before taxes. The effective income tax rate decreased 13.5% to 6.8% for the three months ended September 30, 2025 as compared to 20.3% for the same three month period in 2024. The decrease in the tax rate in the third quarter of 2025, as compared to the same quarter in 2024, was primarily related to a decrease in income and fluctuations in permanent tax differences.

Income tax expense increased $957,000 to $797,000, with an effective tax rate of 18.0%, for the nine months ended September 30, 2025, as compared to an income tax benefit of $160,000 with an effective tax rate of 27.1%, for the same nine month period in 2024. The increase in income tax expense for the nine months ended September 30, 2025, as compared to the same nine month period in 2024, was primarily driven by a $5.0 million increase in income before taxes and fluctuations in permanent tax differences. The effective income tax rate decreased 9.1% to 18.0% for the nine months ended September 30, 2025 as compared to 27.1% for the same nine month period in 2024. The increase in the tax rate in the nine months ended September 30, 2025, as compared to the same period in 2024, was primarily related to an income in income and fluctuations in permanent tax differences.

The Company's tax liability is a function of the 21% statutory federal tax rate, the level of pretax income, the varying effects of New York State income taxes, and is partially reduced by tax-exempt income from specific types of investment securities and loans, bank owned life insurance, and, to a much lesser degree, the utilization of historic and low income housing tax credits. In addition, the tax effects of certain incentive stock option activity may reduce the Company's effective tax rate on a sporadic basis.

Earnings per Share

Basic and diluted earnings per Voting and Series A Non-Voting share were $0.10 per share for the third quarter of 2025, as compared to $(0.75) for the same prior year period. The increase in earnings per share between the third quarter of 2025 and 2024 was due to the increase of net income between the two periods. Third quarter 2024 results included a $9.0 million provision for credit losses due to $8.7 million of net charge offs resulting from a comprehensive loan portfolio review and $1.6 million in one-time transaction-related expenses for the previously announced July 2024 East Syracuse branch acquisition.

Basic and diluted earnings per share were $0.58 and $0.57, respectively, for both Voting and Series A Non-Voting shares for the nine month period ended September 30, 2025. Basic and diluted earnings per Voting and Series A Non-Voting share were $(0.09) per share for the nine month period ended September 30, 2024. The increase in earnings per share between the first nine months of 2025 and 2024 was due to the increase in net income between these two time periods. The results for the nine months ended September 30, 2024 included the effects from the aforementioned net charge offs and the East Syracuse one-time branch acquisition transaction-related expenses.

Further information on earnings per share can be found in Note 3 of the unaudited consolidated financial statements of this Form 10-Q.

Changes in Financial Condition

Assets

Total assets decreased $2.6 million, or 0.2%, to $1.47 billion at September 30, 2025 as compared to December 31, 2024. This decrease was due primarily to decreases in residential and consumer loans, partially offset by increases in investment securities, bank owned life insurance, commercial loans, and total cash and cash equivalents.

Loans, net of deferred fees, totaled $898.5 million on September 30, 2025, resulting in a decrease of $20.5 million or 2.2% from December 31, 2024. Consumer and residential loans totaled $356.2 million on September 30, 2025, decreasing $24.7

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million or 6.5% from December 31, 2024. Commercial loans totaled $543.7 million on September 30, 2025, increasing $4.0 million, or 0.7% from December 31, 2024.

Total investment securities, including investment in FHLB-NY stock, totaled $445.8 million at September 30, 2025, an increase of $9.2 million, or 2.1%, compared to $436.7 million at December 31, 2024. This increase was due to an increase of $25.1 million in available-for-sale securities, and a $1.3 million increase in marketable equity securities. This increase was partially offset by a $16.1 million decrease in held-to-maturity securities due to calls and maturities, and a $1.1 million decrease in FHLB-NY stock.

Bank owned life insurance increased $6.4 million, or 26.0%, to $31.1 million at September 30, 2025 as compared to December 31, 2024. This increase was primarily due to a $6.0 million purchase of new life insurance policies during the second quarter of 2025.

Liabilities

Total liabilities decreased $7.5 million, or 0.6%, to $1.35 billion at September 30, 2025 as compared to December 31, 2024. This decrease was due primarily to decreases in total borrowings, offset partially by increases in total deposits.

Total borrowings decreased $31.4 million, or 35.6%, from $88.1 million at December 31, 2024 to $56.7 million at September 30, 2025. This decrease was due to a $23.0 million decrease in short-term borrowed funds from FHLB-NY, and an $8.4 million decrease in long-term borrowed funds from FHLB-NY.

Total deposits increased $20.6 million, or 1.7%, to $1.23 billion at September 30, 2025 as compared to December 31, 2024. The change in deposits from the prior period was due to an increase of $38.0 million in interest-bearing deposits, driven by changes in the deposit mix, including higher money market deposit accounts, partially offset by lower time deposit balances. The increase in interest-bearing deposits was also partially offset by a $17.4 million decrease in noninterest-bearing deposits.

Shareholders' Equity

Shareholders' equity increased by $4.8 million, or 4.0%, from $121.5 million at December 31, 2024, to $126.3 million at September 30, 2025. This increase was primarily due to the Company's recorded net income of $3.6 million, an increase in additional paid in capital of $1.2 million, and a decrease in accumulated other comprehensive loss of $1.9 million, partially reduced by declared dividends to shareholders of $1.9 million during the nine months ended September 30, 2025.

Capital

Capital adequacy is evaluated primarily by the use of ratios which measure capital against total assets, as well as against total assets that are weighted based on defined risk characteristics. The Company's goal is to maintain a strong capital position, consistent with the risk profile of its banking operations. This strong capital position serves to support growth and expansion activities while at the same time exceeding regulatory standards. At September 30, 2025, the Bank met the regulatory definition of a "well-capitalized" institution, i.e. a leverage capital ratio exceeding 5%, a Tier 1 risk-based capital ratio exceeding 8%, Tier 1 common equity exceeding 6.5%, and a total risk-based capital ratio exceeding 10%.

In addition to establishing the minimum regulatory capital requirements, the regulations limit capital distributions and certain discretionary bonus payments to management if the institution does not hold a "capital conservation buffer" consisting of 2.5% of common equity Tier 1 capital to risk-weighted assets above the amount necessary to meet its minimum risk-based capital requirements. The buffer is separate from the capital ratios required under the Prompt Corrective Actions ("PCA") standards. In order to avoid these restrictions, the capital conservation buffer effectively increases the minimum levels of the following capital to risk-weighted assets ratios: (1) Core Capital, (2) Total Capital and (3) Common Equity. At September 30, 2025, the Bank exceeded all regulatory required minimum capital ratios, including the capital buffer requirements.

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

Non-GAAP Financial Measures

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

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