PBHC 10-Q Quarter ended March 31, 2021

☒

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES

EXCHANGE ACT OF 1934

☐

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES

EXCHANGE ACT OF 1934

Maryland

(State of Other Jurisdiction of Incorporation)

001-36695

(Commission File No.)

38-3941859

(I.R.S. Employer Identification No.)

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common Stock, $0.01 par value

PBHC

The NASDAQ Stock Market LLC

YES ☒ NO ☐

YES ☒ NO ☐

Large accelerated filer ☐

Accelerated filer ☐

Non-accelerated filer ☒

Smaller reporting company ☒

Emerging growth company ☐

PART I - FINANCIAL INFORMATION

PAGE NO.

Item 1.

Consolidated Financial Statements (Unaudited)

3

Consolidated Statements of Condition

3

Consolidated Statements of Income

4

Consolidated Statements of Comprehensive Income

5

Consolidated Statements of Changes in Shareholders' Equity

6

Consolidated Statements of Cash Flows

7

Notes to Consolidated Financial Statements

9

Item 2.

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

53

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

73

Item 4.

Controls and Procedures

73

PART II - OTHER INFORMATION

Item 1.

Legal Proceedings

75

Item 1A.

Risk Factors

75

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

75

Item 3.

Defaults upon Senior Securities

75

Item 4.

Mine Safety Disclosures

75

Item 5.

Other information

75

Item 6.

Exhibits

75

SIGNATURES

76

March 31,

December 31,

(In thousands, except share and per share data)

2021

2020

ASSETS:

Cash and due from banks (including restricted balances of $1,600 and $1,600, respectively)

$

10,940

$

14,906

Interest-earning deposits (including restricted balances of $0 and $0, respectively)

41,028

28,558

Total cash and cash equivalents

51,968

43,464

Available-for-sale securities, at fair value

159,080

128,261

Held-to-maturity securities, at amortized cost (fair value of $168,666 and $174,935, respectively)

165,613

171,224

Marketable equity securities, at fair value

2,084

1,850

Federal Home Loan Bank stock, at cost

4,591

4,390

Loans

864,870

823,969

Loans held-for-sale

437

1,526

Less: Allowance for loan losses

13,693

12,777

Loans receivable, net

851,614

812,718

Premises and equipment, net

22,192

22,264

Operating lease right-of-use assets

2,206

2,240

Accrued interest receivable

4,718

4,549

Intangible assets, net

129

133

Goodwill

4,536

4,536

Bank owned life insurance

22,989

17,864

Other assets

15,436

13,950

Total assets

$

1,307,156

$

1,227,443

LIABILITIES AND SHAREHOLDERS' EQUITY:

Deposits:

Interest-bearing

$

871,405

$

833,850

Noninterest-bearing

197,503

162,057

Total deposits

1,068,908

995,907

Short-term borrowings

4,020

4,020

Long-term borrowings

82,480

78,030

Subordinated loans

39,443

39,400

Accrued interest payable

192

193

Operating lease liabilities

2,495

2,525

Other liabilities

9,375

9,646

Total liabilities

1,206,913

1,129,721

Shareholders' equity:

Preferred stock, par value $0.01 per share; no liquidation preference; 10,000,000 shares

authorized; 1,380,283 shares issued and outstanding

14

14

Common stock, par value $0.01; 25,000,000 authorized shares;  4,540,520 and 4,531,383 shares

issued and outstanding, respectively

45

45

Additional paid in capital

50,258

50,024

Retained earnings

52,020

50,284

Accumulated other comprehensive loss

(1,768

)

(2,236

)

Unearned ESOP

(630

)

(675

)

Total Pathfinder Bancorp, Inc. shareholders' equity

99,939

97,456

Noncontrolling interest

304

266

Total equity

100,243

97,722

Total liabilities and shareholders' equity

$

1,307,156

$

1,227,443

For the three months ended

(In thousands, except per share data)

March 31, 2021

March 31, 2020

Interest and dividend income:

Loans, including fees

$

8,847

$

9,242

Debt securities:

Taxable

1,976

1,692

Tax-exempt

29

7

Dividends

87

70

Federal funds sold and interest earning deposits

3

32

Total interest and dividend income

10,942

11,043

Interest expense:

Interest on deposits

1,527

2,556

Interest on short-term borrowings

3

57

Interest on long-term borrowings

295

445

Interest on subordinated loans

557

206

Total interest expense

2,382

3,264

Net interest income

8,560

7,779

Provision for loan losses

1,028

1,067

Net interest income after provision for loan losses

7,532

6,712

Noninterest income:

Service charges on deposit accounts

331

356

Earnings and gain on bank owned life insurance

125

116

Loan servicing fees

90

49

Net gains on sales and redemptions of investment securities

-

26

Gains (losses) on marketable equity securities

234

(194

)

Net gains on sales of loans and foreclosed real estate

120

672

Gains on sale of premises and equipment

201

-

Debit card interchange fees

221

163

Insurance agency revenue

280

337

Other charges, commissions & fees

243

223

Total noninterest income

1,845

1,748

Noninterest expense:

Salaries and employee benefits

3,341

3,247

Building and occupancy

793

754

Data processing

676

600

Professional and other services

417

316

Advertising

246

176

FDIC assessments

198

189

Audits and exams

202

125

Insurance agency expense

206

192

Community service activities

88

107

Foreclosed real estate expenses

6

30

Other expenses

463

509

Total noninterest expense

6,636

6,245

Income before income taxes

2,741

2,215

Provision for income taxes

549

455

Net income attributable to noncontrolling interest and

Pathfinder Bancorp, Inc.

2,192

1,760

Net income attributable to noncontrolling interest

38

70

Net income attributable to Pathfinder Bancorp Inc.

$

2,154

$

1,690

Convertible preferred stock dividends

97

69

Warrant dividends

9

8

Undistributed earnings allocated to participating securities

439

290

Net income available to common shareholders

$

1,609

$

1,323

Earnings per common share - basic

$

0.36

$

0.29

Earnings per common share - diluted

$

0.36

$

0.29

Dividends per common share

$

0.07

$

0.06

For the three months ended

(In thousands)

March 31, 2021

March 31, 2020

Net Income

$

2,192

$

1,760

Other Comprehensive Income (Loss)

Retirement Plans:

Retirement plan net losses recognized in plan expenses

26

58

Unrealized holding gains (losses) on available-for-sale securities:

Unrealized holding gains (losses) arising during the period

366

(3,633

)

Reclassification adjustment for net gains included in net

income

-

(26

)

Net unrealized gains (losses) on available-for-sale securities

366

(3,659

)

Derivatives and hedging activities:

Unrealized holding gains (losses) arising during the period

234

(1,344

)

Net unrealized gains (losses) on derivatives and hedging activities

234

(1,344

)

Accretion of net unrealized loss on securities transferred to held-to-

maturity ^{( 1)}

7

8

Other comprehensive income (loss), before tax

633

(4,937

)

Tax effect

(165

)

1,037

Other comprehensive income (loss) , net of tax

468

(3,900

)

Comprehensive income (loss)

$

2,660

$

(2,140

)

Comprehensive income, attributable to noncontrolling interest

$

38

$

70

Comprehensive income (loss) attributable to Pathfinder Bancorp, Inc.

$

2,622

$

(2,210

)

Tax Effect Allocated to Each Component of Other Comprehensive

Income (Loss)

Retirement plan net losses recognized in plan expenses

$

(7

)

$

(12

)

Unrealized holding (losses) gains on available-for-sale securities

arising during the period

(95

)

764

Reclassification adjustment for net gains included in net

income

-

5

Unrealized gains (losses) on derivatives and hedging arising during

the period

(61

)

282

Accretion of net unrealized loss on securities transferred to held-to-

maturity ^{( 1)}

(2

)

(2

)

Income tax effect related to other comprehensive income (loss)

$

(165

)

$

1,037

(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.

Accumulated

Additional

Other Com-

Non-

Preferred

Common

Paid in

Retained

prehensive

Unearned

controlling

(In thousands, except share and per share data)

Stock

Stock

Capital

Earnings

Loss

ESOP

Interest

Total

Balance, January 1, 2021

$

14

$

45

$

50,024

$

50,284

$

(2,236

)

$

(675

)

$

266

$

97,722

Net income

-

-

-

2,154

-

-

38

2,192

Other comprehensive income, net of tax

-

-

-

-

468

-

-

468

ESOP shares earned (6,111 shares)

-

-

37

-

-

45

-

82

Stock based compensation

-

-

93

-

-

-

-

93

Stock options exercised

-

-

104

-

-

-

-

104

Common stock dividends declared ($0.07 per share)

-

-

-

(312

)

-

-

-

(312

)

Preferred stock dividends declared ($0.07 per share)

-

-

-

(97

)

-

-

-

(97

)

Warrant dividends declared ($0.07 per share)

-

-

-

(9

)

-

-

-

(9

)

Balance, March 31, 2021

$

14

$

45

$

50,258

$

52,020

$

(1,768

)

$

(630

)

$

304

$

100,243

Balance, January 1, 2020

$

12

$

47

$

49,362

$

44,839

$

(2,971

)

$

(855

)

$

235

$

90,669

Net income

-

-

-

1,690

-

-

70

1,760

Reevaluation of deferred tax asset valuation allowance ⁽¹⁾

-

-

-

-

(206

)

-

-

(206

)

Other comprehensive loss, net of tax

-

-

-

-

(3,900

)

-

-

(3,900

)

ESOP shares earned (6,111 shares)

-

-

37

-

-

46

-

83

Stock based compensation

-

-

66

-

-

-

-

66

Stock options exercised

-

-

194

-

-

-

-

194

Common stock dividends declared ($0.06 per share)

-

-

-

(278

)

-

-

-

(278

)

Preferred stock dividends declared ($0.06 per share)

-

-

(69

)

-

-

-

(69

)

Warrant dividends declared ($0.06 per share)

-

-

-

(8

)

-

-

-

(8

)

Balance, March 31, 2020

$

12

$

47

$

49,659

$

46,174

$

(7,077

)

$

(809

)

$

305

$

88,311

⁽¹⁾

In the first quarter of 2020, consistent with policy, management reviewed all facts and circumstances related to its deferred taxes and determined that based on the expected filings of future New York State tax returns, the valuation allowance created in 2019 was no longer needed.   Therefore management elected to eliminate its New York State net deferred tax asset valuation allowance during the quarter ended March 31, 2020.

For the three months ended March 31,

(In thousands)

2021

2020

OPERATING ACTIVITIES

Net income attributable to Pathfinder Bancorp, Inc.

$

2,154

$

1,690

Adjustments to reconcile net income to net cash flows from operating activities:

Provision for loan losses

1,028

1,067

Amortization of operating leases

4

5

Proceeds from sales of loans

2,840

36,614

Originations of loans held-for-sale

(1,631

)

(150

)

Realized losses (gains) on sales, redemptions and calls of:

Real estate acquired through foreclosure

-

7

Loans

(120

)

(679

)

Held-to-maturity investment securities

-

(26

)

Premises and equipment

(201

)

-

Marketable equity securities

(234

)

194

Depreciation

453

414

Amortization of mortgage servicing rights

(7

)

(279

)

Amortization of deferred loan costs

328

75

Amortization of deferred financing from subordinated debt

43

8

Earnings on bank owned life insurance

(125

)

(116

)

Net amortization of premiums and discounts on investment securities

430

268

Amortization of intangible assets

4

4

Stock based compensation and ESOP expense

175

149

Net change in accrued interest receivable

(169

)

12

Net change in other assets and liabilities

(1,699

)

(1,262

)

Net cash flows from operating activities

3,273

37,995

INVESTING ACTIVITIES

Purchase of investment securities available-for-sale

(52,064

)

(38,422

)

Purchase of investment securities held-to-maturity

(9,131

)

(7,492

)

Purchase of Federal Home Loan Bank stock

(903

)

(1,121

)

Proceeds from redemption of Federal Home Loan Bank stock

702

1,197

Proceeds from maturities and principal reductions of investment securities

available-for-sale

19,671

24,244

Proceeds from maturities and principal reductions of investment securities

held-to-maturity

13,605

8,824

Proceeds from sales, redemptions and calls of:

Available-for-sale investment securities

500

-

Held-to-maturity investment securities

1,051

1,068

Real estate acquired through foreclosure

-

81

Purchase of bank owned life insurance

(5,000

)

-

Net change in loans

(40,252

)

(5,119

)

Purchase of premises and equipment

(411

)

(19

)

Proceeds from sale of premises and equipment

231

-

Net cash flows from investing activities

(72,001

)

(16,759

)

FINANCING ACTIVITIES

Net change in demand deposits, NOW accounts, savings accounts, money management

deposit accounts, MMDA accounts and escrow deposits

73,422

35,546

Net change in time deposits

5,414

2,137

Net change in brokered deposits

(5,835

)

(19,716

)

Net change in short-term borrowings

-

(17,000

)

Proceeds from long-term borrowings

4,450

15,312

Proceeds from exercise of stock options

104

194

Cash dividends paid to common shareholders

(271

)

(283

)

Cash dividends paid to preferred shareholders

(83

)

(69

)

Cash dividends paid on warrants

(8

)

(8

)

Change in noncontrolling interest, net

38

70

Net cash flows from financing activities

77,232

16,183

Change in cash and cash equivalents

8,504

37,419

Cash and cash equivalents at beginning of period

43,464

20,160

Cash and cash equivalents at end of period

$

51,968

$

57,579

CASH PAID DURING THE PERIOD FOR:

Interest

$

2,383

$

3,253

Income taxes

5

200

NON-CASH INVESTING ACTIVITY

Real estate acquired in exchange for loans

-

58

RESTRICTED CASH

Collateral deposits for hedge position included in cash and due from banks

1,600

1,300

Standards Adopted as of March 31, 2021

Standard

Description

Required Date

of Implementation

Effect on Consolidated Financial Statements

Compensation (ASU 2018-14: Compensation - Retirement Benefits - Defined Benefit Plans - General [Subtopic 715 – 20]: Disclosure Framework - Changes to the Disclosure Requirements for Defined Benefit Plans)

The FASB is issuing the amendments in this ASU as part of the disclosure framework project. The amendments in this ASU modify the disclosure requirements for employers that sponsor defined benefit pension or other postretirement plans.

The following disclosure requirements are removed from Subtopic 715-20:

1. The amounts in accumulated other comprehensive income expected to be recognized as components of net periodic benefit cost over the next fiscal year.

2. The amount and timing of plan assets expected to be returned to the employer.

3. Related party disclosures about the amount of future annual benefits covered by insurance and annuity contracts and significant transactions between the employer or related parties and the plan.

4. The effects of a one-percentage-point change in assumed health care cost trend rates on the (a) aggregate of the service and interest cost components of net periodic benefit costs and (b) benefit obligation for postretirement health care benefits.

The following disclosure requirements are added to Subtopic 715-20:

1. The weighted-average interest crediting rates for cash balance plans and other plans with promised interest crediting rates.

2. An explanation of the reasons for significant gains and losses related to changes in the benefit obligation for the period.

The amendments in this ASU also clarify the disclosure requirements in paragraph 715-20-50-3, which state that the following information for defined benefit pension plans should be disclosed:

1. The projected benefit obligation (PBO) and fair value of plan assets for plans with PBOs in excess of plan assets.

2. The accumulated benefit obligation (ABO) and fair value of plan assets for plans with ABOs in excess of plan assets.

The amendments in this ASU are effective for fiscal years ending after December 15, 2020, for public business entities and for fiscal years ending after December 15, 2021, for all other entities. Early adoption is permitted for all entities.

The adoption of this ASU had no material impact to the Company's consolidated statements of condition or income.

Standard

Description

Required Date

of Implementation

Effect on Consolidated Financial Statements

Investments (ASU 2020-01- Equity Securities [Topic 321], Investments—Equity Method and Joint Ventures [Topic 323], and Derivatives and Hedging [Topic 815]—Clarifying the Interactions between Topic 321, Topic 323, and Topic 815)

The amendments in this Update clarify the interaction of the accounting for equity securities under Topic 321 and investments accounted for under the equity method of accounting in Topic 323 and the accounting for certain forward contracts and purchased options accounted for under Topic 815.   The amendments clarify that an entity should consider observable transactions that require it to either apply or discontinue the equity method of accounting for the purposes of applying the measurement alternative in accordance with Topic 321 immediately before applying or upon discontinuing the equity method. The amendments clarify that for the purpose of applying paragraph 815-10-15-141(a) an entity should not consider whether, upon the settlement of the forward contract or exercise of the purchased option, individually or with existing investments, the underlying securities would be accounted for under the equity method in Topic 323 or the fair value option in accordance with the financial instruments guidance in Topic 825. An entity also would evaluate the remaining characteristics in paragraph 815-10-15-141 to determine the accounting for those forward contracts and purchased options.

The amendments in this ASU are effective for fiscal years ending after December 15, 2020, for public business entities and for fiscal years ending after December 15, 2021, for all other entities. Early adoption is permitted for all entities.

The adoption of this ASU had no material impact to the Company's consolidated statements of condition or income.

Standard

Description

Required Date

of Implementation

Effect on Consolidated Financial Statements

Income Taxes (ASU 2019-12- Simplifying the Accounting for Income Taxes)

The FASB Board is issuing this Update as part of its initiative to reduce complexity in accounting standards (the Simplification Initiative).

The amendments in this Update simplify the accounting for income taxes by removing the following exceptions, among others not considered to be applicable to the Company:

1. Exception to the incremental approach for intraperiod tax allocation when there is a loss from continuing operations and income or a gain from other items (for example, discontinued operations or other comprehensive income)

2. Exception to the general methodology for calculating income taxes in an interim period when a year-to-date loss exceeds the anticipated loss for the year.

The amendments in this Update also simplify the accounting for income taxes by doing the following:

1. Requiring that an entity recognize a franchise tax (or similar tax) that is partially based on income as an income-based tax and account for any incremental amount incurred as a non-income-based tax.

2.  Requiring that an entity evaluate when a step up in the tax basis of goodwill should be considered part of the business combination in which the book goodwill was originally recognized and when it should be considered a separate transaction.

3. Specifying that an entity is not required to allocate the consolidated amount of current and deferred tax expense to a legal entity that is not subject to tax in its separate financial statements. However, an entity may elect to do so (on an entity-by-entity basis) for a legal entity that is both not subject to tax and disregarded by the taxing authority.

4. Requiring that an entity reflect the effect of an enacted change in tax laws or rates in the annual effective tax rate computation in the interim period that includes the enactment date.

5. Making minor Codification improvements for income taxes related to employee stock ownership plans and investments in qualified affordable housing projects accounted for using the equity method.

The amendments in this ASU are effective for fiscal years ending after December 15, 2020, for public business entities and for fiscal years ending after December 15, 2021, for all other entities. Early adoption of the amendments is permitted, including adoption in any interim period for (1) public business entities for periods for which financial statements have not yet been issued and (2) all other entities for periods for which financial statements have not yet been made available for issuance. An entity that elects to early adopt the amendments in an interim period should reflect any adjustments as of the beginning of the annual period that includes that interim period. Additionally, an entity that elects early adoption must adopt all the amendments in the same period.

The adoption of this ASU had no material impact to the Company's consolidated statements of condition or income.

Standard

Description

Required Date

of Implementation

Effect on Consolidated Financial Statements

Reference Rate Reform (ASU 2020-04- Facilitation of the Effects of Reference Rate Reform on Financial Reporting)

The amendments provide optional expedients and exceptions for applying generally accepted accounting principles (GAAP) to contracts, hedging relationships, and other transactions affected by reference rate reform. The amendments apply only to contracts, hedging relationships, and other transactions that reference LIBOR or another reference rate expected to be discontinued because of reference rate reform. The amendments (1) apply to contract modifications that replace a reference rate affected by reference rate reform, (2) provide exceptions to existing guidance related to changes to the critical terms of a hedging relationship due to reference rate reform (3) provide optional expedients for fair value hedging relationships, cash flow hedging relationships, and net investment hedging relationships, and (4) provide a onetime election to sell, transfer, or both sell and transfer debt securities classified as held to maturity that reference a rate affected by reference rate reform and that are classified as held to maturity before January 1, 2020.

The amendments in this Update are effective for all entities as of March 12, 2020 through December 31, 2022.

The adoption of this ASU had no material impact to the Company's consolidated statements of condition or income.

Standards Not Yet Adopted as of March 31, 2021

Standard

Description

Required Date

of Implementation

Effect on Consolidated Financial Statements

Measurement of Credit Losses on Financial Instruments (ASU 2016-13: Financial Instruments—Credit Losses [Topic 326]: Measurement of Credit Losses on Financial Instruments)

The amended guidance replaces the current incurred loss model for determining the allowance for credit losses. The guidance requires financial assets measured at amortized cost to be presented at the net amount expected to be collected.  The allowance for credit losses will represent a valuation account that is deducted from the amortized cost basis of the financial assets to present their net carrying value at the amount expected to be collected. The income statement will reflect the measurement of credit losses for newly recognized financial assets as well as expected increases or decreases of expected credit losses that have taken place during the period. When determining the allowance, expected credit losses over the contractual term of the financial asset(s) (taking into account prepayments) will be estimated considering relevant information about past events, current conditions, and reasonable and supportable forecasts that affect the collectability of the reported amount.  The amended guidance also requires recording an allowance for credit losses for purchased financial assets with a more-than-insignificant amount of credit deterioration since origination.  The initial allowance for these assets will be added to the purchase price at acquisition rather than being reported as an expense.  Subsequent changes in the allowance will be recorded through the income statement as an expense adjustment.  In addition, the amended guidance requires credit losses relating to available-for-sale debt securities to be recorded through an allowance for credit losses. The calculation of credit losses for available-for-sale securities will be similar to how it is determined under existing guidance.

January 1, 2023 (early adoption permitted as of January 1, 2019)

The Company is assessing the new guidance to determine what modifications to existing credit estimation processes may be required. The new guidance is complex and management is still evaluating the preliminary output from models that have been developed during this evaluative phase. In addition, future levels of allowances will also reflect new requirements to include estimated credit losses on investment securities classified as held-to-maturity, if any.  The Company has formed an Implementation Committee, whose membership includes representatives of senior management, to develop plans that will encompass: (1) internal methodology changes (2) data collection and management activities, (3) internal communication requirements, and (4) estimation of the projected impact of this guidance.  It has been generally assumed that the conversion from the incurred loss model, required under current GAAP, to the current expected credit loss (CECL) methodology (as required upon implementation of this Update) will, more likely than not, result in increases to the allowances for credit losses at many financial institutions.  However, the amount of any change in the allowance for credit losses resulting from the new guidance will ultimately be impacted by the provisions of this guidance as well as by the loan and debt security portfolios composition and asset quality at the adoption date, and economic conditions and forecasts at the time of adoption. The amendments in this Update should be applied on a modified retrospective basis by means of a cumulative-effect adjustment to the opening retained earnings balance in the statement of financial position as of the date that an entity adopted the amendments in Update 2016-13.  The cumulative impact of the economic effects of the COVID-19 pandemic on the changes to the allowance for loan losses, that will be required upon the implementation of the CECL methodology, cannot be estimated at this time.

Standard

Description

Required Date

of Implementation

Effect on Consolidated Financial Statements

Transition Relief for the Implementation of ASU-2016-13 (ASU 2019-5: Financial Instruments—Credit Losses [Topic 326]: Targeted Transition Relief)

The amendments in this ASU provide entities that have certain instruments within the scope of Subtopic 326-20, Financial Instruments—Credit Losses—Measured at Amortized Cost , with an option to irrevocably elect the fair value option in Subtopic 825-10, Financial Instruments—Overall , applied on an instrument-by-instrument basis for eligible instruments, upon adoption of Topic 326.  The fair value option election does not apply to held-to-maturity debt securities. An entity that elects the fair value option should subsequently apply the guidance in Subtopics 820-10, Fair Value Measurement—Overall , and 825-10.  General guidance for the use of the fair value option is contained in Subtopic 825-10. The irrevocable election of the fair value option must be applied on an instrument-by-instrument basis for eligible instruments, whose characteristics are within the scope of Subtopic 326-20.  Upon adoption of Topic 326, for items measured at fair value in accordance with paragraph 326-10-65-1(i), the difference between the carrying amount and the fair value shall be recorded by means of a cumulative-effect adjustment to the opening retained earnings balance as of the beginning of the first reporting period that an entity has adopted ASU 2016-13. Those differences may include, but are not limited to: (1) unamortized deferred costs, fees, premiums, and discounts (2) valuation allowances (for example, allowance for loan losses), or (3) accrued interest.

See comments above related to ASU 2016-13.

See comments above related to ASU 2016-13.

Standard

Description

Required Date

of Implementation

Effect on Consolidated Financial Statements

Financial Instruments—Credit Losses (ASU 2019-11- Codification Improvements to Topic 326)

On June 16, 2016, the FASB issued Accounting Standards Update No. 2016-13, Financial Instruments—Credit Losses (Topic 326) : Measurement of Credit Losses on Financial Instruments, which introduced an expected credit loss model for the impairment of financial assets measured at amortized cost basis. That model replaces the probable, incurred loss model for those assets. Through the amendments in that Update, the Board added Topic 326, Financial Instruments—Credit Losses , and made several consequential amendments to the Codification.  The Board has an ongoing project on its agenda for improving the Codification or correcting its unintended application. The items addressed in that project generally are not expected to have a significant effect on current accounting practice or create a significant administrative cost for most entities. The amendments in this Update are similar to those items. However, the Board decided to issue a separate Update for improvements to the amendments in Update 2016-13 to increase stakeholder awareness of those amendments and to expedite the improvement process. The amendments include items brought to the Board's attention by stakeholders. The amendments in this Update clarify or address stakeholders' specific issues about certain aspects of the amendments in Update 2016-13 as described below:

1. Expected Recoveries for Purchased Financial Assets with Credit Deterioration (PCDs):  The amendments clarify that the allowance for credit losses for PCD assets should include in the allowance for credit losses expected recoveries of amounts previously written off and expected to be written off by the entity and should not exceed the aggregate of amounts of the amortized cost basis previously written off and expected to be written off by an entity.  In addition, the amendments clarify that when a method other than a discounted cash flow method is used to estimate expected credit losses, expected recoveries should not include any amounts that result in an acceleration of the noncredit discount. An entity may include increases in expected cash flows after acquisition.

2. Transition Relief for Troubled Debt Restructurings (TDRs):  The amendments provide transition relief by permitting entities an accounting policy election to adjust the effective interest rate on existing TDRs using prepayment assumptions on the date of adoption of Topic 326 rather than the prepayment assumptions in effect immediately before the restructuring.

3. Disclosures Related to Accrued Interest Receivables: The amendments extend the disclosure relief for accrued interest receivable balances to additional relevant disclosures involving amortized cost basis. 4. Financial Assets Secured by Collateral Maintenance Provisions: The amendments clarify that an entity should assess whether it reasonably expects the borrower will be able to continually replenish collateral securing the financial asset to apply the practical expedient.  The amendments clarify that an entity applying the practical expedient should estimate expected credit losses for any difference between the amount of the amortized cost basis that is greater than the fair value of the collateral securing the financial asset (that is, the unsecured portion of the amortized cost basis). An entity may determine that the expectation of nonpayment for the amount of the amortized cost basis equal to the fair value of the collateral securing the financial asset is zero.5. Conforming Amendment to Subtopic 805-20: The amendment to Subtopic 805-20, Business Combinations—Identifiable Assets and Liabilities, and Any Noncontrolling Interest , clarifies the guidance by removing the cross-reference to Subtopic 310-30 in paragraph 805-20-50-1 and replacing it with a cross-reference to the guidance on PCD assets in Subtopic 326-20.

January 1, 2023 (early adoption permitted as of January 1, 2019).  The effective dates and transition requirements for the amendments are the same as the effective dates and transition requirements in Update 2016-13.

The Company is assessing the new guidance to determine what modifications to existing credit estimation processes may be required. The new guidance is complex and management is still evaluating the preliminary output from models that have been developed during this evaluative phase.    In addition, future levels of allowances will also reflect new requirements to include estimated credit losses on investment securities classified as held-to-maturity, if any.  The Company has formed an Implementation Committee, whose membership includes representatives of senior management, to develop plans that will encompass: (1) internal methodology changes (2) data collection and management activities, (3) internal communication requirements, and (4) estimation of the projected impact of this guidance.  It has been generally assumed that the conversion from the incurred loss model, required under current GAAP, to the CECL methodology will, more likely than not, result in increases to the allowances for credit losses at many financial institutions.  However, the amount of any change in the allowance for credit losses resulting from the new guidance will ultimately be impacted by the provisions of this guidance as well as by the loan and debt security portfolios composition and asset quality at the adoption date, and economic conditions and forecasts at the time of adoption. The amendments in this Update should be applied on a modified retrospective basis by means of a cumulative-effect adjustment to the opening retained earnings balance in the statement of financial position as of the date that an entity adopted the amendments in Update 2016-13.

Three months ended

March 31,

(In thousands, except per share data)

2021

$

2,020

Net income attributable to Pathfinder Bancorp, Inc.

$

2,154

$

1,690

Convertible preferred stock dividends

97

69

Warrant dividends

9

8

Undistributed earnings allocated to participating securities

439

290

Net income available to common shareholders

$

1,609

$

1,323

Basic weighted average common shares outstanding

4,442

4,607

Effect of assumed exercise of stock options and unvested restricted stock units

-

-

Diluted weighted average common shares outstanding

4,442

4,607

Basic earnings per common share

$

0.36

$

0.29

Diluted earnings per common share

$

0.36

$

0.29

March 31, 2021

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

$

23,428

$

16

$

(42

)

$

23,402

State and political subdivisions

22,115

1,141

(68

)

23,188

Corporate

12,847

431

(59

)

13,219

Asset backed securities

13,182

45

(31

)

13,196

Residential mortgage-backed - US agency

24,644

324

(6

)

24,962

Collateralized mortgage obligations - US agency

30,525

117