Pathfinder Bancorp, Inc.

We establish a provision for credit losses, which is recorded 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 and amount of loans in the loan portfolio, adverse situations that may affect a 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.

The Company recorded a provision for credit losses of $16.3 million in 2025 as compared to $11.0 million in the prior year. The $5.3 million year-over-year increase in provision for credit losses reflected a comprehensive loan portfolio review of all commercial loan relationships of $500,000 or more, representing approximately 90% of the commercial portfolio, which was announced in October 2025 and completed in December 2025. The increase in provision for credit losses reflects a risk-based reserve build of the Company's forward-looking assessment of loans identified through the comprehensive loan portfolio review.

The Company recorded $4.2 million in net charge-offs in 2025 as compared to $9.8 million in net charge-offs in 2024. The ratio of net charge-offs to average loans therefore decreased to 0.46% in 2025 from 1.09% in 2024. Further information on earnings per share can be found in Note 1 to the consolidated financial statements of this Form 10-K.

Nonperforming loans to total loans increased to 3.07% at December 31, 2025 as compared to 2.40% at December 31, 2024. The allowance for credit losses to non-performing loans at December 31, 2025 was 106.80%, compared with 78.1% at December 31, 2024.

Noninterest Income

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

The following table sets forth certain information on noninterest income for the years indicated.

Total noninterest income was $2.5 million in 2025, a decrease of $7.1 million, or 73.9%, from $9.6 million in 2024. Excluding recorded gains and losses, noninterest income was down $1.6 million to $4.3 million for the year ended December 31, 2025 from $5.8 million for the year ended December 31, 2024. The decrease from the prior year was driven by fair value adjustment or lower of cost or market adjustment to loans held-for-sale ("LOCOM HFS adjustment") of nonperforming and substandard loan sales conducted in 2025, totaling a pre-tax loss in noninterest income of $3.5 million for the year ended December 31, 2025. Prior year noninterest income also benefited from $1.1 million of insurance agency revenue and a $3.2 million gain on sale associated with the Company's insurance agency asset sold in October 2024. Additionally, the decrease in noninterest income was driven by lower debit card interchange fees of $365,000, lower non-recurring gain on lease negotiations of $245,000, and lower other charges, commissions & fees of $223,000 compared to the previous year.

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Noninterest Expense

The following table sets forth certain information on noninterest expense for the years indicated.

Noninterest expenses totaled $34.6 million for the year ended December 31, 2025, which was an increase of $164,000, or 0.5%, from $34.4 million for the year ended December 31, 2024. This increase was primarily attributed to higher salaries and employee benefits associated with general salary increases and a change in workforce composition in 2025, as the Company strategically added more senior, key personnel across the organization and higher occupancy costs related to the addition of the East Syracuse branch, offset by lower expenses related to the divestiture of the Company's insurance company in October 2024.

Salaries and employee benefits, which constituted the largest component of noninterest expenses, increased $1.1 million to $18.9 million for the year ended December 31, 2025. The increase from the year ended December 31, 2024, was primarily attributed to higher salaries and benefits costs associated with merit increases and wage inflation of $426,000, as well as $736,000 in higher costs related to stock-based compensation. Building and occupancy costs increased $1.2 million or 29.0% from the sequential year, reflecting a full year of expenses associated with operating the East Syracuse branch acquired in July 2024. Building leases and maintenance increased $915,000 from the previous year. Professional and other services expense decreased $936,000 from the previous year, when the Company incurred transaction-related expenses associated with the East Syracuse branch acquisition and consulting services costs related to technology enhancements, both in 2024. Additionally, noninterest expense was reduced $1.3 million in 2025 as compared with 2024, primarily due to the absence of costs associated with the Company's insurance agency asset sold in October 2024.

Income Tax Expense

Income tax expense (benefit) decreased $2.5 million in 2025, resulting in an income tax benefit of $2.2 million compared to income tax expense of $332,000 in 2024. The change was primarily attributable to a pre-tax loss of $4.1 million in 2025 compared to pre-tax income of $5.2 million in 2024. The decline in pre-tax earnings was largely driven by higher credit-related costs, including asset sales, loan charge-offs and increased provisions for the allowance for credit losses. In addition, the Company recognized deferred tax assets related to New York State net operating losses and temporary differences associated with the allowance for credit losses.

In 2025, the Company’s effective tax rate was a benefit of 52.8%, as compared to an expense of 8.9% in 2024. The effective tax rate for 2025 was significantly impacted by the pre-tax loss reported during the year, which magnifies the effect of permanent tax differences relative to pre-tax results. The effective tax rate also reflects the recognition of state deferred tax assets associated with net operating losses and temporary differences related to the allowance for credit losses.

As a Maryland business corporation, the Company is required to file an annual report with, and pay franchise taxes to, the State of Maryland.

See Note 17 to the consolidated financial statements for the reconciliation of the statutory tax rate to the effective tax rate.

Earnings Per Share

Basic and diluted earnings per share for the year ended December 31, 2025 were both ($0.31), as compared to basic and diluted earnings per share of $0.54 for the year ended December 31, 2024. The decrease in earnings per share between these two years was due to the decrease in net income available to common shareholders between these two time periods. Further information on earnings per share can be found in Note 3 to the consolidated financial statements of this Form 10-K.

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CHANGES IN FINANCIAL CONDITION

The Company's total assets were $1.43 billion at December 31, 2025, a decrease of $48.2 million, or 3.3% from December 31, 2024. The decrease was primarily the result of a decrease of $28.4 million in HTM securities, as well as a $34.5 million decrease in loans receivable, net, that reflects the reclassification of $5.9 million in loans to held-for-sale status. These decreases were partially offset by increases of $7.5 million in AFS securities and $6.6 million in bank owned life insurance. All other asset categories had a net increase of $499,000.

Investment Securities

The average balance of the investment portfolio, which represented 33.0% of the Company’s average interest-earning assets in 2025, is designed to generate a favorable rate of return in consideration of all risk factors associated with debt securities while assisting the Company in meeting its liquidity needs and interest rate risk strategies. All of the Company’s investments, with the exception of marketable equity securities, are classified as either AFS or HTM. The Company does not hold any trading securities. The Company invests in securities issued by United States Government agencies and sponsored enterprises (“GSE”), mortgage-backed securities, collateralized mortgage obligations, state and municipal obligations, mutual funds, equity securities, investment grade corporate debt instruments, and common stock issued by the FHLB-NY. By investing in these types of assets, the Company reduces the credit risk of its asset base through geographical and collateral-type diversification but must accept lower yields than would typically be available on loan products. Our mortgage-backed securities and collateralized mortgage obligation portfolios include privately-issued but substantially collateralized pass-through securities as well as pass-through securities guaranteed by GSEs.

At December 31, 2025, AFS investment securities increased 2.8% to $276.8 million and HTM investment securities decreased 17.9% to $130.3 million as compared to December 31, 2024. There were four securities that exceeded 10% of consolidated shareholders’ equity.

Our AFS investment securities are carried at fair value and our HTM investment securities are carried at amortized cost.

The following table sets forth the carrying value of the Company's investment portfolio at December 31:

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The following table sets forth the scheduled maturities, amortized cost, fair values and average yields for the Company's investment securities at December 31, 2025. Average yield is calculated on the amortized cost to maturity. Adjustable rate mortgage-backed securities are included in the period in which interest rates are next scheduled to be reset.

AVAILABLE-FOR-SALE

HELD-TO-MATURITY

The yield information disclosed above does not give effect to changes in fair value that are reflected in accumulated other comprehensive loss in consolidated shareholders’ equity.

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Loans Receivable

Average loans receivable represented 65.9% of the Company’s average interest earning assets in 2025 and accounted for the greatest portion of total interest income.

The following table sets forth the composition of our loan portfolio, including net deferred costs, in dollar amount and as a percentage of loans.

The following table shows the amount of loans outstanding, including net deferred costs, as of December 31, 2025 which, based on remaining scheduled repayments of principal, are due in the periods indicated. Demand loans having no stated schedule of repayments, no stated maturity, and overdrafts are reported as one year or less. Adjustable and floating rate loans are included in the period on which interest rates are next scheduled to adjust, rather than the period in which they contractually mature. Fixed rate loans are included in the period in which the final contractual repayment is due.

The following table sets forth fixed- and adjustable-rate loans at December 31, 2025 that are contractually due after December 31, 2026:

Total loans receivable, including net deferred costs, decreased $22.3 million to $896.7 million at December 31, 2025 when compared to $919.0 million at December 31, 2024, due to decreases in residential mortgages of $14.7 million, consumer loans of $9.9 million, offset by an increase in commercial loans of $3.8 million.

In 2025, the outstanding balance of commercial real estate loans increased as the Bank continued to benefit from the expanding relationship-derived business activity within the markets that the Bank serves. The decrease in residential real estate and consumer loans was primarily the result of decreases in newly originated loans.

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Nonperforming Loans and Assets

The following table represents information concerning the aggregate amount of nonperforming assets:

Nonperforming assets include nonaccrual loans and foreclosed real estate (“FRE”).

Management monitors its loan portfolios closely and has incorporated our current estimate of the ultimate collectability of all loans into the reported allowance for credit losses at December 31, 2025. The ratio of the allowance for credit losses to year end loans was 3.28% and 1.88% at December 31, 2025 and December 31, 2024, respectively.

Total nonperforming assets increased $5.6 million, or 25.4%, between December 31, 2024 and December 31, 2025, driven by an increase of $6.4 million in nonperforming commercial and commercial real estate loans, and an increase of $258,000 in nonperforming consumer loans offset by a decrease of $1.2 million in nonperforming residential real estate loans. The increase in nonperforming loans primarily reflected certain legacy commercial loans moving to nonperforming status, including loans that may have been less than 90 days delinquent but were identified as having unique risk characteristics through the Company’s 2025 portfolio review.

Management believes that the value of the collateral properties underlying the loans is sufficient to preclude any significant losses related to these loans. Management continues to monitor and react to national and local economic trends, as well as general portfolio conditions which may impact the quality of the portfolio, and considers these environmental factors in support of the allowance for credit loss reserve. Management believes that the current level of the allowance for credit losses, at $29.4 million at December 31, 2025, adequately addresses the current level of risk within the loan portfolio, particularly considering the types and levels of collateralization supporting the substantial majority of the portfolio. The Company maintains strict loan underwriting standards and carefully monitors the performance of the loan portfolio. See Note 1: Summary of Significant Accounting Policies contained in the financial statements herein.

FRE balances totaled $137,000 at December 31, 2025. There were no FRE balances reported at December 31, 2024.

The Company generally places a loan on nonaccrual status and ceases accruing interest when loan payment performance is deemed unsatisfactory and the loan is past due 90 days or more. There are no loans that are past due 90 days or more and still accruing interest as set forth in the table above. Had the loans in nonaccrual status performed in accordance with their original terms, additional interest income of $1.8 million and $2.4 million would have been recorded for the years ended December 31, 2025 and December 31, 2024, respectively.

Individually evaluated loans are considered to have unique risk characteristics when their risk profile, repayment characteristics, or loss exposure are sufficiently distinct such that inclusion in a pooled evaluation would not appropriately reflect its expected credit loss. Individually evaluated loans measures credit losses using a discounted cash flow approach, collateral-dependent valuation techniques, observable market pricing (when available), or other methods permitted under ASC 326 that reasonably estimate expected credit losses based on the specific facts and circumstances of the loan. The selected methodology is applied consistently and is based on the specific facts and circumstances of each loan. At December 31, 2025 and December 31, 2024, the Company had $89.4 million and $20.0 million in loans, which were deemed to be individually evaluated, having specific reserves of $18.1 million and $2.5 million, respectively. The $69.4 million year-over-year increase in individually evaluated loans reflects management's proactive decision to initiate a comprehensive review of every performing and nonperforming commercial loan with exposures of $500,000 or more, representing approximately 90% of the commercial loan portfolio, which was announced in October 2025 and completed in December 2025.

Appraisals are obtained at the time a real estate secured loan is originated. For commercial real estate held as collateral, the property is inspected every two years.

Management has identified certain loans with potential credit profiles that may result in the borrowers not being able to comply with the current loan repayment terms and which may result in possible future identified loan reporting. Potential problem loans increased $19.5 million to $75.9 million at December 31, 2025, compared to $56.4 million at December 31, 2024. These loans have been internally classified as special mention, substandard, or doubtful, yet are not currently considered individually evaluated. The $19.5 million

-44 - increase in potential problem loans included increases of $15.2 million in commercial real estate loans, $1.8 million in residential mortgage loans, $928,000 in commercial and industrial loans, $772,000 in commercial lines of credit, $395,000 in home equity loans, and $121,000 in consumer loans.

Total potential problem loans, including individually evaluated loans, were $77.2 million at December 31, 2025, and were comprised of special mention, substandard and doubtful loans of $45.4 million, $28.7 million and $3.1 million, respectively. Total potential problem loans, including individually evaluated loans, were $58.0 million at December 31, 2024, and were comprised of special mention, substandard and doubtful loans of $32.8 million, $23.1 million and $2.1 million, respectively.

The Company measures delinquency based on the amount of past due loans as a percentage of total loans. The ratio of delinquent loans to total loans increased to 5.91% at December 31, 2025 as compared to 3.81% at December 31, 2024. This increase was due to an increase of $16.6 million in past due commercial loans, and a $1.6 million increase in past due residential loans, partially offset by a $235,000 decrease in past due consumer loans. At December 31, 2025, there were $53.0 million in loans past due including $13.9 million, $11.5 million and $27.6 million in loans 30-59 days, 60-89 days, and 90 days and over past due, respectively. At December 31, 2024, there were $35.1 million in loans past due including $8.8 million, $4.2 million and $22.1 million in loans 30-59 days, 60-89 days, and 90 days and over past due, respectively.

Loans purchased outside of the Bank’s general market area are subject to substantial pre-purchase due diligence. Homogenous pools of purchased loans are subject to pre-purchase analyses led by a team of the Bank’s senior executives and credit analysts. In each case, the Bank’s analytical processes consider the types of loans being evaluated, the underwriting criteria employed by the originating entity, the historical performance of such loans, especially in the most recent deeply recessionary period, the offered collateral enhancements and other credit loss mitigation factors offered by the seller and the capabilities and financial stability of the servicing entities involved. From a credit risk perspective, these loan pools also benefit from broad diversification, including wide geographic dispersion, the readily-verifiable historical performance of similar loans issued by the originators, as well as the overall experience and skill of the underwriters and servicing entities involved as counterparties to the Bank in these transactions. The performance of all purchased loan pools is monitored regularly from detailed reports and remittance reconciliations provided at least monthly by the external servicing entities.

The projected credit losses related to purchased loan pools are evaluated prior to purchase and the performance of those loans against expectations are analyzed at least monthly. Over the life of the purchased loan pools, the allowance for credit losses is adjusted, through the provision for credit losses, for expected loss experience, over the projected life of the loans. The expected credit loss experience is determined at the time of purchase and is modified, to the extent necessary, during the life of the purchased loan pools. The Bank does not initially increase the allowance for credit losses on the purchase date of the loan pools. See Note 5 for further detail of purchased loan pools.

In the normal course of business, the Bank has, from time to time, sold residential mortgage loans and participation interests in commercial loans. As is typical in the industry, the Bank makes certain representations and warranties to the buyer. Pathfinder Bank maintains a quality control program for closed loans and considers the risks and uncertainties associated with potential repurchase requirements to be minimal.

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The ACL is established through provision for credit losses and reduced by loan charge-offs net of recoveries. The allowance for credit losses represents the amount available for lifetime credit losses in the Company’s loan portfolio as estimated by management.

The Company establishes a specific allowance for all troubled credits identified through both normal and targeted credit review processes. Loans recognized within the internal review are identified as being individually evaluated and excluded from collective pools. Individually evaluated loans are considered to have unique risk characteristics when their risk profile, repayment characteristics, or loss exposure are sufficiently distinct such that inclusion in a pooled evaluation would not appropriately reflect its expected credit loss. Factors that may result in such classification include, but are not limited to, borrower-specific financial stress or credit deterioration, nonaccrual status or sustained delinquency, bankruptcy, insolvency, or restructuring proceedings, reliance on a single or materially weakened source of repayment, material adverse changes in collateral value, condition, or marketability, collateral dependency, unique or non-standard loan structures or modifications, adverse changes in guarantor support, or other circumstances indicating the loan no longer shares similar risk characteristics with the pool. For individually evaluated loans, management measures credit losses using a discounted cash flow approach, collateral-dependent valuation techniques, observable market pricing (when available), or other methods permitted under ASC 326 that reasonably estimate expected credit losses based on the specific facts and circumstances of the loan. The selected methodology is applied consistently and is based on the specific facts and circumstances of each loan. At December 31, 2025, the Bank’s position in individually evaluated loans consisted of 127 loans totaling $89.4 million. Of these loans, all were valued based on a collateral analysis. No loans were valued using the present value of future cash flows method. For all other loans, the Company uses the general allocation methodology that establishes an allowance to estimate the probable lifetime loss for each risk-rating category.

The allowance for credit losses at December 31, 2025 and 2024 were $29.4 million and $17.2 million, respectively, or 3.28% and 1.88% of total year end loans on those dates, respectively. The increase in allowance for credit losses reflects a risk-based reserve build following the completion of the comprehensive loan portfolio review, which was proactively initiated by management, announced in October 2025, and completed in December 2025. The comprehensive loan portfolio review included all performing and nonperforming commercial loan relationships with exposures of $500,000 or more, representing approximately 90% of the commercial portfolio. The increase in allowance for credit losses in 2025 substantially addresses credit quality issues associated with legacy commercial loans.

The Company recorded $4.2 million in net charge-offs in 2025, as compared to $9.8 million in net charge-offs in 2024. The ratio of net charge-offs to average loans decreased to 0.46% in 2025 from 1.09% in 2024. The decrease in charge-off activity in 2025, as compared to the previous year, was due to elevated loan charge-offs for 2024 that were related to the loan portfolio review conducted in the third quarter of 2024.

For further discussion of our allowance for credit losses procedures, please see “Business-Allowance for Credit Losses” and Note 6 to the consolidated financial statements contained in this Annual Report on Form 10-K.

The following table sets forth the allocation of allowance for credit losses by loan category for the years indicated. The allocation of the allowance by category is not necessarily indicative of future losses and does not restrict the use of the allowance to absorb losses in any category.

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The following table sets forth the allowance for credit losses for the years indicated:

The following table sets forth the loan net charge-off ratios for the years indicated:

The Company recorded $4.2 million in net charge-offs in 2025 as compared to $9.8 million in net charge-offs in 2024. Charge-offs for commercial real estate loans decreased $3.7 million or 57.7% and consumer and home equity charge-offs decreased $1.5 million or 41.2% offset by increases in residential real estate charge-offs of $99,000, at December 31, 2025, compared to December 31, 2024.

Bank Owned Life Insurance

The Company held $31.4 million and $24.7 million in bank owned life insurance ("BOLI") at December 31, 2025 and 2024, respectively. Bank owned life insurance increased $6.7 million, or 26.9%, to $31.4 million at December 31, 2025, as compared to December 31, 2024. The increase of $6.7 million was primarily attributable to the Company's $6.0 million purchase of new life insurance policies during the second quarter of 2025, in addition to earnings and gains on BOLI.

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. Average deposits increased by $56.7 million, or 4.9%, to $1.22 billion in 2025, as compared to $1.16 billion in 2024.

Total deposits declined by $20.7 million, or 1.7%, to $1.18 billion on December 31, 2025 as compared to $1.20 billion on December 31, 2024. In 2024, the Company assumed $186.0 million in deposits as a result of the East Syracuse branch acquisition completed July 19, 2024. As part of the purchase, the Company paid a deposit premium on acquired time deposits of $543,000, which is included in the balance of time deposits on the balance sheet and accreted on a straight-line basis over 10 years.

Core deposits represented 79.8% of total deposits on December 31, 2025, compared to 76.9% on December 31, 2024. 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 brokered and time deposits. The Company will continue to emphasize retail and business

-47 - 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.

Brokered deposits totaled $101.9 million and represented 8.6% of all deposits at December 31, 2025 and totaled $136.3 million and represented 11.3% of all deposits at December 31, 2024.

At December 31, 2025, municipal deposits increased by $27.0 million compared to December 31, 2024, primarily reflecting increased utilization of the Company’s reciprocal deposit programs. Business and consumer deposits decreased by $11.1 million and $6.5 million, respectively, largely due to lower time deposit balances compared to the prior year. Noninterest-bearing deposits, which consist primarily of demand deposit accounts, totaled $196.4 million at December 31, 2025, compared to $213.7 million at December 31, 2024, reflecting a decline of $17.3 million year over year.

The following table sets forth our deposit balances by category, and as a percentage of total deposits at the dates indicated:

Uninsured deposit balances were $405.3 million and $417.8 million at December 31, 2025 and December 31, 2024, respectively. These balances are based on the determination of known deposit account balances of each depositor and the insurance guidelines provided by the FDIC. At December 31, 2025, time deposit accounts in excess of $250,000 totaled $134.8 million, or 29.8% of time deposits and 11.4% of total deposits. At December 31, 2024, these deposits totaled $142.5 million, or 28.3% of time deposits and 11.8% of total deposits.

The following table indicates the amount of the Company’s time deposit accounts in excess of $250,000 by time remaining until maturity as of December 31, 2025:

All municipal deposits, regardless of amount, are effectively insured, either through specific collateralization with securities held in third-party escrow or reciprocal deposit programs, as required under New York State law. Therefore, municipal deposits are not considered to be subject to the same risks of large unannounced withdrawals as consumer and business accounts for the reason of FDIC insurance coverage limitations.

We participate in reciprocal deposit programs, which enable depositors to receive FDIC insurance coverage for deposits otherwise exceeding the maximum insurable amount. Through these programs, deposits in excess of the maximum insurable amount are placed with multiple participating financial institutions. Reciprocal deposits totaled $88.1 million at December 31, 2025, compared to $63.5 million at December 31, 2024, and represented 8.1% and 5.9% of nonbrokered deposits as of the end of each year, respectively.

The Company offers a variety of public deposit products to municipalities within its market area, including towns, villages, counties and school districts, which serve as an additional source of funding. Total public (municipal) deposits were $175.7 million and $148.8 million at December 31, 2025 and 2024, respectively, representing 16.2% and 13.9% of total deposits at the end of each year. The increase in public deposits during 2025 compared to the prior year was primarily attributable to an increase of approximately $20.0 million in balances from an existing municipal relationship.

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Deposit Activity

During 2025, like many financial institutions, the Bank experienced significant decreases in its cost of deposits resulting from the lower interest rate environment.

We offer deposit accounts to consumers, business and local municipalities having a wide range of interest rates and terms. Our deposits consist of various types of transactional accounts such as savings accounts, money market accounts, NOW, and demand accounts as well as time accounts in the form of certificates of deposits. We solicit deposits in our market areas as well as online through our website. We also participate in reciprocal deposit services for our customers through the Certificate of Deposit Account Registry Services (“CDARS”) and Insured Cash Sweep (“ICS”) networks. The Bank also has a substantial number of readily available sources for brokered term deposits that it uses regularly as a secondary funding source.

The Bank primarily relies on competitive pricing policies, marketing and customer service to attract and retain these deposits. As noted above, the Bank also accepts deposits from deposit brokers.

The following table sets forth our brokered deposit balances and rates at December 31, 2025:

Included in the brokered deposit balances, detailed above, are $5.0 million in deposits that can be called at the Bank's discretion, should that become economically advantageous in the future.

In addition to the term brokered deposits detailed above, the Bank had $5.0 million in overnight brokered funds, derived from a pool of individual depositors, at December 31, 2025. The interest rate paid for these funds is indexed to the overnight Federal funds effective rate. These aggregate deposits are comprised of multiple individual deposits with balances small enough to be fully insured by the FDIC and the individual depositors with the aggregate pool can be readily substituted when withdrawals are made. These deposits are therefore considered to be highly stable in the aggregate. The Bank can exit this funding arrangement, in whole or in part, with 60 days prior notice to the issuing counterparty.

Excluding brokered deposits, all other deposits, collectively referred to as nonbrokered deposits, totaled $1.08 billion, or 91.4% of total deposits with an average rate of 2.0% at December 31, 2025. Nonbrokered deposits, totaled $1.07 billion, or 88.7% of total deposits with an average rate of 2.3% at December 31, 2024. Our core deposits, which herein are defined as nonbrokered deposits excluding time accounts in excess of $250,000, were $947.1 million, or 87.5% of nonbrokered deposits, and $925.8 million, or 86.7% of nonbrokered deposits, at December 31, 2025 and December 31, 2024, respectively.

The following table sets forth our certificate of deposit balances and rates at December 31, 2025:

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Deposit Concentrations

The Bank utilizes a variety of funding sources to support the interest-earning asset base in addition to achieving targeted growth objectives. Overall funding is comprised of three primary sources that possess a variety of maturity, stability, and price characteristics: deposits from individuals, non-governmental businesses, and governmental deposits that are collateralized for amounts not covered by FDIC insurance, and other external borrowings. The average daily amount of deposits and the average rate paid on each of the following deposit categories are summarized below for the years ended December 31:

Borrowings

Borrowings are comprised primarily of advances and overnight borrowings at the FHLB-NY.

The following table represents information regarding short-term borrowings for the years ended December 31:

The following table represents information regarding long-term borrowings for the years ended December 31:

Trust Preferred Securities and Subordinated Debt

The Company has a non-consolidated subsidiary trust, Pathfinder Statutory Trust II, of which the Company owns 100% of the common equity. The Trust issued $5,000,000 of 30-year floating rate Company-obligated pooled capital securities of Pathfinder Statutory Trust II (“Floating-Rate Debentures”). The Company borrowed the proceeds of the capital securities from its subsidiary by issuing floating rate junior subordinated deferrable interest debentures having substantially similar terms. The capital securities mature in 2037 and are treated as Tier 1 capital by the FDIC and the Federal Reserve. The capital securities of the trust are a pooled trust preferred fund of Preferred Term Securities VI, Ltd., with interest rates that reset quarterly, and are indexed to the three-month Secured Overnight Financing Rate ("SOFR") which is a broad measure of the cost of borrowing cash overnight collateralized by Treasury securities, plus 1.91%. These securities have a five-year call provision. The Company guarantees all of these securities.

The Company's equity interest in the trust subsidiary is included in other assets on the Consolidated Statements of Financial Condition at December 31, 2025 and 2024. For regulatory reporting purposes, the Federal Reserve Board has indicated that the preferred securities will continue to qualify as Tier 1 capital subject to previously specified limitations, until further notice. If regulators make a determination that Trust Preferred Securities can no longer be considered in regulatory capital, the securities become callable and the Company may redeem them.

On October 14, 2020, the Company executed a private placement of $25.0 million of its 5.50% Fixed to Floating Rate non-amortizing Subordinated Debt (the “2020 Subordinated Debt”) to certain qualified institutional investors. The 2020 Subordinated Debt has a

-50 - maturity date of October 15, 2030, and initially was interest-bearing, payable semi-annually, at a fixed annual rate of 5.50% per annum until October 15, 2025. The 2020 Subordinated Debt is senior in the Company’s credit repayment hierarchy only to the Company’s common equity and any future senior indebtedness and is intended to qualify as Tier 2 capital for regulatory capital purposes for the Company.

Commencing on October 16, 2025, the interest rate applicable to the outstanding principal amount due resets quarterly to an interest rate per annum equal to the then current three-month SOFR plus 5.32%, payable quarterly through maturity. Although the Company has the option to redeem the 2020 Subordinated Debt at par, in whole or in part, at any time after October 15, 2025 (the first redemption date), the Company currently expects to allow the debt to remain outstanding. The Company paid $783,000 in origination and legal fees as part of this transaction. These fees were fully amortized over the life of the 2020 Subordinated Debt through its first redemption date using the effective interest method, giving rise to an effective cost of funds of 6.22% from the issuance date calculated under this method. Accordingly, interest expense related to this indebtedness of $1.7 million and $1.6 million was recorded in the years ended December 31, 2025 and December 31, 2024, respectively.

Shareholders' Equity

The Company’s shareholders’ equity increased $968,000 or 0.8%, to $122.5 million at December 31, 2025 from $121.5 million at December 31, 2024. The increase was due to a $3.8 million decrease in accumulated other comprehensive loss, and an increase of $1.6 million in additional paid in capital, offset by a $4.5 million decrease in retained earnings. The decrease in accumulated other comprehensive loss was due to higher net unrealized gains on pension and post-retirement benefits of $810,000 net tax, and higher gains on AFS securities of $3.2 million net tax, offset by unrealized losses of derivatives and hedging activity of $291,000 net tax. The increase of $1.6 million for additional paid capital was due to increased stock option exercise volume within the year. The decrease in retained earnings resulted from a $1.9 million net loss recorded for the year ended December 31, 2025, $1.9 million for cash dividends declared on voting common stock, $552,000 for cash dividends declared on non-voting common stock, and $50,000 for cash dividends declared on issued warrants.

The Bank is subject to various regulatory capital requirements administered by the federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory and possibly additional discretionary actions by regulators that, if undertaken, could have a direct material effect on the Company’s consolidated financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Bank must meet specific capital guidelines that involve quantitative measures of its assets, liabilities, and certain off-balance sheet items as calculated under regulatory accounting practices. The capital amounts and classifications are also subject to qualitative judgments by the regulators about components, risk weightings, and other factors.

Quantitative measures established by regulation to ensure capital adequacy require the Bank to maintain amounts and ratios of Total and Tier 1 capital (as defined in the regulations) to risk-weighted assets (as defined), and of Tier 1 capital (as defined) to average assets (as defined).

As of December 31, 2025, the Bank’s most recent notification from the Federal Deposit Insurance Corporation categorized the Bank as “well-capitalized”, under the regulatory framework for prompt corrective action. To be categorized as “well-capitalized”, the Bank must maintain specified total risk-based, Tier 1 risk-based and Tier 1 leverage ratios. There are no conditions or events since that notification that management believes have changed the Bank’s category.

The regulations also impose a “capital conservation buffer” consisting of 2.5% of CET1 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 Action (“PCA”) standards and imposes restrictions on dividend distributions and discretionary bonuses for senior officers if the buffer is not met (See Note 20 contained within the accompanying consolidated financial statements). In order to avoid these restrictions, the capital conservation buffer effectively increases the minimum of the following capital to risk-weighted assets ratios: (1) Total Capital, (2) Tier 1 Capital, and (3) CET1. At December 31, 2025, the Bank exceeded all current regulatory required minimum capital ratios, including the capital buffer requirements.

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LIQUIDITY

Liquidity management involves the Company’s ability to generate cash or otherwise obtain funds at reasonable rates to support asset growth, meet deposit withdrawals, maintain reserve requirements, and otherwise operate the Company on an ongoing basis. The Company's primary sources of funds are deposits, borrowed funds, amortization and prepayment of loans and maturities of investment securities and other short-term investments, and earnings and funds provided from operations. While scheduled principal repayments on loans are a relatively predictable source of funds, deposit flows and loan prepayments are greatly influenced by general interest rates, economic conditions and competition. The Company manages the pricing of deposits to maintain a desired deposit balance. In addition, the Company invests excess funds in short-term interest-earning and other assets, which provide liquidity to meet lending requirements.

The Company's liquidity has been enhanced by its ability to borrow from the FHLB-NY, whose competitive advance programs and lines of credit provide the Company with a safe, reliable, and convenient source of funds. A significant decrease in deposits in the future could result in the Company having to seek other sources of funds for liquidity purposes. Such sources could include, but are not limited to, additional borrowings, brokered deposits, negotiated time deposits, the sale of AFS investment securities, or the sale of loans. Such actions could result in higher interest expense costs and/or losses on the sale of securities or loans.

For the year ended December 31, 2025, cash and cash equivalents decreased by $402,000. The Company reported net cash outflows from financing activities of $52.5 million generated principally by an increase in customer deposits of $13.7 million, offset by a $17.0 million decrease in short-term borrowings, a decrease in brokered deposits of $34.4 million, a decrease in net proceeds from long-term borrowings of $13.0 million, and an aggregate decrease in net cash of all other financing sources, including dividends paid to common shareholders, and the holder of the Warrant of $2.5 million. Additionally, $11.7 million was provided through operating activities generated principally by net income and proceeds from loan sales. These cash flows were primarily used in 2025 to purchase $74.7 million of investment securities, partially offset by a $12.1 million net decrease in loans outstanding.

Certificates of deposit due within one year of December 31, 2025 totaled $425.3 million, representing 94.1% of certificates of deposit at December 31, 2025, an increase from 85.1% at December 31, 2024. If these maturing deposits do not remain with us, we will be required to seek other sources of funds, including other certificates of deposit and borrowings. Depending on market conditions, we may be required to pay higher rates on such deposits or other borrowings than we currently pay on the certificates of deposit due on or before December 31, 2026.

The Company is a separate legal entity from the Bank and must provide for its own liquidity. In addition to its operating expenses, the Company is responsible for paying any dividends declared to its shareholders and making payments on its subordinated debt. The Company may repurchase shares of its common stock. The Company’s primary sources of funds are the proceeds it retained from the Private Placement, the issuance of the 2020 Subordinated Debt, interest and dividends on securities and, potentially, dividends received from the Bank. The amount of dividends that the Bank may declare and pay to the Company in any calendar year, without prior regulatory approval, cannot exceed net income for that year to date plus retained net income (as defined) for the preceding two calendar years. The Company believes that this restriction will not have an impact on the Company's ability to meet its ongoing cash obligations. At December 31, 2025 and 2024, the Company had cash and cash equivalents of $31.2 million and $31.6 million, respectively.

The Bank has a number of existing credit facilities available to it. At December 31, 2025, total credit available under the existing lines of credit was approximately $244.0 million at FHLB-NY, the FRB, and two other correspondent banks. At December 31, 2025, the Company had $58.0 million of the available lines of credit utilized, including encumbrances supporting the outstanding letters of credit, described above, on its existing lines of credit with the remainder of $186.0 million available.

The Company's sources of immediately available liquidity of $384.9 million represent 238.9% and $161.1 million of the Company's net estimated uninsured deposits. Net estimated uninsured deposits exclude collateralized and certain other deposit accounts. When compared to 2024, the $42.8 million increase in sources of immediately available liquidity was primarily attributed to the decrease in FHLB borrowed fund balances. The table below details available sources of liquidity at December 31, 2025 and December 31, 2024.

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The Asset Liability Management Committee of the Company is responsible for implementing the policies and guidelines for the maintenance of prudent levels of liquidity. As of December 31, 2025, management reported to the Board of Directors that the Bank was in compliance with its liquidity policy guidelines.

OFF-BALANCE SHEET ARRANGEMENTS

The Bank is also a party to financial instruments with off-balance sheet risk in the normal course of business to meet the financing needs of its customers. These financial instruments include commitments to extend credit and standby letters of credit. At December 31, 2025, the Bank had $186.3 million in outstanding commitments to extend credit and standby letters of credit. See Note 18 within the Notes to consolidated financial statements contained herein.