S-1

As filed with the Securities and Exchange Commission on June 11, 2014

Registration No. 333-________

 UNITED STATES SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM S-1

REGISTRATION STATEMENT UNDER

THE SECURITIES ACT OF 1933

Pathfinder Bancorp, Inc. and

Pathfinder Bank 401(k) Plan

(Exact Name of Registrant as Specified in Its Charter)

Maryland	6712	To be Applied For
(State or Other Jurisdiction of Incorporation or Organization)	(Primary Standard Industrial Classification Code Number)	(I.R.S. Employer Identification Number)

214 West First Street

Oswego, New York 13126

(315) 343-0057

(Address, Including Zip Code, and Telephone Number, Including Area Code, of
Registrant’s Principal Executive Offices)

Mr. Thomas W. Schneider

President and Chief Executive Officer

214 West First Street

Oswego, New York 13126

(315) 343-0057

(Address, Including Zip Code, and Telephone Number, Including Area Code, of
Agent for Service)

Copies to:

Benjamin M. Azoff, Esq.

Eric Luse, Esq.

Luse Gorman Pomerenk & Schick, P.C.

5335 Wisconsin Avenue, N.W., Suite 780

Washington, D.C. 20015

(202) 274-2000

Approximate date of commencement of proposed sale to the public: As soon as practicable after this registration statement becomes effective.

If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box: x

If this Form is filed to register additional shares for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering: ¨

If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering: ¨

If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering: ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer	¨	Accelerated filer	¨
Non-accelerated filer	¨	Smaller reporting company	x
(Do not check if a smaller reporting company)

CALCULATION OF REGISTRATION FEE

Title of each class of securities to be registered	Amount to be registered	Proposed maximum offering price per share	Proposed maximum aggregate offering price	Amount of registration fee
Common Stock, $0.01 par value per share	4,352,306 shares	$10.00	$ 43,523,060 (1)	$ 5,606
Participation Interests	727,974 interests (2)			(2)

(1) Estimated solely for the purpose of calculating the registration fee.

(2) The securities of Pathfinder Bancorp, Inc. to be purchased by the Pathfinder Bank 401(k) Plan is included in the amount shown for the common stock. Accordingly, no separate fee is required for the participation interests.

The registrant hereby amends this registration statement on such date or dates as may be necessary to delay its effective date until the registrant shall file a further amendment which specifically states that this registration statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the registration statement shall become effective on such date as the Securities and Exchange Commission, acting pursuant to said Section 8(a), may determine.

Prospectus Supplement

Interests in

PATHFINDER BANK

401(k) SAVINGS PLAN

Offering of Participation Interests in up to 727,974 Shares of

PATHFINDER BANCORP, INC.

Common Stock

In connection with the conversion of Pathfinder Bancorp, MHC from the mutual to the stock form of organization, Pathfinder Bancorp, Inc., a newly formed Maryland corporation (“New Pathfinder”), is offering shares of common stock for sale. Accordingly, in connection with the conversion, New Pathfinder is allowing participants in the Pathfinder Bank 401(k) Savings Plan (the “Plan”) to invest up to 90 percent of their accounts in the common stock of New Pathfinder (“Common Stock”). Based upon the value of the Plan assets at March 31, 2014, the trustee of the Plan could purchase up to 727,974 shares of New Pathfinder Common Stock, at the purchase price of $10.00 per share. This prospectus supplement relates to the initial election of Plan participants to direct the trustee of the Plan to invest a portion of their Plan accounts, up to a maximum of 90 percent of the value thereof, in New Pathfinder Common Stock at the time of the stock offering.

The prospectus of New Pathfinder dated__________, 2014, is provided with this prospectus supplement. It contains detailed information regarding the conversion and stock offering of New Pathfinder and the financial condition, results of operations and business of Pathfinder Bank. This prospectus supplement provides information regarding the Plan. You should read this prospectus supplement together with the prospectus and keep both for future reference.

________________________________

For a discussion of risks that you should consider, see “Risk Factors” beginning on page ___ of the prospectus.

The interests in the Plan and the offering of the shares of Common Stock have not been approved or disapproved by the Board of Governors of the Federal Reserve System, the Office of the Comptroller of the Currency, the Securities and Exchange Commission or any other federal or state agency. Any representation to the contrary is a criminal offense.

The securities offered in this prospectus supplement are not deposits or accounts and are not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency.

This prospectus supplement may be used only in connection with offers and sales by New Pathfinder, in the stock offering, of New Pathfinder Common Stock acquired by the Plan. No one may use this prospectus supplement to reoffer or resell interests in shares of Common Stock acquired through the Plan.

You should rely only on the information contained in this prospectus supplement and the prospectus. New Pathfinder, Pathfinder Bank and the Plan have not authorized anyone to provide you with information that is different.

This prospectus supplement does not constitute an offer to sell or solicitation of an offer to buy any securities in any jurisdiction to any person to whom it is unlawful to make an offer or solicitation in that jurisdiction. Neither the delivery of this prospectus supplement and the prospectus nor any sale of New Pathfinder Common Stock shall under any circumstances imply that there has been no change in the affairs of New Pathfinder, Pathfinder Bank, or the Plan since the date of this prospectus supplement, or that the information contained in this prospectus supplement or incorporated by reference is correct as of any time after the date of this prospectus supplement.

The date of this prospectus supplement is __________, 2014.

TABLE OF CONTENTS

THE OFFERING	1
Securities Offered	1
Election to Purchase Common Stock	1
Purchase Priorities	2
Purchase in the Offering and Oversubscriptions	3
Minimum and Maximum Investment	4
Value of Plan Assets	4
How to Order Common Stock in the Offering	5
How to Set Up Your Self-Directed Brokerage Account	6
Order Deadline	7
Irrevocability of Transfer Direction	7
Future Direction to Purchase and Sell Common Stock	7
Voting Rights of Common Stock	8
DESCRIPTION OF THE PLAN	9
Introduction	9
Eligibility and Participation	9
Contributions Under the Plan	10
Limitations on Contributions	10
Benefits Under the Plan	11
Withdrawals and Distributions from the Plan	11
Investment of Contributions and Account Balances	12
Performance History and Description of Funds	14
Administration of the Plan	22
Amendment and Termination	22
Merger, Consolidation or Transfer	22
Federal Income Tax Consequences	22
Notice of Your Rights Concerning Employer Securities.	24
Additional Employee Retirement Income Security Act (“ERISA”) Considerations	24
Securities and Exchange Commission Reporting and Short-Swing Profit Liability	25
Financial Information Regarding Plan Assets	26
LEGAL OPINION	26

THE OFFERING

Securities Offered

New Pathfinder is offering participants of the Pathfinder Bank 401(k) Savings Plan (the “Plan”) the opportunity to purchase common stock of New Pathfinder (“Common Stock”). Up to 90 percent of the Plan’s assets may be invested in New Pathfinder Common Stock. At the purchase price of $10.00 per share, the Plan may acquire up to 727,974 shares of New Pathfinder Common Stock in the stock offering, based on the fair market value of the Plan’s assets as of March 31, 2014. A portion of this number reflects the shares of common stock of Pathfinder Bancorp, Inc., a federally-chartered mid-tier holding company (“Pathfinder-Federal”) that may be held in individual brokerage accounts with TD Ameritrade in the Plan that will automatically be exchanged for New Pathfinder Common Stock. Pathfinder-Federal is the majority owned subsidiary of Pathfinder Bancorp, MHC. Only employees of Pathfinder Bank may become participants in the Plan and only participants may purchase participation interests in shares of New Pathfinder Common Stock. Your investment in shares of Common Stock in connection with the stock offering is subject to the purchase priorities listed below. Information with regard to the Plan is contained in this prospectus supplement and information with regard to the financial condition, results of operations and business of New Pathfinder and Pathfinder Bank is contained in the accompanying prospectus. The address of the principal executive office of New Pathfinder and Pathfinder Bank is 214 West First Street, Oswego, New York 13126. Pathfinder Bank’s telephone number at this address is (315) 343-0057. All questions about this prospectus supplement should be addressed to James A. Dowd at Pathfinder Bank; telephone #: (315) 207-8002; email: jadowd@pathfinderbank.com. Questions about the stock offering, the prospectus, or obtaining a stock order form to purchase stock in the offering outside the Plan may be directed to the Stock Information Center at ( )____-______. The Stock Information Center will be open beginning__________, 2014, between _______________, Eastern Time. The Stock Information Center will be closed on weekends and bank holidays.

Election to Purchase Common Stock

In connection with the stock offering, you may elect to transfer a part of your account balances in the Plan to be used to purchase

shares of New Pathfinder Common Stock in the stock offering, up to a maximum of 90 percent of the balance thereof. The trustee of the Plan will purchase New Pathfinder Common Stock in accordance with your directions. However, such directions are subject to purchase priorities and purchase limitations, as described below. Following the stock offering, the trustee will then transfer your purchased shares of New Pathfinder Common Stock to a brokerage account that is set up within the Plan on your behalf.

Purchase Priorities

All Plan participants are eligible to purchase New Pathfinder Common Stock in the offering. However, such directions are subject to the purchase priorities in the Plan of Conversion and Reorganization of Pathfinder Bancorp, MHC, which provides for a subscription offering and a community offering. In the offering, purchase priorities are as follows and apply in case more shares of New Pathfinder Common Stock are ordered than are available for sale (an “oversubscription”): Subscription Offering: (1)   Depositors of Pathfinder Bank with aggregate account balances of at least $50 as of the close of business on March 31, 2014, get first priority. (2)   Pathfinder Bank’s tax-qualified plans, including the employee stock ownership plan and the Plan, get second priority. (3)   Depositors of Pathfinder Bank with aggregate account balances of at least $50 as of the close of business on ___________, 2014, get third priority. (4)   Depositors of Pathfinder Bank as of the close of business on ___________, 2014, get fourth priority. Community Offering: (5)   Shares of Common Stock not purchased in the subscription offering may be offered for sale to the general public in a “community offering,” with a preference given to natural persons residing in the communities served by Pathfinder Bank (as more fully described in the prospectus) and existing shareholders of Pathfinder-Federal. If you fall into subscription offering categories (1), (3) or (4), you have subscription rights to purchase New Pathfinder Common Stock in the subscription offering and you may use funds in the Plan to pay

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for the shares of New Pathfinder Common Stock. You may also be able to purchase shares of New Pathfinder Common Stock in the subscription offering even though you are ineligible to purchase through subscription offering categories (1), (3) or (4) through subscription offering category (2), reserved for its tax-qualified employee plans. If your stock order cannot be filled through subscription offering category (2), your order will be treated as a community offering order. Subscription offering orders will have preference over community offering orders in the event of oversubscription. If you are eligible in the subscription offering, as listed above, you will separately receive an offering materials package in the mail, including a stock order form. If you are not eligible to purchase shares of New Pathfinder Common Stock in the subscription offering, you may request offering materials by calling our Stock Information Center. If you wish to purchase New Pathfinder Common Stock outside the Plan, you must complete the stock order form and submit the stock order form and payment at $10.00 per share, using the reply envelope provided in the offering materials package. Questions about completing stock order forms may be directed to our Stock Information Center at (____) _____-____. Additionally, instead of placing an order outside the Plan using a stock order form, you may place an order for the purchase of New Pathfinder Common Stock through the Plan, using the enclosed Special Investment Election Form, to be completed and submitted in the manner described below under “How to Order Common Stock in the Offering.”

Purchase in the Offering and Oversubscriptions

The trustee of the Plan will purchase shares of New Pathfinder Common Stock in the stock offering in accordance with your directions.  Once you make your election, the amount that you elect to transfer from your existing investment options for the purchase of shares of New Pathfinder Common Stock in connection with the stock offering will be sold from your existing investment options and the proceeds transferred to a separate brokerage account maintained by the Plan.  The proceeds transferred to the brokerage account will be held separately from your other Plan assets pending the formal completion of the stock offering several weeks later.  At the end of the stock offering period, we will determine whether all, or any portion of, your order will be filled (if the offering is oversubscribed, you may not receive any, or all of, your order, depending on your purchase priority, as described above).  The amount that can be used toward your order will be applied to the purchase of shares of New Pathfinder Common Stock.  Following the formal closing of the stock offering, your purchased shares of

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	New Pathfinder Common Stock will be transferred to your self-directed brokerage account set up through TD Ameritrade Corporate Services (“TD Ameritrade”). If you have not already, you must set up your self-directed TD Ameritrade brokerage account to purchase New Pathfinder Common Stock in the offering through the Plan. See instructions below (“How to Set Up Your Self-Directed Brokerage Account”). In the event the offering is oversubscribed, i.e., there are more orders for New Pathfinder Common Stock than shares available for sale in the offering, and the trustee is unable to use the full amount allocated by you to purchase New Pathfinder Common Stock in the offering, the amount that cannot be invested in New Pathfinder Common Stock, and any interest earned on such amount, will be transferred from the brokerage account maintained by the Plan and reinvested in the existing investment funds of the Plan, in accordance with your then existing investment elections (in proportion to your investment direction for future contributions). The prospectus describes the allocation procedures in the event of an oversubscription. If you choose not to direct the investment of your Plan account balances towards the purchase of New Pathfinder Common Stock in the offering, your account balances will remain in the investment funds of the Plan as previously directed by you.
Minimum and Maximum Investment	In connection with the stock offering, the Plan will permit you to direct the trustee to transfer part of your Plan account balance to be used to purchase New Pathfinder Common Stock in the offering, provided however that your investment cannot exceed 90 percent of your Plan account balance (and subject to the maximum purchase limits for investors set forth in the prospectus). The trustee of the Plan will then subscribe for shares of the New Pathfinder Common Stock offered for sale in the offering, in accordance with each participant’s direction. The trustee will pay $10.00 per share, which will be the same price paid by all other persons who purchase shares in the subscription and community offerings. In order to purchase New Pathfinder Common Stock through the Plan, the minimum investment is $250, which will purchase 25 shares. The maximum purchase limit for any individual is 25,000 shares (i.e., $250,000) and the maximum purchase limit for an individual acting in concert with an associate or group of persons is 50,000 shares (i.e., $500,00).
Value of Plan Assets	As of March 31, 2014, the market value of the assets of the Plan was approximately $8,088,607.  Of this amount, 90 percent, i.e., $7,279,740 (rounded down to the nearest $10 increment) is eligible to purchase New Pathfinder Common Stock in the offering.

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How to Order Common Stock in the Offering Enclosed is a Special Investment Election Form on which you can elect to purchase New Pathfinder Common Stock in the offering. This is done by following the procedures described below. Please note the following stipulations concerning this election:   ·     You can direct to transfer a percentage of your current Plan account on your Special Investment Election Form to purchase New Pathfinder Common Stock, provided that such amount does not exceed 90 percent of your total Plan account balance.   ·     Your election is subject to a minimum purchase of 25 shares, which equals $250.   ·     Your election, plus any order you placed outside the Plan, are together subject to a maximum purchase of 25,000 shares, which equals $250,000, or 50,000 shares ($500,000) if you purchase in concert with an associate or group of persons acting in concert (as more fully described in this prospectus).   ·     The election period for the Plan opens___________, 2014 and closes _____ p.m., Eastern Time, on [day], ______________, 2014 (the “401(k) Plan Offering Period”).   ·     During the stock offering period, you will continue to have the ability to transfer amounts that are not directed to purchase New Pathfinder Common Stock among all other investment funds. However, you will not be permitted to change the investment amounts that you designated to be used to purchase New Pathfinder Common Stock on your Special Investment Election Form.   ·     Upon the conclusion of the 401(k) Plan Offering Period, the 401(k) Plan trustee will sell the applicable percentage of each of your investment funds that you have elected to sell in order to purchase shares of New Pathfinder Common Stock in the offering. The 401(k) Plan trustee will process such sales for all participants on a single day following the close of the 401(k) Plan Offering Period and before the close of the subscription offering period. Your liquidated assets will be held separately by the Plan until the formal closing of the stock offering occurs, which will be several weeks after the completion of the 401(k) Plan Offering Period. Therefore, this money will not be available for distributions, loans or withdrawals until the offering is closed.  

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·     Following the formal closing of the stock offering, your purchased shares of New Pathfinder Common Stock will be transferred to your self-directed TD Ameritrade brokerage account in the Plan. If you have not already established a TD Ameritrade brokerage account in the Plan, you must do so before you can purchase new Pathfinder Common Stock in the connection with the stock offering through the Plan. See instructions below (“How to Set Up Your Self-Directed Brokerage Account”). ·     Following the formal closing of the stock offering, it may take up to [xx] days for the New Pathfinder Common Stock that you elected to purchase on your Special Investment Election Form to be transferred to your TD Ameritrade brokerage account. As a result, your New Pathfinder Common Stock that you purchased in the stock offering will not be tradable (i.e., you cannot sell it) until it is transferred to your TD Ameritrade brokerage account. If you wish to use a portion of your account balance in the Plan to purchase New Pathfinder Common Stock in the stock offering, you should indicate that decision on your Special Investment Election Form. If you do not wish to make an election, you should check the box at the bottom of the Special Investment Election Form and return the form either using the self-addressed pre-paid envelope, by faxing it to (315) 342-9403, by e-mail to jadowd@pathfinderbank.com or by delivering it in to James A. Dowd at Pathfinder Bank, 214 West First Street, Oswego, New York 13126, no later than 5:00 p.m., Eastern Time, on [day], [date], 2014.

How to Set Up Your Self-Directed Brokerage Account

Follow these steps to set up your self-directed TD Ameritrade brokerage account through the Plan if you have not done so already. It can take several business days to set up the self-directed TD Ameritrade brokerage account. Therefore, we recommend that you immediately establish your self-directed TD Ameritrade brokerage account to ensure that you can timely elect to purchase New Pathfinder Common Stock during the 401(k) Plan Offering Period. ·     Go to www.nationwide.com and log into your Plan account. ·     Once you access your Plan account, click on “Manage Account” next to your retirement plan.

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	·     Scroll half-way down the screen until you see “View Account” on the left-hand side of the screen. Click on “My Funds.” ·     Scroll down to the very bottom of the screen and click on the link labeled “Click here to establish your self-directed brokerage.” ·     With respect to three items listed, click on each and do the following: o     Item # 1 – Read and Complete. o     Item # 2 – Read and Complete. o     Item # 3 – Read and Complete. ·     You will then need to FAX or MAIL the self-directed brokerage account as instructed. IT IS VERY IMPORTANT THAT YOU REFERENCE THE SPECIFIC PLAN ID (as shown on the screen provided by TD Ameritrade) ON THE APPLICATION. ·     After your account has been established at TD Ameritrade, your User ID and PIN for your self-directed brokerage account will be mailed to you. This could take several business days to receive.
Order Deadline	If you wish to purchase New Pathfinder Common Stock with a portion of your Plan account balance, you must return you Special Investment Election Form to James A. Dowd at Pathfinder Bank, 214 West First Street, Oswego, New York 13126 or by faxing it to (315) 342-9403, to be received no later than 5:00 p.m., Eastern Time, on [day], [date], 2014. You may return your Special Investment Election Form by hand delivery, mail using the self-addressed pre-paid envelope, email (sending it to jadowd@pathfinderbank.com) or by faxing it so long as it is returned by the time specified.
Irrevocability of Transfer Direction	Once you make an election to transfer amounts in your Plan account to be used to purchase shares of New Pathfinder Common Stock in connection with the stock offering, you may not change your election. Your election is irrevocable. You will, however, continue to have the ability to transfer amounts not directed towards the purchase of shares of New Pathfinder Common Stock among all of the other investment funds in the Plan on a daily basis.

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Future Direction to Purchase and Sell Common Stock

You will be able to purchase or sell shares of New Pathfinder Common Stock through your established self-directed TD Ameritrade brokerage account within the Plan after the stock offering. You may direct that your future contributions or your account balance in the Plan (up to 90 percent) be transferred to your self-directed TD Ameritrade brokerage account to be used to purchase shares of New Pathfinder Common Stock. After the offering, to the extent that shares are available, the trustee of the Plan will acquire shares of New Pathfinder Common Stock at your election through your established TD Ameritrade brokerage account in open market transactions at the prevailing price, which may be less than or more than $10.00 per share. You may change your investment allocation on a daily basis. However, please be advised that your ability to buy or sell New Pathfinder Common Stock within the Plan largely depends upon the existence of an active market for the stock. If New Pathfinder Common Stock is illiquid (meaning there are a low number of buyers and sellers of the stock) on the date you elect to buy or sell New Pathfinder Common Stock within the Plan, your election may not be immediately processed. As a result, the prevailing price for New Pathfinder Common Stock may be less than or more than its fair market value on the date of your election. Special restrictions may apply to purchasing shares of New Pathfinder Common Stock by the participants who are subject to the provisions of Section 16(b) of the Securities Exchange Act of 1934, as amended, relating to the purchase and sale of securities by officers, directors and principal stockholders of New Pathfinder. Please note that if you are an officer of Pathfinder Bank that is restricted by the regulations of the Board of Governors of the Federal Reserve System from selling shares of New Pathfinder Common Stock acquired in the stock offering for one year, the New Pathfinder Common Stock that you purchased in the stock offering will not be tradable until the one-year trading restriction has lapsed.

Voting Rights of Common Stock

The Plan provides that you may direct the trustee as to how to vote any shares of New Pathfinder Common Stock held by the Plan, and the interest in such shares that is credited to your account.  If the trustee does not receive your voting instructions, the Plan administrator will exercise these rights as it determines in its discretion and will direct the trustee accordingly.  All voting instructions will be kept confidential.

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DESCRIPTION OF THE PLAN

Introduction

Pathfinder Bank originally adopted the Pathfinder Bank 401(k) Savings Plan (the “Plan”) effective as of January 1, 1989, and most recently amended and restated the Plan effective January 1, 2013. The Plan is a tax-qualified plan with a cash or deferred compensation feature established in accordance with the requirements under Section 401(a) and Section 401(k) of the Internal Revenue Code of 1986, as amended (the “Code”).

Pathfinder Bank intends that the Plan, in operation, will comply with the requirements under Section 401(a) and Section 401(k) of the Code. Pathfinder Bank will adopt any amendments to the Plan that may be necessary to ensure the continuing qualified status of the Plan under the Code and applicable Treasury Regulations.

Employee Retirement Income Security Act (“ERISA”).  The Plan is an “individual account plan” other than a “money purchase pension plan” within the meaning of ERISA. As such, the Plan is subject to all of the provisions of Title I (Protection of Employee Benefit Rights) and Title II (Amendments to the Code Relating to Retirement Plans) of ERISA, except for the funding requirements contained in Part 3 of Title I of ERISA which by their terms do not apply to an individual account plan (other than a money purchase plan). The Plan is not subject to Title IV (Plan Termination Insurance) of ERISA. The funding requirements contained in Title IV of ERISA are not applicable to participants or beneficiaries under the Plan.

Reference to Full Text of Plan. The following portions of this prospectus supplement summarize certain provisions of the Plan. They are not complete and are qualified in their entirety by the full text of the Plan. Copies of the Plan are available to all employees by filing a request with the Plan administrator at Pathfinder Bank, 214 West First Street, Oswego, New York 13126. You are urged to read carefully the full text of the Plan.

Eligibility and Participation

Employees who are at least age 21 and have completed three months of eligibility service with Pathfinder Bank are eligible to enter the Plan on the January 1, April 1, July 1 or October 1 coinciding with or next following the date on which the employee meets the eligibility requirements. Certain members of a collective bargaining unit, employees who are non-resident aliens who receive no earned income from the employer which constitutes income from sources within the United States, and leased employees are not eligible to participate in the Plan. The Plan Year is January 1 to December 31.

As of March 31, 2014, there were approximately 128 employees and former employees eligible to participate in the Plan.

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Contributions Under the Plan

Salary Deferrals.  You are permitted to defer, on a pre-tax basis, up to 100% of your compensation and to have that amount contributed to the Plan on your behalf. For purposes of the Plan, “compensation” means your income reportable on Form W-2, with all pre-tax contributions included. In 2014, the annual compensation of each participant taken into account under the Plan is limited to $260,000. (Limits established by the Internal Revenue Service are subject to increase pursuant to an annual cost-of-living adjustment, as permitted by the Code). You are permitted to modify your elective deferrals, effective on the first day of each quarter.

Roth Elective Deferrals.  You may irrevocably designate all or any part of your salary deferrals to the Plan as “Roth elective deferrals.” Roth elective deferrals are “after-tax” deferrals that (1) you designate irrevocably as Roth elective deferrals as the time they are deferred, (2) your employer treats as includible in your income at the time you would have received the amount in cash had you not made the deferral election, and (3) are amounts that are accounted for separately from all other amounts under the Plan. All employees who meet the eligibility requirements to make pre-tax elective deferrals may make Roth elective deferrals.

Safe Harbor Employer Contributions.  Pathfinder Bank may make a safe harbor contribution equal to 3% of the compensation of each participant. The safe harbor contribution will be fully vested at all times. Because Pathfinder Bank will make a safe harbor contribution, the Plan will not have to satisfy certain nondiscrimination tests generally required of 401(k) plans.

Employer Matching Contributions.  Pathfinder Bank will make matching contributions with respect to contributing participants’ elective deferrals in an amount equal to 100% of the first 3% of the participant’s compensation contributed and 50% of the next 3% of the participant’s compensation contributed. The allocation of matching contributions is subject to the participant’s completion of one year of service in which the participant has completed 1,000 hours of service. Matching contributions will be calculated on a quarterly basis.

Non-elective Employer Contributions.  Pathfinder Bank may make non-elective employer contributions to the Plan. The allocation of non-elective employer contributions is subject to the participant’s completion of one year of service in which the participant has completed 1,000 hours of service.

Rollover Contributions.  You are permitted to make rollover contributions to the Plan.

Limitations on Contributions

Limitations on Employee Salary Deferrals. For the Plan Year beginning January 1, 2014, the amount of your before-tax contributions may not exceed $17,500 per calendar year. In addition, if you are at least 50 years old in 2014, you will be able to make a “catch-up” contribution of up to $5,500 in addition to the $17,500 limit. The “catch-up” contribution limit may be adjusted periodically by law, based on changes in the cost of living. Contributions in excess of these limits, as applicable to you, are known as excess deferrals. If you defer amounts

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in excess of these limitations, as applicable to you, your gross income for federal income tax purposes will include the excess in the year of the deferral. In addition, unless the excess deferral is distributed before April 15 of the following year, it will be taxed again in the year distributed. Income on the excess deferral distributed by April 15 of the immediately succeeding year will be treated, for federal income tax purposes, as earned and received by you in the tax year in which the contribution is made.

Contribution Limit.  Generally, the law imposes a maximum limit on the amount of contributions you may receive under the Plan. This limit applies to all contributions to the Plan, including your salary deferrals and all other employer contributions made on your behalf during the year, excluding earnings and any transfers/rollovers. For the Plan Year beginning January 1, 2014, this total cannot exceed the lesser of $52,000 or 100% of your annual base compensation.

Benefits Under the Plan

Vesting. At all times, you have a fully vested, nonforfeitable interest in the salary deferrals you have made to the Plan. In addition, employer safe harbor contributions are 100% vested at all times. Employer matching contributions and employer non-elective contributions are subject to a five-year graded vesting schedule in which such amounts vest at the rate of 20% each year, commencing upon completion of one year of service, until a participant is 100% vested upon completion of five years of service. In the event you terminate employment due to retirement, death or disability, your employer matching contributions and employer non-elective contributions will immediately become fully vested.

Distributions from the Plan

You may request a distribution in the following events:

You may request a distribution of all or part of your elective deferrals, Roth elective deferrals, employer safe harbor contributions, vested matching contributions and vested non-elective employer contributions after having attained age 59 ½. You may withdraw rollover contributions at any time.

In the event you incur a hardship prior to attaining age 59 ½, you may withdraw balances attributable to elective deferrals, Roth elective deferrals, rollover contributions plus their earnings, vested non-elective employer contributions plus their earnings, and vested employer matching contributions plus their earnings. Employer safe harbor contributions may not be withdrawn from the Plan while you are still employed prior to attainment of age 59 ½, not even for hardship reasons.

In the event of your death, the value of your account will be payable to your beneficiary in a lump sum or, if the Plan permits, in installment payments over any period that does not exceed the life expectancy of your beneficiary.

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Form of Distribution

The normal form of distribution will be a single lump-sum payment. Alternative forms, if available, will be indicated on your benefit application. If you terminate employment and do not make a timely election with respect to a cash-out distribution of an amount greater than $1,000 but not more than $5,000, a direct rollover will be made of your vested account balance into an individual retirement account or annuity (IRA) selected by the Plan administrator. If the amount is $1,000 or less, unless you instruct the Plan administrator in writing to roll over such amount to either an IRA or another qualified retirement plan of your choice, you will receive a check representing your vested account balance less the applicable 20% federal income tax withholding.

Loan Provisions

Participant loans are permitted in accordance with the employer’s established procedures.

Investment of Contributions and Account Balances

All amounts credited to your accounts under the Plan are held in the Plan trust (the “Trust”) which is administered by the trustee appointed by Pathfinder Bank’s Board of Directors. Prior to the effective date of the offering, you were provided the opportunity to direct the investment of your account into one of the following investment options:

1. American Beacon Short-Term Bd Instl

2. American Beacon Small Cp Val Inst

3. American Funds AMCAP R6

4. American Funds American Mutual R6

5. American Funds EuroPacific Gr R6

6. American Funds Fundamental Invs R6

7. DWS RREEF Real Estate Securities Inst

8. Dodge & Cox International Stock

9. Dreyfus Instl Preferred MMkt Prime

10. Fidelity Advisor® Strategic Income I

11. Harbor International Institutional

12. Invesco Growth and Income Y

13. JPMorgan Mid Cap Value Instl

14. JPMorgan Mortgage-Backed Securities Sel

15. Morgan Stanley Inst Mid Cap Growth I

16. Nationwide Destination 2010 Instl

17. Nationwide Destination 2015 Instl

18. Nationwide Destination 2020 Instl

19. Nationwide Destination 2025 Instl

20. Nationwide Destination 2030 Instl

21. Nationwide Destination 2035 Instl

22. Nationwide Destination 2040 Instl

23. Nationwide Destination 2045 Instl

24. Nationwide Destination 2050 Instl

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25. Nationwide Destination 2055 Instl

26. Nationwide Retirement Income Instl

27. Oppenheimer Developing Markets Y

28. Oppenheimer Global Opportunities Y

29. PIMCO Low Duration Instl

30. PIMCO Real Return Instl

31. Principal High Yield Inst

32. Principal MidCap Institutional

33. RidgeWorth Total Return Bond I

34. Sentinel Small Company I

35. T. Rowe Price Capital Appreciation

36. T. Rowe Price Small-Cap Value

37. Vanguard Wellesley® Income Inv

38. Wells Fargo Advantage Intl Bond Instl

In connection with the offering, the Plan now provides that in addition to the investment options specified above, you may direct the trustee, or its representative, to invest a portion of your account in shares of New Pathfinder Common Stock, provided that such amount does not exceed 90 percent of your total Plan account balance. You may elect to have both past contributions and earnings, as well as future contributions to your account invested among the options listed above. Transfers of past contributions and the earnings thereon do not affect the investment mix of future contributions. You may change your investment directions at any time. This may be done either by telephone or electronic medium. You may also redirect the investment of your investment accounts such that a fixed dollar amount of any one or more investment accounts may be transferred to any one or more other investment accounts either by telephone or electronic medium.

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Performance History and Description of Funds

The following provides performance data with respect to the investment options available under the Plan. The following performance data is as of March 31, 2014:

Fund	Total Return 1 Yr		Total Return Annualized  3 Yrs		Total Return Annualized  5 Yrs		Total Return Annualized 10 Yrs
American Beacon Short-Term Bd Instl		-0.08		0.60		1.55		2.00
American Beacon Small Cp Val Inst		24.24		12.69		25.23		8.31
American Funds AMCAP R6		27.10		15.34		21.78		7.57
American Funds American Mutual R6		17.39		13.02		18.19		7.08
American Funds EuroPacific Gr R6		17.06		5.92		15.05		7.80
American Funds Fundamental Invs R6		20.88		11.97		19.35		8.46
DWS RREEF Real Estate Securities Inst		3.36		9.01		27.36		7.78
Dodge & Cox International Stock		24.41		8.07		19.72		8.52
Dreyfus Instl Preferred MMkt Prime		-0.71		-0.65		-0.58		1.08
Fidelity Advisor® Strategic Income I		2.19		4.70		10.55		6.32
Harbor International Institutional		14.84		6.08		17.50		8.88
Invesco Growth and Income Y		21.48		13.10		19.60		N/A
JPMorgan Mid Cap Value Instl		20.13		15.75		23.96		9.57
JPMorgan Mortgage-Backed Securities Sel		-0.08		3.12		5.69		4.78
Morgan Stanley Inst Mid Cap Growth I		25.81		8.43		23.98		10.53
Nationwide Destination 2010 Instl		5.78		4.36		9.95		N/A
Nationwide Destination 2015 Instl		7.44		5.38		11.41		N/A
Nationwide Destination 2020 Instl		9.41		6.48		13.16		N/A
Nationwide Destination 2025 Instl		11.83		7.59		14.86		N/A
Nationwide Destination 2030 Instl		13.88		8.49		16.33		N/A
Nationwide Destination 2035 Instl		15.52		9.34		17.44		N/A
Nationwide Destination 2040 Instl		16.34		9.42		18.11		N/A
Nationwide Destination 2045 Instl		17.15		9.67		18.48		N/A
Nationwide Destination 2050 Instl		17.16		9.52		18.42		N/A
Nationwide Destination 2055 Instl		16.94		9.51		N/A		N/A
Nationwide Retirement Income Instl		1.73		1.92		6.09		N/A
Oppenheimer Developing Markets Y		6.00		1.74		19.22		N/A
Oppenheimer Global Opportunities Y		32.57		11.58		23.05		9.75
PIMCO Low Duration Instl		-0.69		1.60		4.48		3.11
PIMCO Real Return Instl		-7.87		2.81		5.67		4.14
Principal High Yield Inst		6.66		7.91		15.28		8.31
Principal MidCap Institutional		19.87		16.07		24.65		10.51
RidgeWorth Total Return Bond I		-0.94		3.71		4.63		4.30
Sentinel Small Company I		21.59		12.33		21.58		9.20
T. Rowe Price Capital Appreciation		16.24		11.84		17.90		8.30
T. Rowe Price Small-Cap Value		20.05		12.63		23.37		9.53
Vanguard Wellesley® Income Inv		6.92		8.76		12.33		6.37
Wells Fargo Advantage Intl Bond Instl		0.41		1.71		5.15		4.33

The following is a description of each of the Plan’s investment funds and other investments:

American Beacon Short-Term Bd Instl.  The investment seeks income and capital growth. Under normal circumstances, the fund invests at least 80% of its net assets (plus the amount of any borrowings for investment purposes) in fixed-income securities. It will only buy debt securities that are determined by the fund manager to be investment grade at the time

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of purchase. Under normal circumstances, the fund seeks to maintain a duration of one to three years.

American Beacon Small Cp Val Inst.  The investment seeks long-term capital appreciation and current income. Under normal circumstances, at least 80% of the fund’s net assets (plus the amount of any borrowings for investment purposes) are invested in equity securities of small market capitalization U.S. companies. These companies have market capitalizations of $5 billion of less at the time of investment. The fund’s investments may include common stocks, preferred stocks, securities convertible into common stocks, real estate investment trusts (“REITs”), American Depository Receipts (“ADRs”) and U.S. dollar-denominated foreign stocks traded on U.S. exchanges.

American Funds AMCAP R6.  The investment seeks long-term growth of capital. The fund invests primarily in common stocks of U.S. companies that have solid long-term growth records and the potential for good future growth. The basic investment philosophy of the investment adviser is to seek to invest in attractively valued companies that, in its opinion, represent good, long-term investment opportunities.

American Funds American Mutual R6.  The investment seeks income, growth of capital and conservation of principal. The fund invests primarily in common stocks of companies that are likely to participate in the growth of the American economy and whose dividends appear to be sustainable. It invests primarily in securities of issuers domiciled in the United States and Canada. The fund may also invest in bonds and other debt securities, including those issued by the U.S. government and by federal agencies and instrumentalities.

American Funds EuroPacific Gr R6.  The investment seeks long-term growth of capital. The fund invests primarily in common stocks of issuers in Europe and the Pacific Basin that the investment adviser believes have the potential for growth. Growth stocks are stocks that the investment adviser believes have the potential for above-average capital appreciation. It normally invests at least 80% of net assets in securities of issuers in Europe and the Pacific Basin. The fund may invest a portion of its assets in common stocks and other securities of companies in countries with developing economies and/or markets.

American Funds Fundamental Invs R6.  The investment seeks long-term growth of capital and income. The fund invests primarily in common stocks of companies that appear to offer superior opportunities for capital growth and most of which have a history of paying dividends. It may invest significantly in securities of issuers domiciled outside the United States.

DWS RREEF Real Estate Securities Inst.  The investment seeks long-term capital appreciation and current income. The fund will invest at least 80% of its net assets, plus the amount of any borrowing for investment purposes (calculated at the time of any investment), in equity securities of REITs and real estate companies. It may also invest a portion of its assets in other types of securities. These securities may include short-term securities, bonds, notes, securities of companies not principally engaged in the real estate industry, non-leverage stock index futures contracts and other similar securities. The fund is non-diversified.

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Dodge & Cox International Stock.  The investment seeks long-term growth of principal and income. The fund invests primarily in a diversified portfolio of equity securities issued by non-U.S. companies from at least three different countries, including emerging markets. It will invest at least 80% of its total assets in common stocks, preferred stocks, securities convertible into common stocks, and securities that carry the right to buy common stocks of non-U.S. companies. The fund invests primarily in medium-to-large well-established companies based on standards of the applicable market.

Dreyfus Instl Preferred MMkt Prime.  The investment seeks s high a level of current income as is consistent with the preservation of capital and the maintenance of liquidity. The fund typically invests in a diversified portfolio of high quality, short-term debt securities. It also invests at least 25% of total assets in bank obligations.

Fidelity Advisor® Strategic Income I.  The investment seeks a high level of current income; it may also seek capital appreciation. The fund invests primarily in debt securities, including lower-quality debt securities. It allocates its assets among four general investment categories: high yield securities, U.S. government and investment-grade securities, emerging market securities, and foreign developed market securities. The fund uses a neutral mix of approximately 40% high yield, 30% U.S. government and investment-grade, 15% emerging markets, and 15% foreign developed markets.

Harbor International Institutional.  The investment seeks long-term total return, principally from growth of capital. The fund invests normally in a minimum of ten countries through the world, focusing on companies located in Europe, the Pacific Basin and emerging industrialized countries whose economies and political regimes appear stable. It invests primarily (no less than 65% of its total assets) in common and preferred stocks of foreign companies, including those located in emerging market countries. Companies in the fund’s portfolio generally have market capitalizations in excess of $1 billion at the time of purchase.

Invesco Growth and Income Y.  The investment seeks total return through growth of capital and current income. Under normal market conditions, the fund’s investment adviser seeks to achieve the fund’s investment objective by investing primarily in income-producing equity securities, which include common stocks and convertible securities. It may invest in securities of issuers in all capitalization sizes; however, a substantial number of the issuers in which the funds invests are large-capitalization issuers. The fund may invest up to 25% of its net assets in securities of foreign issuers, which may include depositary receipts.

JPMorgan Mid Cap Value Instl.  The investment seeks growth from capital appreciation. The fund normally invests at least 80% of assets in equity securities of mid cap companies. Mid cap companies are companies with market capitalizations between $1 billion and $20 billion at the time of purchase. In implementing its main strategies, the fund’s investments are primarily in common stocks and REITs. It will use futures contracts to more effectively gain targeted equity exposure from its cash positions.

JPMorgan Mortgage-Backed Securities Sel.  The investment seeks to maximize total return by investing primarily in a diversified portfolio of debt securities backed by pools of residential and/or commercial mortgages. The fund invests mainly in investment grade

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mortgage-backed securities or unrated mortgage-backed securities which the adviser determines to be of comparable quality. Under normal circumstances, it invests at least 80% of its assets in mortgage-backed securities. The fund’s average weighted maturity will normally range between two and ten years.

Morgan Stanley Inst Mid Cap Growth I.  The investment seeks long-term capital growth. The fund normally invests at least 80% of assets in common stocks of mid cap companies. It seeks to invest in high quality companies it believes have sustainable competitive advantages and the ability to redeploy capital at high rates of return. The fund may invest up to 25% of its net assets in securities of foreign issuers, including issuers located in emerging markets or developing countries. It may invest in privately placed securities. In addition, the Portfolio may invest in convertible securities. It may utilize foreign currency forward exchange contracts.

Nationwide Destination 2010 Instl.  The investment seeks capital appreciation and income consistent with its current asset allocation. The fund is a “fund of funds” that invests in affiliated and unaffiliated mutual funds representing a variety of asset classes. It invests in a professionally selected mix of different asset classes that is tailored for investors planning to retire in, or close to, the year 2010. The fund allocates approximately 52% of its assets in fixed-income securities (10% of which represents inflation-protected bonds), approximately 27% in U.S. stocks (12% of which represents smaller companies), and approximately 15% in international stocks. It is non-diversified.

Nationwide Destination 2015 Instl.  The investment seeks capital appreciation and income consistent with its current asset allocation. The fund is a “fund of funds” that invests in affiliated and unaffiliated mutual funds representing a variety of asset classes. It invests in a professionally selected mix of different asset classes that is tailored for investors planning to retire in, or close to, the year 2015. The fund allocates approximately 32% of its net assets in U.S. stocks (14% of which represents smaller companies), approximately 18% in international stocks, and approximately 43% in fixed-income securities. It is non-diversified.

Nationwide Destination 2020 Instl.  The investment seeks capital appreciation and income consistent with its current asset allocation. The fund is a “fund of funds” that invests in affiliated and unaffiliated mutual funds representing a variety of asset classes. It invests in a professionally selected mix of different asset classes that is tailored for investors planning to retire in, or close to, the year 2020. The fund allocates approximately 37% of its net assets in U.S. stocks (16% of which represents smaller companies), approximately 21% in international stocks, and approximately 33.5% in fixed-income securities. It is non-diversified.

Nationwide Destination 2025 Instl.  The investment seeks capital appreciation and income consistent with its current asset allocation. The fund is a “fund of funds” that invests in affiliated and unaffiliated mutual funds representing a variety of asset classes. It invests in a professionally selected mix of different asset classes that is tailored for investors planning to retire in, or close to, the year 2025. The fund allocates approximately 44% of its net assets in U.S. stocks (20% of which represents smaller companies), approximately 23% in international stocks, and approximately 23.5% in fixed-income securities. It is non-diversified.

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Nationwide Destination 2030 Instl.  The investment seeks capital appreciation and income consistent with its current asset allocation. The fund is a “fund of funds” that invests in affiliated and unaffiliated mutual funds representing a variety of asset classes. It invests in a professionally selected mix of different asset classes that is tailored for investors planning to retire in, or close to, the year 2030. The fund allocates approximately 50% of its net assets in U.S. stocks (23% of which represents smaller companies), approximately 25% in international stocks, and approximately 16.5% in bonds (including mortgage-backed and asset-backed securities). It is non-diversified.

Nationwide Destination 2035 Instl.  The investment seeks capital appreciation and income consistent with its current asset allocation. The fund is a “fund of funds” that invests in affiliated and unaffiliated mutual funds representing a variety of asset classes. It invests in a professionally selected mix of different asset classes that is tailored for investors planning to retire in, or close to, the year 2035. The fund allocates approximately 54% of its net assets in U.S. stocks (26% of which represents smaller companies), approximately 26% in international stocks, and approximately 11.5% in bonds (including mortgage-backed and asset-backed securities). It is non-diversified.

Nationwide Destination 2040 Instl.  The investment seeks capital appreciation and income consistent with its current asset allocation. The fund is a “fund of funds” that invests in affiliated and unaffiliated mutual funds representing a variety of asset classes. It invests in a professionally selected mix of different asset classes that is tailored for investors planning to retire in, or close to, the year 2040. The fund allocates approximately 58% of its net assets in U.S. stocks (29% of which represents smaller companies) and approximately 28% in international stocks. It is non-diversified.

Nationwide Destination 2045 Instl.  The investment seeks capital appreciation and income consistent with its current asset allocation. The fund is a “fund of funds” that invests in affiliated and unaffiliated mutual funds representing a variety of asset classes. It invests in a professionally selected mix of different asset classes that is tailored for investors planning to retire in, or close to, the year 2045. The fund allocates approximately 61% of its net assets in U.S. stocks (31% of which represents smaller companies) and approximately 28% in international stocks. It is non-diversified.

Nationwide Destination 2050 Instl.  The investment seeks capital appreciation and income consistent with its current asset allocation. The fund is a “fund of funds” that invests in affiliated and unaffiliated mutual funds representing a variety of asset classes. It invests in a professionally selected mix of different asset classes that is tailored for investors planning to retire in, or close to, the year 2050. The fund allocates approximately 61% of its net assets in U.S. stocks (31% of which represents smaller companies) and approximately 28% in international stocks. It is non-diversified.

Nationwide Destination 2055 Instl.  The investment seeks capital appreciation and income consistent with its current asset allocation. The fund is a “fund of funds” that invests in affiliated and unaffiliated mutual funds representing a variety of asset classes. It invests in a professionally selected mix of different asset classes that is tailored for investors planning to retire in, or close to, the year 2055. The fund allocates approximately 61% of its net assets in

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U.S. stocks (31% of which represents smaller companies) and approximately 28% in international stocks. It is non-diversified.

Nationwide Retirement Income Instl.  The investment seeks to provide current income consistent with capital preservation and, as a secondary investment objective, capital appreciation. The fund is a “fund of funds” that invests in affiliated and unaffiliated mutual funds representing a variety of asset classes. It invests in a professionally selected mix of different asset classes that is tailored for investors that have already retired. The fund allocates approximately 62% of its assets in fixed-income securities (14% of which represents inflation-protected bonds) and approximately 27% in stocks. It is non-diversified.

Oppenheimer Developing Markets Y.  The investment seeks capital appreciation. The fund mainly invests in common stocks of issuers in developing and emerging markets throughout the world and at times it may invest up to 100% of its total assets in foreign securities. Under normal market conditions, it will invest at least 80% of its net assets, plus borrowings for investment purposes, in equity securities of issuers whose principal activities are in a developing market or are economically tied to a developing market country. The fund will invest in at least three developing markets.

Oppenheimer Global Opportunities Y.  The investment seeks capital appreciation. The fund invests mainly in equity securities of issuers in the U.S. and foreign countries. It currently emphasizes investments in equities, but it may also invest in debt securities and may invest up to 25% of its asset in “lower-grade” securities, commonly known as “junk bonds.” The fund typically invests in a number of different countries and can invest in any country, including countries with developing or emerging markets. It invests a substantial portion of its assets in small- and mid-sized companies.

PIMCO Low Duration Instl.  The investment seeks maximum total return, consistent with preservation of capital and prudent investment management. The funds invests at least 65% of its total assets in a diversified portfolio of Fixed Income Instruments of varying maturities, which may be represented by forwards or derivatives such as options, futures contracts, or swap agreements. It invests primarily in investment grade debt securities, but may invest up to 10% of its total assets in high yield securities (“junk bonds”) rated B or higher by Moody’s, or equivalently rated by S&P or Fitch, or, if unrated, determined by PIMCO to be of comparable quality.

PIMCO Real Return Instl.  The investment seeks maximum real return, consistent with preservation of capital and prudent investment management. The fund normally invests at least 80% of its net assets in inflation-indexed bonds of varying maturities issued by the U.S. and non-U.S. governments, their agencies or instrumentalities, and corporations, which may be represented by forwards or derivatives such as options, futures contracts or swap agreements. It invests primarily in investment grade securities, but may invest up to 10% of its total assets in high yield securities (“junk bonds”) rated B or higher. The funds is non-diversified.

Principal High Yield Inst.  The investment seeks to provide a relatively high level of current income. The fund invests at least 80% of its net assets, plus any borrowings for investment purposes, in below investment grade bonds (sometimes called “high yield bonds”

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or “junk bonds”) which are rated at the time of each purchase Ba1 or lower by Moody’s and BB+ or lower by S&P. It also invests in bank loans (also known as senior floating rate interests) and securities of foreign issuers, including those located in developing or emerging countries. The fund maintains an average portfolio duration that is within ±20% of the duration of the Barclays US High Yield 2% Issuer Capped Index.

Principal MidCap Institutional.  The investment seeks long-term growth of capital. The fund normally invests at least 80% of its net assets, plus any borrowings for investment purposes, in equity securities of companies with medium market capitalizations at the time of each purchase. It invests in equity securities with value and/or growth characteristics and constructs an investment portfolio that has a “blend” of equity securities with these characteristics. Investing in value equity securities is an investment strategy that emphasizes buying equity securities that appear to be undervalued.

Ridgeworth Total Return Bond I.  The investment seeks total return that consistently exceeds the total return of the broad U.S. investment grade bond market. The fund invests in various types of income-producing debt securities including mortgage- and asset-backed securities, government and agency obligations, corporate obligations and floating rate loans. It normally invests at least 80% of its net assets (plus any borrowings for investment purposes) in fixed income securities. The fund may invest in debt obligations of U.S. and non-U.S. issuers, including emerging market debt. It may invest up to 20% of its net assets in below investment grade, high yield debt obligations.

Sentinel Small Company I.  The investment seeks growth of capital. The fund invests at least 80% of its net assets in small-capitalization companies. Small-capitalization companies are companies that have, at the time of purchase, market capitalizations of less than $4 billion. It invests primarily in common stocks of small companies that Sentinel believes are high quality, have superior business models, solid management teams, sustainable growth potential and are attractively valued. The fund may invest without limitation in foreign securities, although only where the securities are trading in the U.S. or Canada and only where trading is denominated in U.S. or Canadian dollars.

T. Rowe Price Capital Appreciation.  The investment seeks long-term capital appreciation. The fund will invest at least 50% of total assets in the common stocks of established U.S. companies that the managers believe have above-average potential for capital growth. The remaining assets are generally invested in convertible securities, corporate and government debt, bank loans (which represent an interest in amounts owed by a borrower to a syndicate of lenders), and foreign securities, in keeping with the fund’s objective. It may invest up to 25% of its total assets in foreign securities. The fund may invest up to 25% of its total assets in below investment-grade debt securities and bank loans.

T. Rowe Price Small-Cap Value.  The investment seeks long-term capital growth. The fund will invest at least 80% of its net assets (including any borrowings for investment purposes) in companies with a market capitalization that is within or below the range of companies in the Russell 2000 Index. It may invest in foreign stocks in keeping with the fund’s objectives. The fund may sell securities for a variety of reasons, such as to secure gains, limit losses, or redeploy assets into more promising opportunities.

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Vanguard Wellesley® Income Inv.  The investment seeks to provide long-term growth of income and a high and sustainable level of current income, along with moderate and long-term capital appreciation. The fund invests approximately 60% to 65% of assets in investment-grade corporate, U.S. Treasury, and government agency bonds, as well as mortgage-backed securities. The remaining 35% to 40% of fund assets are invested in common stocks of companies that have a history of above-average dividends or expectations of increasing dividends.

Wells Fargo Advantage Intl Bond Instl.  The investment seeks total return, consisting of income and capital appreciation. The fund normally invests at least 80% of the fund’s net assets in foreign debt securities, including obligations of governments, corporate entities or supranational agencies, denominated in various currencies. It invests in at least three countries or supranational agencies. The fund invests up to 35% of the fund’s total assets in debt securities that are below investment grade and up to 5% of the fund’s total assets in debt obligations or similar securities denominated in the local currencies of countries that have a sovereign debt rating below investment-grade.

New Pathfinder Common Stock.  In connection with the stock offering, you may, in the manner described earlier, direct the trustee to invest a portion of your Plan account in New Pathfinder Common Stock, provided that such amount does not exceed 90 percent of your total Plan account balance as of the first day of the 401(k) Plan Offering Period. The trustee will use all amounts elected by participants to acquire shares of New Pathfinder Common Stock in the conversion and common stock offering. After the offering, you may elect to invest a portion of your payroll deduction contributions or employer contributions in New Pathfinder Common Stock. You may also elect to invest in New Pathfinder Common Stock with a portion of your accounts currently invested in other funds under the Plan. However, no more than 90 percent of your total Plan account balance can be invested in New Pathfinder Common Stock. It is expected that all purchases will be made at prevailing market prices. Under certain circumstances, the trustee may be required to limit the daily volume of shares purchased. Pending investment in New Pathfinder Common Stock, amounts allocated towards the purchase of shares in the offering will be held in your self-directed brokerage account maintained by Plan through TD Ameritrade. In the event of an oversubscription, any earnings that result therefrom will be reinvested among the other funds of the Plan in accordance with your then existing investment election. Performance of New Pathfinder Common Stock will depend on a number of factors, including the financial condition and profitability of New Pathfinder and Pathfinder Bank and market conditions for New Pathfinder Common Stock generally.

For a discussion of material risks you should consider, see the “Risk Factors” section of the accompanying prospectus and the section of the prospectus supplement called “Notice of Your Rights Concerning Employer Securities” (see below).

An investment in any of the investment options listed above is not a deposit of a bank and is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. As with any investment option, there is always a risk that you may lose money on your investment in any of the investment options listed above.

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Administration of the Plan

The Trustee and Custodian.  The trustee of the Plan is James A. Dowd (the “Trustee”). The custodian of the Plan is Nationwide. However, New Pathfinder Common Stock purchased through the Plan will be held in your self-directed brokerage account maintained by the Plan through TD Ameritrade.

Plan Administrator.  Pursuant to the terms of the Plan, the Plan is administered by the Plan administrator, Pathfinder Bank. The address of the Plan administrator is 214 West First Street, Oswego, New York 13126, telephone number is (315) 343-0057. The Plan administrator is responsible for the administration of the Plan, interpretation of the provisions of the Plan, prescribing procedures for filing applications for benefits, preparation and distribution of information explaining the Plan, maintenance of Plan records, books of account and all other data necessary for the proper administration of the Plan, preparation and filing of all returns and reports relating to the Plan which are required to be filed with the U.S. Department of Labor and the Internal Revenue Service, and for all disclosures required to be made to participants, beneficiaries and others under Sections 104 and 105 of ERISA.

Reports to Plan Participants.  The Plan administrator will furnish you a statement at least quarterly showing the balance in your account as of the end of that period, the amount of contributions allocated to your account for that period, and any adjustments to your account to reflect earnings or losses (if any).

Amendment and Termination

It is the intention of Pathfinder Bank to continue the Plan indefinitely. Nevertheless, Pathfinder Bank may terminate the Plan at any time. If the Plan is terminated in whole or in part, then regardless of other provisions in the Plan, you will have a fully vested interest in your accounts. Pathfinder Bank reserves the right to make any amendment or amendments to the Plan which do not cause any part of the trust to be used for, or diverted to, any purpose other than the exclusive benefit of participants or their beneficiaries; provided, however, that Pathfinder Bank may make any amendment it determines necessary or desirable, with or without retroactive effect, to comply with ERISA.

Merger, Consolidation or Transfer

In the event of the merger or consolidation of the Plan with another plan, or the transfer of the trust assets to another plan, the Plan requires that you would, if either the Plan or the other plan terminates, receive a benefit immediately after the merger, consolidation or transfer which is equal to or greater than the benefit you would have been entitled to receive immediately before the merger, consolidation or transfer, if the Plan had then terminated.

Federal Income Tax Consequences

The following is a brief summary of the material federal income tax aspects of the Plan. You should not rely on this summary as a complete or definitive description of the material

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federal income tax consequences relating to the Plan. Statutory provisions change, as do their interpretations, and their application may vary in individual circumstances. Finally, the consequences under applicable state and local income tax laws may not be the same as under the federal income tax laws. Please consult your tax advisor with respect to any distribution from the Plan and transactions involving the Plan.

As a “tax-qualified retirement plan,” the Code affords the Plan special tax treatment, including:

(1) the sponsoring employer is allowed an immediate tax deduction for the amount contributed to the Plan each year;

(2) participants pay no current income tax on amounts contributed by the employer on their behalf; and

(3) earnings of the Plan are tax-deferred, thereby permitting the tax-free accumulation of income and gains on investments.

Pathfinder Bank will administer the Plan to comply with the requirements of the Code as of the applicable effective date of any change in the law.

Lump-Sum Distribution. A distribution from the Plan to a participant or the beneficiary of a participant will qualify as a lump-sum distribution if it is made within one taxable year, on account of the participant’s death, disability or separation from service, or after the participant attains age 59½, and consists of the balance credited to participants under the Plan and all other profit sharing plans, if any, maintained by Pathfinder Bank. The portion of any lump-sum distribution required to be included in your taxable income for federal income tax purposes consists of the entire amount of the lump-sum distribution, less the amount of after-tax contributions, if any, you have made to this Plan and any other profit sharing plans maintained by Pathfinder Bank, which is included in the distribution.

New Pathfinder Common Stock Included in Lump-Sum Distribution. If a lump-sum distribution includes New Pathfinder Common Stock, the distribution generally will be taxed in the manner described above, except that the total taxable amount may be reduced by the amount of any net unrealized appreciation with respect to New Pathfinder Common Stock; that is, the excess of the value of New Pathfinder at the time of the distribution over its cost or other basis of the securities to the trust. The tax basis of New Pathfinder Common Stock, for purposes of computing gain or loss on its subsequent sale, equals the value of New Pathfinder Common Stock at the time of distribution, less the amount of net unrealized appreciation. Any gain on a subsequent sale or other taxable disposition of New Pathfinder Common Stock, to the extent of the amount of net unrealized appreciation at the time of distribution, will constitute long-term capital gain, regardless of the holding period of New Pathfinder Common Stock. Any gain on a subsequent sale or other taxable disposition of New Pathfinder Common Stock, in excess of the amount of net unrealized appreciation at the time of distribution, will be considered long-term capital gain. The recipient of a distribution may elect to include the amount of any net unrealized appreciation in the total taxable amount of the distribution, to the extent allowed by regulations to be issued by the Internal Revenue Service.

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Distributions: Rollovers and Direct Transfers to Another Qualified Plan or to an IRA. You may roll over virtually all distributions from the Plan to another qualified plan or to an individual retirement account in accordance with the terms of the other plan or account.

Notice of Your Rights Concerning Employer Securities.

Federal law provides specific rights concerning investments in employer securities. Because you may in the future have investments in New Pathfinder Common Stock under the Plan, you should take the time to read the following information carefully.

Your Rights Concerning Employer Securities. The Plan must allow you to elect to move any portion of your account that is invested in New Pathfinder Common Stock from that investment into other investment alternatives under the Plan. You may contact the Plan administrator shown above for specific information regarding this right, including how to make this election. In deciding whether to exercise this right, you will want to give careful consideration to the information below that describes the importance of diversification. All of the investment options under the Plan are available to you if you decide to diversify out of your investment in New Pathfinder Common Stock.

The Importance of Diversifying Your Retirement Savings.  To help achieve long-term retirement security, you should give careful consideration to the benefits of a well-balanced and diversified investment portfolio. Spreading your assets among different types of investments can help you achieve a favorable rate of return, while minimizing your overall risk of losing money. This is because market or other economic conditions that cause one category of assets, or one particular security, to perform very well often cause another asset category, or another particular security, to perform poorly. If you invest more than 20% of your retirement savings in any one company or industry, your savings may not be properly diversified. Although diversification is not a guarantee against loss, it is an effective strategy to help you manage investment risk.

In deciding how to invest your retirement savings, you should take into account all of your assets, including any retirement savings outside of the Plan. No single approach is right for everyone because, among other factors, individuals have different financial goals, different time horizons for meeting their goals, and different tolerance for risk. Therefore, you should carefully consider the rights described here and how these rights affect the amount of money that you invest in employer common stock through the Plan.

It is also important to periodically review your investment portfolio, your investment objectives, and the investment options under the Plan to help ensure that your retirement savings will meet your retirement goals.

Additional Employee Retirement Income Security Act (“ERISA”) Considerations

As noted above, the Plan is subject to certain provisions of ERISA, including special provisions relating to control over the Plan’s assets by participants and beneficiaries. The Plan’s feature that allows you to direct the investment of your account balances is intended to satisfy the requirements of Section 404(c) of ERISA relating to control over plan assets by a participant or

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beneficiary. The effect of this is two-fold. First, you will not be deemed a “fiduciary” because of your exercise of investment discretion. Second, no person who otherwise is a fiduciary, such as Pathfinder Bank, the Plan administrator, or the Plan’s trustee is liable under the fiduciary responsibility provision of ERISA for any loss which results from your exercise of control over the assets in your Plan account.

Because you will be entitled to invest up to 90% of your account balance in the Plan in New Pathfinder Common Stock, the regulations under Section 404(c) of the ERISA require that the Plan establish procedures that ensure the confidentiality of your decision to purchase, hold, or sell employer securities, except to the extent that disclosure of such information is necessary to comply with federal or state laws not preempted by ERISA. These regulations also require that your exercise of voting and similar rights with respect to New Pathfinder Common Stock be conducted in a way that ensures the confidentiality of your exercise of these rights.

Securities and Exchange Commission Reporting and Short-Swing Profit Liability

Section 16 of the Securities Exchange Act of 1934 imposes reporting and liability requirements on officers, directors, and persons beneficially owning more than 10% of public companies such as New Pathfinder. Section 16(a) of the Securities Exchange Act of 1934 requires the filing of reports of beneficial ownership. Within 10 days of becoming an officer, director or person beneficially owning more than 10% of the shares of New Pathfinder, a Form 3 reporting initial beneficial ownership must be filed with the Securities and Exchange Commission. Changes in beneficial ownership, such as purchases, sales and gifts generally must be reported periodically, either on a Form 4 within two business days after the change occurs, or annually on a Form 5 within 45 days after the close of New Pathfinder’s fiscal year. Discretionary transactions in and beneficial ownership of New Pathfinder Common Stock by officers, directors and persons beneficially owning more than 10% of New Pathfinder Common Stock generally must be reported to the Securities and Exchange Commission by such individuals.

In addition to the reporting requirements described above, Section 16(b) of the Securities Exchange Act of 1934 provides for the recovery by New Pathfinder of profits realized by an officer, director or any person beneficially owning more than 10% of New Pathfinder Common Stock resulting from non-exempt purchases and sales of New Pathfinder Common Stock within any six-month period.

The Securities and Exchange Commission has adopted rules that provide exemptions from the profit recovery provisions of Section 16(b) for all transactions in employer securities within an employee benefit plan, provided certain requirements are met. These requirements generally involve restrictions upon the timing of elections to acquire or dispose of employer securities for the accounts of Section 16(b) persons.

Except for distributions of New Pathfinder Common Stock due to death, disability, retirement, termination of employment or under a qualified domestic relations order, persons affected by Section 16(b) are required to hold shares of New Pathfinder Common Stock distributed from the Plan for six months following such distribution and are prohibited from

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directing additional purchases of New Pathfinder Common Stock for six months after receiving such a distribution.

Financial Information Regarding Plan Assets

Financial information representing the net assets available for Plan benefits and the change in net assets available for Plan benefits at December 31, 2013, is available upon written request to the Plan administrator at the address shown above.

LEGAL OPINION

The validity of the issuance of New Pathfinder Common Stock has been passed upon by Luse Gorman Pomerenk & Schick, P.C., Washington, D.C., which firm acted as special counsel to Pathfinder Bank in connection with New Pathfinder’s stock offering.

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PROSPECTUS

PATHFINDER BANCORP, INC.

(Proposed Holding Company for Pathfinder Bank)

Up to 2,300,000 Shares of Common Stock

(Subject to Increase to up to 2,645,000 Shares)

Pathfinder Bancorp, Inc., a Maryland corporation, is offering up to 2,300,000 shares of common stock for sale at $10.00 per share on a best efforts basis in connection with the conversion of Pathfinder Bancorp, MHC from the mutual holding company to the stock holding company form of organization. The shares we are offering represent the ownership interest in Pathfinder Bancorp, Inc., a federal corporation, currently owned by Pathfinder Bancorp, MHC. In this prospectus, we will refer to Pathfinder Bancorp, Inc., the Maryland corporation, as “New Pathfinder,” and we will refer to Pathfinder Bancorp, Inc., the federal corporation, as “Pathfinder-Federal.” Pathfinder-Federal’s common stock is currently traded on the Nasdaq Capital Market under the trading symbol “PBHC,” and we expect the shares of New Pathfinder common stock will also trade on the Nasdaq Capital Market under the symbol “PBHC.”

The shares of common stock are first being offered in a subscription offering to eligible depositors and tax-qualified employee benefit plans of Pathfinder Bank, as described in this prospectus. Shares not purchased in the subscription offering may be offered for sale to the general public in a community offering, with a preference given to natural persons (including trusts of natural persons) residing in the communities served by Pathfinder Bank and existing stockholders of Pathfinder-Federal. Any shares of common stock not purchased in the subscription or community offerings may be offered to the public through a syndicate of broker-dealers, referred to in this prospectus as the syndicated offering. The subscription, community and syndicated offerings are collectively referred to in this prospectus as the offering. We must sell a minimum of 1,700,000 shares in order to complete the offering and the conversion.

In addition to the shares we are selling in the offering, the shares of Pathfinder-Federal currently held by the public will be exchanged for shares of common stock of New Pathfinder based on an exchange ratio that will result in existing public stockholders of Pathfinder-Federal owning approximately the same percentage of New Pathfinder common stock as they owned in Pathfinder-Federal common stock immediately prior to the completion of the conversion, as adjusted for assets held by Pathfinder Bancorp, MHC. The number of shares we expect to issue in the exchange ranges from 1,097,324 shares to 1,484,614 shares.

The minimum order is 25 shares. The subscription offering and community offering (if commenced) are expected to expire at 2:00 p.m., Eastern Time, on [expiration date]. We may extend this expiration date without notice to you until [extension date #1]. Once submitted, orders are irrevocable unless the subscription and/or community offerings are terminated or extended, with regulatory approval, beyond [extension date #1], or the number of shares of common stock to be sold is increased to more than 2,645,000 shares or decreased to less than 1,700,000 shares. If the offering is extended past [extension date #1], all subscribers will be notified and given an opportunity to confirm, change or cancel their orders. If you do not respond to this notice, we will promptly return your funds with interest at [interest rate]% per annum or cancel your deposit account withdrawal authorization. If the number of shares to be sold in the offering is increased to more than 2,645,000 shares or decreased to less than 1,700,000 shares, we will resolicit subscribers, and all funds delivered to us to purchase shares of common stock in the offering will be returned promptly with interest. Funds received in the subscription and the community offerings, and, if applicable, the syndicated offering will be held in a segregated account at Pathfinder Bank and will earn interest at [interest rate]% per annum until completion or termination of the offering.

Keefe, Bruyette & Woods, Inc., A Stifel Company will assist us in selling the shares on a best efforts basis in the subscription and community offerings, and will serve as sole book-running manager for any syndicated offering. Keefe, Bruyette & Woods, Inc. is not required to purchase any shares of common stock that are being offered for sale.

OFFERING SUMMARY

Price: $10.00 per Share 

	Minimum		Midpoint		Maximum		Adjusted Maximum
Number of shares		1,700,000		2,000,000		2,300,000		2,645,000
Gross offering proceeds	$	17,000,000	$	20,000,000	$	23,000,000	$	26,450,000
Estimated offering expenses, excluding selling agent fees and expenses	$	1,055,000	$	1,055,000	$	1,055,000	$	1,055,000
Selling agent fees and expenses (1)	$	410,000	$	410,000	$	410,000	$	410,000
Estimated net proceeds	$	15,535,000	$	18,535,000	$	21,535,000	$	24,985,000
Estimated net proceeds per share	$	9.14	$	9.27	$	9.36	$	9.45

(1) The amounts shown assume that 100% of the shares are sold in the subscription and community offerings. The amounts shown further assume that Keefe, Bruyette & Woods, Inc. will receive (i) a success fee of $225,000, (ii) reimbursable expenses up to $155,000; and (iii) $30,000 for records management fees and expenses. See “The Conversion and Offering—Plan of Distribution; Selling Agent and Underwriter Compensation” for information regarding compensation to be received by Keefe, Bruyette & Woods, Inc. in the subscription and community offerings and the compensation to be received by Keefe, Bruyette & Woods, Inc. and any other broker-dealers that may participate in a syndicated offering. If all shares of common stock were sold in the syndicated offering, the selling agent and broker-dealers’ commissions would be approximately $1.0 million, $1.2 million, $1.4 million and $1.6 million at the minimum, midpoint, maximum and adjusted maximum levels of the offering, respectively.

This investment involves a degree of risk, including the possible loss of principal.

Please read “Risk Factors” beginning on page 19.

These securities are not deposits or accounts and are not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. Neither the Securities and Exchange Commission, the Board of Governors of the Federal Reserve System, the New York Department of Financial Services, the Federal Deposit Insurance Corporation, nor any state securities regulator has approved or disapproved of these securities or determined if this prospectus is accurate or complete. Any representation to the contrary is a criminal offense.

Keefe, Bruyette & Woods

A Stifel Company

For assistance, please contact the Stock Information Center at [telephone number].

The date of this prospectus is [prospectus date].

[MAP TO BE INSERTED ON INSIDE FRONT COVER]

TABLE OF CONTENTS

	Page
SUMMARY	1
RISK FACTORS	19
SELECTED CONSOLIDATED FINANCIAL AND OTHER DATA	31
FORWARD-LOOKING STATEMENTS	34
HOW WE INTEND TO USE THE PROCEEDS FROM THE OFFERING	35
OUR DIVIDEND POLICY	36
MARKET FOR THE COMMON STOCK	37
HISTORICAL AND PRO FORMA REGULATORY CAPITAL COMPLIANCE	39
CAPITALIZATION	40
IMPACT OF PATHFINDER BANCORP, MHC’S ASSETS ON MINORITY STOCK OWNERSHIP	42
PRO FORMA DATA	43
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	51
BUSINESS OF NEW PATHFINDER	73
BUSINESS OF PATHFINDER-FEDERAL AND PATHFINDER BANK	73
SUPERVISION AND REGULATION	102
TAXATION	112
MANAGEMENT	114
BENEFICIAL OWNERSHIP OF COMMON STOCK	127
SUBSCRIPTIONS BY DIRECTORS AND EXECUTIVE OFFICERS	128
THE CONVERSION AND OFFERING	129
COMPARISON OF STOCKHOLDERS’ RIGHTS FOR EXISTING STOCKHOLDERS OF PATHFINDER BANCORP, INC.	153
RESTRICTIONS ON ACQUISITION OF NEW PATHFINDER	159
DESCRIPTION OF CAPITAL STOCK OF NEW PATHFINDER FOLLOWING THE CONVERSION	162
TRANSFER AGENT	163
EXPERTS	163
LEGAL MATTERS	164
WHERE YOU CAN FIND ADDITIONAL INFORMATION	164
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS	F-1

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SUMMARY

The following summary explains the significant aspects of the conversion, the offering and the exchange of existing shares of Pathfinder-Federal common stock for shares of New Pathfinder common stock. It may not contain all of the information that is important to you. Before making an investment decision, you should read this entire document carefully, including the consolidated financial statements and the notes thereto, and the section entitled “Risk Factors.”

Our Organizational Structure and the Proposed Conversion

Since 1997 we have operated in a two-tiered mutual holding company structure. Pathfinder-Federal is our federally chartered, publicly-traded stock holding company and the parent company of Pathfinder Bank. At March 31, 2014, Pathfinder-Federal had consolidated assets of $525.8 million, deposits of $438.4 million and shareholders' equity of $43.8 million. Pathfinder-Federal’s parent company is Pathfinder Bancorp, MHC, a federally chartered mutual holding company. At March 31, 2014, Pathfinder-Federal had 2,623,182 shares of common stock outstanding, of which 1,039,943 shares, or 39.6%, were owned by the public and the remaining 1,583,239 shares were held by Pathfinder Bancorp, MHC.

Pursuant to the terms of the plan of conversion and reorganization, we are now converting from the mutual holding company corporate structure to the stock holding company corporate structure. Upon completion of the conversion, Pathfinder Bancorp, MHC and Pathfinder-Federal will cease to exist, and New Pathfinder will become the successor corporation to Pathfinder-Federal. The shares of New Pathfinder being offered in this offering represent the majority ownership interest in Pathfinder-Federal currently held by Pathfinder Bancorp, MHC. Public stockholders of Pathfinder-Federal will receive shares of common stock of New Pathfinder in exchange for their shares of Pathfinder-Federal at an exchange ratio intended to preserve the same aggregate ownership interest in New Pathfinder as they had in Pathfinder-Federal, as adjusted for the assets of Pathfinder Bancorp, MHC. Pathfinder Bancorp, MHC’s shares of Pathfinder-Federal will be cancelled. In connection with the completion of the conversion, Pathfinder Bank will revoke its Section 10(l) election so that New Pathfinder will be a bank holding company under the Bank Holding Company Act of 1956, as amended, subject to supervision and regulation by the Board of Governors of the Federal Reserve Systems (the “Federal Reserve Board”).

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The following diagram shows our current organizational structure, reflecting ownership percentages as of March 31, 2014:

2

After the conversion and offering are completed, we will be organized as a fully public holding company, as follows:

3

Our Business

Pathfinder Bank is a community bank that has served the banking needs of its customers since 1859. Pathfinder Bank conducts its community banking business from eight banking offices located in Oswego and Onondaga Counties, New York. Additionally, in the third quarter of 2014 we will open a new business banking office in Syracuse, New York. We are primarily engaged in the business of attracting deposits from the general public in our market area, and investing such deposits, together with other sources of funds, in loans secured by one- to four-family residential real estate, commercial real estate, commercial and municipal loans, and to a lesser extent, home equity and junior lien loans and consumer loans. Additionally, over the past several years, we have focused on growing our commercial real estate and commercial loan portfolios, and we intend to continue to grow these portfolios in the future. We invest a portion of our assets in securities issued by the United States Government and its agencies, government sponsored enterprises, state and municipal obligations, corporate debt securities, mutual funds, and equity securities. We also invest in mortgage-backed securities primarily issued or guaranteed by United States Government sponsored enterprises. Our principal sources of funds are deposits, principal and interest payments on loans and investments, as well as borrowings from the Federal Home Loan Bank of New York (“FHLBNY”). Our principal source of income is from interest income received on loans and investment securities. Our principal expenses are interest paid on deposits and borrowings, employee compensation and benefits, data processing and facilities. In December 2013, we acquired a controlling interest in FitzGibbons Agency, LLC, a property and casualty and life and health insurance brokerage business, which is a new source of our non-interest income.

We also operate a limited purpose commercial bank subsidiary, Pathfinder Commercial Bank, which serves the depository needs of municipalities and public entities in our market area. New York law requires municipal deposits to be held only by commercial banks. At March 31, 2014, Pathfinder Commercial Bank held $78.0 million in deposits.

Pathfinder Bank is subject to extensive regulation by the New York Department of Financial Services (“NYDFS”) and by the Federal Deposit Insurance Corporation (the “FDIC”). Pathfinder Bank is a member of the FHLBNY.

Pathfinder Bank’s main office is located at 214 West First Street, Oswego, New York and the telephone number at that address is (315) 343-0057. Its internet address is www.pathfinderbank.com. Information on our website is not and should not be considered to be a part of this prospectus.

Business Strategy

Our business strategy has been to transition from a traditional savings bank primarily focused on originating one- to four-family residential real estate loans to a more diversified loan composition similar to a commercial bank, while at the same time, maintaining our high standards of customer service and convenience. We have emphasized developing our business banking by offering products desirable to small businesses in our market area. Notwithstanding, a significant portion of our lending activity has been, and will continue to be, the origination of one- to four-family residential real estate loans. Highlights of our business strategy are as follows:

· Expanding our business banking. We have increased our emphasis on servicing the needs of small businesses in our market area. We intend to use our branch office network and experienced commercial deposit specialists to provide convenient commercial loan and deposit products and services to business customers, including merchant and remote deposit capture services. We believe that by developing our commercial relationships with small businesses we will be able to offer a variety of services and deposit products that will provide a growing source of fee income to Pathfinder Bank. We have introduced new products and services in order to attract new business customers and we will continue to expand our products to help meet the needs of our business customers.

· Continuing our emphasis on commercial business and commercial real estate lending. In recent years, we have sought to significantly increase our commercial business and commercial real

4

estate lending, consistent with safe and sound underwriting practices. In this regard, we have added personnel who are experienced in originating and servicing our commercial real estate and commercial business loans. At March 31, 2014, commercial real estate loans totaled $102.6 million, or 29.5% of loans, compared with $62.2 million, or 23.8% of loans, at December 31, 2009. At March 31, 2014, commercial and municipal loans totaled $51.6 million, or 14.8% of loans, compared with $35.4 million, or 13.5% of loans, at December 31, 2009. We view the growth of our commercial business and commercial real estate loans as a means of diversifying and increasing our interest income and establishing relationships with local businesses, which provide a recurring and broader source of fee income and deposits. We expect that our emphasis on commercial business and commercial real estate lending will complement our traditional one- to four-family residential real estate lending.

· Diversifying our products and services with a goal of increasing non-interest income over time. We have sought to reduce our dependence on net interest income by increasing the fee income for services we provide. We offer property and casualty, life and health insurance through our subsidiary, Pathfinder Risk Management Company, Inc., and its insurance agency subsidiary, the FitzGibbons Agency, LLC. Additionally, Pathfinder Bank’s investment services provides brokerage services for the purchase of stocks, bonds, mutual funds, annuities, and long-term care products. We intend to gradually grow these businesses in the years ahead. We have already added personnel for Pathfinder Bank’s investment services. At March 31, 2014, there were $30.8 million in assets under management for our investment services division. We believe that there will be opportunities to cross-sell these products to our deposit and borrower customers which may increase our non-interest income.

· Continuing to grow our customer relationships and deposit base by expanding our branch network. As conditions permit, we will expand our branch network through a combination of de novo branching and acquisitions of branches or other financial services companies. We believe that as we expand our branch network, our customer relationships and deposit base will continue to grow. During the third quarter of 2014, we intend to open a business banking office in Syracuse, New York. As we continue to grow our lending operations in Onondaga County, we anticipate opening additional branches in Onondaga County based on customer demand. As of June 30, 2013, our total deposits represented 31.2% of all deposits in Oswego County, but only 0.46% of all deposits in Onondaga County. As we expand our branch network, we expect our deposit base in Onondaga County to increase. We do not currently have any agreements or understandings regarding specific de novo branches or acquisitions. Additionally, we have committed significant resources to establish a banking platform to accommodate future growth by upgrading our information technology, maintaining a robust risk management and compliance staff, hiring additional commercial lenders and credit analysts, and upgrading our physical infrastructure. We believe that these investments will enable us to achieve operational efficiencies with minimal additional investments, while providing increased convenience for our customers.

· Utilizing the net proceeds from the conversion to continue the controlled growth of Pathfinder Bank. In 2009, we sold $6.7 million of Series A Preferred Stock to the U.S. Treasury as part of the Troubled Asset Relief Program (“TARP”). In September 2011, we replaced the Series A Preferred Stock with $13.0 million in gross proceeds from the sale of Series B Preferred Stock to the U.S. Treasury as part of the Small Business Lending Fund (“SBLF”). At March 31, 2014, the Series B Preferred Stock had an annual dividend rate of 1.0% which will increase to 9.0% in March 2016. We have used the proceeds from the sale of preferred stock to provide capital for asset growth and increased lending. During the period between December 31, 2009 and March 31, 2014, our total assets grew by $154.2 million, or 41.5%, principally through organic loan origination and deposit growth. We believe that we can successfully utilize the net proceeds from the conversion to continue our asset growth and create a banking platform that will improve our profitability and create operational efficiencies for Pathfinder Bank.

· Providing quality customer service. Our strategy emphasizes providing quality customer service delivered through our branch network and meeting the financial needs of our customer base by

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offering a full complement of loan, deposit and online banking solutions (i.e., internet banking). We intend to open a new business banking office in Syracuse, New York in the third quarter of 2014 to increase the convenience of our branch network for our Onondaga County customers. Our competitive advantage is our ability to make decisions, such as approving loans, more quickly than our larger competitors. Customers enjoy, and will continue to enjoy, access to senior executives and local decision makers at Pathfinder Bank and the flexibility it brings to their businesses.

See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Business Strategy.”

Reasons for the Conversion and Offering

Our primary reasons for converting to the fully public stock form of ownership and undertaking the stock offering are to:

· Support organic growth.   Pathfinder Bank has experienced consistent organic deposit and loan growth over the past 6 years as we have expanded our geographical footprint, increased our emphasis on growing our commercial loan and deposit relationships, and leveraged certain market opportunities, including obtaining $13.0 million in capital through SBLF. At December 31, 2009, our total assets and total deposits were $371.7 million and $296.8 million, respectively, compared to our total assets and total deposits of $525.8 million and $438.4 million, respectively, at March 31, 2014. The conversion will enable us to support additional deposit and loan growth as we expand into the Syracuse market area with the opening of our new business banking office in the third quarter of 2014.

· Improve the liquidity of our shares of common stock.   The greater number of shares that will be outstanding after completion of the conversion and offering is expected to result in a more liquid and active market for New Pathfinder common stock than has existed for Pathfinder-Federal common stock. A more liquid and active market will make it easier for our stockholders to buy and sell our common stock and will give us greater flexibility in implementing capital management strategies.

· Enhance our regulatory capital position.   A strong capital position is essential to achieving our long-term objective of building stockholder value. While Pathfinder Bank exceeds all regulatory capital requirements, the proceeds from the offering will greatly strengthen our capital position and enable us to support our planned growth and expansion. Minimum regulatory capital requirements will also increase in the future under recently adopted regulations, and compliance with these new requirements will be essential to the continued implementation of our business strategy.

· Eliminate the uncertainties associated with the mutual holding company structure under financial reform legislation.   Under the Dodd-Frank Wall Street Reform and Consumer Protection Act, or Dodd-Frank Act, the Federal Reserve Board became the federal regulator of all savings and loan holding companies and mutual holding companies. This has resulted in changes in regulations applicable to Pathfinder Bancorp, MHC and Pathfinder-Federal, particularly changes with respect to the waiver of dividends by Pathfinder Bancorp, MHC which is a key component of our mutual holding company structure and impacts the value of Pathfinder-Federal’s common stock. The Federal Reserve Board currently requires “grandfathered” mutual holding companies, like Pathfinder Bancorp, MHC, to obtain depositor approval and comply with other procedural requirements prior to waiving dividends, which makes dividend waivers more difficult and costly to obtain. As a result, Pathfinder Bancorp, MHC has not waived dividends declared on Pathfinder-Federal’s common stock during the past several years. Instead, all dividends declared by Pathfinder-Federal have been paid to Pathfinder Bancorp, MHC, as well as our public stockholders, resulting in a tax liability for Pathfinder Bancorp, MHC, fewer capital

6

resources available to Pathfinder-Federal and Pathfinder Bank and a decrease in the exchange ratio for our public stockholders upon conversion to stock form. The conversion will eliminate our mutual holding company structure, and enable us to pay dividends to our stockholders without the limitations described above, subject to the customary legal, regulatory and financial considerations applicable to all financial institutions. See “Our Dividend Policy.” It also will eliminate the risk that the Federal Reserve Board will amend existing regulations applicable to the conversion process in a manner disadvantageous to our public stockholders or depositors.

· Transition us to a more familiar and flexible organizational structure.   The stock holding company structure is a more familiar form of organization, which we believe will make our common stock more appealing to investors, and will give us greater flexibility to access the capital markets through possible future equity and debt offerings, although we have no current plans, agreements or understandings regarding any additional securities offerings.

· Facilitate future mergers and acquisitions.   Although we do not currently have any understandings or agreements regarding any specific acquisition transaction, the stock holding company structure will give us greater flexibility to structure mergers and acquisitions of other financial institutions or financial services companies as opportunities arise, which will make us a more attractive and competitive bidder for such institutions. The additional capital raised in the offering also will enable us to consider larger merger transactions. In addition, although we intend to remain an independent financial institution, the stock holding company structure may make us a more attractive acquisition candidate for other institutions. Applicable regulations prohibit the acquisition of New Pathfinder for three years following completion of the conversion.

Terms of the Offering

We are offering between 1,700,000 and 2,300,000 shares of common stock to eligible depositors of Pathfinder Bank and to our tax-qualified employee benefit plans in a subscription offering. To the extent shares remain available, we may offer shares in a community offering to the general public, with a preference given first to natural persons (including trusts of natural persons) residing in Oswego, Onondaga, Madison, Oneida, Cortland, Lewis, Jefferson, Cayuga and Wayne Counties, New York, and then to our existing public stockholders. We may also offer for sale shares not purchased in the subscription or community offerings to the general public in a syndicated offering. The number of shares of common stock to be sold may be increased to up to 2,645,000 shares as a result of demand for the shares of common stock in the offering or changes in market conditions. Unless the number of shares of common stock to be offered is increased to more than 2,645,000 shares or decreased to fewer than 1,700,000 shares, or the offering is extended beyond [extension date #1], subscribers will not have the opportunity to change or cancel their stock orders once submitted. If the offering is extended past [extension date #1], all subscribers will be notified and given an opportunity to confirm, change or cancel their orders. If you do not respond to this notice, your order will be cancelled and we will promptly return your funds with interest at [interest rate]% per annum or cancel your deposit account withdrawal authorization. If the number of shares to be sold is increased to more than 2,645,000 shares or decreased to less than 1,700,000 shares, all subscribers’ stock orders will be cancelled, their withdrawal authorizations will be cancelled and funds delivered to us to purchase shares of common stock in the offering will be returned promptly with interest at [interest rate]% per annum. We will then resolicit subscribers, giving them an opportunity to place new orders for a period of time.

The purchase price of each share of common stock offered for sale in the offering is $10.00. All investors will pay the same purchase price per share. Investors will not be charged a commission to purchase shares of common stock in the offering. Keefe, Bruyette & Woods, Inc., our marketing agent in the offering, will use its best efforts to assist us in selling shares of our common stock in the offering but is not obligated to purchase any shares of common stock in the offering. For a more complete discussion of the terms of the offering, see “The Conversion and Offering.”

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How We Determined the Offering Range, the Exchange Ratio and the $10.00 Per Share Stock Price

The amount of common stock we are offering for sale and the exchange ratio for the exchange of shares of Pathfinder-Federal for shares of New Pathfinder are based on an independent appraisal of the estimated market value of New Pathfinder that assumes the offering is completed and adjusts the exchange ratio to reflect assets held by Pathfinder Bancorp, MHC (including the payment of a $0.03 per share dividend by Pathfinder-Federal to stockholders in the second quarter of 2014, and the anticipated payments of cash dividends in the third quarter of 2014). RP Financial, LC., our independent appraiser, has estimated that, as of May 16, 2014, this market value was $32.9 million. Based on federal regulations, this market value forms the midpoint of a valuation range with a minimum of $28.0 million and a maximum of $37.8 million. Based on this valuation range, the 60.8% ownership interest (adjusted for dilution) of Pathfinder Bancorp, MHC in Pathfinder-Federal as of March 31, 2014 being sold in the offering and the $10.00 per share price, the number of shares of common stock being offered for sale by New Pathfinder ranges from 1,700,000 shares to 2,300,000 shares. The $10.00 per share price was selected primarily because it is the price most commonly used in mutual-to-stock conversions of financial institutions. The exchange ratio ranges from 1.0552 shares at the minimum of the offering range to 1.4276 shares at the maximum of the offering range, and subject to adjustment for the assets of Pathfinder Bancorp, MHC, stockholders will own the same percentage of the common stock of New Pathfinder after the conversion as they held in Pathfinder-Federal immediately prior to the conversion, without giving effect to new shares purchased in the offering or cash paid in lieu of any fractional shares. If demand for shares or market conditions warrant, the appraisal may be increased by 15%, which would result in an appraised value of $43.5 million, an offering of 2,645,000 shares of common stock, and an exchange ratio of 1.6417 shares.

The appraisal is based in part on Pathfinder-Federal’s financial condition and results of operations, the pro forma effect of the additional capital raised by the sale of shares of common stock in the offering, and an analysis of a peer group of ten publicly traded thrift holding companies that RP Financial, LC. considers comparable to Pathfinder-Federal. The appraisal peer group consists of the following companies, all of which are traded on the Nasdaq Stock Market.

Company Name	Ticker Symbol	Headquarters	Total Assets (1)
			(In millions)
Alliance Bancorp of Pennsylvania	ALLB	PA	$	426
Chicopee Bancorp, Inc.	CBNK	MA	$	588
CMS Bancorp, Inc.	CMSB	NY	$	263
Georgetown Bancorp, Inc.	GTWN	MA	$	263
Hampden Bancorp, Inc.	HBNK	MA	$	694
Oneida Financial Corp.	ONFC	NY	$	742
Peoples Federal Bancshares, Inc.	PEOP	MA	$	588
TF Financial Corporation	THRD	PA	$	836
Wellesley Bancorp, Inc.	WEBK	MA	$	459
WVS Financial Corp.	WVFC	PA	$	314

(1) Asset size for all companies is as of December 31, 2013.

The following table presents a summary of selected pricing ratios for New Pathfinder (on a pro forma basis) based on earnings and other information as of and for the twelve months ended March 31, 2014 and for the peer group companies based on earnings and other information as of and for the twelve months ended March 31, 2014 or the most recent twelve-month period financial data available, and stock prices as of May 16, 2014 as reflected in the appraisal report. Compared to the average pricing of the peer group, our pro forma pricing ratios at the midpoint of the offering range indicated a discount of 28.2% on a price-to-book value basis, a discount of 24.1% on a price-to-tangible book value basis, and a discount of 16.9% on a price-to-earnings basis.

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	Price-to-earnings  multiple (1)			Price-to-book  value ratio			Price-to-tangible book value ratio
New Pathfinder (on a pro forma basis, assuming completion of the conversion)
Adjusted Maximum		23.43	x		80.58	%		88.03	%
Maximum		20.29	x		74.46	%		81.77	%
Midpoint		17.58	x		68.45	%		75.59	%
Minimum		14.89	x		61.73	%		68.63	%
Valuation of peer group companies, all of which are fully converted (on an historical basis)
Averages		21.16	x		95.31	%		99.65	%
Medians		21.04	x		96.63	%		99.21	%

(1) Price-to-earnings multiples calculated by RP Financial, LC. in the independent appraisal are based on an estimate of “core” or recurring earnings on a trailing twelve-month basis through March 31, 2014 for New Pathfinder and March 31, 2014 or the most recent twelve-month period available for the peer group companies. These ratios are different than those presented in “Pro Forma Data.”

The independent appraisal does not indicate trading market value. Do not assume or expect that our valuation as indicated in the appraisal means that after the conversion and offering the shares of our common stock will trade at or above the $10.00 per share purchase price. Furthermore, the pricing ratios presented in the appraisal were used by RP Financial, LC. to estimate our pro forma appraised value for regulatory purposes and not to compare the relative value of shares of our common stock with the value of the capital stock of the peer group. The value of the capital stock of a particular company may be affected by a number of factors such as financial performance, asset size and market location.

For a more complete discussion of the amount of common stock we are offering for sale and the independent appraisal, see “The Conversion and Offering—Stock Pricing and Number of Shares to be Issued.”

Impact of Pathfinder Bancorp, MHC’s Assets on Minority Stock Ownership 

In the exchange, the public common stockholders of Pathfinder-Federal will receive shares of common stock of New Pathfinder in exchange for their shares of common stock of Pathfinder-Federal pursuant to an exchange ratio that is designed to provide, subject to adjustment, that the stockholders will own the same percentage of the common stock of New Pathfinder after the conversion as they held in Pathfinder-Federal immediately prior to the conversion, without giving effect to new shares purchased in the offering or cash paid in lieu of any fractional shares. However, the exchange ratio will be adjusted downward to reflect assets held by Pathfinder Bancorp, MHC (other than shares of stock of Pathfinder-Federal), which assets consist primarily of cash relating to dividends paid by Pathfinder-Federal. Pathfinder Bancorp, MHC had net assets of $250,927 as of March 31, 2014, not including Pathfinder-Federal common stock. The appraisal also accounts for Pathfinder-Federal’s dividend of $0.03 per share paid to stockholders in the second quarter of 2014 and assumes the payment of an equivalent dividend in the third quarter of 2014 prior to the completion of the conversion. The adjustments described above will decrease Pathfinder-Federal’s stockholders’ ownership interest in New Pathfinder from 39.64% to 39.23% of common stock at March 31, 2014. If Pathfinder-Federal declares any further dividends before the completion of the conversion, public common stockholders’ ownership interest in Pathfinder-Federal will be further diluted.

The Exchange of Existing Shares of Pathfinder-Federal Common Stock

If you are currently a common stockholder of Pathfinder-Federal, at the completion of the conversion your shares of common stock will be exchanged for shares of common stock of New Pathfinder. The number of shares of common stock you will receive will be based on the exchange ratio, which will depend upon our final appraised value and the percentage of outstanding shares of Pathfinder-Federal common stock owned by public common stockholders immediately prior to the completion of the conversion, as adjusted for the assets of Pathfinder Bancorp, MHC. The following table shows how the exchange ratio will adjust, based on the appraised value of New Pathfinder as of May 16, 2014, assuming public common stockholders of Pathfinder-Federal own 39.2% of Pathfinder-Federal common stock immediately prior to the completion of the conversion. The table also shows the number of shares of New Pathfinder common stock a hypothetical owner of Pathfinder-Federal common stock would receive in exchange for 100 shares of Pathfinder-Federal common stock owned at the completion of the conversion, depending on the number of shares of common stock issued in the offering.

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	Shares to be Sold in This Offering					Shares of New Pathfinder to be Issued for Shares of Pathfinder-Federal					Total Shares of Common Stock to be Issued in Exchange and		Exchange		Equivalent  Value of Shares Based Upon Offering		Equivalent Pro Forma Tangible Book Value Per Exchanged		Shares to be Received for 100 Existing
	Amount		Percent			Amount		Percent			Offering (1)		Ratio (1)		Price (2)		Share (3)		Shares (4)
Minimum		1,700,000		60.8	%		1,097,324		39.2	%		2,797,324		1.0552	$	10.55	$	15.37		105
Midpoint		2,000,000		60.8			1,290,969		39.2			3,290,969		1.2414		12.41		16.42		124
Maximum		2,300,000		60.8			1,484,614		39.2			3,784,614		1.4276		14.28		17.46		142
Adjusted Maximum		2,645,000		60.8			1,707,306		39.2			4,352,306		1.6417		16.42		18.65		164

(1) Valuation and ownership ratios reflect dilutive impact of Pathfinder Bancorp, MHC’s assets upon completion of the conversion. See “—Impact of Pathfinder Bancorp, MHC’s Assets On Minority Stock Ownership” for more information regarding the dilutive impact of Pathfinder Bancorp, MHC’s assets on the valuation and ownership ratios.

(2) Represents the value of shares of New Pathfinder common stock to be received in the conversion by a holder of one share of Pathfinder-Federal common stock, pursuant to the exchange ratio, based upon the $10.00 per share purchase price.

(3) Represents the pro forma tangible book value per share of common stock at each level of the offering range multiplied by the respective exchange ratio.

(4) Cash will be paid in lieu of fractional shares.

If you own shares of Pathfinder-Federal common stock in a brokerage account in “street name,” your shares will be exchanged automatically within your account, so you do not need to take any action to exchange your shares of common stock. If your shares are represented by physical Pathfinder-Federal stock certificates, after the completion of the conversion, our transfer agent will mail to you a transmittal form with instructions to surrender your stock certificate(s). You should not submit a stock certificate until you receive a transmittal form. A statement reflecting your ownership of New Pathfinder common stock will be mailed to you within five business days after the transfer agent receives a properly executed transmittal form and your Pathfinder-Federal stock certificate(s). New Pathfinder will not issue stock certificates.

No fractional shares of New Pathfinder common stock will be issued to any public stockholder of Pathfinder-Federal. For each fractional share of common stock that otherwise would be issued, New Pathfinder will pay in cash an amount equal to the product obtained by multiplying the fractional share interest to which the holder otherwise would be entitled by the $10.00 per share offering price.

Pathfinder-Federal’s Series B Preferred Stock will not be redeemed in connection with the conversion and will be exchanged for preferred stock of New Pathfinder with the same rights and preferences identical to the Series B Preferred Stock of Pathfinder-Federal on a one for one exchange basis. No other preferred stock will be issued as a result of the conversion.

Outstanding options to purchase shares of Pathfinder-Federal common stock also will convert into and become options to purchase shares of New Pathfinder common stock based upon the exchange ratio. The aggregate exercise price, duration and vesting schedule of these options will not be affected by the conversion. At March 31, 2014, there were 105,500 outstanding options to purchase shares of Pathfinder-Federal common stock, 38,500 of which have vested. Such outstanding options will be converted into options to purchase 111,323 shares of New Pathfinder common stock at the minimum of the offering range and 150,611 shares of New Pathfinder common stock at the maximum of the offering range. Because federal regulations prohibit us from repurchasing our common stock during the first year following the conversion unless compelling business reasons exist for such repurchases, we may use authorized but unissued shares to fund option exercises that occur during the first year following the conversion. If all existing options were exercised and funded with authorized but unissued shares of common stock following the conversion, stockholders would experience ownership dilution of approximately 3.8% at the minimum of the offering range.

How We Intend to Use the Proceeds From the Offering

We intend to invest at least 50% of the net proceeds from the offering in Pathfinder Bank, loan funds to our employee stock ownership plan to fund its purchase of shares of common stock in the offering and retain the

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remainder of the net proceeds from the offering at New Pathfinder. Therefore, assuming we sell 2,000,000 shares of common stock in the offering, and we have net proceeds of $18.5 million, we intend to invest $9.3 million in Pathfinder Bank, loan $800,000 to our employee stock ownership plan to fund its purchase of shares of common stock, and retain the remaining $8.5 million of the net proceeds at New Pathfinder.

New Pathfinder may use the funds it retains for investment, to pay cash dividends, to repurchase shares of common stock, to acquire other financial institutions and for other general corporate purposes. Pathfinder Bank may use the proceeds it receives to support increased lending and other products and services, to expand its branch network, or to acquire other financial institutions or other financial services companies.

Please see the section of this prospectus entitled “How We Intend to Use the Proceeds from the Offering” for more information on the proposed use of the proceeds from the offering.

Persons Who May Order Shares of Common Stock in the Offering

We are offering the shares of common stock in a subscription offering in the following descending order of priority:

(i) To depositors with accounts at Pathfinder Bank with aggregate balances of at least $50 at the close of business on March 31, 2013.

(ii) To our tax-qualified employee benefit plans (including Pathfinder Bank’s employee stock ownership plan and Pathfinder Bank’s 401(k) plan), which may subscribe for up to 10% of the shares of common stock sold in the offering. We expect our employee stock ownership plan to purchase 4% of the shares of common stock sold in the stock offering.

(iii) To depositors with accounts at Pathfinder Bank with aggregate balances of at least $50 at the close of business on [Supplemental Eligibility Record Date].

(iv) To depositors of Pathfinder Bank at the close of business on [Depositor Record Date].

Shares of common stock not purchased in the subscription offering may be offered for sale to the general public in a community offering, with a preference given first to natural persons (including trusts of natural persons) residing in Oswego, Onondaga, Madison, Oneida, Cortland, Lewis, Jefferson, Cayuga and Wayne Counties, New York, and then to Pathfinder-Federal’s public stockholders as of [Stockholder Record Date]. The community offering, if any, may begin concurrently with, during or promptly after the subscription offering. We also may offer for sale shares of common stock not purchased in the subscription offering or the community offering through a syndicated offering. Keefe, Bruyette & Woods, Inc. will act as sole book-running manager for the syndicated offering. We have the right to accept or reject, in our sole discretion, orders received in the community offering or syndicated offering. Any determination to accept or reject stock orders in the community offering or syndicated offering will be based on the facts and circumstances available to management at the time of the determination.

If we receive orders for more shares than we are offering, we may not be able to fully or partially fill your order. Shares will be allocated first to categories in the subscription offering. A detailed description of the subscription offering, the community offering and the syndicated offering, as well as a discussion regarding allocation procedures, can be found in the section of this prospectus entitled “The Conversion and Offering.”

Limits on How Much Common Stock You May Purchase

The minimum number of shares of common stock that may be purchased is 25 shares.

Generally, no individual (or group of individuals exercising subscription rights through a single deposit account held jointly) may purchase more than 25,000 shares ($250,000) of common stock. If any of the following persons purchases shares of common stock, their purchases, in all categories of the offering, when combined with your purchases, cannot exceed 50,000 shares ($500,000) of common stock:

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· your spouse or relatives of you or your spouse living in your house;

· most companies, trusts or other entities in which you are a trustee, have a substantial beneficial interest or hold a senior position; or

· other persons who may be your associates or persons acting in concert with you.

Unless we determine otherwise, persons having the same address and persons exercising subscription rights through qualifying deposit accounts registered to the same address will be subject to the overall purchase limitation of 50,000 shares ($500,000).

In addition to the above purchase limitations, there is an ownership limitation for current stockholders of Pathfinder-Federal other than our employee stock ownership plan. Shares of common stock that you purchase in the offering individually and together with persons described above, plus any shares you and they receive in exchange for existing shares of Pathfinder-Federal common stock, may not exceed 9.9% of the total shares of common stock to be issued and outstanding after the completion of the conversion. However, if, based on your current ownership level, you will own more than 9.9% of the total shares of common stock to be issued and outstanding after the completion of the conversion following the exchange of your shares of Pathfinder-Federal common stock, you will not need to divest any of your shares. You will be required to obtain the approval or non-objection of the Federal Reserve Board prior to acquiring more than 10% of New Pathfinder’s common stock.

Subject to regulatory approval, we may increase or decrease the purchase and ownership limitations at any time. See the detailed description of the purchase limitations in “The Conversion and Offering—Additional Limitations on Common Stock Purchases.”

How You May Purchase Shares of Common Stock in the Subscription Offering and the Community Offering

In the subscription offering and community offering, you may pay for your shares only by:

(i) personal check, bank check or money order made payable to Pathfinder Bancorp, Inc.; or

(ii) authorizing us to withdraw available funds from the types of Pathfinder Bank deposit accounts designated on the stock order form.

Pathfinder Bank is not permitted to lend funds to anyone to purchase shares of common stock in the offering. Additionally, you may not use a Pathfinder Bank line of credit check or any type of third party check to pay for shares of common stock. Please do not submit cash. You may not designate withdrawal from Pathfinder Bank’s accounts with check-writing privileges; instead, please submit a check. If you request that we directly withdraw the funds, we reserve the right to interpret that as your authorization to treat those funds as if we had receive a check for the designated amount, and we will immediately withdraw the amount from your checking account. You may not authorize direct withdrawal from a Pathfinder Bank retirement account. See “—Using Individual Retirement Account Funds to Purchase Shares of Common Stock.”

You may subscribe for shares of common stock in the subscription and community offerings by delivering a signed and completed original stock order form, together with full payment payable to Pathfinder Bancorp, Inc. or authorization to withdraw funds from one or more of your Pathfinder Bank deposit accounts without check-writing privileges, provided that the stock order form is received before 2:00 p.m., Eastern Time, on [expiration date], which is the end of the subscription offering period. You may submit your stock order form and payment by mail using the stock order reply envelope provided or by overnight delivery to our Stock Information Center at the address noted on the stock order form. You may also hand-deliver stock order forms to our main office located at 214 West First Street, Oswego, New York. Hand-delivered stock order forms will only be accepted at this location. We will not accept stock order forms at our banking offices. Please do not mail stock order forms to Pathfinder Bank’s offices.

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Please see “The Conversion and Offering— Procedure for Purchasing Shares—Payment for Shares” for a complete description of how to purchase shares in the subscription and community offerings.

Using Individual Retirement Account Funds to Purchase Shares of Common Stock

You may be able to subscribe for shares of common stock using funds in your individual retirement account, or IRA. If you wish to use some or all of the funds in your Pathfinder Bank individual retirement account, the applicable funds must be transferred to a self-directed account maintained by an independent trustee, such as a brokerage firm, and the purchase must be made through that account. If you do not have such an account, you will need to establish one before placing your stock order. An annual administrative fee may be payable to the independent trustee. Because individual circumstances differ and the processing of retirement fund orders takes additional time, we recommend that you contact our Stock Information Center promptly, preferably at least two weeks before the [expiration date] offering deadline, for assistance with purchases using your individual retirement account or other retirement account you may have at Pathfinder Bank or elsewhere. Whether you may use such funds to purchase shares in the stock offering may depend on timing constraints and, possibly, limitations imposed by the institution where the funds are held.

See “The Conversion and Offering—Procedure for Purchasing Shares—Payment for Shares” and “—Using Individual Retirement Account Funds” for a complete description of how to use IRA funds to purchase shares in the stock offering.

Market for Common Stock

Existing publicly held shares of Pathfinder-Federal’s common stock are listed on the Nasdaq Capital Market under the symbol “PBHC.” Upon completion of the conversion, the shares of common stock of New Pathfinder will replace the existing shares, and we expect the shares of New Pathfinder common stock will also trade on the Nasdaq Capital Market under the symbol “PBHC.” In order to list our stock on the Nasdaq Capital Market, we are required to have at least three broker-dealers who will make a market in our common stock. As of [Stockholder Record Date], Pathfinder-Federal had approximately ___ registered market makers in its common stock. Keefe, Bruyette & Woods, Inc. currently makes a market in Pathfinder-Federal’s common stock and has advised us that they intend to make a market in New Pathfinder’s common stock following the offering, but are under no obligation to do so.

Our Dividend Policy

After the completion of the conversion, we intend to pay cash dividends on a quarterly basis. Initially, we expect the quarterly dividends to be $0.03 per share, which equals $0.12 per share on an annualized basis and an annual yield of 1.2% based on a price of $10.00 per share.

The dividend rate and the initial and continued payment of dividends will depend on a number of factors, including our capital requirements, our financial condition and results of operations, tax considerations, statutory and regulatory limitations, and general economic conditions. We cannot assure you that any such dividends will not be reduced or eliminated in the future.

For information regarding our current and proposed dividend policy, see “Our Dividend Policy.” For additional information regarding our ability to declare and pay cash dividends, see “Supervision and Regulation—Regulatory Developments.”

Purchases by Officers and Directors

We expect our directors and executive officers, together with their associates, to subscribe for 226,500 shares of common stock in the offering, representing 13.3% of shares to be sold at the minimum of the offering range. The purchase price paid by them will be the same $10.00 per share price paid by all other persons who purchase shares of common stock in the offering. Following the conversion, our directors and executive officers, together with their associates, are expected to beneficially own 478,844 shares of common stock (including stock

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options exercisable within 60 days of [Stockholder Record Date]), or 17.1% of our total outstanding shares of common stock at the minimum of the offering range, which includes shares they currently own that will be exchanged for shares of New Pathfinder.

See “Subscriptions by Directors and Executive Officers” for more information on the proposed purchases of shares of common stock by our directors and executive officers.

Deadline for Orders of Shares of Common Stock in the Subscription and Community Offerings

The deadline for purchasing shares of common stock in the subscription offering and community offering (if commenced) is 2:00 p.m., Eastern Time, on [expiration date], unless we extend this deadline. If you wish to purchase shares of common stock, a properly completed and signed original stock order form, together with full payment, must be received (not postmarked) by this time.

Although we will make reasonable attempts to provide this prospectus and offering materials to holders of subscription rights, the subscription offering and all subscription rights will expire at 2:00 p.m., Eastern Time, on [expiration date] (unless extended), whether or not we have been able to locate each person entitled to subscription rights.

See “The Conversion and Offering— Procedure for Purchasing Shares—Expiration Date” for a complete description of the deadline for purchasing shares in the stock offering.

You May Not Sell or Transfer Your Subscription Rights

Federal regulations prohibit you from transferring your subscription rights. If you order shares of common stock in the subscription offering, you will be required to certify that you are purchasing the common stock for yourself and that you have no agreement or understanding to sell or transfer your subscription rights or the shares that you are purchasing. We intend to take legal action, including reporting persons to federal agencies, against anyone who we believe has sold or transferred his or her subscription rights. We will not accept your order if we have reason to believe you have sold or transferred your subscription rights. On the order form, you cannot add the names of others for joint stock registration who do not have subscription rights or who qualify only in a lower subscription offering priority than you do. You may add only those who are eligible to purchase shares of common stock in the subscription offering at your date of eligibility. In addition, the stock order form requires that you list all deposit accounts, giving all names on each account and the account number at the applicable eligibility date. Failure to provide this information, or providing incomplete or incorrect information, may result in a loss of part or all of your share allocation if there is an oversubscription.

Delivery of Shares of Common Stock

All shares of common stock sold will be issued in book entry form. Stock certificates will not be issued. A statement reflecting ownership of shares of common stock issued in the subscription and community offerings will be mailed by our transfer agent to the persons entitled thereto at the registration address noted by them on their stock order forms as soon as practicable following consummation of the conversion and offering. We expect trading in the stock to begin on the day of completion of the conversion and offering or the next business day. The conversion and offering are expected to be completed as soon as practicable following satisfaction of the conditions described below in “—Conditions to Completion of the Conversion.” It is possible that until a statement reflecting ownership of shares of common stock is available and delivered to purchasers, purchasers might not be able to sell the shares of common stock that they purchased, even though the common stock will have begun trading. Your ability to sell your shares of common stock before receiving your statement will depend on arrangements you may make with a brokerage firm.

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Conditions to Completion of the Conversion

We cannot complete the conversion and offering unless:

· The plan of conversion and reorganization is approved by at least a majority of votes eligible to be cast by depositors of Pathfinder Bank as of [Depositor Record Date];

· The plan of conversion and reorganization is approved by Pathfinder-Federal stockholders holding at least two-thirds of the outstanding shares of common stock of Pathfinder-Federal as of [Stockholder Record Date], including shares held by Pathfinder Bancorp, MHC;

· The plan of conversion and reorganization is approved by Pathfinder-Federal stockholders holding at least a majority of the outstanding shares of common stock of Pathfinder-Federal as of [Stockholder Record Date], excluding shares held by Pathfinder Bancorp, MHC;

· We sell at least the minimum number of shares of common stock offered in the offering;

· The NYDFS approves an amendment to Pathfinder Bank’s Restated Organization Certificate to provide for a liquidation account; and

· We receive the approval of the Federal Reserve Board to complete the conversion and offering.

Pathfinder Bancorp, MHC intends to vote its shares in favor of the plan of conversion and reorganization. At [Stockholder Record Date], Pathfinder Bancorp, MHC owned 60.4% of the outstanding shares of common stock of Pathfinder-Federal. At [Stockholder Record Date], the directors and executive officers of Pathfinder-Federal and their affiliates owned 239,149 shares of Pathfinder-Federal (excluding exercisable options), or 9.12% of the outstanding shares of common stock and 23.0% of the outstanding shares of common stock excluding shares held by Pathfinder Bancorp, MHC. They intend to vote those shares in favor of the plan of conversion and reorganization.

Steps We May Take if We Do Not Receive Orders for the Minimum Number of Shares

If we do not receive orders for at least 1,700,000 shares of common stock, we may take several steps in order to sell the minimum number of shares of common stock in the offering range. Specifically, we may:

(i) increase the purchase and ownership limitations; and/or

(ii) seek regulatory approval to extend the offering beyond [extension date #1], so long as we resolicit subscriptions that we have previously received in the offering; and/or

(iii) increase the shares purchased by the employee stock ownership plan.

If one or more purchase limitations are increased, subscribers in the subscription offering who ordered the maximum amount will be, and, in our sole discretion, some other large purchasers may be, given the opportunity to increase their subscriptions up to the then-applicable limit.

Possible Change in the Offering Range

RP Financial, LC. will update its appraisal before we complete the offering. If, as a result of demand for the shares or changes in market conditions, RP Financial, LC. determines that our pro forma market value has increased, we may sell up to 2,645,000 shares in the offering without further notice to you. If our pro forma market value at that time is either below $28.0 million or above $43.5 million, then, after consulting with the Federal Reserve Board, we may:

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· terminate the stock offering and promptly return all funds (with interest paid on funds received in the subscription and community offerings);

· set a new offering range; or

· take such other actions as may be permitted by the Federal Reserve Board and the Securities and Exchange Commission.

If we set a new offering range, we will promptly return funds, with interest at [interest rate]% per annum for funds received for purchases in the subscription and community offerings, and cancel any authorization to withdraw funds from deposit accounts for the purchase of shares of common stock. We will then resolicit subscribers, allowing them to place a new stock order for a period of time.

Possible Termination of the Offering

We may terminate the offering at any time prior to the special meeting of depositors that has been called to vote on the conversion, and at any time after depositor approval with the approval of the Federal Reserve Board. If we terminate the offering, we will promptly return your funds with interest at [interest rate]% per annum, and we will cancel deposit account withdrawal authorizations.

Benefits to Management and Potential Dilution to Stockholders Resulting from the Conversion

We expect our employee stock ownership plan, which is a tax-qualified retirement plan for the benefit of all Pathfinder Bank employees, to purchase up to 4% of the shares of common stock we sell in the offering.  If market conditions warrant, in the judgment of its trustee, the employee stock ownership plan’s subscription order will not be filled and the employee stock ownership plan may elect to purchase shares in the open market following the completion of the conversion, subject to the approval of the Federal Reserve Board.

Federal regulations permit us to implement one or more new stock-based benefit plans no earlier than six months after completion of the conversion. Stockholder approval of these plans would be required. Our current intention is to implement one or more new stock-based benefit plans, but we have not determined whether we would adopt the plans within 12 months following the completion of the conversion or more than 12 months following the completion of the conversion. If we implement stock-based benefit plans within 12 months following the completion of the conversion, the stock-based benefit plans would reserve a number of shares (i) up to 4% of the shares of common stock sold in the offering (reduced by amounts purchased by our 401(k) plan using its purchase priority in the stock offering) for awards of restricted stock to key employees and directors, at no cost to the recipients, and (ii) up to 10% of the shares of common stock sold in the offering for issuance pursuant to the exercise of stock options by key employees and directors. If the stock-based benefit plan is adopted more than 12 months after the completion of the conversion, it would not be subject to the percentage limitations set forth above. We have not yet determined the number of shares that would be reserved for issuance under these plans. For a description of our current stock-based benefit plan, see “Management—Compensation Discussion and Analysis—Equity Awards.”

The following table summarizes the number of shares of common stock and the aggregate dollar value of grants that are available under one or more stock-based benefit plans if such plans reserve a number of shares of common stock equal to 4% and 10% of the shares sold in the stock offering for restricted stock awards and stock options, respectively. The table shows the dilution to stockholders if all such shares are issued from authorized but unissued shares, instead of shares purchased in the open market. A portion of the stock grants shown in the table below may be made to non-management employees. The table also sets forth the number of shares of common stock to be acquired by the employee stock ownership plan for allocation to all qualifying employees.

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	Number of Shares to be Granted or Purchased							Dilution			Value of Grants (In Thousands) (1)
	At Minimum of Offering Range		At Adjusted Maximum of Offering Range		As a Percentage of Common Stock to be Sold in the Offering			Resulting From Issuance of Shares for Stock-Based Benefit Plans			At Minimum of Offering Range		At Adjusted Maximum of Offering Range
Employee stock ownership plan		68,000		105,800		4.0	%		N/A	(2)	$	680	$	1,058
Restricted stock awards		68,000		105,800		4.0			2.37	%		680		1,058
Stock options		170,000		264,500		10.0			5.73	%		428		667
Total		306,000		476,100		18.0	%		7.84	%	$	1,788	$	2,783

(1) The actual value of restricted stock awards will be determined based on their fair value as of the date grants are made. For purposes of this table, fair value for stock awards is assumed to be the same as the offering price of $10.00 per share. The fair value of stock options has been estimated at $2.52 per option using the Black-Scholes option pricing model with the following assumptions: a grant-date share price and option exercise price of $10.00; an expected option term of 10 years; a dividend yield of 1.2%; a risk-free rate of return of 2.73%; and expected volatility of 17.71%. The actual value of option grants will be determined by the grant-date fair value of the options, which will depend on a number of factors, including the valuation assumptions used and the option pricing model ultimately adopted.

(2) No dilution is reflected for the employee stock ownership plan because such shares are assumed to be purchased in the offering.

We may fund our stock-based benefit plans through open market purchases, as opposed to new issuances of stock; however, if any options previously granted under our existing 2010 Stock Option Plan are exercised during the first year following completion of the offering, they will be funded with newly issued shares as federal regulations do not permit us to repurchase our shares during the first year following the completion of the offering except to fund the grants of restricted stock or under extraordinary circumstances.

The following table presents information as of March 31, 2014 regarding our employee stock ownership plan, our 2010 Stock Option Plan and our proposed stock-based benefit plan. The table below assumes that 3,784,614 shares are outstanding after the offering, which includes the sale of 2,300,000 shares in the offering at the maximum of the offering range and the issuance of new shares in exchange for shares of Pathfinder-Federal using an exchange ratio of 1.4276. It also assumes that the value of the stock is $10.00 per share.

Existing and New Stock Benefit Plans	Participants	Shares at Maximum of Offering Range			Estimated Value of Shares			Percentage of Shares Outstanding After the Conversion
Employee Stock Ownership Plan:	Officers and Employees
Shares purchased in 1995 offering (1)			132,158	(2)	$	1,321,580			3.5	%
Shares purchased in 2011(1)			178,450	(3)		1,784,500			4.7
Redeemed employee stock ownership plan shares			(30,771	)		(307,710	)		(0.8	)
Shares to be purchased in this offering			92,000			920,000			2.4
Total employee stock ownership plan shares			371,837		$	3,718,370			9.8	%
Restricted Stock Awards:	Directors, Officers and Employees
New shares of restricted stock			92,000			920,000	(4)		2.4
Total shares of restricted stock			92,000		$	920,000			2.4	%
Stock Options:	Directors, Officers and Employees
2010 Stock Option Plan (1)			214,140	(5)	$	2,141,400			5.7	%
New stock options			230,000			2,300,000	(6)		6.1
Total stock options			444,140		$	4,441,400			11.8	%
Total of stock benefit plans			907,977		$	9,079,770			24.0	%

(1) The number of shares indicated has been adjusted for the 1.4276 exchange ratio at the maximum of the offering range.

(2) As of March 31, 2014, 132,158 of these shares, or 92,574 shares prior to adjustment for the exchange, have been allocated.

(3) As of March 31, 2014, 40,151 of these shares, or 28,125 shares prior to adjustment for the exchange, have been allocated.

(4) The value of restricted stock awards is determined based on their fair value as of the date grants are made. For purposes of this table, the fair value of awards under the new stock-based benefit plan is assumed to be the same as the offering price of $10.00 per share.

(5) As of March 31, 2014, options to purchase 150,611 of these shares, or 105,500 shares prior to adjustment for the exchange, have been awarded, and options to purchase 54,962 of these shares, or 38,500 shares prior to adjustment for the exchange, have vested.

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(6) The weighted-average fair value of stock options to be granted has been estimated at $2.52 per option, using the Black-Scholes option pricing model with the following assumptions: exercise price, $10.00; trading price on date of grant, $10.00; dividend yield, 1.2%; expected term, 10 years; expected volatility, 17.71%; and risk-free rate of return, 2.73%. The actual value of option grants will be determined by the grant-date fair value of the options, which will depend on a number of factors, including the valuation assumptions used and the option pricing model ultimately adopted.

Tax Consequences

Pathfinder Bancorp, MHC, Pathfinder-Federal, Pathfinder Bank and New Pathfinder have received an opinion of counsel, Luse Gorman Pomerenk & Schick, P.C., regarding the material federal income tax consequences of the conversion, and have received an opinion of Bonadio & Co., LLP regarding the material New York state tax consequences of the conversion. As a general matter, the conversion will not be a taxable transaction for purposes of federal or state income taxes to Pathfinder Bancorp, MHC, Pathfinder-Federal (except for cash paid for fractional shares), Pathfinder Bank, New Pathfinder, persons eligible to subscribe in the subscription offering, or existing stockholders of Pathfinder-Federal. Existing stockholders of Pathfinder-Federal who receive cash in lieu of fractional shares of New Pathfinder will recognize a gain or loss equal to the difference between the cash received and the tax basis of the fractional share.

How You Can Obtain Additional Information—Stock Information Center

Our banking personnel may not, by law, assist with investment-related questions about the offering. If you have any questions regarding the conversion or offering, please call our Stock Information Center. The toll-free number is [telephone number]. The Stock Information Center is open Monday through Friday between 10:00 a.m. and 4:00 p.m., Eastern Time. The Stock Information Center will be closed on bank holidays.

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RISK FACTORS

You should consider carefully the following risk factors in evaluating an investment in the shares of common stock.

Risks Related to Our Business

Our commercial real estate and commercial loans generally carry greater credit risk than loans secured by owner occupied one- to four-family real estate, and these risks will increase as we continue to increase these types of loans.

At March 31, 2014, $151.4 million, or 43.5%, of our loan portfolio consisted of commercial real estate and commercial loans. Given their larger balances and the complexity of the underlying collateral, commercial real estate and commercial loans, which include commercial and industrial loans, generally expose a lender to greater credit risk than loans secured by owner occupied one- to four-family real estate. Also, many of our borrowers have more than one of these types of loans outstanding. Consequently, an adverse development with respect to one loan or one credit relationship may expose us to significantly greater risk of loss compared to an adverse development with respect to a one- to four-family residential real estate loan. These loans also have greater credit risk than residential real estate for the following reasons:

· commercial real estate – repayment is generally dependent on income being generated in amounts sufficient to cover operating expenses and debt service.

· commercial loans – repayment is generally dependent upon the successful operation of the borrower’s business.

If loans that are collateralized by real estate or other business assets become troubled and the value of the collateral has been significantly impaired, then we may not be able to recover the full contractual amount of principal and interest that we anticipated at the time we originated the loan, which could cause us to increase our provision for loan losses which would in turn adversely affect our operating results and financial condition.

Furthermore, a key component of our strategy is to continue to increase our origination of commercial real estate and commercial loans to diversify our loan portfolio and increase our returns or yields on our loan portfolio. The proposed increase in these types of loans significantly increases our exposure to the risks inherent in these types of loans.

Changing interest rates may have a negative effect on our results of operations.

Our earnings and cash flows are dependent on our net interest income. Interest rates are highly sensitive to many factors that are beyond our control, including general economic conditions and policies of various governmental and regulatory agencies and, in particular, the Federal Reserve Board. Changes in market interest rates may have an adverse effect on our financial condition and results of operations. Our interest-bearing liabilities generally reprice or mature more quickly than our interest-earning assets. If rates increase rapidly, we may have to increase the rates we pay on our deposits, particularly our higher cost time deposits and borrowed funds, more quickly than any increase in interest rates that we earn on our loans and investments, which would adversely affect our net interest spread and net interest income. Furthermore, our mortgage lending varies directly with movements in interest rates, and increases in interest rates may negatively affect our ability to originate loans in the same volumes as we have in recent years. Increases in interest rates may also make it more difficult for borrowers to repay adjustable rate loans.

Conversely, if market interest rates fall below current levels, our net interest margin may also be negatively affected if competitive pressures keep us from further reducing rates on our deposits, while the yields on our assets decrease more rapidly through loan prepayments and interest rate adjustments. Decreases in interest rates often result in increased prepayments of loans and mortgage-related securities, as borrowers refinance their loans to reduce borrowings costs. Under these circumstances, we are subject to reinvestment risk to the extent we are unable

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to reinvest the cash received from such prepayments in loans or other investments that have interest rates that are comparable to the interest rates on existing loans and securities. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Management of Market Risk.”

The Federal Reserve Board, in an attempt to help the overall economy, has, among other things, adopted a low interest rate policy through its targeted federal funds rate and the purchase of mortgage-backed securities. If the Federal Reserve Board reduces its purchases of mortgage-backed securities and increases the federal funds rate, market interest rates would likely rise, which may negatively affect the housing markets and the U.S. economic recovery.

We have a high concentration of loans secured by real estate in our market area, which makes our business highly susceptible to downturns in the local economy and could adversely affect our financial condition and results of operations.

Unlike larger financial institutions that are more geographically diversified, we are a community banking franchise located in central New York. At March 31, 2014, almost all of our mortgage loans were secured by real estate located in our primary market area in central New York. As a result, we have a greater risk of loan defaults and losses in the event of further economic weakness in our market area, which may have a negative effect on the ability of our borrowers to make timely payments of their loans. While economic conditions and real estate values nationwide declined during the last several years, economic conditions and real estate values within our market area have generally been depressed for an extended period of time. The unemployment rates in Oswego and Onondaga Counties were 9.1% and 6.4% in March 2014, respectively, as compared to the State of New York’s unemployment rate of 7.2% in March 2014 and the national unemployment rate of 6.7% in March 2014. The unemployment rates for Oswego and Onondaga Counties remain elevated compared to the unemployment rates that existed prior to the recession and financial crisis.

A deterioration, continued stagnation or even minimal improvement in economic conditions generally and in the market areas we serve could result in the following consequences, any of which could have a material adverse effect on our business, financial condition and results of operations:

· loan delinquencies, problem assets and foreclosures may increase;

· weak economic conditions may continue to limit the demand for loans by creditworthy borrowers, limiting our capacity to leverage our retail deposits and maintain our net interest income; and

· the value of the collateral for our loans may decline further.

Our business may be adversely affected by credit risk associated with residential property.

At March 31, 2014, $167.1 million, or 48.0%, of our total loan portfolio was secured by one- to-four family real estate. One- to four-family residential mortgage lending is generally sensitive to regional and local economic conditions that significantly impact the ability of borrowers to meet their loan payment obligations, making loss levels difficult to predict. The real estate values within our market area have generally been depressed for an extended period of time, and as a result of the recent economic downturn, the value of the real estate collateral securing these types of loans has declined in some instances. Some of our residential mortgage loans are secured by liens on mortgage properties in which the borrowers have reduced equity because of the decline in home values. As a result, we have increased risk that we could incur losses if borrowers default on their loans because we may be unable to recover all or part of the defaulted loans by selling the real estate collateral. In addition, if the borrowers sell their homes, they may be unable to repay their loans in full from the sale proceeds. For these reasons, we may experience higher rates of delinquencies, default and loss on our residential mortgage loans.

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If our nonperforming assets increase, our earnings will be adversely affected.

At March 31, 2014, our nonperforming assets, which consist of non-performing loans (including non-accruing troubled debt restructurings) and other real estate owned, were $7.7 million, or 1.5% of total assets.  Our nonperforming assets adversely affect our net income in various ways:

· we record interest income only on the cash basis or cost-recovery method for non-accrual loans and we do not record interest income for other real estate owned;

· we must provide for probable loan losses through a current period charge to the provision for loan losses;

· noninterest expense increases when we write down the value of properties in our other real estate owned portfolio to reflect changing market values;

· there are legal fees associated with the resolution of problem assets, as well as carrying costs, such as taxes, insurance, and maintenance fees; and

· the resolution of nonperforming assets requires the active involvement of management, which can distract them from more profitable activity.

If additional borrowers become delinquent and do not pay their loans and we are unable to successfully manage our nonperforming assets, our losses and troubled assets could increase significantly, which could have a material adverse effect on our financial condition and results of operations.

If our allowance for loan losses is not sufficient to cover actual loan losses, our results of operations would be negatively affected.

In determining the amount of the allowance for loan losses, we analyze our loss and delinquency experience by loan categories and we consider the effect of existing economic conditions. In addition, we make various assumptions and judgments about the collectibility of our loan portfolio, including the creditworthiness of our borrowers and the value of the real estate and other assets serving as collateral for the repayment of many of our loans. If the results of our analyses are incorrect, our allowance for loan losses may not be sufficient to cover losses inherent in our loan portfolio, which would require additions to our allowance and would decrease our net income. Our emphasis on loan growth and on increasing our portfolio of commercial real estate loans, as well as any future credit deterioration, could require us to further increase our allowance in the future.

In December 2012, the Financial Accounting Standards Board (“FASB”) issued for public comment its proposal to improve financial reporting about expected credit losses on loans and other financial assets held by banks, financial institutions, and other public and private organizations. Proposed Accounting Standards Update, Financial Instruments—Credit Losses (Subtopic 825-15), proposes a new accounting model intended to require more timely recognition of credit losses, while also providing additional transparency about credit risk. The FASB’s proposed model would utilize a single “expected credit loss” measurement objective for the recognition of credit losses, replacing the multiple existing impairment models in U.S. GAAP, which generally require that a loss be “incurred” before it is recognized. Under the proposal, management would be required to estimate the cash flows that it does not expect to collect, using all available information, including historical experience and reasonable and supportable forecasts about the future. It is widely believed that if this new model is ultimately adopted, financial institutions will be required to increase their allowance for loan losses on the statement of financial condition, with the associated addition to the provision for loan losses on the income statement.

In addition, bank regulators periodically review our allowance for loan losses and may require us to increase our provision for loan losses or recognize further loan charge-offs. Any increase in our allowance for loan losses or loan charge-offs as required by these regulatory authorities may have a material adverse effect on our financial condition and results of operations.

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Our inability to achieve profitability on new branches may negatively affect our earnings.

We currently intend to open a new business banking office in Syracuse, New York in the third quarter of 2014 and, subject to regulatory approval, we may open additional branches in the future. The profitability of this new branch and any future new branches will depend on whether the income that we generate from the additional branches will offset the increased expenses resulting from operating new branches. We expect that it may take time before new branches become profitable. During this period, operating new branches may negatively affect our operating results.

We operate in a highly regulated environment and we are subject to supervision, examination and enforcement action by various bank regulatory agencies.

We are subject to extensive supervision, regulation, and examination by the NYDFS, the FDIC and the Federal Reserve Board. As a result, we are limited in the manner in which we conduct our business, undertake new investments and activities, and obtain financing. This system of regulation is designed primarily for the protection of the Deposit Insurance Fund and our depositors, and not for the benefit of our stockholders. Under this system of regulation, the regulatory authorities have extensive discretion in connection with their supervisory, enforcement, rulemaking and examination activities and policies, including rules or policies that: establish minimum capital levels; restrict the timing and amount of dividend payments; govern the classification of assets; determine the adequacy of loan loss reserves for regulatory purposes; and establish the timing and amounts of assessments and fees.

Moreover, as part of their examination authority, the banking regulators assign numerical ratings to banks and savings institutions relating to capital, asset quality, management, liquidity, earnings and other factors. These ratings are inherently subjective and the receipt of a less than satisfactory rating in one or more categories may result in enforcement action by the banking regulators against a financial institution. A less than satisfactory rating may also prevent a financial institution, such as Pathfinder Bank or its holding company, from obtaining necessary regulatory approvals to access the capital markets, pay dividends, acquire other financial institutions or establish new branches.

Federal regulations governing the conversion require that we prepare a business plan that addresses, among other items, our projected operations and activities for three years following the conversion.  The business plan is a confidential document that is submitted to the banking regulatory agencies and may not reflect currently unanticipated potential business opportunities or activities, such as increased dividends or acquisitions of other financial institutions.  Federal regulations require that we operate within the parameters of the business plan, and that the Federal Reserve Board approve any material deviation from the business plan.  This could affect our ability to conduct activities that deviate from the regulatory business plan that would otherwise benefit our stockholders.

In addition, we must comply with significant anti-money laundering and anti-terrorism laws and regulations, Community Reinvestment Act laws and regulations, and fair lending laws and regulations. Government agencies have the authority to impose monetary penalties and other sanctions on institutions that fail to comply with these laws and regulations, which could significantly affect our business activities, including our ability to acquire other financial institutions or expand our branch network.

The redemption of the Series B Preferred Stock we issued to the U.S. Treasury in connection with the SBLF may be dilutive to your stock ownership in New Pathfinder.

The ownership interest of your common stock may be diluted to the extent we need to raise capital by issuing securities to redeem the outstanding Senior Non-Cumulative Perpetual Preferred Stock, Series B (“Series B Preferred Stock”) we sold to the U.S. Treasury in connection with our participation in the SBLF.  Because our decision to issue securities in any future offering will depend on market conditions and other factors beyond our control, we cannot predict or estimate the amount, timing or nature of any future offerings. Thus, our stockholders bear the risk of our future offerings related to redeeming the Series B Preferred Stock, including reducing the market price of our common stock and diluting stockholders’ holdings in our common stock. Holders of our common stock are not entitled to preemptive rights or other protections against dilution.

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The dividend rate on our Series B Preferred Stock we issued in connection with the SBLF will increase to 9.0% if we have not redeemed the Series B Preferred Stock by March 1, 2016, which will impact net income available to holders of our common stock and earnings per share of our common stock.

The per annum dividend rate on the 13,000 shares of our Series B Preferred Stock we sold to the U.S. Treasury was 1.0% per annum at March 31, 2014. Beginning on March 2, 2016, the per annum dividend rate on the Series B Preferred Stock will increase to a fixed rate of 9.0% if any Series B Preferred Stock remains outstanding. Depending on our financial condition at the time, any such increase in the dividend rate could have a material negative effect on our financial condition, including reducing our net income available to holders of our common stock and our earnings per share. We do not intend to redeem any Series B Preferred Stock in connection with the conversion.

Failure to pay dividends on our Series B Preferred Stock may have negative consequences, including limiting our ability to pay dividends in the future.

The Series B Preferred Stock issued in connection with our participation in the SBLF pays a non-cumulative quarterly dividend in arrears. Such dividends are not cumulative but we may only declare and pay dividends on our common stock (or any other equity securities junior to the Series B Preferred Stock) if we have declared and paid dividends on the Series B Preferred Stock for the current dividend period.

Moreover, our ability to pay dividends is always subject to legal and regulatory restrictions. Any payment of dividends in the future will depend, in large part, on our earnings, capital requirements, financial condition and other factors considered relevant by the our board of directors. Although we have historically paid cash dividends on our common stock, we are not required to do so and our board of directors could further reduce or eliminate our common stock dividend in the future.

We will become subject to more stringent capital requirements, which may adversely impact our return on equity, require us to raise additional capital, or constrain us from paying dividends or repurchasing shares.

In July 2013, the FDIC and the Federal Reserve Board approved a new rule that will substantially amend the regulatory risk-based capital rules applicable to Pathfinder Bank and New Pathfinder. The final rule implements the “Basel III” regulatory capital reforms and changes required by the Dodd-Frank Act.

The final rule includes new minimum risk-based capital and leverage ratios, which will be effective for Pathfinder Bank and New Pathfinder on January 1, 2015, and refines the definition of what constitutes “capital” for purposes of calculating these ratios. The new minimum capital requirements will be: (i) a new common equity Tier 1 capital ratio of 4.5%; (ii) a Tier 1 to risk-based assets capital ratio of 6% (increased from 4%); (iii) a total capital ratio of 8% (unchanged from current rules); and (iv) a Tier 1 leverage ratio of 4%. The final rule also establishes a “capital conservation buffer” of 2.5%, and will result in the following minimum ratios: (i) a common equity Tier 1 capital ratio of 7.0%, (ii) a Tier 1 to risk-based assets capital ratio of 8.5%, and (iii) a total capital ratio of 10.5%. The new capital conservation buffer requirement would be phased in beginning in January 2016 at 0.625% of risk-weighted assets and would increase each year until fully implemented in January 2019. An institution will be subject to limitations on paying dividends, engaging in share repurchases, and paying discretionary bonuses if its capital level falls below the buffer amount. These limitations will establish a maximum percentage of eligible retained income that can be utilized for such actions.

The application of more stringent capital requirements for Pathfinder Bank and New Pathfinder could, among other things, result in lower returns on equity, require the raising of additional capital, and result in regulatory actions constraining us from paying dividends or repurchasing shares if we were unable to comply with such requirements. Furthermore, the imposition of liquidity requirements in connection with the implementation of Basel III could result in our having to lengthen the term of our funding, restructure our business models, and/or increase our holdings of liquid assets.

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New regulations could restrict our ability to originate loans.

The Consumer Financial Protection Bureau has issued a rule that became effective in January 2014, requiring creditors to assess a borrower’s ability to repay a mortgage loan. Loans that meet this “qualified mortgage” definition will be presumed to have complied with the new ability-to-repay standard and enjoy special protection. Under the Consumer Financial Protection Bureau’s rule, a “qualified mortgage” loan must not contain certain specified features, including:

· excessive upfront points and fees (those exceeding 3% of the total loan amount, less “bona fide discount points” for prime loans);

· interest-only payments;

· negative-amortization; and

· terms longer than 30 years.

Also, to qualify as a “qualified mortgage,” a borrower’s total monthly debt-to-income ratio may not exceed 43%. Lenders must also verify and document the income and financial resources relied upon to qualify the borrower for the loan and underwrite the loan based on a fully amortizing payment schedule and maximum interest rate during the first five years, taking into account all applicable taxes, insurance and assessments. The Consumer Financial Protection Bureau’s rule on qualified mortgages could limit our ability or desire to make certain types of loans or loans to certain borrowers, or could make it more expensive/and or time consuming to make these loans, which could limit our growth or profitability.

A continuation or worsening of economic conditions could adversely affect our financial condition and results of operations.

Although the U.S. economy has emerged from the severe recession that occurred in 2008 and 2009, economic growth has been slow and unemployment levels remain high despite the Federal Reserve Board’s unprecedented efforts to maintain low market interest rates and encourage economic growth. Recovery by many businesses has been impaired by lower consumer spending. A discontinuation of the Federal Reserve Board’s bond purchasing program could result in higher interest rates and reduced economic activity. Moreover, a return to prolonged deteriorating economic conditions could significantly affect the markets in which we do business, the value of our loans and investments, and our ongoing operations, costs and profitability. Further declines in real estate values and continued elevated unemployment levels may result in greater loan delinquencies, increases in our nonperforming, criticized and classified assets and a decline in demand for our products and services. These events may cause us to incur losses and may adversely affect our financial condition and results of operations.

Pathfinder Bank’s reliance on brokered deposits could adversely affect its liquidity and operating results.

Among other sources of funds, Pathfinder Bank relies on brokered deposits to provide funds with which to make loans and provide for other liquidity needs. On March 31, 2014, brokered deposits amounted to $39.6 million, or approximately 9.0% of total deposits. The only source Pathfinder Bank uses for brokered deposits is the Certificate of Deposit Account Registry Services (“CDARS”), a brokered deposit network that allows members to mitigate the liquidity risk related to brokered deposits. Generally brokered deposits may not be as stable as other types of deposits. In the future, those depositors may not replace their brokered deposits when they mature, or we may have to pay a higher rate of interest to keep those deposits or to replace them with other deposits or other sources of funds. Not being able to maintain or replace those deposits as they mature would adversely affect our liquidity. Paying higher deposit rates to maintain or replace brokered deposits would adversely affect our net interest margin and operating results.

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Strong competition within our market areas may limit our growth and profitability.

Competition in the banking and financial services industry is intense. In our market areas, we compete with commercial banks, savings institutions, mortgage brokerage firms, credit unions, finance companies, mutual funds, money market funds, insurance companies, and brokerage firms operating locally and elsewhere. Some of our competitors have greater name recognition and market presence and offer certain services that we do not or cannot provide, all of which benefit them in attracting business. In addition, larger competitors may be able to price loans and deposits more aggressively than we do. For additional information, see “Business of Pathfinder-Federal and Pathfinder Bank—Competition.”

Our small size makes it more difficult for us to compete.

Our small asset size makes it more difficult to compete with other financial institutions which are generally larger and can more easily afford to invest in the marketing and technologies needed to attract and retain customers. Because our principal source of income is the net interest income we earn on our loans and investments after deducting interest paid on deposits and other sources of funds, our ability to generate the revenues needed to cover our expenses and finance such investments is limited by the size of our loan and investment portfolios. Accordingly, we are not always able to offer new products and services as quickly as our competitors. Our lower earnings also make it more difficult to offer competitive salaries and benefits. In addition, our smaller customer base makes it difficult to generate meaningful non-interest income. Finally, as a smaller institution, we are disproportionately affected by ongoing increased costs of compliance with new banking and other regulations.

We depend on our management team to implement our business strategy and execute successful operations.

We are dependent upon the services of the members of our senior management team who direct our strategy and operations. Our management team is comprised of experienced executives, with our top six executives possessing an average of 27 years of financial institution experience. Members of our senior management team, or lending personnel who possess expertise in our markets and key business relationships, could be difficult to replace. The loss of these persons or our inability to hire additional qualified personnel could impact our ability to implement our business strategy and could have a material adverse effect on our results of operations and our ability to compete. See “Management of Pathfinder Bancorp, Inc.”

We are a community bank and our ability to maintain our reputation is critical to the success of our business and the failure to do so may adversely affect our performance.

We are a community bank and our reputation is one of the most valuable assets of our business. A key component of our business strategy is to rely on our reputation for customer service and knowledge of local markets to expand our presence by capturing new business opportunities from existing and prospective customers in our market area and contiguous areas. As such, we strive to conduct our business in a manner that enhances our reputation. This is done, in part, by recruiting, hiring and retaining employees who share our core values of being an integral part of the communities we serve, delivering superior service to our customers and caring about our customers. If our reputation is negatively affected by the actions of our employees, by our inability to conduct our operations in a manner that is appealing to current or prospective customers or otherwise, our business and operating results may be materially adversely affected.

Financial reform legislation is expected to increase our costs of operations.

The Dodd-Frank Act has changed the bank regulatory framework. For example, it has created an independent Consumer Financial Protection Bureau that has assumed the consumer protection responsibilities of the various federal banking agencies, established more stringent capital standards for banks and bank holding companies and gives the Federal Reserve Board exclusive authority to regulate savings and loan holding companies. The Dodd-Frank Act has also resulted in new regulations affecting the lending, funding, trading and investment activities of banks and bank holding companies. The Consumer Financial Protection Bureau has broad rule-making authority for a wide range of consumer protection laws that apply to all banks and savings institutions such as Pathfinder Bank, including the authority to prohibit “unfair, deceptive or abusive” acts and practices. Banks and savings institutions with $10.0 billion or less in assets will continue to be examined by their applicable bank regulators. The

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Dodd-Frank Act also weakens the federal preemption available for national banks and federal savings and loan associations, and gives state attorneys general the ability to enforce applicable federal consumer protection laws. Bank regulatory agencies also have been responding aggressively to concerns and adverse trends identified in examinations. Ongoing uncertainty and adverse developments in the financial services industry and in the domestic and international credit markets, and the effect of new legislation and regulatory actions in response to these conditions, may adversely affect our operations by restricting our business activities, including our ability to originate or sell loans, modify loan terms, or foreclose on property securing loans.

The full impact of the Dodd-Frank Act on our business will not be known until all of the regulations implementing the statute are adopted and implemented. As a result, we cannot at this time predict the extent to which the Dodd-Frank Act will impact our business, operations or financial condition. However, compliance with these new laws and regulations may require us to make changes to our business and operations and will likely result in additional costs and divert management’s time from other business activities, any of which may adversely impact our results of operations, liquidity or financial condition.

Changes in accounting policies or in accounting standards could materially affect how we report our financial condition and results of operations.

Accounting policies are essential to understanding our financial condition and results of operations. Some of these policies require the use of estimates and assumptions that may affect the value of our assets or liabilities and financial results. Some of our accounting policies are critical because they require management to make difficult, subjective, and complex judgments about matters that are inherently uncertain, and because it is likely that materially different amounts would be reported under different conditions or using different assumptions. If such estimates or assumptions underlying our financial statements are incorrect, we may experience material losses.

From time to time, the Financial Accounting Standards Board and the Securities and Exchange Commission change the financial accounting and reporting standards or the interpretation of those standards that govern the preparation of our financial statements. These changes are beyond our control, can be hard to predict and could materially affect how we report our financial condition and results of operations. We could also be required to apply a new or revised standard retroactively, which may result in our restating our prior period financial statements.

The need to account for certain assets at estimated fair value may adversely affect our results of operations.

We report certain assets, such as available-for-sale investment securities, at estimated fair value. Generally, for assets that are reported at fair value, we use quoted market prices or valuation models that utilize observable market inputs to estimate fair value. Because we carry these assets on our books at their estimated fair value, we may incur losses if an impairment in fair value is considered other-than-temporary.

Because the nature of the financial services business involves a high volume of transactions, we face significant operational risks.

The financial services market is complex and we rely on the ability of our employees and systems to process a high number of transactions. Operational risk is the risk of loss resulting from our operations, including but not limited to, the risk of fraud by employees or persons outside our company, the execution of unauthorized transactions by employees, errors relating to transaction processing and technology, breaches of the internal control system and compliance requirements, and business continuation and disaster recovery. Insurance coverage may not be available for such losses, or where available, such losses may exceed insurance limits. This risk of loss also includes the potential legal actions that could arise as a result of an operational deficiency or as a result of noncompliance with applicable regulatory standards, adverse business decisions or their implementation, and customer attrition due to potential negative publicity. In the event of a breakdown in our internal control systems, improper operation of systems or improper employee actions, we could suffer financial loss, face regulatory action, and suffer damage to our reputation.

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Risks associated with system failures, interruptions, or breaches of security could negatively affect our earnings.

Information technology systems are critical to our business. We use various technology systems to manage our customer relationships, general ledger, securities investments, deposits and loans. We have established policies and procedures to prevent or limit the effect of system failures, interruptions, and security breaches, but such events may still occur or may not be adequately addressed if they do occur. In addition, any compromise of our systems could deter customers from using our products and services. Although we rely on security systems to provide security and authentication necessary to effect the secure transmission of data, these precautions may not protect our systems from security breaches.

We rely on certain third party providers for a portion of our information technology systems. If these third-party providers encounter difficulties, or if we have difficulty communicating with them, our ability to adequately process and account for transactions could be affected, and our business operations could be adversely affected. Threats to information security also exist in the processing of customer information through various other vendors and their personnel.

The occurrence of any system failures, interruption, or breach of security could damage our reputation and result in a loss of customers and business thereby subjecting us to additional regulatory scrutiny, or could expose us to litigation and possible financial liability. Any of these events could have a material adverse effect on our financial condition and results of operations.

Our risk management framework may not be effective in mitigating risk and reducing the potential for significant losses.

Our risk management framework is designed to minimize risk and loss to us. We seek to identify, measure, monitor, report and control our exposure to risk, including strategic, market, liquidity, compliance and operational risks. While we use a broad and diversified set of risk monitoring and mitigation techniques, these techniques are inherently limited because they cannot anticipate the existence or future development of currently unanticipated or unknown risks. Recent economic conditions and heightened legislative and regulatory scrutiny of the financial services industry, among other developments, have increased our level of risk. Accordingly, we could suffer losses as a result of our failure to properly anticipate and manage these risks.

Risks Related to the Offering

The future price of the shares of common stock may be less than the $10.00 purchase price per share in the offering.

If you purchase shares of common stock in the offering, you may not be able to sell them later at or above the $10.00 purchase price in the offering. In many cases, shares of common stock issued by newly converted savings institutions or mutual holding companies have traded below the initial offering price. The aggregate purchase price of the shares of common stock sold in the offering will be based on an independent appraisal. The independent appraisal is not intended, and should not be construed, as a recommendation of any kind as to the advisability of purchasing shares of common stock. The independent appraisal is based on certain estimates, assumptions and projections, all of which are subject to change from time to time. After the shares begin trading, the trading price of our common stock will be determined by the marketplace, and may be influenced by many factors, including prevailing interest rates, the overall performance of the economy, investor perceptions of New Pathfinder and the outlook for the financial services industry in general. Price fluctuations in our common stock may be unrelated to our operating performance.

Our failure to effectively deploy the net proceeds may have an adverse effect on our financial performance.

We intend to invest between $7.8 million and $12.5 million of the net proceeds of the offering in Pathfinder Bank. We may use the remaining net proceeds to invest in short-term investments, pay dividends, repurchase shares of common stock or for other general corporate purposes. We also expect to use a portion of the net proceeds we retain to fund a loan to our employee stock ownership plan to purchase shares of common stock in the offering.

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Pathfinder Bank may use the net proceeds it receives to fund new loans, expand its retail banking franchise by establishing or acquiring new branches or by acquiring other financial institutions or other financial services companies, or for other general corporate purposes. However, with the exception of the loan to the employee stock ownership plan, we have not allocated specific amounts of the net proceeds for any of these purposes, and we will have significant flexibility in determining the amount of the net proceeds we apply to different uses and when we apply or reinvest such proceeds. Also, certain of these uses, such as opening new branches or acquiring other financial institutions, may require the approval of the NYDFS, the FDIC or the Federal Reserve Board. We have not established a timetable for reinvesting the net proceeds, and we cannot predict how long we will require to reinvest the net proceeds. Our failure to utilize these funds effectively would reduce our profitability and may adversely affect the value of our common stock.

Our stock-based benefit plans will increase our expenses and reduce our income.

We intend to adopt one or more new stock-based benefit plans after the conversion, subject to stockholder approval, which will increase our annual compensation and benefit expenses related to the stock options and stock awards granted to participants under the stock-based benefit plan. The actual amount of these new stock-related compensation and benefit expenses will depend on the number of options and stock awards actually granted under the plans, the fair market value of our stock or options on the date of grant, the vesting period, and other factors which we cannot predict at this time. In the event we adopt stock-based benefit plans within 12 months following the conversion, the total shares of common stock reserved for issuance pursuant to awards of restricted stock and grants of options under such plans would be limited to 4% and 10%, respectively, of the total shares of our common stock sold in the stock offering. If we award restricted shares of common stock or grant options in excess of these amounts under stock-based benefit plans adopted more than 12 months after the completion of the conversion, our costs would increase further.

In addition, we will recognize expense for our employee stock ownership plan when shares are committed to be released to participants’ accounts, and we will recognize expense for restricted stock awards and stock options over the vesting period of awards made to recipients. The expense in the first year following the offering for shares purchased in the offering and for our new stock-based benefit plans has been estimated to be approximately $392,000 ($269,000 after tax) at the maximum of the offering range as set forth in the pro forma financial information under “Pro Forma Data,” assuming the $10.00 per share purchase price as fair market value. Actual expenses, however, may be higher or lower, depending on the price of our common stock. For further discussion of our proposed stock-based plans, see “Management—Benefits to be Considered Following Completion of the Conversion.”

The implementation of stock-based benefit plans may dilute your ownership interest. Historically, stockholders have approved these stock-based benefit plans.

We intend to adopt one or more new stock-based benefit plans following the stock offering. These plans may be funded either through open market purchases or from the issuance of authorized but unissued shares of common stock. Our ability to repurchase shares of common stock to fund these plans will be subject to many factors, including applicable regulatory restrictions on stock repurchases, the availability of stock in the market, the trading price of the stock, our capital levels, alternative uses for our capital and our financial performance. While our intention would be to fund stock-based benefit plans through open market purchases, stockholders would experience a 7.8% dilution in ownership interest at the maximum of the offering range in the event newly issued shares of our common stock are used to fund stock options and shares of restricted common stock in amounts equal to 10% and 4%, respectively, of the shares sold in the offering. In the event we adopt the plan more than 12 months following the conversion, the plan would not be subject to these limitations and stockholders could experience greater dilution.

Although the implementation of stock-based benefit plans would be subject to stockholder approval, historically, the overwhelming majority of stock-based benefit plans adopted by savings institutions and their holding companies following mutual-to-stock conversions have been approved by stockholders.

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We have not determined when we will adopt one or more new stock-based benefit plans. Stock-based benefit plans adopted more than 12 months following the completion of the conversion may exceed regulatory restrictions on the size of stock-based benefit plans adopted within 12 months, which would further increase our costs.

If we adopt stock-based benefit plans more than 12 months following the completion of the conversion, then grants of shares of common stock or stock options under our existing and proposed stock-based benefit plans may exceed 4% and 10%, respectively, of shares of common stock sold in the stock offering. Stock-based benefit plans that provide for awards in excess of these amounts would increase our costs beyond the amounts estimated in “—Our stock-based benefit plans will increase our expenses and reduce our income.” Stock-based benefit plans that provide for awards in excess of these amounts could also result in dilution to stockholders in excess of that described in “—The implementation of stock-based benefit plans may dilute your ownership interest. Historically, stockholders have approved these stock-based benefit plans.” Although the implementation of stock-based benefit plans would be subject to stockholder approval, the determination as to when such plans would be implemented will be at the discretion of our board of directors.

Our return on equity may be low following the stock offering. This could negatively affect the trading price of our shares of common stock.

Net income divided by average equity, known as “return on equity,” is a ratio many investors use to compare the performance of financial institutions. Our return on equity may be low until we are able to leverage the additional capital we receive from the stock offering. Our return on equity will be negatively affected by added expenses associated with our employee stock ownership plan and the stock-based benefit plan we intend to adopt. Until we can increase our net interest income and non-interest income and leverage the capital raised in the stock offering, we expect our return on equity to be low, which may reduce the market price of our shares of common stock.

Various factors may make takeover attempts more difficult to achieve.

Our board of directors has no current intention to sell control of New Pathfinder. Our articles of incorporation and bylaws, federal regulations, Maryland law, shares of restricted stock and stock options that we have granted or may grant to employees and directors and stock ownership by our management and directors, and various other factors may make it more difficult for companies or persons to acquire control of New Pathfinder without the consent of our board of directors. You may want a takeover attempt to succeed because, for example, a potential acquiror could offer a premium over the then prevailing price of our common stock. For additional information, see “Restrictions on Acquisition of New Pathfinder,” and “—Benefits to be Considered Following Completion of the Conversion.”

An active trading market for our common stock may not develop.

Pathfinder-Federal’s common stock is currently traded on the Nasdaq Capital Market under the trading symbol “PBHC.” Upon completion of the conversion, the common stock of New Pathfinder will replace the existing shares, and we expect the common stock will also be traded on the Nasdaq Capital Market. An active public trading market for New Pathfinder’s common stock may not develop or be sustained after this stock offering. If an active trading market for our common stock does not develop, you may not be able to sell all of your shares of common stock on short notice, and the sale of a large number of shares at one time could depress the market price.

You may not revoke your decision to purchase New Pathfinder common stock in the subscription or community offerings after you send us your order.

Funds submitted or automatic withdrawals authorized in connection with the purchase of shares of common stock in the subscription and community offerings will be held by us until the completion or termination of the conversion and offering, including any extension of the expiration date and consummation of a syndicated offering. Because completion of the conversion and offering will be subject to regulatory approvals and an update of the independent appraisal prepared by RP Financial, LC., among other factors, there may be one or more delays in completing the conversion and offering. Orders submitted in the subscription and community offerings are

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irrevocable, and purchasers will have no access to their funds unless the offering is terminated, or extended beyond [extension date #1], or the number of shares to be sold in the offering is increased to more than 2,645,000 shares or decreased to fewer than 1,700,000 shares.

The distribution of subscription rights could have adverse income tax consequences.

If the subscription rights granted to certain current or former depositors of Pathfinder Bank are deemed to have an ascertainable value, receipt of such rights may be taxable in an amount equal to such value. Whether subscription rights are considered to have ascertainable value is an inherently factual determination. We have received an opinion of counsel, Luse Gorman Pomerenk & Schick, P.C., that it is more likely than not that such rights have no value; however, such opinion is not binding on the Internal Revenue Service.

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SELECTED CONSOLIDATED FINANCIAL AND OTHER DATA

The following tables set forth selected consolidated historical financial and other data of Pathfinder-Federal and its subsidiaries for the periods and at the dates indicated. The following is only a summary and you should read it in conjunction with the business and financial information regarding Pathfinder-Federal contained elsewhere in this prospectus, including the consolidated financial statements beginning on page F-1 of this prospectus. The information at December 31, 2013 and 2012, and for the years ended December 31, 2013 and 2012 is derived in part from the audited consolidated financial statements that appear in this prospectus. The information at December 31, 2011, 2010 and 2009 and for the years ended December 31, 2011, 2010 and 2009 is derived in part from audited consolidated financial statements that do not appear in this prospectus. The information at March 31, 2014 and for the three months ended March 31, 2014 and 2013 is unaudited and reflects only normal recurring adjustments that are, in the opinion of management, necessary for a fair presentation of the results for the interim periods presented. The results of operations for the three months ended March 31, 2014 are not necessarily indicative of the results to be achieved for all of 2014 or for any other period.

	At March 31,		At December 31,
	2014		2013		2012		2011		2010		2009
	(In thousands)
Selected Financial Condition Data:
Total assets	$	525,846	$	503,793	$	477,796	$	442,980	$	408,545	$	371,692
Investment securities available for sale		83,663		80,959		108,339		100,395		85,327		72,754
Investment securities held to maturity – at cost		42,990		34,412		─		─		─		─
Loans receivable, net		343,143		336,592		329,247		300,770		281,648		259,387
Deposits		438,352		410,140		391,805		366,129		326,502		296,839
Advances from borrowings		33,826		40,853		34,964		26,074		41,000		36,000
Stockholders’ equity (1)		43,802		43,070		40,747		37,841		30,592		29,238

	For the Three Months Ended March 31,				For the Years Ended December 31,
	2014		2013		2013			2012		2011		2010		2009
	(Dollars in thousands, except per share data)
Selected Operating Data:
Total interest income	$	4,715		4,741	$	18,883		$	18,765	$	18,604	$	18,139	$	17,806
Total interest expense		695		896		3,264			3,908		4,341		4,808		6,029
Net interest income		4,020		3,845		15,619			14,857		14,263		13,331		11,777
Provision for loan losses		245		324		1,032			825		940		1,050		876
Net interest income after provision for loan losses		3,775		3,521		14,587			14,032		13,323		12,281		10,901
Total non-interest income		826		676		3,416			3,063		3,192		3,020		2,890
Total non-interest expense		3,906		3,505		14,751			13,518		13,148		11,789		11,126
Net income before income taxes		695		692		3,252			3,577		3,367		3,512		2,665
Income tax expense		176		187		847			929		1,044		1,007		1,050
Net income (loss) attributable to noncontrolling interest		30		─		(1	)		─		─		─		─
Net income	$	489	$	505	$	2,406		$	2,648	$	2,323	$	2,505	$	1,615
Income per share – basic	$	0.19	$	0.20	$	0.96		$	0.88	$	0.53	$	0.82	$	0.61
Income per share – diluted	$	0.19	$	0.20	$	0.95		$	0.87	$	0.52	$	0.82	$	0.61

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	At or For the Three Months Ended March 31,(6)						At or For the Years Ended December 31,
	2014			2013			2013			2012			2011			2010			2009
Selected Financial Ratios and Other Data:
Performance Ratios:
Return on assets (ratio of net income to average total assets)		0.38	%		0.41	%		0.48	%		0.57	%		0.55	%		0.64	%		0.45	%
Return on equity (ratio of net income to average equity)		4.52			4.92			5.86			6.68			6.75			8.07			7.04
Average equity to average total assets		8.49			8.28			8.24			8.48			8.21			7.89			6.40
Equity to total assets at end of period		8.26			8.13			8.55			8.53			8.54			7.49			7.87
Interest rate spread (2)		3.38			3.28			3.32			3.38			3.62			3.58			3.40
Net interest margin (3)		3.48			3.40			3.43			3.50			3.76			3.73			3.56
Average interest-earning assets to average interest-bearing liabilities		115.74			114.99			115.85			113.89			112.22			110.84			110.84
Total non-interest expenses to average total assets		3.07			2.83			2.96			2.89			3.14			3.00			3.10
Efficiency ratio (4)		78.88			76.85			79.14			75.53			77.56			71.95			76.36
Dividend payout ratio (5)		15.34			14.85			12.47			11.37			12.87			11.90			18.45
Return on common equity (ratio of net income available to common stockholders to average common equity)		6.48			7.20			8.58			8.26			5.09			8.20			7.10
Asset Quality Ratios:
Nonperforming loans as a percent of total loans		2.01			1.77			1.57			1.66			1.55			2.08			0.88
Nonperforming assets as a percent of total assets		1.46			1.26			1.18			1.25			1.19			1.54			0.67
Allowance for loan losses as a percent of total loans		1.44			1.38			1.48			1.35			1.31			1.28			1.17
Allowance for loan losses as a percent of nonperforming loans		71.59			78.32			94.22			81.13			84.18			61.58			133.07
Regulatory Capital Ratios (Bank Only):
Total capital (to risk-weighted assets)		13.83			14.08			14.13			14.20			14.94			13.50			13.95
Tier I capital (to risk-weighted assets)		12.53			12.76			12.82			12.90			13.66			12.24			12.69
Tier I capital (to adjusted assets)		8.73			8.45			8.72			8.80			9.37			8.11			8.38
Other Ratios:
Common equity to total assets		5.86			5.55			5.97			5.81			5.61			5.96			6.22
Tangible common equity to tangible assets		5.04			4.83			5.11			5.04			4.78			5.07			5.25
Number of:
Banking offices (7)		8			8			8			8			8			7			7
Full time equivalent employees		113			111			112			110			110			105			99

(1) Includes $13.0 million of Series B Preferred Stock issued in connection with the SBLF Program at March 31, 2014, December 31,2013, December 31, 2012 and December 31, 2011, as well as $6.7 million of Series A Preferred Stock issued in connection with TARP at December 31, 2010 and December 31, 2009.

(2) Interest rate spread represents the difference between the weighted-average yield on interest-earning assets and the weighted-average rate on interest-bearing liabilities.

(3) Net interest margin represents net interest income as a percentage of average interest-earning assets.

(4) Efficiency ratio represents the ratio of general, administrative and other expenses divided by the sum of net interest income and total noninterest income.

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(5) The dividend payout ratio is calculated by multiplying the dividends declared per share by the number of shares outstanding as of the applicable record date.

(6) Ratios are annualized where appropriate.

(7) We intend to open a new business banking office in Syracuse, New York in the third quarter of 2014.

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FORWARD-LOOKING STATEMENTS

This prospectus contains forward-looking statements, which can be identified by the use of words such as “estimate,” “project,” “believe,” “intend,” “anticipate,” “plan,” “seek,” “expect” and words of similar meaning. These forward-looking statements include, but are not limited to:

· statements of our goals, intentions and expectations;

· statements regarding our business plans, prospects, growth and operating strategies;

· statements regarding the quality of our loan and investment portfolios; and

· estimates of our risks and future costs and benefits.

These forward-looking statements are based on current beliefs and expectations of our management and are inherently subject to significant business, economic, regulatory and competitive uncertainties and contingencies, many of which are beyond our control. In addition, these forward-looking statements are subject to assumptions with respect to future business strategies and decisions that are subject to change.

The following factors, among others, could cause actual results to differ materially from the anticipated results or other expectations expressed in the forward-looking statements:

· general economic conditions, either nationally or in our market areas, that are worse than expected;

· competition among depository and other financial institutions;

· inflation and changes in the interest rate environment that reduce our margins and yields or reduce the fair value of financial instruments;

· adverse changes in the securities markets;

· changes in laws or government regulations or policies affecting financial institutions, including changes in regulatory fees and capital requirements;

· our ability to manage operations in the current economic conditions;

· our ability to enter new markets successfully and capitalize on growth opportunities;

· our ability to successfully integrate acquired entities;

· changes in consumer spending, borrowing and savings habits;

· changes in accounting policies and practices, as may be adopted by the bank regulatory agencies, the Financial Accounting Standards Board, the Securities and Exchange Commission or the Public Company Accounting Oversight Board;

· changes in our organization, compensation and benefit plans;

· our ability to retain key employees;

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· changes in the level of government support for housing finance;

· significant increases in our loan losses; and

· changes in the financial condition, results of operations or future prospects of issuers of securities that we own.

Because of these and other uncertainties, our actual future results may be materially different from the results indicated by these forward-looking statements. Please see “Risk Factors” beginning on page 19.

HOW WE INTEND TO USE THE PROCEEDS FROM THE OFFERING

Although we cannot determine what the actual net proceeds from the sale of the shares of common stock in the offering will be until the offering is completed, we anticipate that the net proceeds will be between $15.5 million and $21.5 million, or $25.0 million if the offering range is increased to the adjusted maximum.

We intend to distribute the net proceeds as follows:

	Based Upon the Sale at $10.00 Per Share of
	1,700,000 Shares					2,000,000 Shares					2,300,000 Shares					2,645,000 Shares
	Amount		Percent of Net Proceeds			Amount		Percent of Net Proceeds			Amount		Percent of Net Proceeds			Amount		Percent of Net Proceeds
	(Dollars in thousands)
Offering proceeds	$	17,000				$	20,000				$	23,000				$	26,450
Less offering expenses		1,465					1,465					1,465					1,465
Net offering proceeds	$	15,535		100.0	%	$	18,535		100.0	%	$	21,535		100.0	%	$	24,985		100.0	%
Distribution of net proceeds:
To Pathfinder Bank	$	7,768		50.0	%	$	9,268		50.0	%	$	10,768		50.0	%	$	12,493		50.0	%
To fund loan to employee stock ownership plan	$	680		4.4	%	$	800		4.3	%	$	920		4.3	%	$	1,058		4.2	%
Retained by New Pathfinder (1)	$	7,088		45.6	%	$	8,468		45.7	%	$	9,848		45.7	%	$	11,435		45.8	%

(1) In the event the stock-based benefit plan providing for stock awards and stock options is approved by stockholders, and assuming shares are purchased for the stock awards at $10.00 per share, an additional $680,000, $800,000, $920,000 and $1.1 million of net proceeds will be used by New Pathfinder. In this case, the net proceeds retained by New Pathfinder would be $6.4 million, $7.7 million, $8.9 million and $10.4 million, respectively, at the minimum, midpoint, maximum and adjusted maximum of the offering range.

Payments for shares of common stock made through withdrawals from existing deposit accounts will not result in the receipt of new funds for investment but will result in a reduction of Pathfinder Bank’s deposits. The net proceeds may vary because total expenses relating to the offering may be more or less than our estimates. For example, our expenses would increase if fewer shares were sold in the subscription and community offerings and we sold a portion of the offering through a syndicated offering.

New Pathfinder may use the proceeds it retains from the offering:

· to invest in securities;

· to pay cash dividends to stockholders;

· to repurchase shares of our common stock;

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· to finance the acquisition of financial institutions or other financial services companies, although we do not currently have any agreements or understandings regarding any specific acquisition transaction; and

· for other general corporate purposes.

See “Our Dividend Policy” for a discussion of our expected dividend policy following the completion of the conversion. Under current federal regulations, we may not repurchase shares of our common stock during the first year following the completion of the conversion, except when extraordinary circumstances exist and with prior regulatory approval, or except to fund management recognition plans (which would require notification to the Federal Reserve Board) or tax qualified employee stock benefit plans.

Pathfinder Bank may use the net proceeds it receives from the offering:

· to fund new loans;

· to enhance existing products and services and to support the development of new products and services;

· to expand its retail banking franchise by establishing or acquiring new branches or by acquiring other financial institutions or other financial services companies as opportunities arise, although we do not currently have any understandings or agreements to acquire a financial institution or other entity;

· to invest in securities; and

· for other general corporate purposes.

Initially, a substantial portion of the net proceeds will be invested in short-term investments, investment-grade debt obligations and mortgage-backed securities. We have not determined specific amounts of the net proceeds that would be used for the purposes described above. The use of the proceeds outlined above may change based on many factors, including, but not limited to, changes in interest rates, equity markets, laws and regulations affecting the financial services industry, the attractiveness of potential acquisitions to expand our operations, and overall market conditions. The use of the proceeds may also change depending on our ability to receive regulatory approval to establish new branches or acquire other financial institutions.

We expect our return on equity to be low until we are able to reinvest effectively the additional capital raised in the offering. Until we can increase our net interest income and non-interest income, we expect our return on equity to be below the industry average, which may negatively affect the value of our common stock. See “Risk Factors—Risks Related to the Offering—Our failure to effectively deploy the net proceeds may have an adverse effect on our financial performance.”

OUR DIVIDEND POLICY

After the completion of the conversion, we intend to pay cash dividends on a quarterly basis. Initially, we expect the quarterly dividends to be $0.03 per share, which equals $0.12 per share on an annualized basis and an annual yield of 1.2% based on a price of $10.00 per share.

The dividend rate and the initial and continued payment of dividends will depend on a number of factors, including our capital requirements, our financial condition and results of operations, tax considerations, statutory and regulatory limitations, and general economic conditions. We cannot assure you that any such dividends will not be reduced or eliminated in the future.

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New Pathfinder will not be permitted to pay dividends on its common stock if its stockholders’ equity would be reduced below the amount of the liquidation account established by New Pathfinder in connection with the conversion. The source of dividends will depend on the net proceeds retained by New Pathfinder and earnings thereon, and dividends from Pathfinder Bank. In addition, New Pathfinder will be subject to state law limitations and federal bank regulatory policy on the payment of dividends, including limitations on paying dividends if New Pathfinder does not meet the capital conservation buffer requirement to be phased in beginning January 2016 as part of the Basel III regulatory capital reforms. Maryland law generally limits dividends if the corporation would not be able to pay its debts in the usual course of business after giving effect to the dividend or if the corporation’s total assets would be less than the corporation’s total liabilities plus the amount needed to satisfy the preferential rights upon dissolution of stockholders whose preferential rights on dissolution are superior to those receiving the distribution.

After the completion of the conversion, Pathfinder Bank will not be permitted to pay dividends on its capital stock to New Pathfinder, its sole stockholder, if Pathfinder Bank’s stockholder’s equity would be reduced below the amount of the liquidation account established in connection with the conversion. In addition, Pathfinder Bank will not be permitted to make a capital distribution if, after making such distribution, it would be undercapitalized. Pathfinder Bank must file an application with the FDIC for approval of a capital distribution if the total capital distributions for the applicable calendar year exceed the sum of Pathfinder Bank’s net income for that year to date plus its retained net income for the preceding two years, or Pathfinder Bank would not be at least adequately capitalized following the distribution.

Under New York law and applicable regulations, Pathfinder Bank may generally only pay dividends out of net profits. The approval of the Superintendent is required if the total of all dividends declared in any calendar year will exceed net profits for that year plus the retained net profits of the preceding two years, less any required transfer to surplus or a fund for the retirement of any preferred stock. In addition, no dividends may be declared, credited or paid if the effect thereof would cause Pathfinder Bank’s capital to be reduced below the amount required by the Superintendent.

Any payment of dividends by Pathfinder Bank to New Pathfinder that would be deemed to be drawn from Pathfinder Bank’s bad debt reserves established prior to 1988, if any, would require a payment of taxes at the then-current tax rate by Pathfinder Bank on the amount of earnings deemed to be removed from the pre-1988 bad debt reserves for such distribution. Pathfinder Bank does not intend to make any distribution that would create such a federal tax liability. See “The Conversion and Offering—Liquidation Rights.” For further information concerning additional federal law and regulations regarding the ability of Pathfinder Bank to make capital distributions, including the payment of dividends to New Pathfinder, see “Taxation—Federal Taxation” and “Supervision and Regulation—Dividends.”

We will file a consolidated federal tax return with Pathfinder Bank. Accordingly, it is anticipated that any cash distributions made by us to our stockholders would be treated as cash dividends and not as a non-taxable return of capital for federal tax purposes. Additionally, pursuant to Federal Reserve Board regulations, during the three-year period following the conversion, we will not make any capital distribution to stockholders that would be treated by recipients as a tax-free return of capital for federal income tax purposes.

MARKET FOR THE COMMON STOCK

Pathfinder-Federal’s common stock is currently listed on the Nasdaq Capital Market under the symbol “PBHC.” Upon completion of the conversion, we expect the shares of common stock of New Pathfinder will replace the existing shares of Pathfinder-Federal and trade on the Nasdaq Capital Market under the symbol “PBHC.” In order to list our stock on the Nasdaq Capital Market, we are required to have at least three broker-dealers who will make a market in our common stock. As of [Stockholder Record Date], Pathfinder-Federal had approximately ___ registered market makers in its common stock. Keefe, Bruyette & Woods, Inc. currently makes a market in Pathfinder-Federal’s common stock and has advised us that they intend to make a market in New Pathfinder’s common stock following the offering, but are under no obligation to do so.

37

The following table sets forth the high and low trading prices for shares of Pathfinder-Federal common stock for the periods indicated, as obtained from the Nasdaq Stock Market. As of the close of business on [Stockholder Record Date], there were [outstanding shares] shares of common stock outstanding, including [public shares] publicly held shares (shares held by stockholders other than Pathfinder Bancorp, MHC), and approximately __________ stockholders of record.

	Price Per Share
	High		Low		Dividends Paid
2014
Second quarter (through June 9, 2014)	$	15.25	$	14.40	$	0.03
First quarter	$	14.43	$	13.47	$	0.03
2013
Fourth quarter	$	14.03	$	12.78	$	0.03
Third quarter	$	16.00	$	12.47	$	0.03
Second quarter	$	15.75	$	11.40	$	0.03
First quarter	$	13.04	$	10.30	$	0.03
2012
Fourth quarter	$	11.00	$	10.00	$	0.03
Third quarter	$	10.65	$	9.00	$	0.03
Second quarter	$	10.00	$	8.80	$	0.03
First quarter	$	9.75	$	8.83	$	0.03

On April 8, 2014, the business day immediately preceding the public announcement of the conversion, and on ________, 2014, the closing prices of Pathfinder-Federal common stock as reported on the Nasdaq Capital Market were $14.45 per share and $_____ per share, respectively. On the effective date of the conversion, all publicly held shares of Pathfinder-Federal common stock, including shares of common stock held by our officers and directors, will be converted automatically into and become the right to receive a number of shares of New Pathfinder common stock determined pursuant to the exchange ratio. See “The Conversion and Offering—Share Exchange Ratio for Current Common Stockholders.” Options to purchase shares of Pathfinder-Federal common stock will be converted into options to purchase a number of shares of New Pathfinder common stock determined pursuant to the exchange ratio, for the same aggregate exercise price. See “Beneficial Ownership of Common Stock.”

38

HISTORICAL AND PRO FORMA REGULATORY CAPITAL COMPLIANCE

At March 31, 2014, Pathfinder Bank exceeded all of the applicable regulatory capital requirements and was considered “well capitalized.” The table below sets forth the historical equity capital and regulatory capital of Pathfinder Bank at March 31, 2014, and the pro forma equity capital and regulatory capital of Pathfinder Bank, after giving effect to the sale of shares of common stock at $10.00 per share. The table assumes the receipt by Pathfinder Bank of 50% of the net offering proceeds. See “How We Intend to Use the Proceeds from the Offering.”

	Pathfinder Bank Historical at					Pro Forma at March 31, 2014, Based Upon the Sale in the Offering of (1)
	March 31, 2014					1,700,000 Shares						2,000,000 Shares						2,300,000 Shares						2,645,000 Shares
	Amount		Percent of Assets (2)			Amount			Percent of Assets (2)			Amount			Percent of Assets (2)			Amount			Percent of Assets (2)			Amount			Percent of Assets (2)
(Dollars in thousands)
Equity	$	47,109		8.95	%	$	53,517			10.02	%	$	54,777			10.23	%	$	56,037			10.44	%	$	57,486			10.67	%
Tier 1 leverage capital	$	44,011		8.73		$	50,419			9.85		$	51,679			10.07		$	52,939			10.28		$	54,388			10.53
Leverage requirement		25,207		5.00			25,595			5.00			25,670			5.00			25,745			5.00			25,831			5.00
Excess	$	18,804		3.73	%	$	24,824			4.85	%	$	26,009			5.07	%	$	27,194			5.28	%	$	28,557			5.53	%
Tier 1 risk-based capital (3)	$	44,011		12.53	%	$	50,419			14.29	%	$	51,679			14.64	%	$	52,939			14.98	%	$	54,388			15.37	%
Risk-based requirement		21,075		6.00			21,168			6.00			21,186			6.00			21,204			6.00			21,225			6.00
Excess	$	22,936		6.53	%	$	29,251			8.29	%	$	30,493			8.64	%	$	31,735			8.98	%	$	33,163			9.37	%
Total risk-based capital (3)	$	48,582		13.83	%	$	54,990			15.59	%	$	56,250			15.93	%	$	57,510			16.27	%	$	58,959			16.67	%
Risk-based  requirement		35,125		10.00			35,280			10.00			35,310			10.00			35,340			10.00			35,375			10.00
Excess	$	13,457		3.83	%	$	19,710			5.59	%	$	20,940			5.93	%	$	22,170			6.27	%	$	23,584			6.67	%
Reconciliation of capital infused into Pathfinder Bank:
Net proceeds						$	7,768					$	9,268					$	10,768					$	12,493
Less: Common stock acquired by stock-based benefit plan							(680	)					(800	)					(920	)					(1,058	)
Less: Common stock acquired by employee stock ownership plan							(680	)					(800	)					(920	)					(1,058	)
Pro forma increase						$	6,408					$	7,668					$	8,928					$	10,377

(1)	Effective January 1, 2015, the Prompt Corrective Action Well Capitalized Thresholds will be 5%, 8% and 10% for the tier 1 leverage capital requirement, tier 1 risk-based capital requirement and total risk-based capital requirement, respectively. Additionally, effective January 1, 2015, a new capital standard, common equity tier 1 capital ratio, will be implemented with a 6.5% well capitalized threshold. At March 31, 2014, our common equity tier 1 capital ratio was 12.53%, and assuming the completion of the conversion and offering, as of March 31, 2014, our common equity tier 1 capital ratio would be 14.29%, 14.64%, 14.98% and 15.37% at the minimum, the midpoint, the maximum and the adjusted maximum, respectively. At March 31, 2014, assuming the completion of the conversion and offering, Pathfinder Bank would be classified as “well capitalized” under each of the Prompt Corrective Action requirements described in this footnote, which also includes the required conservation buffer of 2.5%.
(2)	Equity and Tier 1 leverage capital levels are shown as a percentage of total average assets. Risk-based capital levels are shown as a percentage of risk-weighted assets.
(3)	Pro forma amounts and percentages assume net proceeds are invested in assets that carry a 20% risk weighting.

39

CAPITALIZATION

The following table presents the historical consolidated capitalization of Pathfinder-Federal at March 31, 2014 and the pro forma consolidated capitalization of New Pathfinder after giving effect to the conversion and offering based upon the assumptions set forth in the “Pro Forma Data” section.

	Pathfinder- Federal			Pro Forma at March 31, 2014 Based upon the Sale in the Offering at $10.00 per Share of
	Historical at March 31, 2014			1,700,000 Shares			2,000,000 Shares			2,300,000 Shares			2,645,000 Shares
	(Dollars in thousands)
Deposits (1)	$	438,352		$	438,352		$	438,352		$	438,352		$	438,352
Borrowed funds		38,981			38,981			38,981			38,981			38,981
Total deposits and borrowed funds	$	477,333		$	477,333		$	477,333		$	477,333		$	477,333
Stockholders’ equity:
Preferred stock, $0.01 par value, 10,000,000 shares authorized (post-conversion) (2)		13,000			13,000			13,000			13,000			13,000
Common stock, $0.01 par value, 25,000,000 shares authorized (post-conversion); shares to be issued as reflected (2) (3)		30			28			33			38			44
Additional paid-in capital (2)		8,264			32,040			35,035			38,030			41,474
MHC capital contribution		—			346			346			346			346
Retained earnings (4)		29,201			29,201			29,201			29,201			29,201
Accumulated other comprehensive income		(1,522	)		(1,522	)		(1,522	)		(1,522	)		(1,522	)
Less:
Treasury stock		(4,761	)		—			—			—			—
Common stock held by employee stock ownership plan (5)		(798	)		(1,478	)		(1,598	)		(1,718	)		(1,856	)
Common stock to be acquired by stock-based benefit plan (6)		—			(680	)		(800	)		(920	)		(1,058	)
Total stockholders’ equity	$	43,414		$	57,935		$	60,695		$	63,455		$	66,629
Noncontrolling interest	$	388		$	388		$	388		$	388		$	388
Total equity	$	43,802		$	58,323		$	61,083		$	63,843		$	67,017
Pro Forma Shares Outstanding
Shares offered for sale		—			1,700,000			2,000,000			2,300,000			2,645,000
Exchange shares issued		—			1,097,324			1,290,969			1,484,614			1,707,306
Total shares outstanding		—			2,797,324			3,290,969			3,784,614			4,352,306
Total stockholders’ equity as a percentage of total assets (1)		8.26	%		10.79	%		11.25	%		11.70	%		12.21	%
Tangible equity as a percentage of total assets		7.46	%		10.04	%		10.50	%		10.95	%		11.47	%

(1) Does not reflect withdrawals from deposit accounts for the purchase of shares of common stock in the conversion and offering. These withdrawals would reduce pro forma deposits and assets by the amount of the withdrawals.

(2) Pathfinder-Federal currently has 1,000,000 authorized shares of preferred stock, par value $0.01 per share, and 10,000,000 authorized shares of common stock, par value $0.01 per share. On a pro forma basis, common stock and additional paid-in capital have been revised to reflect the number of shares of New Pathfinder common stock to be outstanding.

(3) No effect has been given to the issuance of additional shares of New Pathfinder common stock pursuant to the exercise of options under one or more stock-based benefit plans. If the plans are implemented within the first year after the closing of the offering, an amount up to 10% of the shares of New Pathfinder common stock sold in the offering will be reserved for issuance upon the exercise of options under the plans. No effect has been given to the exercise of options currently outstanding. See “Management.”

(4) The retained earnings of Pathfinder Bank will be substantially restricted after the conversion. See “The Conversion and Offering—Liquidation Rights” and “Supervision and Regulation—Capital Distributions.”

(footnotes continue on following page)

40

(continued from previous page)

(5) Assumes that 4% of the shares sold in the offering will be acquired by the employee stock ownership plan financed by a loan from New Pathfinder. The loan will be repaid principally from Pathfinder Bank’s contributions to the employee stock ownership plan. Since New Pathfinder will finance the employee stock ownership plan debt, this debt will be eliminated through consolidation and no liability will be reflected on New Pathfinder’s consolidated financial statements. Accordingly, the amount of shares of common stock acquired by the employee stock ownership plan is shown in this table as a reduction of total stockholders’ equity.

(6) Assumes a number of shares of common stock equal to 4% of the shares of common stock to be sold in the offering will be purchased for grant by one or more stock-based benefit plans. The funds to be used by such plans to purchase the shares will be provided by New Pathfinder. The dollar amount of common stock to be purchased is based on the $10.00 per share subscription price in the offering and represents unearned compensation. This amount does not reflect possible increases or decreases in the value of common stock relative to the subscription price in the offering. New Pathfinder will accrue compensation expense to reflect the vesting of shares pursuant to such stock-based benefit plans and will credit capital in an amount equal to the charge to operations. Implementation of such plans will require stockholder approval.

41

IMPACT OF PATHFINDER BANCORP, MHC’S ASSETS ON MINORITY
STOCK OWNERSHIP

In the exchange, the public stockholders of Pathfinder-Federal will receive shares of common stock of New Pathfinder in exchange for their shares of common stock of Pathfinder-Federal pursuant to an exchange ratio that is designed to provide, subject to adjustment, that the stockholders will own the same percentage of the common stock of New Pathfinder after the conversion as they held in Pathfinder-Federal immediately prior to the conversion, without giving effect to new shares purchased in the offering or cash paid in lieu of any fractional shares. However, the exchange ratio will be adjusted downward to reflect assets held by Pathfinder Bancorp, MHC (other than shares of stock of Pathfinder-Federal), which assets consist primarily of cash relating to dividends paid by Pathfinder-Federal. Pathfinder Bancorp, MHC had net assets of $250,927 as of March 31, 2014, not including Pathfinder-Federal common stock. The appraisal also accounts for Pathfinder-Federal’s dividend of $0.03 per share paid to stockholders in the second quarter of 2014 and assumes the payment of an equivalent dividend in the third quarter of 2014 prior to the completion of the conversion. The adjustments described above will decrease Pathfinder-Federal’s stockholders’ ownership interest in New Pathfinder from 39.64% to 39.23% at March 31, 2014. If Pathfinder-Federal declares any further dividends before the completion of the conversion, public stockholders’ ownership interest in Pathfinder-Federal will be further diluted.

 In accordance with the process described above, the independent appraiser determined New Pathfinder’s pro forma market value by adjusting the exchange ratio downward to account for the assets held by Pathfinder Bancorp, MHC other than the common stock of Pathfinder-Federal and decreasing the ownership interest held by the public stockholders of Pathfinder-Federal accordingly.

42

PRO FORMA DATA

The following tables summarize historical data of Pathfinder-Federal and pro forma data of New Pathfinder at and for the three months ended March 31, 2014 and at and for the year ended December 31, 2013. This information is based on assumptions set forth below and in the tables, and should not be used as a basis for projections of market value of the shares of common stock following the conversion and offering.

The net proceeds in the tables are based upon the following assumptions:

(i) All shares of common stock will be sold in the subscription and community offerings;

(ii) our employee stock ownership plan will purchase 4% of the shares of common stock sold in the offering with a loan from New Pathfinder. The loan will be repaid in substantially equal payments of principal and interest (at the prime rate of interest, calculated as of the date of the origination of the loan) over a period of 10 years. Interest income that we earn on the loan will offset the interest paid by Pathfinder Bank;

(iii) we will pay Keefe, Bruyette & Woods, Inc. a fee (including reimbursable expenses) equal to $410,000; and

(iv) total expenses of the offering, other than the fees and expenses to be paid to Keefe, Bruyette & Woods, Inc., will be $1.1 million.

We calculated pro forma consolidated net income for the three months ended March 31, 2014 and the year ended December 31, 2013 as if the estimated net proceeds we received had been invested at the beginning of the period at an assumed interest rate of 1.73% (1.04% on an after-tax basis) and 1.75% (1.05% on an after-tax basis), respectively. These figures represent the yield on the five-year U.S. Treasury Note as of March 31, 2014 and December 31, 2013, respectively, which, in light of current market interest rates, we consider to more accurately reflect the pro forma reinvestment rate than the arithmetic average of the weighted average yield earned on our interest earning assets and the weighted average rate paid on our deposits, which is the reinvestment rate generally required by federal regulations.

We further believe that the reinvestment rate is factually supportable because:

· the yield on the U.S Treasury Note can be determined and/or estimated from third-party sources; and

· we believe that U.S. Treasury securities are not subject to credit losses due to a U.S. Government guarantee of payment of principal and interest.

We calculated historical and pro forma per share amounts by dividing historical and pro forma amounts of consolidated net income and stockholders’ equity by the indicated number of shares of common stock. For purposes of pro forma earnings per share calculations, we adjusted these figures to give effect to the shares of common stock purchased by the employee stock ownership plan. We computed per share amounts for each period as if the shares of common stock were outstanding at the beginning of each period, but we did not adjust per share historical or pro forma stockholders’ equity to reflect the earnings on the estimated net proceeds.

The pro forma tables give effect to the implementation of one or more stock-based benefit plans. Subject to the receipt of stockholder approval, we have assumed that stock-based benefit plans will acquire for restricted stock awards a number of shares of common stock equal to 4% of the shares of common stock sold in the stock offering at the same price for which they were sold in the stock offering. We assume that awards of common stock granted under such plans vest over a five-year period.

43

We have also assumed that options will be granted under stock-based benefit plans to acquire shares of common stock equal to 10% of the shares of common stock sold in the stock offering. In preparing the tables below, we assumed that stockholder approval was obtained, that the exercise price of the stock options and the market price of the stock at the date of grant were $10.00 per share and that the stock options had a term of ten years and vested over five years. We applied the Black-Scholes option pricing model to estimate a grant-date fair value of $2.52 for each option. In addition to the terms of the options described above, the Black-Scholes option pricing model assumed an estimated volatility rate of 17.71% for the shares of common stock, a dividend yield of 1.2%, an expected option term of 10 years and a risk-free rate of return of 2.73%.

We may grant options and award shares of common stock under one or more stock-based benefit plans in excess of 10% and 4%, respectively, of the shares of common stock sold in the stock offering and that vest sooner than over a five-year period if the stock-based benefit plans are adopted more than one year following the stock offering.

As discussed under “How We Intend to Use the Proceeds from the Stock Offering,” we intend to contribute 50% of the net proceeds from the stock offering to Pathfinder Bank, and we will retain the remainder of the net proceeds from the stock offering. We will use a portion of the proceeds we retain for the purpose of making a loan to the employee stock ownership plan and retain the rest of the proceeds for future use.

The pro forma table does not give effect to:

· withdrawals from deposit accounts to purchase shares of common stock in the stock offering;

· our results of operations after the stock offering; or

· changes in the market price of the shares of common stock after the stock offering.

The following pro forma information may not be representative of the financial effects of the offering at the dates on which the offering actually occurs, and should not be taken as indicative of future results of operations. Pro forma consolidated stockholders’ equity represents the difference between the stated amounts of our assets and liabilities. The pro forma stockholders’ equity is not intended to represent the fair market value of the shares of common stock and may be different than the amounts that would be available for distribution to stockholders if we liquidated. Moreover, pro forma stockholders’ equity per share does not give effect to the liquidation accounts to be established in the conversion or, in the unlikely event of a liquidation of Pathfinder Bank, to the tax effect of the recapture of the bad debt reserve. See “The Conversion and Offering—Liquidation Rights.”

44

	At or for the Three months Ended March 31, 2014 Based upon the Sale at $10.00 Per Share of
	1,700,000 Shares			2,000,000 Shares			2,300,000 Shares			2,645,000 Shares
	(Dollars in thousands, except per share amounts)
Gross proceeds of offering	$	17,000		$	20,000		$	23,000		$	26,450
Market value of shares issued in the exchange		10,973			12,910			14,846			17,073
Pro forma market capitalization	$	27,973		$	32,910		$	37,846		$	43,523
Gross proceeds of offering	$	17,000		$	20,000		$	23,000		$	26,450
Expenses		1,465			1,465			1,465			1,465
Estimated net proceeds		15,535			18,535			21,535			24,985
Common stock purchased by employee stock ownership plan		(680	)		(800	)		(920	)		(1,058	)
Common stock purchased by stock-based benefit plans		(680	)		(800	)		(920	)		(1,058	)
Estimated net proceeds, as adjusted	$	14,175		$	16,935		$	19,695		$	22,869
For the Three months Ended March 31, 2014
Consolidated net earnings:
Historical	$	489		$	489		$	489		$	489
Income on adjusted net proceeds		37			44			51			59
Income on MHC asset contribution		1			1			1			1
Employee stock ownership plan (1)		(10	)		(12	)		(14	)		(16	)
Stock awards (2)		(20	)		(24	)		(28	)		(32	)
Stock options (3)		(19	)		(23	)		(26	)		(30	)
Pro forma net income	$	478		$	475		$	473		$	471
Earnings per share (4):
Historical (5)	$	0.18		$	0.16		$	0.14		$	0.12
Income on adjusted net proceeds		0.01			0.01			0.01			0.01
Income on MHC asset contribution		—			—			—			—
Employee stock ownership plan (1)		—			—			—			—
Stock awards (2)		(0.01	)		(0.01	)		(0.01	)		(0.01	)
Stock options (3)		(0.01	)		(0.01	)		(0.01	)		(0.01	)
Pro forma earnings per share (4)	$	0.17		$	0.15		$	0.13		$	0.11
Offering price to pro forma net earnings per share		14.71	x		16.67	x		19.23	x		22.73	x
Number of shares used in earnings per share calculations		2,731,024			3,212,969			3,694,914			4,249,151
At March 31, 2014
Stockholders’ equity:
Historical(5)	$	30,802		$	30,802		$	30,802		$	30,802
Estimated net proceeds		15,535			18,535			21,535			24,985
Equity increase from the mutual holding company		346			346			346			346
Common stock acquired by employee stock ownership plan (1)		(680	)		(800	)		(920	)		(1,058	)
Common stock acquired by stock-based benefit plans (2)		(680	)		(800	)		(920	)		(1,058	)
Pro forma stockholders’ equity	$	45,323		$	48,083		$	50,843		$	54,017
Intangible assets	$	(4,551	)	$	(4,551	)	$	(4,551	)	$	(4,551	)
Pro forma tangible stockholders’ equity (6)	$	40,772		$	43,532		$	46,292		$	49,466
Stockholders’ equity per share (7):
Historical(5)	$	11.01		$	9.35		$	8.14		$	7.07
Estimated net proceeds		5.55			5.63			5.68			5.74
Equity increase from the mutual holding company		0.12			0.11			0.09			0.08
Common stock acquired by employee stock ownership plan (1)		(0.24	)		(0.24	)		(0.24	)		(0.24	)
Common stock acquired by stock-based benefit plans (2)		(0.24	)		(0.24	)		(0.24	)		(0.24	)
Pro forma stockholders’ equity per share (6) (7)	$	16.20		$	14.61		$	13.43		$	12.41
Intangible assets	$	(1.63	)	$	(1.38	)	$	(1.20	)	$	(1.05	)
Pro forma tangible stockholders’ equity per share (6) (7)	$	14.57		$	13.23		$	12.23		$	11.36
Offering price as percentage of pro forma stockholders’ equity per share		61.73	%		68.45	%		74.46	%		80.58	%
Offering price as percentage of pro forma tangible stockholders’ equity per share		68.63	%		75.59	%		81.77	%		88.03	%
Number of shares outstanding for pro forma book value per share calculations		2,797,324			3,290,969			3,784,614			4,352,306

(footnotes begin on following page)

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(1) Assumes that 4% of the shares of common stock sold in the offering will be purchased by the employee stock ownership plan. For purposes of this table, the funds used to acquire these shares are assumed to have been borrowed by the employee stock ownership plan from New Pathfinder, and the outstanding loan with respect to existing shares of Pathfinder-Federal held by the employee stock ownership plan will be refinanced and consolidated with the new loan from New Pathfinder. Pathfinder Bank intends to make annual contributions to the employee stock ownership plan in an amount at least equal to the required principal and interest payments on the debt. Pathfinder Bank’s total annual payments on the employee stock ownership plan debt are based upon 10 equal annual installments of principal and interest. Financial Accounting Standards Board Accounting Standards Codification (“ASC”) 718-40, “Compensation—Stock Compensation—Employee Stock Ownership Plans” (“ASC 718-40”), requires that an employer record compensation expense in an amount equal to the fair value of the shares committed to be released to employees. The pro forma adjustments assume that the employee stock ownership plan shares are allocated in equal annual installments based on the number of loan repayment installments assumed to be paid by Pathfinder Bank, the fair value of the common stock remains equal to the subscription price and the employee stock ownership plan expense reflects an effective combined federal and state tax rate of 40.0%. The unallocated employee stock ownership plan shares are reflected as a reduction of stockholders’ equity. No reinvestment is assumed on proceeds contributed to fund the employee stock ownership plan. The pro forma net income further assumes that 1,700, 2,000, 2,300 and 2,645 shares were committed to be released during the period at the minimum, midpoint, maximum and adjusted maximum of the offering range, respectively, and in accordance with ASC 718-40, only the employee stock ownership plan shares committed to be released during the period were considered outstanding for purposes of net income per share calculations.

(2) Assumes that one or more stock-based benefit plans purchase an aggregate number of shares of common stock equal to 4% of the shares to be sold in the offering. Stockholder approval of the plans and purchases by the plans may not occur earlier than six months after the completion of the conversion. The shares may be acquired directly from New Pathfinder or through open market purchases. Shares in the stock-based benefit plan are assumed to vest over a period of five years. The funds to be used to purchase the shares will be provided by New Pathfinder. The table assumes that (i) the stock-based benefit plan acquires the shares through open market purchases at $10.00 per share, (ii) 5% of the amount contributed to the plan is amortized as an expense during the three months ended March 31, 2014, and (iii) the plan expense reflects an effective combined federal and state tax rate of 40.0%. Assuming stockholder approval of the stock-based benefit plans and that shares of common stock (equal to 4% of the shares sold in the offering) are awarded through the use of authorized but unissued shares of common stock, stockholders would have their ownership and voting interests diluted by approximately 2.4%.

(3) Assumes that options are granted under one or more stock-based benefit plans to acquire an aggregate number of shares of common stock equal to 10% of the shares to be sold in the offering. Stockholder approval of the plans may not occur earlier than six months after the completion of the conversion. In calculating the pro forma effect of the stock-based benefit plans, it is assumed that the exercise price of the stock options and the trading price of the common stock at the date of grant were $10.00 per share, the estimated grant-date fair value determined using the Black-Scholes option pricing model was $2.52 for each option, the aggregate grant-date fair value of the stock options was amortized to expense on a straight-line basis over a five-year vesting period of the options, and that 25% of the amortization expense (or the assumed portion relating to options granted to directors) resulted in a tax benefit using an assumed tax rate of 40.0%. The actual expense will be determined by the grant-date fair value of the options, which will depend on a number of factors, including the valuation assumptions used and the option pricing model ultimately adopted. Under the above assumptions, the adoption of the stock-based benefit plans will result in no additional shares under the treasury stock method for purposes of calculating earnings per share. There can be no assurance that the actual exercise price of the stock options will be equal to the $10.00 price per share. If a portion of the shares used to satisfy the exercise of options comes from authorized but unissued shares, our net income per share and stockholders’ equity per share would decrease. The issuance of authorized but unissued shares of common stock pursuant to the exercise of options under such plan would dilute stockholders’ ownership and voting interests by approximately 5.7%.

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(4) Per share figures include publicly held shares of Pathfinder-Federal common stock that will be exchanged for shares of New Pathfinder common stock in the conversion. See “The Conversion and Offering—Share Exchange Ratio for Current Common Stockholders.” Net income per share computations are determined by taking the number of shares assumed to be sold in the offering and the number of new shares assumed to be issued in exchange for publicly held shares and, in accordance with ASC 718-40, subtracting the employee stock ownership plan shares which have not been committed for release during the year. See note 1. The number of shares of common stock actually sold and the corresponding number of exchange shares may be more or less than the assumed amounts. Pro forma net income per share has been annualized to calculate the offering price to pro forma net earnings per share.

(5) The historical stockholders’ equity does not include the $13.0 million of our Series B Preferred Stock that we sold to the U.S. Treasury in connection with the SBLF.

(6) The retained earnings of Pathfinder Bank will be substantially restricted after the conversion. See “Our Dividend Policy,” “The Conversion and Offering—Liquidation Rights” and “Supervision and Regulation—Capital Distributions.”

(7) Per share figures include publicly held shares of Pathfinder-Federal common stock that will be exchanged for shares of New Pathfinder common stock in the conversion. Stockholders’ equity per share calculations are based upon the sum of (i) the number of shares assumed to be sold in the offering and (ii) shares to be issued in exchange for publicly held shares at the minimum, midpoint, maximum and adjusted maximum of the offering range, respectively. The exchange shares reflect an exchange ratio of 1.0552, 1.2414, 1.4276 and 1.6417 at the minimum, midpoint, maximum and adjusted maximum of the offering range, respectively. The number of shares actually sold and the corresponding number of exchange shares may be more or less than the assumed amounts.

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	At or for the Year Ended December 31, 2013 Based upon the Sale at $10.00 Per Share of
	1,700,000 Shares			2,000,000 Shares			2,300,000 Shares			2,645,000 Shares
	(Dollars in thousands, except per share amounts)
Gross proceeds of offering	$	17,000		$	20,000		$	23,000		$	26,450
Market value of shares issued in the exchange		10,973			12,910			14,846			17,073
Pro forma market capitalization	$	27,973		$	32,910		$	37,846		$	43,523
Gross proceeds of offering	$	17,000		$	20,000		$	23,000		$	26,450
Expenses		1,465			1,465			1,465			1,465
Estimated net proceeds		15,535			18,535			21,535			24,985
Common stock purchased by employee stock ownership plan		(680	)		(800	)		(920	)		(1,058	)
Common stock purchased by stock-based benefit plans		(680	)		(800	)		(920	)		(1,058	)
Estimated net proceeds, as adjusted	$	14,175		$	16,935		$	19,695		$	22,869
For the Year Ended December 31, 2013
Consolidated net earnings:
Historical	$	2,406		$	2,406		$	2,406		$	2,406
Income on adjusted net proceeds		149			178			207			240
Income on MHC asset contribution		4			4			4			4
Employee stock ownership plan (1)		(41	)		(48	)		(55	)		(63	)
Stock awards (2)		(82	)		(96	)		(110	)		(127	)
Stock options (3)		(77	)		(91	)		(104	)		(120	)
Pro forma net income	$	2,359		$	2,353		$	2,348		$	2,340
Earnings per share (4):
Historical(5)	$	0.88		$	0.74		$	0.64		$	0.56
Income on adjusted net proceeds		0.05			0.06			0.06			0.06
Income on MHC asset contribution		—			—			—			—
Employee stock ownership plan (1)		(0.01	)		(0.01	)		(0.01	)		(0.01	)
Stock awards (2)		(0.03	)		(0.03	)		(0.03	)		(0.03	)
Stock options (3)		(0.03	)		(0.03	)		(0.03	)		(0.03	)
Pro forma earnings per share (4)	$	0.86		$	0.73		$	0.63		$	0.55
Offering price to pro forma net earnings per share		11.63	x		13.70	x		15.87	x		18.18	x
Number of shares used in earnings per share calculations		2,736,124			3,218,969			3,701,814			4,257,086
At December 31, 2013
Stockholders’ equity:
Historical(5)	$	30,070		$	30,070		$	30,070		$	30,070
Estimated net proceeds		15,535			18,535			21,535			24,985
Equity increase from the mutual holding company		346			346			346			346
Common stock acquired by employee stock ownership plan (1)		(680	)		(800	)		(920	)		(1,058	)
Common stock acquired by stock-based benefit plans (2)		(680	)		(800	)		(920	)		(1,058	)
Pro forma stockholders’ equity	$	44,591		$	47,351		$	50,111		$	53,285
Intangible assets	$	(4,554	)	$	(4,554	)	$	(4,554	)	$	(4,554	)
Pro forma tangible stockholders’ equity (6)	$	40,037		$	42,797		$	45,557		$	48,731
Stockholders’ equity per share (7):
Historical(5)	$	10.75		$	9.13		$	7.94		$	6.90
Estimated net proceeds		5.55			5.63			5.69			5.74
Equity increase from the mutual holding company		0.12			0.11			0.09			0.08
Common stock acquired by employee stock ownership plan (1)		(0.24	)		(0.24	)		(0.24	)		(0.24	)
Common stock acquired by stock-based benefit plans (2)		(0.24	)		(0.24	)		(0.24	)		(0.24	)
Pro forma stockholders’ equity per share (6) (7)	$	15.94		$	14.39		$	13.24		$	12.24
Intangible assets	$	(1.63	)	$	(1.38	)	$	(1.20	)	$	(1.05	)
Pro forma tangible stockholders’ equity per share (6) (7)	$	14.31		$	13.01		$	12.04		$	11.19
Offering price as percentage of pro forma stockholders’ equity per share		62.74	%		69.49	%		75.53	%		81.70	%
Offering price as percentage of pro forma tangible stockholders’ equity per share		69.88	%		76.86	%		83.06	%		89.37	%
Number of shares outstanding for pro forma book value per share calculations		2,797,324			3,290,969			3,784,614			4,352,306

(footnotes begin on following page)

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(1) Assumes that 4% of the shares of common stock sold in the offering will be purchased by the employee stock ownership plan. For purposes of this table, the funds used to acquire these shares are assumed to have been borrowed by the employee stock ownership plan from New Pathfinder, and the outstanding loan with respect to existing shares of Pathfinder-Federal held by the employee stock ownership plan will be refinanced and consolidated with the new loan from New Pathfinder. Pathfinder Bank intends to make annual contributions to the employee stock ownership plan in an amount at least equal to the required principal and interest payments on the debt. Pathfinder Bank’s total annual payments on the employee stock ownership plan debt are based upon 10 equal annual installments of principal and interest. ASC 718-40 requires that an employer record compensation expense in an amount equal to the fair value of the shares committed to be released to employees. The pro forma adjustments assume that the employee stock ownership plan shares are allocated in equal annual installments based on the number of loan repayment installments assumed to be paid by Pathfinder Bank, the fair value of the common stock remains equal to the subscription price and the employee stock ownership plan expense reflects an effective combined federal and state tax rate of 40.0%. The unallocated employee stock ownership plan shares are reflected as a reduction of stockholders’ equity. No reinvestment is assumed on proceeds contributed to fund the employee stock ownership plan. The pro forma net income further assumes that 6,800, 8,000, 9,200 and 10,580 shares were committed to be released during the year at the minimum, midpoint, maximum and adjusted maximum of the offering range, respectively, and in accordance with ASC 718-40, only the employee stock ownership plan shares committed to be released during the period were considered outstanding for purposes of net income per share calculations.

(2) Assumes that one or more stock-based benefit plans purchase an aggregate number of shares of common stock equal to 4% of the shares to be sold in the offering. Stockholder approval of the plans and purchases by the plans may not occur earlier than six months after the completion of the conversion. The shares may be acquired directly from New Pathfinder or through open market purchases. Shares in the stock-based benefit plan are assumed to vest over a period of five years. The funds to be used to purchase the shares will be provided by New Pathfinder. The table assumes that (i) the stock-based benefit plan acquires the shares through open market purchases at $10.00 per share, (ii) 20% of the amount contributed to the plan is amortized as an expense during the year ended December 31, 2013, and (iii) the plan expense reflects an effective combined federal and state tax rate of 40.0%. Assuming stockholder approval of the stock-based benefit plans and that shares of common stock (equal to 4% of the shares sold in the offering) are awarded through the use of authorized but unissued shares of common stock, stockholders would have their ownership and voting interests diluted by approximately 2.4%.

(3) Assumes that options are granted under one or more stock-based benefit plans to acquire an aggregate number of shares of common stock equal to 10% of the shares to be sold in the offering. Stockholder approval of the plans may not occur earlier than six months after the completion of the conversion. In calculating the pro forma effect of the stock-based benefit plans, it is assumed that the exercise price of the stock options and the trading price of the common stock at the date of grant were $10.00 per share, the estimated grant-date fair value determined using the Black-Scholes option pricing model was $2.52 for each option, the aggregate grant-date fair value of the stock options was amortized to expense on a straight-line basis over a five-year vesting period of the options, and that 25% of the amortization expense (or the assumed portion relating to options granted to directors) resulted in a tax benefit using an assumed tax rate of 40.0%. The actual expense will be determined by the grant-date fair value of the options, which will depend on a number of factors, including the valuation assumptions used and the option pricing model ultimately adopted. Under the above assumptions, the adoption of the stock-based benefit plans will result in no additional shares under the treasury stock method for purposes of calculating earnings per share. There can be no assurance that the actual exercise price of the stock options will be equal to the $10.00 price per share. If a portion of the shares used to satisfy the exercise of options comes from authorized but unissued shares, our net income per share and stockholders’ equity per share would decrease. The issuance of authorized but unissued shares of common stock pursuant to the exercise of options under such plan would dilute stockholders’ ownership and voting interests by approximately 5.7%.

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(continued from previous page)

(4) Per share figures include publicly held shares of Pathfinder-Federal common stock that will be exchanged for shares of New Pathfinder common stock in the conversion. See “The Conversion and Offering—Share Exchange Ratio for Current Common Stockholders.” Net income per share computations are determined by taking the number of shares assumed to be sold in the offering and the number of new shares assumed to be issued in exchange for publicly held shares and, in accordance with ASC 718-40, subtracting the employee stock ownership plan shares which have not been committed for release during the year. See note 1. The number of shares of common stock actually sold and the corresponding number of exchange shares may be more or less than the assumed amounts.

(5) The historical stockholders’ equity does not include the $13.0 million of our Series B Preferred Stock that we sold to the U.S. Treasury in connection with the SBLF.

(6) The retained earnings of Pathfinder Bank will be substantially restricted after the conversion. See “Our Dividend Policy,” “The Conversion and Offering—Liquidation Rights” and “Supervision and Regulation—Capital Distributions.”

(7) Per share figures include publicly held shares of Pathfinder-Federal common stock that will be exchanged for shares of New Pathfinder common stock in the conversion. Stockholders’ equity per share calculations are based upon the sum of (i) the number of shares assumed to be sold in the offering and (ii) shares to be issued in exchange for publicly held shares at the minimum, midpoint, maximum and adjusted maximum of the offering range, respectively. The exchange shares reflect an exchange ratio of 1.0552, 1.2414, 1.4276 and 1.6417 at the minimum, midpoint, maximum and adjusted maximum of the offering range, respectively. The number of shares actually sold and the corresponding number of exchange shares may be more or less than the assumed amounts.

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS

This discussion and analysis reflects our consolidated financial statements and other relevant statistical data, and is intended to enhance your understanding of our financial condition and results of operations. The information in this section has been derived from the audited and unaudited consolidated financial statements, which appear beginning on page F-1 of this prospectus. You should read the information in this section in conjunction with the business and financial information regarding Pathfinder-Federal and the financial statements provided in this prospectus.

Overview

Pathfinder Bank provides financial services to individuals and businesses from our eight banking offices located in Oswego and Onondaga Counties, New York. Our primary market area includes Oswego County and Onondaga County, New York. Our principal business has consisted of attracting retail deposits from the general public in our market area and investing those deposits, together with funds generated from operations, in one- to four-family residential real estate loans, commercial real estate loans, commercial and municipal loans and, to a lesser extent, home equity loans and junior liens and consumer loans. We also invest in securities, which consist primarily of securities issued by the United States Government and its agencies and sponsored enterprises, state and municipal obligations, corporate debt securities, mutual funds, and equity securities. We offer a variety of deposit accounts to consumers and small businesses, including savings accounts, NOW accounts and money market accounts.

Our results of operations depend primarily on net interest income. Net interest income is the difference between interest income earned on our investments in mortgage and other loans, investment securities and other assets, and our cost of funds consisting of interest paid on deposits and borrowings. Our net income is also affected by our provision for loan losses, noninterest income consisting primarily of service charges and servicing rights, net gains and losses on sales and redemptions of securities, loans and foreclosed real estate, fees on account balances and commissions from insurance agency and investment services, noninterest expense consisting primarily of employee compensation and benefits, occupancy and equipment costs and data processing costs and income taxes. Our results of operation are also affected significantly by general economic and competitive conditions, particularly changes in market interest rates, government policies, and actions of regulatory authorities. These events are beyond our control. In particular, the general level of market interest rates tend to be cyclical and unpredictable.

Business Strategy

Our business strategy has been to transition from a traditional savings bank primarily focused on originating one- to four-family residential real estate loans to a more diversified loan composition similar to a commercial bank, while at the same time, maintaining our high standards of customer service and convenience. We have emphasized developing our business banking by offering products desirable to small businesses in our market area. Notwithstanding, a significant portion of our lending activity has been, and will continue to be, the origination of one- to four-family residential real estate loans. Highlights of our business strategy are as follows:

· Expanding our business banking. We have increased our emphasis on servicing the needs of small businesses in our market area. We intend to use our branch office network and experienced commercial deposit specialists to provide convenient commercial loan and deposit products and services to business customers, including merchant and remote deposit capture services. We believe that by developing our commercial relationships with small businesses we will be able to offer a variety of services and deposit products that will provide a growing source of fee income to Pathfinder Bank. We have introduced new products and services in order to attract new business customers and we will continue to expand our products to help meet the needs of our business customers.

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· Continuing our emphasis on commercial business and commercial real estate lending. In recent years, we have sought to significantly increase our commercial business and commercial real estate lending, consistent with safe and sound underwriting practices. In this regard, we have added personnel who are experienced in originating and servicing our commercial real estate and commercial business loans. At March 31, 2014, commercial real estate loans totaled $102.6 million, or 29.5% of loans, compared with $62.2 million, or 23.8% of loans, at December 31, 2009. At March 31, 2014, commercial and municipal loans totaled $51.6 million, or 14.8% of loans, compared with $35.4 million, or 13.5% of loans, at December 31, 2009. We view the growth of our commercial business and commercial real estate loans as a means of diversifying and increasing our interest income and establishing relationships with local businesses, which provide a recurring and broader source of fee income and deposits. We expect that our emphasis on commercial business and commercial real estate lending will complement our traditional one- to four-family residential real estate lending.

· Diversifying our products and services with a goal of increasing non-interest income over time. We have sought to reduce our dependence on net interest income by increasing the fee income for services we provide. We offer property and casualty, life and health insurance through our subsidiary, Pathfinder Risk Management Company, Inc., and its insurance agency subsidiary, the FitzGibbons Agency, LLC. Additionally, Pathfinder Bank’s investment services provides brokerage services for the purchase of stocks, bonds, mutual funds, annuities, and long-term care products. We intend to gradually grow these businesses in the years ahead. We have already added personnel for Pathfinder Bank’s investment services. At March 31, 2014, there were $30.8 million in assets under management for our investment services division. We believe that there will be opportunities to cross-sell these products to our deposit and borrower customers which may increase our non-interest income.

· Continuing to grow our customer relationships and deposit base by expanding our branch network. As conditions permit, we will expand our branch network through a combination of de novo branching and acquisitions of branches or other financial services companies. We believe that as we expand our branch network, our customer relationships and deposit base will continue to grow. During the third quarter of 2014, we intend to open a business banking office in Syracuse, New York. As we continue to grow our lending operations in Onondaga County, we anticipate opening additional branches in Onondaga County based on customer demand. As of June 30, 2013, our total deposits represented 31.2% of all deposits in Oswego County, but only 0.46% of all deposits in Onondaga County. As we expand our branch network, we expect our deposit base in Onondaga County to increase. We do not currently have any agreements or understandings regarding specific de novo branches or acquisitions. Additionally, we have committed significant resources to establish a banking platform to accommodate future growth by upgrading our information technology, maintaining a robust risk management and compliance staff, hiring additional commercial lenders and credit analysts, and upgrading our physical infrastructure. We believe that these investments will enable us to achieve operational efficiencies with minimal additional investments, while providing increased convenience for our customers.

· Utilizing the net proceeds from the conversion to continue the controlled growth of Pathfinder Bank. In 2009, we sold $6.7 million of Series A Preferred Stock to the U.S. Treasury as part of the Troubled Asset Relief Program (“TARP”). In September 2011, we replaced the Series A Preferred Stock with $13.0 million in gross proceeds from the sale of Series B Preferred Stock to the U.S. Treasury as part of the Small Business Lending Fund (“SBLF”). At March 31, 2014, the Series B Preferred Stock had an annual dividend rate of 1.0% which will increase to 9.0% in March 2016. We have used the proceeds from the sale of preferred stock to provide capital for asset growth and increased lending. During the period between December 31, 2009 and March 31, 2014, our total assets grew by $154.2 million, or 41.5%, principally through organic loan origination and deposit growth. We believe that we can successfully utilize the net proceeds from the conversion to

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continue our asset growth and create a banking platform that will improve our profitability and create operational efficiencies for Pathfinder Bank.

· Providing quality customer service. Our strategy emphasizes providing quality customer service delivered through our branch network and meeting the financial needs of our customer base by offering a full complement of loan, deposit and online banking solutions (i.e., internet banking). We intend to open a new business banking office in Syracuse, New York in the third quarter of 2014 to increase the convenience of our branch network for our Onondaga County customers. Our competitive advantage is our ability to make decisions, such as approving loans, more quickly than our larger competitors. Customers enjoy, and will continue to enjoy, access to senior executives and local decision makers at Pathfinder Bank and the flexibility it brings to their businesses.

Critical Accounting Policies

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

The most significant accounting policies we follow are presented in Note 1 to the 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 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 loan losses, deferred income taxes, pension obligations, the evaluation of investment securities for other than temporary impairment, the annual evaluation of our goodwill for possible impairment, and the estimation of fair values for accounting and disclosure purposes 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.

Allowance for Loan Losses.   The allowance for loan losses represents management's estimate of probable loan losses inherent in the loan portfolio. Determining the amount of the allowance for loan 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 impaired loans, estimated losses on pools of homogeneous loans based on historical loss experience, and consideration of current economic trends and conditions, all of which may be susceptible to significant change. We establish 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 impaired which are on nonaccrual and have been risk rated under our risk rating system as substandard, doubtful, or loss. In addition, an accruing substandard loan could be identified as being impaired. The measurement of impaired 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 for impairment based on the fair value of the collateral, less costs to sell. The majority of our impaired loans are collateral-dependent. For all other loans and leases, we use the general allocation methodology that establishes an allowance to estimate the probable incurred loss for each risk-rating category. The loan portfolio also represents the

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largest asset type on the consolidated statement of condition. Note 1 to the consolidated financial statements describes the methodology used to determine the allowance for loan losses and includes a discussion of the factors driving changes in the amount of the allowance for loan losses.

Deferred Income Taxes.   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 affect 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. A valuation allowance of $458,000 was maintained at March 31, 2014, as management believes it may not generate sufficient capital gains to offset its capital loss carry forward. Our effective tax rate differs from the statutory rate due primarily to non-taxable income from investment securities and bank owned life insurance.

Pension Obligations.   We maintain a noncontributory defined benefit pension plan covering substantially all 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. The freeze became effective June 30, 2012. Pension and postretirement 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 we will have to provide those benefits. For further detail on our pension obligations, including the significant assumptions used by management, see Note 12 to the consolidated financial statements.

Evaluation of Investment Securities for Other Than Temporary Impairment.   We carry all of our available-for-sale 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 security impairment losses and other-than-temporary impairment (“OTTI”) of equity securities which are charged to earnings. Our ability to fully realize the value of our investments in various securities, including corporate debt securities, is dependent on the underlying creditworthiness of the issuing organization. In evaluating the debt security (both available-for-sale and held-to-maturity) portfolio for other-than-temporary impairment losses, management considers (1) if we intend to sell the security before recovery of its amortized cost; (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 not sufficient to recover the entire amortized cost basis. When the fair value of a held-to-maturity or available-for-sale security is less than its amortized cost basis, an assessment is made as to whether other-than-temporary impairment (“OTTI”) is present. We consider numerous factors when determining whether a potential OTTI exists and the period over which the debt security is expected to recover. The principal factors considered are (1) the length of time and the extent to which the fair value has been less than the amortized cost basis, (2) the financial condition of the issue and (guarantor, if any) and adverse conditions specifically related to the security, industry or geographic area, (3) failure of the issuer of the security to make scheduled interest or principal payments, (4) any changes to the rating of the security by a rating agency, and (5) the presence of credit enhancements, if any, including the guarantee of the federal government or any of its agencies. The estimation of fair value is significant to several of our assets; including investment securities available-for-sale, interest rate derivative (as discussed in further detail in Note 19 to the consolidated financial statements) 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 Consolidated Financial Statements. Fair values on our available-for-sale securities may be influenced by a number of factors; including market interest rates, prepayment speeds, discount rates, and the shape of yield curves.

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Evaluation of Goodwill. Management performs an annual evaluation of our goodwill for possible impairment. Based on the results of the December 31, 2013 evaluation, management has determined that the carrying value of goodwill was not impaired as of that date. The evaluation approach is described in Note 9 of the consolidated financial statements. Further information on the estimation of fair values can be found in Note 20 to the consolidated financial statements.

Estimation of Fair Values. Fair values for securities available-for-sale are obtained from an independent third party pricing service. 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 source. The fair values of foreclosed real estate and the underlying collateral value of impaired 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.

Comparison of Financial Condition at March 31, 2014 and at December 31, 2013

Assets. Total assets increased $22.1 million, or 4.4%, to $525.8 million at March 31, 2014 from $503.8 million at December 31, 2013. This increase in assets was primarily due to increases in investment securities, loans, cash and equivalents and bank owned life insurance. Investment securities increased to $126.7 million at March 31, 2014 from $115.4 million at December 31, 2013 with the majority of the increase within the held-to-maturity portfolio. Held-to-maturity securities increased $8.6 million to $43.0 million at March 31, 2014 due to our preference to place securities with greater price sensitivity into this category, thereby eliminating any potential volatility within accumulated other comprehensive income. Total loans receivable increased $6.5 million, or 1.9%, to $348.1 million at March 31, 2014 from $341.6 million at December 31, 2013 primarily due to an increase in commercial real estate loans. Commercial real estate loans increased $7.0 million to $102.6 million at March 31, 2014 from $95.5 million at December 31, 2013 as a result of our continued business development efforts. Total cash and cash equivalents increased $2.4 million to $18.9 million at March 31, 2014 from $16.6 million at December 31, 2013. Bank owned life insurance increased $1.8 million during the first quarter of 2014. The increase in bank owned life insurance was primarily the result of additional purchases of single premium life insurance policies on selected participants.  These purchases will assist in the funding of our benefits under optional deferred compensation and supplemental executive retirement plans.

Total Liabilities. Total liabilities increased to $482.0 million at March 31, 2014, from $460.7 million at December 31, 2013. Deposits increased $28.2 million, or 6.9%, to $438.4 million at March 31, 2014 from $410.1 million at December 31, 2013 primarily as a result of a $24.8 million increase within the municipal deposit portfolio due to seasonal tax collection activities. The remaining increase was the result of our organic growth efforts within the retail and business market segments. Core deposits (consisting of demand accounts, NOW accounts, money market deposit accounts and savings accounts) increased $32.8 million during the first quarter of 2014 to $282.6 million at March 31, 2014, while certificates of deposit decreased $2.0 million to $116.1 million at March 31, 2014, due to customers electing to reinvest their maturing certificates of deposit into short-term instruments to improve their liquidity in advance of potentially rising interest rates. Total borrowings decreased $7.0 million to $33.8 million at March 31, 2014. The increase in deposits allowed the paydown of $7.0 million in short-term borrowings at the FHLBNY.

Stockholders’ Equity. Stockholders’ equity increased $702,000, or 1.6%, to $43.4 million at March 31, 2014 from $42.7 million at December 31, 2013. This increase was largely due to a $413,000 increase in retained earnings, resulting from the first quarter 2014 net income of $489,000 and a reduction of $223,000 in accumulated other comprehensive loss as we recorded an increase in the market value of our available-for-sale investment portfolio, partially offset by dividends declared on our common stock totaling $76,000.

We were not required to declare any dividends in the first quarter of 2014 on our preferred stock in connection with the SBLF as positive updated lending information provided to the U.S. Treasury resulted in a credit against the dividend rate for the current quarter. We expect this credit to end in the second quarter of 2014 with the resumption of a 1.0% dividend rate in the third quarter of 2014 and subsequent quarters. If the SBLF remains

55

outstanding for more than four and one-half years since issuance, or March 2016, the dividend rate will be fixed at 9.0%.

Comparison of Financial Condition at December 31, 2013 and at December 31, 2012

Assets.   Total assets increased $26.0 million, or 5.4%, to $503.8 million at December 31, 2013 from $477.8 million at December 31, 2012. The increase was primarily due to an increase in held-to-maturity securities, loans and total cash and cash equivalents.

At December 31, 2013, investment securities increased 6.5% to $115.4 million from $108.4 million at December 31, 2012. Held-to-maturity securities increased to $34.4 million at December 31, 2013 from $0 at December 31, 2012. This increase was due to reclassifying $32.5 million in securities from available-for-sale to held-to-maturity. In the third quarter of the year ended December 31, 2013, we identified 55 available-for-sale securities with an estimated fair value of $32.5 million that we believed contained the largest degree of volatility during a period of rising interest rates. These securities had a net unrealized loss position of $1.3 million at September 30, 2013 and were reclassified to held-to-maturity status at September 30, 2013. The after-tax impact of this unrealized loss position was $799,000, and became frozen upon transfer to held-to-maturity status with no impact on our net income as a result of this transfer. Available-for-sale securities decreased to $81.0 million at December 31, 2013 from $108.3 million at December 31, 2012.

Total loans receivable increased $7.9 million, or 2.4%, to $341.6 million at December 31, 2013 compared to the prior year, primarily due to the growth in commercial real estate and commercial and municipal loans. Commercial real estate loans had significant growth as this portfolio increased $13.2 million, or 16.0%, as a result of our growth into the Syracuse market, an increase in brand awareness, disruption in the market caused by the sale of our local competitors, and execution of our defined business development strategy. Commercial and municipal loans increased $3.4 million to $52.2 million at December 31, 2013 in support of our strategy to diversify our loans. Residential real estate loans declined $8.5 million, or 4.8%, due primarily to an $8.8 million residential loan sale of longer-term lower yielding fixed rate loans in the second quarter of 2013 in order to manage our interest rate risk. Home equity and junior liens loans decreased 4.2% to $21.2 million at December 31, 2013, as a result of stricter credit standards and changes in rates during 2013.

Total cash and cash equivalents increased $7.9 million, or 91.3%, at December 31, 2013 from $8.7 million at December 31, 2012 due to an increase in interest earning deposits, which was primarily funded by an increase in money market and CDARS deposits.

Total Liabilities.   Total liabilities increased to $460.7 million at December 31, 2013, from $437.0 million at December 31, 2012. Deposits increased $18.3 million, or 4.7%, to $410.1 million at December 31, 2013 from $391.8 million at December 31, 2012. The increase in total deposits was primarily related to increases in demand accounts, NOW accounts, money market deposit accounts and savings accounts. Core deposits (consisting of demand accounts, NOW accounts, money market deposit accounts and savings accounts) increased $24.7 million during 2013 to $249.8 million at December 31, 2013, while certificates of deposit decreased $11.4 million to $114.1 million at December 31, 2013 due to customers electing to reinvest their maturing certificates of deposit into short-term instruments to improve their liquidity in advance of potentially rising interest rates.

Short-term borrowings are comprised primarily of advances and overnight borrowing at the FHLBNY. At December 31, 2013 and December 31, 2012, there were $24.0 million and $9.0 million, respectively, in short-term borrowings outstanding. This increase in short term borrowings was the result of payments on maturing long term and higher cost FHLBNY advances, which were replaced with short term and lower cost FHLBNY short term advances.  Long-term borrowed funds consist of advances and repurchase agreements from the FHLBNY and junior subordinated debentures associated with our outstanding Trust Preferred Securities. Long-term borrowed funds, which include the ESOP loan, and junior subordinated debentures, totaled $22.0 million at December 31, 2013 as compared to $31.1 million at December 31, 2012.

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Stockholders’ Equity.   Our stockholders’ equity increased $2.0 million at December 31, 2013 to $42.7 million from $40.7 million at December 31, 2012. Retained earnings increased by $2.1 million as a result of 2013 net income of $2.4 million and a reduction in accumulated other comprehensive loss of $427,000 at December 31, 2013, partially offset by dividends declared on our common stock totaling $76,000. This decrease in accumulated other comprehensive loss was due principally to the after tax impact of the decline in unrealized holding gains of the available-for-sale securities portfolio, which occurred as market interest rates increased in 2013 and the September 2013 transfer of available-for-sale securities to held-to-maturity status, which froze the loss in face value on these securities and negatively impacted stockholders’ equity by $2.2 million. Partially offsetting this decline was a decrease in net actuarial loss, after tax, on our retirement plans of $1.6 million at December 31, 2013. This favorable impact was the result of positive earnings performance on our frozen pension plan assets and higher interest rates causing a reduction in the pension benefit obligation.

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Average Balance Sheets, Interest and Yields/Costs

The following table sets forth information concerning average interest-earning assets and interest-bearing liabilities and the yields and rates thereon. Interest income and resultant yield information in the table is on a fully tax-equivalent basis using marginal federal income tax rates of 34.0%. Averages are computed on the daily average balance for each month in the period divided by the number of days in the period. Yields and amounts earned include loan fees. Nonaccrual loans have been included in interest-earning assets for purposes of these calculations.

	At March 31,			For the Three Months Ended March 31,
	2014			2014							2013
	Yield/ Cost			Average Outstanding Balance		Interest Earned/Paid		Yield/ Cost(4)			Average Outstanding Balance		Interest Earned/Paid		Yield/ Cost(4)
	(Dollars in thousands)
Interest-earning assets:
Real estate loans residential		4.52	%	$	168,739	$	1,884		4.47	%	$	177,934	$	2,059		4.63	%
Real estate loans commercial		5.02			99,034		1,224		4.94			81,951		1,109		5.41
Commercial and municipal loans		4.91			52,626		617		4.69			51,144		608		4.76
Home equity and junior liens		5.07			21,236		266		5.01			21,869		281		5.14
Consumer loans		8.35			4,054		84		8.29			3,470		78		8.99
Taxable investment securities		2.12			96,500		454		1.88			93,820		418		1.78
Tax-exempt investment securities		4.31			27,148		295		4.35			25,979		289		4.45
Interest-earning time deposits		1.55			500		2		1.60			2,000		6		1.20
Interest-earning deposits		0.03			5,669		1		0.07			7,117		1		0.06
Total interest-earning assets		3.96			475,506		4,827		4.06			465,284		4,849		4.17	%
Total noninterest-earning assets					34,188							30,819
Total assets				$	509,694						$	496,103
Interest-bearing liabilities:
NOW accounts		0.14		$	40,848		17		0.17		$	39,355		19		0.19
Money management accounts		0.15			13,312		5		0.15			14,444		9		0.25
MMDA accounts		0.40			90,462		94		0.42			81,206		96		0.47
Savings and club accounts		0.09			74,937		15		0.08			67,870		14		0.08
Time deposits		0.96			151,864		398		1.05			164,150		521		1.27
Total deposits		0.53			371,423		529		0.57			367,025		659		0.72
Junior subordinated debentures		3.07			5,155		40		3.10			5,155		40		3.10
Borrowings		1.50			34,259		126		1.47			32,437		197		2.43
Total interest- bearing liabilities		0.66		$	410,837	$	695		0.68		$	404,617	$	896		0.89
Demand deposits				$	52,054						$	46,765
Other liabilities					3,525							3,632
Total liabilities					466,416							455,014
Stockholders’ Equity					43,278							41,089
Total liabilities and stockholders’ equity				$	509,694						$	496,103
Net interest income						$	4,132						$	3,953
Net interest rate spread(1)									3.38	%						3.28	%
Net interest-earning assets(2)				$	64,669						$	60,667
Net interest margin(3)									3.48	%						3.40	%
Average interest-earning assets to average interest-bearing liabilities									115.74	%						114.99	%

(footnotes on following page)

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	For The Year Ended December 31,
	2013							2012							2011
	Average Outstanding Balance		Interest Earned/Paid		Yield/ Cost			Average Outstanding Balance		Interest Earned/Paid		Yield/ Cost			Average Outstanding Balance		Interest Earned/Paid		Yield/ Cost
	(Dollars in thousands)
Interest-earning assets:
Real estate loans residential	$	172,294		7,810		4.53	%	$	168,354		8,233		4.89	%	$	153,735	$	8,029		5.22	%
Real estate loans commercial		90,042		4,729		5.25			72,894		4,194		5.75			70,050		4,372		6.24
Commercial and municipal loans		51,218		2,441		4.77			45,598		2,161		4.74			38,533		1,904		4.94
Home equity and junior liens		21,365		1,101		5.15			23,262		1,199		5.15			24,987		1,387		5.55
Consumer loans		3,813		315		8.26			3,694		336		9.10			3,481		339		9.74
Taxable investment securities		94,597		1,748		1.85			93,352		1,927		2.06			79,236		2,231		2.82
Tax-exempt investment securities		25,972		1,152		4.44			23,716		1,100		4.64			11,716		571		4.87
Interest-earning time deposits		1,612		19		1.18			1,994		24		1.20			176		2		1.14
Interest-earning deposits		6,901		7		0.10			3,426		4		0.12			4,147		5		0.12
Total interest-earning assets		467,814		19,322		4.13			436,290		19,178		4.40			386,061		18,840		4.88
Total noninterest-earning assets		30,032							30,963							33,068
Total assets	$	497,846						$	467,253						$	419,129
Interest-bearing liabilities:
NOW accounts		37,733		80		0.21	%		31,819		82		0.26	%		30,274		87		0.29	%
Money management accounts		13,962		26		0.19			14,395		43		0.30			12,964		43		0.33
MMDA accounts		81,734		364		0.45			77,401		427		0.55			64,352		438		0.68
Savings and club accounts		69,284		54		0.08			63,962		54		0.08			60,713		78		0.13
Time deposits		160,823		1,954		1.22			159,283		2,290		1.44			139,299		2,590		1.86
Total deposits		363,536		2,478		0.68			346,860		2,896		0.83			307,602		3,236		1.05
Junior subordinated debentures		5,155		162		3.14			5,155		169		3.28			5,155		163		3.16
Borrowings		35,128		624		1.78			31,079		843		2.71			31,255		942		3.01
Total interest- bearing liabilities		403,819		3,264		0.81			383,094		3,908		1.02			344,012		4,341		1.26
Noninterest-bearing demand deposits		48,814							40,759							35,971
Other liabilities		4,185							3,765							4,722
Total liabilities		456,818							427,618							384,705
Stockholders’ Equity		41,028							39,635							34,424
Total liabilities and stockholders’ equity		497,846							467,253							419,129
Net interest income			$	16,058						$	15,270						$	14,499
Net interest rate spread(1)						3.32	%						3.38	%						3.62	%
Net interest-earning assets(2)	$	63,995						$	53,196						$	42,049
Net interest margin(3)						3.43	%						3.50	%						3.76	%
Average interest-earning assets to average interest-bearing liabilities						115.85	%						113.89	%						112.22	%

(1) Net interest rate spread represents the difference between the weighted average yield on interest-earning assets and the weighted average rate of interest-bearing liabilities.

(2) Net interest-earning assets represent total interest-earning assets less total interest-bearing liabilities.

(3) Net interest margin represents net interest income divided by average total interest-earning assets.

(4) Annualized.

(footnotes on following page)

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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 our 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.

	Three Months Ended March 31, 2014 vs. 2013									Year Ended December 31, 2013 vs. 2012									Year Ended December 31, 2012 vs. 2011
	Increase/(Decrease) Due to						Total Increase			Increase/(Decrease) Due to						Total Increase			Increase/(Decrease) Due to						Total Increase
	Volume			Rate			(Decrease)			Volume			Rate			(Decrease)			Volume			Rate			(Decrease)
	(In thousands)
Interest-earning assets:
Real estate loans residential	$	(104	)	$	(71	)	$	(175	)	$	189		$	(612	)	$	(423	)	$	732		$	(528	)	$	204
Real estate loans commercial		624			(509	)		115			924			(389	)		535			173			(351	)		(178	)
Commercial loans		51			(42	)		9			268			12			280			337			(80	)		257
Home equity and junior liens		(8	)		(7	)		(15	)		(111	)		─			(111	)		(109	)		(79	)		(188	)
Consumer loans		8			(2	)		6			11			(19	)		(8	)		20			(23	)		(3	)
Taxable investment securities		12			24			36			25			(204	)		(179	)		358			(662	)		(304	)
Tax-exempt investment securities		39			(33	)		6			102			(50	)		52			557			(28	)		529
Interest-earning time deposits		(14	)		10			(4	)		(5	)		─			(5	)		22			─			22
Interest-earning deposits		(1	)		1			─			3			─			3			(3	)		2			(1	)
Total interest-earning assets	$	607		$	(629	)	$	(22	)	$	1,406		$	(1,262	)	$	144		$	2,087		$	(1,749	)	$	338
Interest-bearing liabilities:
NOW accounts		4			(6	)		(2	)		14			(16	)		(2	)		4			(9	)		(5	)
Money management accounts		(1	)		(3	)		(4	)		(1	)		(16	)		(17	)		4			(4	)		─
MMDA accounts		44			(46	)		(2	)		23			(86	)		(63	)		81			(92	)		(11	)
Savings and club accounts		3			(2	)		1			4			(4	)		─			4			(28	)		(24	)
Time deposits		(37	)		(86	)		(123	)		22			(358	)		(336	)		338			(638	)		(300	)
Junior subordinated debentures		─			─			─			─			(7	)		(7	)		─			6			6
Borrowings		69			(140	)		(71	)		99			(318	)		(219	)		(5	)		(94	)		(99	)
Total interest-bearing liabilities	$	82		$	(283	)	$	(201	)	$	161		$	(805	)	$	(644	)	$	426		$	(859	)	$	(433	)
Change in net interest income	$	525		$	(346	)	$	179		$	1,245		$	(457	)	$	788		$	1,661		$	(890	)	$	771

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Comparison of Consolidated Operating Results for the Three Months Ended March 31, 2014 and 2013

General.   We had net income of $489,000 for the three months ended March 31, 2014 compared to net income of $505,000 for the three months ended March 31, 2013. The decrease in the net income was due primarily to an increase in noninterest expense, partially offset by increases in net interest income and noninterest income and a decrease in our provision for loan losses.

Interest Income.   Interest income on a tax-equivalent basis decreased $22,000, or 0.5%, to $4.8 million for the three months ended March 31, 2014 compared to the three months ended March 31, 2014. The decrease in our interest income was primarily due to interest income from loans decreasing $60,000, or 1.5%, to $4.1 million for the three months ended March 31, 2014, partially offset by the increase in taxable debt securities of $36,000, or 8.6%, to $454,000 for the three months ended March 31, 2014. The average balance of interest earning assets increased $10.2 million, or 2.2%, to $475.5 million for the three months ended March 31, 2014 from $465.3 million for the three months ended March 31, 2013 as we increased our emphasis on growing our commercial real estate loan portfolio. Our average yield earned on interest earning assets decreased 11 basis points to 4.06% during the three months ended March 31, 2014 from 4.17% during the three months ended March 31, 2013 due to the low interest rate environment.

Interest income on loans decreased $62,000 to $4.1 million for the three months ended March 31, 2014 from $4.1 million for the three months ended March 31, 2013 primarily as a result of the decreases in the average yields on residential real estate loans, commercial real estate loans and commercial and municipal loans. The average yield earned on our commercial real estate loans decreased 47 basis points to 4.94% for the three months ended March 31, 2014 primarily due to lower yielding new originations in the low interest rate environment. The average balance of commercial real estate loans increased $17.1 million, or 20.8%, to $99.0 million for the three months ended March 31, 2014, from $82.0 million for the three months ended March 31, 2013 due to our continued business strategy to expand into the Syracuse market. The average yield earned on our residential mortgage loan portfolio decreased 16 basis points to 4.47% during the three months ended March 31, 2014, as higher rate amortizing mortgages were replaced with new originations reflecting lower current market rates. In addition, the average balance of our residential mortgage loan portfolio decreased by $9.2 million, or 5.2%, to $168.7 million for the three months ended March 31, 2014 from $177.9 million for the three months ended March 31, 2013, primarily due to the $8.8 million residential loan sale of longer-term lower yielding fixed rate loans in the second quarter of 2013. The average yield earned on our commercial and municipal loans decreased 7 basis points to 4.69% for the three months ended March 31, 2014 as higher interest rate maturing loans were replaced with new loans at the current lower market interest rate. The average balance of commercial and municipal loans increased $1.5 million, or 2.9%, to $52.6 million for the three months ended March 31, 2014 from $51.1 million for the three months ended March 31, 2013. This increase in the average balance of commercial and municipal loans reflects our plan to continue to diversify our loan portfolio and expand our presence in the Syracuse market.

Interest income on taxable investment securities increased $36,000, or 8.6%, to $454,000 for the three months ended March 31, 2014 from $418,000 for the three months ended March 31, 2013 as the average yield on such securities increased 10 basis points to 1.88% for the three months ended March 31, 2014. In addition, the average balance of taxable investment securities increased $2.7 million to $96.5 million for the three months ended March 31, 2014. The increase was due to the need for additional collateral in support of our increasing balances of municipal deposits. Interest income on tax-exempt securities increased $6,000, or 2.1%, to $295,000 for the three months ended March 31, 2014 when compared to the three months ended March 31, 2013. This slight increase was due to the average balance of tax-exempt securities increasing $1.2 million to $27.1 million for the three months ended March 31, 2014, partially offset by the decrease in the average yield earned on the tax-exempt securities, which decreased 10 basis points to 4.35% for the three months ended March 31, 2014.

Interest Expense.   Interest expense for the three months ended March 31, 2014 decreased $201,000, or 22.4%, to $695,000 from $896,000 for the three months ended March 31, 2013. The decrease in our interest expense was primarily due to our interest expense on deposits decreasing $130,000, or 19.7%, to $529,000 during the three months ended March 31, 2014 and our interest expense on long-term borrowings decreasing $71,000, or 36.0%, to $126,000 for the three months ended March 31, 2014. The average rate paid on all interest-bearing liabilities decreased 21 basis points to 0.68% during the three months ended March 31, 2014, compared to 0.89% during the three months ended March 31, 2013 as market interest rates remained low.

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Interest expense on deposits decreased primarily due to the decrease in the average rate paid on time deposits of 22 basis points to 1.05% as maturing certificates of deposit were either replaced at lower current market rates or invested in lower costing core deposits. Accordingly, the average balance of core deposits increased $22.0 million to $271.6 million for the three months ended March 31, 2014. Interest expense on long-term borrowings decreased largely due to our higher rate maturing advances being replaced with advances of a shorter duration and a lower average rate. The average rate of our borrowings decreased 96 basis points to 1.47% for the three months ended March 31, 2014.

Net Interest Income.   Net interest income, on a tax-equivalent basis, increased $179,000, or 4.5%, to $4.1 million for the three months ended March 31, 2014 as compared to $3.8 million for the three months ended March 31, 2013.  The increase in net interest income was principally due to the increase in average commercial real estate loan balances and the decrease in average rates paid on time deposits and FHLBNY borrowings. The average balance of interest-earning assets increased $10.2 million, or 2.2%, during the three months ended March 31, 2014 and the average balance of interest-bearing liabilities increased by $6.2 million, or 1.5%.  The ratio of average interest-earning assets to average interest-bearing liabilities increased to 115.74% during the three months ended March 31, 2014 from 114.99% during the three months ended March 31, 2013.  When comparing the three months end March 31, 2014 to the three months ended March 31, 2013, the average yield on average interest-earning assets declined by 11 basis points, whereas the average rates paid on interest-bearing liabilities declined by 21 basis points. As a result, our net interest margin for the three months ended March 31, 2014 increased to 3.48% from 3.40% during the three months ended March 31, 2013.

Provision for Loan Losses.   We established a provision for loan losses, which is charged to operations, at a level management believes is appropriate to absorb probable incurred credit losses in the loan portfolio.  In evaluating the level of the allowance for loan 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 loan losses represents management’s estimate of the amount necessary to maintain the allowance for loan losses at an adequate level.

We recorded $245,000 in provision for loan losses for the three month period ended March 31, 2014, as compared to $324,000 for the three month period ended March 31, 2013. We required a larger provision in the first quarter of 2013 due to the specific reserve of $105,000 required from the addition of a $1.1 million commercial relationship categorized as impaired during the first quarter of 2013. Despite the decrease in provision from the prior year’s first quarter, our provision for the first quarter of 2014 included specific reserves in the amount of $339,000 related to two newly impaired commercial relationships, whose aggregate recorded investment was $2.6 million. Management continues to closely monitor the two newly impaired commercial lending relationships. Management anticipates that significant improvements will be made in these relationships prior to year end, thus reducing the amount of specific reserves needed over time. Additionally, net loan charge-offs were $287,000 for the first quarter of 2014 as compared to $139,000 for the same prior year period. Two thirds of the net loan charge-offs in the first quarter of 2014 were related to the commercial loans, lines, and real estate product classes. A portion of the increase in net loan charge-offs was a result of certain 2014 non-recurring portfolio charge-offs recorded in order to conform more closely to FDIC guidance. These charge-offs, when annualized, are higher than any amount recorded over the prior five fiscal years. In order to accommodate the increase in specific reserves and the level of net loan charge-offs for the first quarter of 2014, the unallocated surplus of $288,000 in the allowance for loan losses recorded at December 31, 2013 was completely utilized to fund these needs.

Noninterest Income.   Our noninterest income is primarily comprised of fees on deposit account balances and transactions, loan servicing, commissions, including insurance agency commissions, and net gains on securities, loans, and foreclosed real estate.

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

	For the Three Months Ended March 31,
	2014		2013		Change
	(Dollars in thousands)
Service charges on deposit accounts	$	279	$	255	$	24		9.4	%
Earnings and gain on bank owned life insurance		60		61		(1	)	(1.6	)
Loan servicing fees		54		44		10		22.7
Debit card interchange fees		114		106		8		7.5
Other charges, commissions and fees		314		142		172		121.1
Non-interest income before gains		821		608		213		35.0
Net gains on sales and redemptions of investment securities		2		39		(37	)	(94.9	)
Net gains on sales of loans and foreclosed real estate		3		29		(26	)	(89.7	)
Total non-interest income	$	826	$	676	$	150		22.2	%

Total noninterest income for the three months ended March 31, 2014 increased $150,000, or 22.2%, to $826,000 from $676,000 for the prior year period due principally to the commissions from Pathfinder Risk Management Company, Inc. which owns 51% of the membership interest in Fitzgibbons Agency, LLC (“Agency”). Service charges on deposit accounts increased due to pricing and activity on extended overdraft fees and ATM fees. First quarter year over year reductions in net gains on sales and redemptions of investment securities and net gains on sales of loans and foreclosed real estate reflected the nominal activity seen in the current year quarter.

Noninterest Expense. Total noninterest expense for the three months ended March 31, 2014 increased $401,000, or 11.4%, to $3.9 million from $3.5 million for the three months ended March 31, 2013. Noninterest expense increased due largely to an increase in the salaries component of the below total personnel expenses. The total salaries of the Agency comprised $65,000 of this increase as the Agency’s interest was acquired in the fourth quarter of 2013. The remaining increase in the salary expense reflected $57,000 in reduced salary deferrals related to loan volume, $39,000 in additional commissions and incentive expense, and wage increases. When viewing the employee benefit component of salaries and employee benefits, exclusive of the employee benefit costs of the Agency, total employee benefit costs increased slightly as the reduction in pension expense of $97,000 between year over year first quarter periods was available to largely offset increases in payroll related employee benefits expenses and deferred compensation costs. Additionally occupancy expenses increased due, in part, to the periodic costs related to the maintenance and upkeep of the three properties purchased from Pathfinder Bancorp, MHC in the fourth quarter of 2013.

	For the Three Months Ended March 31,
	2014		2013		Change
	(Dollars in thousands)
Salaries and employee benefits	$	2,197	$	1,910	$	287		15.0	%
Building occupancy		407		365		42		11.5
Data processing		364		368		(4	)	(1.1	)
Professional and other services		175		159		16		10.1
Amortization of intangible assets		3		─		3		NM
Advertising		133		116		17		14.7
FDIC assessments		95		84		11		13.1
Audits and exams		64		61		3		3.1
Other expenses		468		442		26		5.9
Total non-interest expenses	$	3,906	$	3,505	$	401		11.4	%

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Income Tax Expense.   Income tax expense decreased by $11,000 for the quarter ended March 31, 2014 as compared to the same period in 2013 primarily due to a decrease in pretax income but offset by an increase in the effective tax rate from 27.0% through the first quarter of 2013 to 27.8% for the first quarter of 2014. The effective tax rate increased to 27.8% from 27.0%, principally reflecting a smaller proportion of tax-exempt items as a proportion of our taxable income in the first quarter of 2014. We have reduced our effective tax rate from the combined federal and state statutory rate of 38.7% primarily through the ownership of tax-exempt investment securities, bank owned life insurance, and other tax saving strategies.

Comparison of Consolidated Operating Results for the Years Ended December 31, 2013 and 2012

General.   We had net income of $2.4 million for the year ended December 31, 2013 compared to net income of $2.6 million for the year ended December 31, 2012. The decrease in the net income was due primarily to increases in noninterest expense and the provision for loan losses, partially offset by increases in net interest income and noninterest income.

Interest Income.   Interest income on a tax-equivalent basis increased $144,000, or 0.8%, to $19.3 million for the year ended December 31, 2013 from $19.2 million for the year ended December 31, 2012. The increase in our interest income was primarily due to interest income from loans increasing $273,000, or 1.7%, to $16.4 million for the year ended December 31, 2013, partially offset by the decrease in taxable debt securities of $188,000, or 9.3%, to $1.6 million for the year ended December 31, 2013. The average balance of interest earning assets increased $31.5 million, or 7.2%, to $467.8 million for the year ended December 31, 2013 from $436.3 million for the year ended December 31, 2012 as we increased our emphasis on growing our commercial real estate loan portfolio. Our average yield earned on interest earning assets decreased 27 basis points to 4.13% during the year ended December 31, 2013, from 4.40% during the year ended December 31, 2012 due to the low interest rate environment.

Interest income on loans increased $265,000 to $16.3 million for the year ended December 31, 2013 from $16.1 million for the year ended December 31, 2012 primarily as a result of the increase in the average balances of commercial real estate, commercial and municipal loans, and to a lesser extent, an increase in the average balance of residential mortgage loans. The average balance of commercial real estate loans increased $17.1 million, or 23.5%, to $90.0 million for the year ended December 31, 2013, from $72.9 million for the year ended December 31, 2012 as a result of our growth into the Syracuse market, an increase in brand awareness, disruption in the market caused by the sale of several local competitors, and execution of our defined business development strategy. The average yield earned on our commercial real estate loans decreased 50 basis points to 5.25% for the year ended December 31, 2013 due to lower yielding new originations in the low interest rate environment. The average balance of commercial and municipal loans increased $5.6 million, or 12.3%, to $51.2 million for the year ended December 31, 2013, from $45.6 million for the year ended December 31, 2012. This increase in the average balance of commercial and municipal loans reflects our plan to continue to diversify our loan portfolio. The average yield earned on our commercial and municipal loans also increased 3 basis points to 4.77% for the year ended December 31, 2013. The average balance of our residential mortgage loan portfolio increased modestly by $3.9 million, or 2.3%, to $172.3 million for the year ended December 31, 2013 from $168.4 million for the year ended December 31, 2012, partially offset by the $8.8 million residential loan sale of longer-term lower yielding fixed rate loans in the second quarter of 2013. The average yield earned on our residential mortgage loan portfolio decreased 36 basis points to 4.53% during the year ended December 31, 2013, as higher rate amortizing mortgages were replaced with new originations reflecting lower current market rates.

Interest income on taxable investment securities decreased $188,000, or 9.3%, to $1.6 million for the year ended December 31, 2013 from $1.8 million for the year ended December 31, 2012 as the average yield on such securities decreased 21 basis points to 1.85% for 2013. This decrease was the result of maturing investment securities being replaced by securities purchased with a shorter duration and lower current market interest rates.  Interest income on tax-exempt securities increased $52,000, or 4.7%, to $762,000 for the year ended December 31, 2013 when compared to the prior year as tax-equivalent yields on these securities continued to be attractive investment alternatives. The average balance of tax-exempt securities increased $2.3 million to $26.0 million for the year ended December 31, 2013.

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Interest Expense. Interest expense for the year ended December 31, 2013 decreased $644,000, or 16.5%, to $3.3 million from $3.9 million for the year ended December 31, 2012. The decrease in our interest expense was primarily due to our interest expense on deposits decreasing $418,000, or 14.4%, to $2.5 million in 2013 and our interest expense on long-term borrowings decreasing $260,000, or 35.8%, to $726,000 for the year ended December 31, 2013. The average rate paid on all interest-bearing liabilities decreased 21 basis points to 0.81% during the year ended December 31, 2013, compared to 1.02% during the year ended December 31, 2012 as market interest rates remained low.

Interest expense on deposits decreased primarily due to the decrease in the average rate paid on time deposits of 22 basis points to 1.22% as maturing certificates of deposit were either replaced at lower current market rates or invested in lower costing core deposits. Accordingly, the average balance of core deposits increased $23.2 million to $251.5 million for the year ended December 31, 2013. Interest expense on long-term borrowings decreased largely due to our higher rate maturing advances being replaced with advances of a shorter duration and a lower average rate. The average rate of our borrowings decreased 93 basis points to 1.78% for the year ended December 31, 2013.

Net Interest Income. Net interest income, on a tax-equivalent basis, increased $788,000, or 5.2%, to $16.1 million for the year ended December 31, 2013 as compared to $15.3 million for the year ended December 31, 2012.  The increase in net interest income was principally due to the increase in average commercial loan balances and the decrease in average rates paid on time deposits and FHLBNY borrowings. The average balance of interest-earning assets increased $31.5 million, or 7.2%, during 2013 and the average balance of interest-bearing liabilities increased by $20.7 million, or 5.4%.  The ratio of average interest-earning assets to average interest-bearing liabilities increased to 115.85% in 2013 from 113.89% in 2012.  When comparing 2013 to 2012, the average yield on average interest-earning assets declined by 27 basis points, whereas the average rates paid on interest-bearing liabilities declined by 21 basis points. As a result, our net interest margin for 2013 decreased to 3.43% from 3.50% in 2012.

Provision for Loan Losses. We established a provision for loan losses, which is charged to operations, at a level management believes is appropriate to absorb probable incurred credit losses in the loan portfolio.  In evaluating the level of the allowance for loan 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.  We recorded a $1.0 million provision for loan losses during the year ended December 31, 2013, compared to $825,000 recorded during the year ended December 31, 2012. The increase in our provision for loan losses reflected higher levels of net charge-offs during the year ended December 31, 2013, the need for an additional specific reserve on one large commercial relationship and a growing loan portfolio. Total specific reserves on impaired loans were $1.0 million and $923,000 at December 31, 2013 and December 31, 2012, respectively. Net charge-offs for the years ended December 31, 2013 and December 31, 2012 were $492,000 and $304,000, respectively. The allowance for loan losses was $5.0 million, or 1.5% of loans outstanding at December 31, 2013 compared to $4.5 million, or 1.4% of loans outstanding at December 31, 2012.  The non-performing assets to total assets ratio at December 31, 2013 was 1.18% as compared to 1.25% at December 31, 2012.

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Noninterest Income. Our 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.

	For the Year Ended December 31,
	2013		2012		Change
	(Dollars in thousands)
Service charges on deposit accounts	$	1,175	$	1,112	$	63		5.7	%
Earnings and gain on bank owned life insurance		224		309		(85	)	(27.5	)
Loan servicing fees		146		211		(65	)	(30.8	)
Debit card interchange fees		469		426		43		10.1
Other charges, commissions and fees		567		569		(2	)	(0.4	)
Non-interest income before gains		2,581		2,627		(46	)	(1.8	)
Net gains on sales and redemptions of investment securities		365		375		(10	)	(2.7	)
Net gains on sales of loans and foreclosed real estate		470		61		409		670.5
Total non-interest income	$	3,416	$	3,063	$	353		11.5	%

Total noninterest income for the year ended December 31, 2013 increased $353,000, or 11.5%, to $3.4 million for the year ended December 31, 2013 from $3.1 million for the prior year due principally to greater net gains on sales of loans and foreclosed real estate. We recorded a gain of $395,000 from the sale of $8.8 million in residential loans in the second quarter of 2013. Service charges on deposit accounts increased $63,000 to $1.2 million for the year ended December 31, 2013 reflecting increased insufficient funds and overdraft fee activity. Debit card interchange fees increased $43,000 to $469,000 for the year ended December 31, 2013 primarily due to higher levels of debit card use. Earnings and gains on bank owned life insurance decreased $85,000 to $224,000 for the year ended December 31, 2013 compared to $309,000 for the year ended December 31, 2012. The decrease in bank owned life insurance was due to a gain on life insurance proceeds following the death of a former Pathfinder-Federal director. Loan servicing fees decreased $65,000 for the year end December 31, 2013 to $146,000 due to the $8.8 million residential loan sale and increased Fannie Mae guarantee charges, which are netted against loan servicing fees.

Noninterest Expense. Total noninterest expense for the year ended December 31, 2013 increased $1.2 million, or 9.1%, to $14.8 million from $13.5 million for the year ended December 31, 2012 due largely to the increase in salaries and employee benefits reflecting wage increases, increased costs under our self insurance program, and ESOP-related compensation expenses. Other expenses increased $427,000 to $1.9 million for the year ended December 31, 2013 due to additional community service donations, charitable contributions, the write-down of a repossessed asset, and fraud losses. The repossessed asset write-down was related to a $65,000 loss on a repossessed boat and the fraud losses in the amount of $77,000 was principally due to a merchant security breach that occurred in December 2013.

	For the Year Ended December 31,
	2013		2012		Change
	(Dollars in thousands)
Salaries and employee benefits	$	8,081	$	7,496	$	585		7.8	%
Building occupancy		1,476		1,427		49		3.4
Data processing		1,444		1,437		7		0.5
Professional and other services		659		654		5		0.8
Amortization of intangible assets		1		─		1		NM
Advertising		537		453		84		18.5
FDIC assessments		415		311		104		33.4
Audits and exams		219		248		(29	)	(11.7	)
Other expenses		1,919		1,492		427		28.6
Total non-interest expenses	$	14,751	$	13,518	$	1,233		9.1	%

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Income Tax Expense.   For the year ended December 31, 2013, we reported income tax expense of $847,000 compared to $929,000 for the year ended December 31, 2012. The decrease in income tax expense was due to the decrease in income before tax between the years ended December 31, 2013 and 2012. Our effective tax rate was 26.0% for both years ended December 31, 2013 and 2012. See Note 15 to the consolidated financial statements for the reconciliation of the statutory tax rate to the effective tax rate.

Management of Market Risk

As a financial institution, we face risk from interest rate volatility. Fluctuations in interest rates affect both our level of income and expense on a large portion of our assets and liabilities. Fluctuations in interest rates also affect the market value of all interest-earning assets.

The primary goal of our interest rate risk management strategy is to maximize net interest income while maintaining an acceptable interest rate risk profile. We seek to coordinate asset and liability decisions so that, under changing interest rate scenarios, portfolio equity and net interest income remain within an acceptable range.

Interest rate risk management focuses on maintaining consistent growth in net interest income within Board-approved policy limits. Considered in the evaluation, among other factors are: overall credit risk, operating income, operating costs, and available capital. The Asset/Liability Committee (“ALCO”), of our Board of Directors, is comprised of six directors. In attendance are also the following officers: Chief Executive Officer, Chief Financial Officer, Chief Operating Officer, Chief Credit Officer, General Counsel, and Controller. Committee Actions and minutes documenting the related discussions are later ratified by the Full Board of Directors.

Management of interest rate risk leads us to select certain techniques and instruments to utilize after considering the benefits, costs and risks associated with available alternatives. We usually consider one or more of the following: (1) interest rates offered on products, (2) maturity terms offered on products, (3) types of products offered, and (4) products available to us in the wholesale market such as advances from the FHLB and brokered time deposits. We consider interest rate swap agreements in our evaluation of alternatives but generally do not typically engage in this technique, although we do have one swap agreement currently in place.

We measure net interest income at risk by estimating the changes in future net interest income resulting from instantaneous and sustained parallel shifts in interest rates of up to plus 400 basis points or minus 100 basis points over time periods which range from one year to five years.  This provides a basis or benchmark for ALCO to manage Pathfinder-Federal’s interest rate risk profile. A basis point equals one-hundredth of one percent, and 100 basis points equals one percent. An increase in interest rates from 3% to 4% would mean, for example, a 100 basis point increase.  As an example, at March 31, 2014, a relatively small upward shock (100 basis points) would cause an estimated 2.6% reduction in net interest income over the next 12 months due to liabilities being repriced upwards faster than the repricing of assets. This situation is created from the timing mismatch of either the maturity or repricing of our liabilities and that of the maturity and repricing of our assets. Over a longer period of time, such as 3 years, this same upward shock would have no measurable impact on net interest income as the repricing of assets would catch up with the increase in prices of our liabilities. In 4 or 5 years, the impact on net interest income would be significantly positive as asset yields are projected to rise considerably more than liability costs.  A downward shock of 100 basis points would have little impact on net interest income, because rates paid are near zero, although they could be lowered somewhat, and asset yields are near our floor rates.   The model provides only a benchmark as it requires certain assumptions such as: (1) interest rates will move in a parallel direction with no change in the yield curve; (2) the interest rate moves will be instantaneous and sustained; and (3) there will be no change in the product mix and the relative proportion of fixed and variable products as determined by customer demand or pricing policies by management.

We have emphasized commercial and commercial real estate lending. Our sources of funds include commercial, municipal, and retail deposits, and Federal Home Loan Bank advances and brokered deposits.

Changes in market interest rates have a significant impact on the repayment and prepayment of loans. Prepayment rates also vary due to a number of other factors, including the regional economy in the area where the loans were originated, seasonal factors, demographic changes, the assumability of the loans, related refinancing

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opportunities and competition. We monitor interest rate sensitivity so that we can attempt to adjust our asset and liability mix in a timely manner and thereby mitigate any potential negative effects of changing rates.

Extension risk, or lower prepayments causing loans to have longer average lives, is our primary exposure to higher interest rates. Faster prepayment of loans and re-investing the funds from prepayments in mortgage loans and securities at lower interest rates results in a lower net interest income and is our primary exposure to declining market interest rates.

We look at two types of simulations impacted by changes in interest rates, which are (1) changes in net interest income over selected periods of time and (2) changes in the present value of assets and liabilities.

Net Interest Income Analysis. We analyze our sensitivity to changes in interest rates through our net interest income simulation model, which is provided to us by an independent third party. Net interest income is the difference between the interest income we earn on our interest-earning assets, such as loans and securities, and the interest we pay on our interest-bearing liabilities, such as deposits and borrowings. We estimate what our net interest income would be for a one-year period based on current interest rates. We then calculate what the net interest income would be for the same period under different interest rate assumptions. The following table shows the estimated impact on net interest income for the one-year period beginning March 31, 2014 resulting from potential changes in interest rates, expressed in basis points. These estimates require certain assumptions to be made, including loan and mortgage-related investment prepayment speeds, reinvestment rates, and deposit maturities and decay rates. These assumptions are inherently uncertain. As a result, no simulation model can precisely predict the impact of changes in interest rates on our net interest income.

Although the net interest income table below provides an indication of our interest rate risk exposure at a particular point in time, such estimates are not intended to, and do not, provide a precise forecast of the effect of changes in market interest rates on our net interest income and will differ from actual results.

	Net Interest Income		Year 1 Change
Rate Shift (1)	Year 1 Forecast		from Level
(Dollars in thousands)
400	$	15,872		(9.1	)%
300	$	16,229		(7.1	)%
200	$	16,605		(4.9	)%
100	$	17,006		(2.6	)%
0	$	17,465		0.0	%
-100	$	17,362		(0.6	)%

(1) Expressed in basis points.

The table above indicates that at March 31, 2014, in the event of a 200 basis point increase in interest rates, we would experience a 4.9% decrease in net interest income. In the event of a 100 basis point decrease in interest rates, we would experience a 0.6% decrease in net interest income.

Net Portfolio Value Analysis. We also compute the amounts by which the difference between the present value of assets and liabilities (net portfolio value or “NPV”) would change in the event of a range of assumed changes in market interest rates. Our simulation model, which is provided to us by an independent third party, uses a discounted cash flow analysis to measure the interest rate sensitivity of NPV. Depending on current market interest rates we historically have estimated the economic value of these assets and liabilities under the assumption that interest rates experience an instantaneous and sustained increase of 100, 200, 300 or 400 basis points, or a decrease of 100 basis points. Given the current relatively low level of market interest rates, a NPV calculation for an interest rate decrease of greater than 100 basis points is deemed impractical and has not been prepared.

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The table below sets forth, as of March 31, 2014, our calculation of the estimated changes in Pathfinder Bank’s net portfolio value that would result from the designated instantaneous parallel shift in the interest rate yield curve.

	Net Portfolio Value
Change in Interest Rates									NPV as a % of Assets
(Basis Points)	Estimated NPV		Amount of Change			Percent			NPV Ratio			Change(1)
	(Dollars in thousands)
400	$	47,746	$	(11,588	)		(19.5	)%		10.1	%		(1.2	)
300		50,847		(8,487	)		(14.3	)%		10.4	%		(0.9	)
200		54,003		(5,331	)		(9.0	)%		10.8	%		(0.5	)
100		57,032		(2,302	)		(3.9	)%		11.1	%		(0.2	)
0		59,334		-			0.0	%		11.3	%		-
-100		56,072		(3,262	)		(5.5	)%		10.5	%		(0.8	)

 (1) Expressed in basis points.

The table above indicates that at March 31, 2014, in the event of a 200 basis point increase in interest rates, we would experience a 9.0% decrease in net portfolio value. In the event of a 100 basis point decrease in interest rates, we would experience a 5.5% decrease in net portfolio value.

The effects of interest rates on net portfolio value and net interest income are not predictable. Computations of prospective effects of hypothetical interest rate changes are based on numerous assumptions, including relative levels of market interest rates, deposit run-off, and prepayments, and should not be relied upon as indicative of actual results. Certain shortcomings are inherent in these computations. Although some assets and liabilities may have similar maturity or periods of repricing, they may react at different times and in different degrees to changes in market interest rates. Rates on other types of assets and liabilities may lag behind changes in market interest rates. Assets, such as adjustable rate mortgages, generally have features that restrict changes in interest rates on a short-term basis and over the life of the asset. After a change in interest rates, prepayments and early withdrawal levels could deviate significantly from those assumed in making the calculations set forth above. Additionally, increased credit risk may result if our borrowers are unable to meet their repayment obligations as interest rates increase.

Liquidity and Capital Resources

Liquidity management involves our ability to generate cash or otherwise obtain funds at reasonable rates to support asset growth, meet deposit withdrawals, maintain reserve requirements, and otherwise operate on an ongoing basis. Our liquidity ratio averaged 2.6%, 2.7% and 2.0% for the three months ended March 31, 2014 and the years ended December 31, 2013 and December 31, 2012. The liquidity ratio is equal to average daily cash and cash equivalents for the period divided by average total assets. Liquidity ratios need to be sufficient to provide for and meet future cash flow needs. We adjust our liquidity levels to fund loan commitments, repay our borrowings, fund deposit outflows and pay real estate taxes on mortgage loans. We also adjust liquidity as appropriate to meet asset and liability management objectives.

Our 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 and mortgage-backed securities are a relatively predictable source of funds, deposit flows and loan prepayments are greatly influenced by general interest rates, economic conditions and competition. We manage the pricing of deposits to maintain a desired deposit balance. In addition, we invest excess funds in short-term interest-earning and other assets, which provide liquidity to meet lending requirements.

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Liquidity management is both a daily and long-term function of business management.  Our liquidity has been enhanced by our ability to borrow from the FHLBNY, whose advance programs and lines of credit provide us with a safe, reliable, and convenient source of funds. At March 31, 2014, we had $31.0 million in advances outstanding from FHLBNY. Of the $31.0 million from the FHLBNY advances, $22.0 million is due within one year and $5.0 million is due between one and three years.

A significant decrease in deposits in the future could result in 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 "available-for-sale" investment securities, the sale of securitized loans, or the sale of whole loans. Such actions could result in higher interest expense costs and/or losses on the sale of securities or loans.

A portion of our liquidity consists of cash and cash equivalents, which are a product of our operating, investing and financing activities. At March 31, 2014 and December 31, 2013 and 2012, $18.9 million, $16.6 million and $8.7 million, respectively, of our assets were invested in cash and cash equivalents. Our primary sources of cash increases in deposit accounts and short-term borrowings.

Our cash flows are derived from operating activities, investing activities and financing activities as reported in our Consolidated Statements of Cash Flows included in our Consolidated Financial Statements. Net cash provided by operating activities was $970,000 and $496,000 for the three months ended March 31, 2014 and March 31, 2013, respectively. Net cash provided by operating activities for the years ended December 31, 2013 and December 31, 2012 was $5.1 million and $2.8 million, respectively. Net cash from investing activities, which consists primarily of disbursements for loan originations and the purchase of securities, offset by principal collections on loans, proceeds from the sales, calls, and maturities of securities, were $19.7 million and $23.3 million for the three months ended March 31, 2014 and March 31, 2013, respectively. During the three months ended March 31, 2014, we purchased $6.1 million and sold $122,000 in securities held as available-for sale, and during the three months ended March 31, 2013, we purchased $28.2 million and sold $1.9 million in securities held as available-for-sale. Net cash provided by investing activities for the years ended December 31, 2013 and December 31, 2012 was $21.4 million and $37.5 million. During the year ended December 31, 2013, we purchased $30.0 million and sold $7.2 million in securities held as available-for-sale, and during the year ended December 31, 2012, we purchased $50.1 million and sold $16.5 million in securities held as available-for-sale. Net cash provided from financing activities was $21.1 million and $27.4 million for the three months ended March 31, 2014 and March 31, 2013, respectively, resulting from new deposit account activity and FHLBNY advances. Net cash provided from financing activities was $24.2 million and $33.2 million for the years ended December 31, 2013 and December 31, 2012, respectively. For additional information about cash flows from our operating, financing, and investing activities, see the consolidated statements of cash flows included in the consolidated financial statements beginning on page F-1.

We have a number of existing credit facilities available to us. At March 31, 2014, the total credit available under the existing lines was approximately $151.0 million. At March 31, 2014, we had $31.0 million outstanding under existing credit facilities.

The Asset Liability Management Committee of the Board of Directors is responsible for establishing and monitoring the policies and guidelines for the maintenance of prudent levels of liquidity. As of March 31, 2014, management reported to the Committee that Pathfinder-Federal is in compliance with its liquidity policy guidelines.

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Off-Balance Sheet Arraignments. In the normal course of operations, we engage in a variety of financial transactions that, in accordance with generally accepted accounting principles, are not recorded in our financial statements.  These transactions involve, to varying degrees, elements of credit, interest rate and liquidity risk.  Such transactions are used primarily to manage customers’ requests for funding and take the form of loan commitments and standby letters of credit. For the first quarter of 2014 and the years ended December 31, 2013 and 2012, we had $40.9 million, $41.0 million and $45.6 million in outstanding commitments to extend credit and standby letters of credit, respectively. For information about our loan commitments and standby letters of credit, see Note 16 to the consolidated financial statements.

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.  Our goal is to maintain a strong capital position, consistent with the risk profile of our subsidiary banks that supports growth and expansion activities while at the same time exceeding regulatory standards.  At March 31, 2014, Pathfinder Bank exceeded all regulatory required minimum capital ratios and met the regulatory definition of a “well-capitalized” institution.

Pathfinder Bank’s actual capital amounts and ratios as of the indicated dates are presented in the following table.

	Actual					Minimum For Capital Adequacy Purposes					Minimum To Be “Well- Capitalized” Under Prompt Corrective Provisions
	Amount		Ratio			Amount		Ratio			Amount		Ratio
	(Dollars in thousands)
As of March 31, 2014:
Total Core Capital (to Risk-Weighted Assets)	$	48,582		13.83	%	$	28,100		8.00	%	$	35,125		10.00	%
Tier 1 Capital (to Risk-Weighted Assets)		44,011		12.53			14,050		4.00			21,075		6.00
Tier 1 Capital (to Assets)		44,011		8.73			20,165		4.00			25,207		5.00
As of December 31, 2013:
Total Core Capital (to Risk-Weighted Assets)		47,862		14.13			27,106		8.00			33,883		10.00
Tier 1 Capital (to Risk-Weighted Assets)		43,454		12.82			13,553		4.00			20,330		6.00
Tier 1 Capital (to Assets)		43,454		8.72			19,928		4.00			24,910		5.00
As of December 31, 2012:
Total Core Capital (to Risk-Weighted Assets)		45,763		14.20			25,808		8.00			32,259		10.00
Tier 1 Capital (to Risk-Weighted Assets)		41,574		12.90			12,904		4.00			19,356		6.00
Tier 1 Capital (to Assets)		41,574		8.80			18,831		4.00			23,539		5.00

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Impact of Inflation and Changing Prices

The financial statements and accompanying notes of Pathfinder-Federal have been prepared in accordance with accounting principles generally accepted in the United States. GAAP generally requires the measurement of financial position and operating results in terms of historical dollars without consideration for changes in the relative purchasing power of money over time due to inflation. The impact of inflation is reflected in the increased cost of our operations. Unlike industrial companies, our assets and liabilities are primarily monetary in nature. As a result, changes in market interest rates have a greater impact on performance than the effects of inflation.

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BUSINESS OF NEW PATHFINDER

New Pathfinder

New Pathfinder is a Maryland corporation that was organized in June 2014. Upon completion of the conversion, New Pathfinder will become the holding company of Pathfinder Bank and will succeed to all of the business and operations of Pathfinder-Federal. Pathfinder-Federal and Pathfinder Bancorp, MHC will cease to exist as a result of the conversion. In connection with the completion of the conversion, Pathfinder Bank will revoke its Section 10(l) election so that New Pathfinder will be a bank holding company under the Bank Holding Company Act of 1956, as amended, subject to supervision and regulation by the Federal Reserve Board.

Initially following the completion of the conversion, New Pathfinder will have $1.3 million in cash and securities held by Pathfinder-Federal and Pathfinder Bancorp, MHC as of March 31, 2014, and the net proceeds it retains from the offering. A portion of the net proceeds from the offering will be used to make a loan to the Pathfinder Bank Employee Stock Ownership Plan. New Pathfinder will have no significant liabilities. New Pathfinder intends to use the support staff and offices of Pathfinder Bank and will pay Pathfinder Bank for these services. If New Pathfinder expands or changes its business in the future, it may hire its own employees.

New Pathfinder intends to invest the net proceeds of the offering as discussed under “How We Intend to Use the Proceeds From the Offering.” In the future, we may pursue other business activities, including mergers and acquisitions, investment alternatives and diversification of operations. There are, however, no current understandings or agreements for these activities.

BUSINESS OF PATHFINDER-FEDERAL AND PATHFINDER BANK

Pathfinder-Federal

Pathfinder-Federal is a federally chartered corporation that owns all of the outstanding shares of common stock of Pathfinder Bank. At March 31, 2014, Pathfinder-Federal had consolidated assets of $525.8 million, deposits of $438.4 million and shareholders' equity of $43.8 million.

In 1995, Oswego City Savings Bank, predecessor to Pathfinder Bank, completed its mutual holding company reorganization and minority stock issuance, selling 881,666 shares of its common stock to the public and issuing an additional 1,035,000 shares of its common stock to Pathfinder Bancorp, MHC, representing 54.0% of its then-outstanding shares. In 1997, Oswego City Savings Bank reorganized into the two-tier mutual holding company structure. At that time, Pathfinder-Federal’s predecessor became the stock holding company parent of Oswego City Savings Bank and each share of Oswego City Savings Bank was exchanged for one share of Pathfinder-Federal’s predecessor’s common stock. In 1998, Pathfinder-Federal’s predecessor declared a three for two stock split in the form of a dividend on the holding company’s outstanding common stock. In 1999, Oswego City Savings Bank changed its name to Pathfinder Bank and in 2001, Pathfinder-Federal became the savings and loan holding company of Pathfinder Bank whereby each share of Pathfinder-Federal’s predecessor was exchanged for one share of Pathfinder-Federal’s common stock. In 2011, in connection with Pathfinder-Federal’s redemption of its preferred stock and repurchase of a warrant held by the U.S. Treasury as part of TARP, Pathfinder-Federal sold preferred stock to the U.S. Treasury for $13.0 million in gross proceeds as part of the SBLF. See “Supervision and Regulation-SBLF Participation” for more information.

Pathfinder-Federal's executive office is located at 214 West First Street, Oswego, New York and the telephone number at that address is (315) 343-0057. Its internet address is www.pathfinderbank.com. Information on our website is not and should not be considered to be a part of this prospectus.

Pathfinder Bank

Pathfinder Bank is a community bank that has served the banking needs of its customers since 1859. Pathfinder Bank conducts its community banking business from eight banking offices located in Oswego and Onondaga Counties, New York. Additionally, we intend to open a new business banking office in Syracuse, New

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York in the third quarter of 2014. We are primarily engaged in the business of attracting deposits from the general public in our market area, and investing such deposits, together with other sources of funds, in loans secured by one- to four-family residential real estate, commercial real estate, commercial and municipal loans, and to a lesser extent, home equity and junior lien loans and consumer loans. Additionally, over the past several years, we have focused on growing our commercial real estate and commercial loan portfolios, and we intend to continue to grow these portfolios in the future. We invest a portion of our assets in securities issued by the United States Government and its agencies, government sponsored enterprises, state and municipal obligations, corporate debt securities, mutual funds, and equity securities. We also invest in mortgage-backed securities primarily issued or guaranteed by United States Government sponsored enterprises. Our principal sources of funds are deposits, principal and interest payments on loans and investments, as well as borrowings from the FHLBNY. Our principal source of income is from interest income received on loans and investment securities. Our principal expenses are interest paid on deposits and borrowings, employee compensation and benefits, data processing and facilities. In December 2013, we acquired a controlling interest in FitzGibbons Agency, LLC, a property and casualty and life and health insurance brokerage business, which is a new source of our non-interest income.

We also operate a limited purpose commercial bank subsidiary, Pathfinder Commercial Bank, which serves the depository needs of municipalities and public entities in our market area. New York law requires municipal deposits to be held only by commercial banks. At March 31, 2014, Pathfinder Commercial Bank held $78.0 million in deposits.

Pathfinder Bank is subject to extensive regulation by the NYDFS and by the FDIC. Pathfinder Bank is a member of the FHLBNY.

Pathfinder Bank’s main office is located at 214 West First Street, Oswego, New York and the telephone number at that address is (315) 343-0057. Its internet address is www.pathfinderbank.com. Information on our website is not and should not be considered to be a part of this prospectus.

Market Area

We provide financial services to individuals, families, small to mid-size businesses and municipalities through our seven branch offices located in Oswego County and our one branch office in Onondaga County. We intend to open a business banking office in Syracuse, New York in the third quarter of 2014. Our primary market area is Oswego and Onondaga Counties. Our primary lending market area includes both Oswego and Onondaga Counties. However, our primary deposit generating area is concentrated in Oswego County and the areas surrounding our Onondaga County branch.

According to SNL Financial, population in our Central New York market area has increased from 2010 to 2013, with moderate growth rates of 0.37% and 0.40% for Oswego County and Onondaga County, respectively. Oswego County’s median household income for the 2013 year was $47,429, which was below the national level of $51,314, while Onondaga County’s median household income for 2013 was slightly above the national level at $51,316. By 2018, the projected increases in median household income are expected to be 11.4% in Oswego County and 13.3% in Onondaga County, increasing less than both state and national projected levels. As of March 2014, the unemployment rates for Oswego and Onondaga Counties were 9.1% and 6.4%, respectively, compared to the national rate of 6.7% and the New York State rate of 7.3%.

The economy in Oswego County is based primarily on manufacturing, energy, production, heath care, education, and government. The broader Central New York market is home to a more diverse array of economic sectors, including, food processing production and transportation, in addition to financial services. The region has developed particular strength in emerging industries such as bio-processing, medical devices and renewable energy.

Median home prices are consistent with the population growth and unemployment figures above, with the 2012 United States census report indicating that median home values were $131,700 in Onondaga County and $92,500 in Oswego County. In the combined Syracuse metro area, which includes Onondaga and Oswego Counties, median home values as of March 2014 were $115,000. The median home values in Onondaga County and Oswego County for 2012 are nearly the same as the values as reported for 2008. While home values have stagnated since

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2008, the Syracuse metro area, including Onondaga and Oswego Counties, did not experience the significant loss of value during the economic recession as was experienced in many other areas of the country.

Foreclosure rates are also consistent with the population growth and unemployment figures above. Pursuant to RealtyTRAC.com as of April 2014, one home in every 7,235 homes in Onondaga County is in foreclosure, while one home in every 6,704 homes in Oswego County is in foreclosure. These numbers compare favorably both to the State of New York, which is one home in every 2,201 homes, and the country as a whole, which is one home in every 1,121 homes as of the same date.

Competition

Pathfinder Bank encounters strong competition both in attracting deposits and in originating real estate and other loans. Our most direct competition for deposits and loans comes from commercial banks, savings institutions and credit unions in our market area. We compete for deposits by offering depositors a high level of personal service, a wide range of competitively priced financial services, and a well distributed network of branches, ATMs, and electronic banking. We compete for loans through our competitive pricing, our experienced and active loan officers, local knowledge of our market and local decision making, strong community support and involvement and a highly reputable brand. As the economy has improved, and loan demand has increased, competition from financial institutions for commercial and residential loans has increased. Additionally, some of our competitors offer products and services that we do not offer, such as trust services and private banking. Our primary focus is to build and develop profitable consumer and commercial customer relationships while maintaining our role as a community bank.

As of June 30, 2013, based on FDIC data, , we had the largest market share in Oswego County, representing 31.2% of all deposits and 0.46% of all deposits in Onondaga County. In addition, when combining both Oswego and Onondaga Counties, we have the ninth largest market share of sixteen institutions, representing 4.08% of the total market.

Lending Activities

Historically, our primary lending activity is originating one- to four-family residential real estate loans, the majority of which have fixed rates of interest. Our loan portfolio also includes commercial real estate loans, commercial and municipal loans, home equity and junior liens and consumer loans. At March 31, 2014, our total loans were $347.9 million, of which $168.4 million, or 48.4%, were secured by one- to four-family residential real estate, $102.6 million, or 29.5%, were secured by commercial real estate, $51.6 million, or 14.8%, were commercial and municipal loans, $21.4 million, or 6.2%, were home equity and junior liens and $4.0 million, or 1.1%, were consumer loans. At March 31, 2014, 54.6% of our loans were secured by first and second mortgages on residential real estate.

Historically, we have retained in our portfolio most of the loans that we have originated and in the current and prolonged low interest rate environment, a significant portion of our loan portfolio consists of fixed-rate one- to four-family residential real estate loans with terms in excess of 15 years. In order to diversify our loan portfolio, increase our income sources and make our loan portfolio less interest rate sensitive, in recent years, we have sought to significantly increase our commercial real estate and commercial business lending, consistent with safe and sound underwriting practices. Accordingly, we offer adjustable-rate commercial mortgage loans, short-and medium-term mortgage loans, and floating rate commercial loans. In addition, we offer shorter-term consumer loans, home equity loans and lines of credit with adjustable interest rates and municipal loans with fixed interest rates.

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Loan Portfolio Composition. The following table sets forth the composition of our loan portfolio in dollar amounts and as a percentage of the total portfolio at the dates indicated. There were no loans classified as loans held for sale at the dates indicated.

	At March 31,						At December 31,
	2014						2013						2012						2011						2010						2009
	Amount			Percent			Amount			Percent			Amount			Percent			Amount			Percent			Amount			Percent			Amount			Percent
	(Dollars in thousands)
Real estate loans:
Residential	$	168,353			48.4	%	$	168,280			49.3	%	$	176,610			53.0	%	$	162,319			53.4	%	$	147,230			51.7	%	$	134,328			51.3	%
Commercial		102,559			29.5			95,536			28.0			82,329			24.7			73,420			24.1			69,042			24.3			62,229			23.8
Total real estate loans		270,912			77.9			263,816			77.3			258,939			77.7			235,739			77.5			216,272			76.0			196,557			75.1
Other Loans:
Commercial and municipal loans		51,613			14.8			52,241			15.3			48,813			14.7			40,111			13.2			39,727			14.0			35,447			13.5
Home equity and junior liens		21,387			6.2			21,110			6.2			22,073			6.6			24,171			7.9			25,168			8.8			26,086			10.0
Consumer loans		3,965			1.1			4,166			1.2			3,469			1.0			4,140			1.4			3,411			1.2			3,580			1.4
Total loans		347,877			100.0	%		341,333			100.0	%		333,294			100.0	%		304,161			100.0	%		284,578			100.0	%		261,670			100.0	%
Less:
Allowance for loan losses		(4,999	)					(5,041	)					(4,501	)					(3,980	)					(3,648	)					(3,078	)
Deferred loan (fees) costs		265						300						454						589						718						795
Total loans receivable, net	$	343,143					$	336,592					$	329,247					$	300,770					$	281,648					$	259,387

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Loan Portfolio Maturities and Yields.The following table sets forth certain information regarding the dollar amounts maturing and the interest rate sensitivity of our loan portfolio at December 31, 2013. Mortgages which have adjustable or renegotiable interest rates are shown as maturing in the period during which the contract is due. Demand loans, loans having no stated repayment schedule or maturity, and overdraft loans are reported as being due in one year or less. The schedule does not reflect the effects of possible prepayments or enforcement of due-on-sale clauses.

	Residential Real Estate					Commercial Real Estate					Commercial and Municipal					Home Equity and Junior Lien					Consumer					Total
	Amount		Weighted Average Rate			Amount		Weighted Average Rate			Amount		Weighted Average Rate			Amount		Weighted Average Rate			Amount		Weighted Average Rate			Amount		Weighted Average Rate
	(Dollars in thousands)
1 year of less	$	58		5.86	%	$	1,549		5.55	%	$	24,125		4.44	%	$	45		8.28	%	$	514		9.70	%	$	26,291		4.61	%
Greater than 1 to 3 years		842		6.60			1,099		5.93			5,196		5.25			191		7.25			671		9.37			7,999		5.88
Greater than 3 to 5 years		5,814		5.45			3,806		5.25			9,792		5.19			1,107		8.21			1,892		8.92			22,411		5.37
Greater than 5 to 10 years		18,624		4.11			13,486		5.15			9,479		5.08			3,880		7.07			396		6.69			45,865		4.31
Greater than 10 to 20 years		49,737		4.28			66,843		5.08			1,512		5.61			5,835		4.90			616		5.93			124,543		4.62
More than 20 years		93,418		4.69			8,727		4.70			2,137		3.87			10,165		4.44			77		4.75			114,524		4.24
Total	$	168,493		4.54	%	$	95,510		5.08	%	$	52,241		4.79	%	$	21,223		5.28	%	$	4,166		8.35	%	$	341,633		4.52	%

Fixed and Adjustable-Rate Loan Schedule. The following tables set forth at December 31, 2013, the dollar amount of all fixed-rate and adjustable-rate loans due after December 31, 2014.

	At December 31, 2013 and Due After December 31, 2014
	Fixed		Adjustable		Total
	(In thousands)
Real estate loans:
Residential	$	140,531	$	27,905	$	168,436
Commercial		5,914		88,048		93,962
Total real estate loans		146,445		115,953		262,398
Other Loans:
Commercial and municipal		8,329		19,787		28,116
Home equity and junior lien		7,253		13,925		21,178
Consumer		3,652		─		3,652
Total loans	$	165,679	$	149,665	$	315,344

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One- to Four-Family Residential Real Estate Loans.   Historically, our primary lending consisted of originating one- to four-family, owner-occupied residential mortgage loans, substantially all of which were secured by properties located in our market area. Over the past several years, we have begun to shift our lending focus towards originating commercial real estate and commercial loans. One- to four-family residential real estate mortgage loans totaled $168.4 million, or 48.4% of total loans at March 31, 2014. The average loan balance of our one- to four-family residential real estate loans at March 31, 2014 was $80,000 and our largest outstanding balance at that date was $971,000, which was secured by residential property located in Parish, New York and was performing in accordance with its terms.

We currently offer one- to four-family residential real estate loans with terms up to 30 years that are generally underwritten according to Federal National Mortgage Corporation (“Fannie Mae”) guidelines, and we refer to loans that conform to such guidelines as “conforming loans.” We generally originate both fixed- and adjustable-rate mortgage loans in amounts up to the maximum conforming loan limits as established by the Federal Housing Finance Agency, which as of March 31, 2014 was generally $417,000 for single-family homes in our market area. At March 31, 2014, 77.5% of our one- to four-family residential real estate loans were fixed-rate loans, and 22.5% of such loans were adjustable-rate loans. We generally hold our one- to four-family residential real estate loans in our portfolio. We also originate one- to four-family residential real estate loans secured by non-owner occupied properties. However, we generally do not make loans in excess of 80% loan to value on non-owner occupied properties.

Our fixed-rate one- to four-family residential real estate loans include loans that generally amortize on a monthly basis over periods between 10 to 30 years. Fixed rate one- to four-family residential real estate loans often remain outstanding for significantly shorter periods than their contractual terms because borrowers have the right to refinance or prepay their loans.

Our adjustable-rate one- to four-family residential real estate loans generally consist of loans with initial interest rates fixed for one, three, or five years, and annual adjustments thereafter are indexed based on changes in the one-year United States Treasury bill constant maturity rate. Our adjustable-rate mortgage loans generally have an interest rate adjustment limit of 200 basis points per adjustment, with a maximum lifetime interest rate adjustment limit of 600 basis points. In the current low interest rate environment, we have not originated a significant dollar amount of adjustable-rate mortgage loans.

Although adjustable-rate one- to four-family residential real estate loans may reduce, to an extent, our vulnerability to changes in market interest rates because they periodically re-price, as interest rates increase, the required payments due from the borrower also increase (subject to rate caps), increasing the potential for default by the borrower. At the same time, the ability of the borrower to repay the loan and the marketability of the underlying collateral may be adversely affected by higher interest rates. Upward adjustments of the contractual interest rate are also limited by our maximum periodic and lifetime rate adjustments.

Regulations limit the amount we may lend relative to the appraised value of the real estate securing the loan, as determined by an appraisal of the property at the time the loan is originated. For borrowers who do not obtain private mortgage insurance (“PMI”), our lending policies limit the maximum loan-to-value ratio on both fixed-rate and adjustable-rate mortgage loans to 80% of the appraised value of the collateralized property, with the exception for a limited use product which allows for loans up to 90% with no PMI. For most one- to four-family residential real estate loans with loan-to-value ratios of between 80% and 95%, we require the borrower to obtain private mortgage insurance. For first mortgage loan products, we require the borrower to obtain title insurance. We also require homeowners’ insurance, fire and casualty, and, if necessary, flood insurance on properties securing real estate loans. We do not, and have never offered or invested in, one- to four-family residential real estate loans specifically designed for borrowers with sub-prime credit scores, including interest-only, negative amortization or payment option adjustable-rate mortgage loans.

Our one- to four-family residential real estate loan portfolio also includes residential constructions loans. At March 31, 2014, we had $1.2 million, or 0.4% of our total loan portfolio, comprised of residential construction loans. Our residential construction loans generally have initial terms of up to six months, subject to extension, during which the borrower pays interest only.  Upon completion of construction, these loans convert to permanent

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loans.  Our construction loans generally have rates and terms comparable to residential real estate loans that we originate. 

Commercial Real Estate Loans.   Over the past several years, we have focused on originating commercial real estate loans, and we believe that commercial real estate loans will continue to provide growth opportunities for us, and we expect to increase, subject to our underwriting standards and market conditions, this business line in the future with a target loan size of $100,000 to $1.5 million to small businesses and real estate projects in our market area. Commercial real estate loans totaled $102.6 million at March 31, 2014, or 29.5% of total loans, and are made up of loans secured by properties such as multi-family residential, office, retail, warehouse and owner-occupied commercial properties. Non-owner occupied commercial real estate and multi-family loans totaled $77.5 million and $21.8 million, respectively, or 75.0% and 21.1% of total commercial real estate loans, respectively, at March 31, 2014. The average commercial real estate loan in our portfolio at March 31, 2014 was $307,000. Our largest outstanding commercial real estate loan balance at March 31, 2014 was $4.5 million, which is secured by a hotel and resort property in Altmar, New York and performing in accordance with its terms.

Commercial real estate loans are generally secured by property located in our primary market area. Our commercial real estate underwriting policies provide that such real estate loans may be made in amounts of up to 80% of the appraised value of the property. Commercial real estate loans are offered with interest rates that are fixed for up to three or five years then are adjustable based on the FHLBNY advance rate. Contractual maturities generally do not exceed 20 years. In reaching a decision whether to make a commercial real estate loan, we consider gross revenues, operating trends, net cash flows of the property, the borrower’s expertise and credit history, and the appraised value of the underlying property. We will also consider the terms and conditions of the leases and the credit quality of the tenants. We generally require that the properties securing these real estate loans have debt service coverage ratios (the ratio of earnings before interest, taxes, depreciation and amortization divided by interest expense and current maturities of long term debt) of at least 120%. Environmental due diligence is generally conducted for commercial real estate loans. Typically, commercial real estate loans made to corporations, partnerships and other business entities require personal guarantees by the principals and by the owners of 20% or more of the borrower.

A commercial real estate borrower’s financial information is monitored on an ongoing basis by requiring periodic financial statement updates, payment history reviews, property inspections and periodic face-to-face meetings with the borrower. We generally require borrowers with aggregate outstanding balances exceeding $100,000 to provide annual updated financial statements and federal tax returns. These requirements also apply to all guarantors on these loans. We also require borrowers to provide an annual report of income and expenses for the property, including a rent-roll, as applicable.

Loans secured by commercial real estate generally entail greater credit risk than one- to four-family residential real estate loans. This increased credit risk is a result of several factors, including larger loan balances concentrated with limited number of borrowers, the impact of local and general economic conditions on the borrower’s ability to repay the loan and the increased difficulty of evaluating and monitoring these types of loans. Furthermore, the repayment of loans secured by commercial real estate properties typically depends upon the successful operation of the real property securing the loan. If the cash flow from the property is reduced, the borrower’s ability to repay the loan may be impaired. However, commercial real estate loans generally have higher interest rates than loans secured by one- to four-family residential real estate.

Commercial and Municipal Loans.   Commercial and municipal loans totaled $51.6 million at March 31, 2014, or 14.8% of total loans. Commercial loans are typically secured by equipment, furniture and fixtures, inventory, accounts receivable or other business assets, or, in limited circumstances, may be unsecured. Municipal loans are typically unsecured. Our commercial and municipal loans are generally comprised of commercial and industrial loans, commercial lines of credit and loans to local municipalities. From time to time, we also originate commercial loans through SBA and USDA guaranteed loan programs. At March 31, 2014, we had $11.7 million of such loans. At March 31, 2014, the average loan balance of commercial and municipal loans was $108,000. Our largest outstanding commercial and municipal loan balance at March 31, 2014 was $2.0 million, which was a line of credit secured by commercial real estate. This loan was performing in accordance with its original terms at March 31, 2014. Over the past several years, we have focused on increasing our commercial loans. Our business strategy

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is to continue to increase the originations of our commercial loans, subject to our underwriting standards and market conditions, to small businesses in our market area.

Our commercial term loans totaled $33.9 million at March 31, 2014, or 65.8% of total commercial and municipal loans. At March 31, 2014, the average loan balance of commercial and industrial loans was $97,000. Our largest outstanding commercial loan balance at March 31, 2014 was $1.7 million, which is secured by business assets and performing in accordance with its terms. Our commercial and industrial maximum loan to value limit is 80%. Our commercial loans are generally comprised of adjustable interest rate loans, indexed to the prime rate, with terms consisting of three to seven years, depending on the needs of the borrower and the useful life of the underlying collateral. We make commercial loans to businesses operating in our market area for purchasing equipment, property improvements, business expansion or working capital. If a commercial loan is secured by equipment, the maturity of a term loan will depend on the useful life of the equipment purchased, the source of repayment for the loan and the purpose of the loan. We generally obtain personal guarantees with our commercial loans.

Our commercial lines of credit totaled $14.9 million at March 31, 2014, or 28.8% of total commercial and municipal loans. At March 31, 2014, the average line of credit balance was $95,000, and our largest outstanding balance at that date was $2.0 million, which is secured by commercial property located in Syracuse, New York and performing in accordance with its terms. Typically, our commercial lines of credit are adjustable rate lines, indexed to the prime interest rate. Generally, our commercial lines of credit are secured by business assets or other collateral, and generally payable on-demand pursuant to an annual review. Since the commercial lines of credit may expire without being drawn upon, the total committed amounts do not necessarily represent future cash requirements.

We typically originate commercial loans, including commercial term loans and commercial lines of credit, on the basis of the borrower’s ability to make repayment from the cash flow of the borrower’s business, conversion of current assets in the normal course of business (for seasonal working capital lines), the experience and stability of the borrower’s management team, earnings projections and the underlying assumptions, and the value and marketability of any collateral securing the loan. As a result, the availability of funds for the repayment of commercial loans and commercial lines of credit may be substantially dependent on the success of the business itself and the general economic environment in our market area. Therefore, commercial loans and commercial lines of credit that we originate have greater credit risk than one- to four-family residential real estate loans or, generally, consumer loans.

Our municipal loans totaled $2.8 million at March 31, 2014, or 5.4% of total commercial and municipal loans. At March 31, 2014, the average loan balance of municipal loans was $155,000. Our largest outstanding municipal loan balance at March 31, 2014 was $802,000, which is unsecured and performing in accordance with its terms. We make municipal loans to local government and municipalities for the purposes of either tax anticipation or for small spending projects, including equipment acquisitions and construction projects. Our municipal loans are generally fixed, for a term of one year or less and are generally unsecured. Interest earned on municipal loans is tax exempt for federal tax purposes, which enhances the overall yield on each loan.  Generally, the municipality will have a deposit relationship along with the lending relationship.

Home Equity Loans and Junior Liens.   Home equity loans and junior liens totaled $21.4 million at March 31, 2014, or 6.2% of total loans, and are made up of lines of credit secured by owner-occupied and non-owner occupied one- to four-family residences and second and third real estate mortgage loans. The average outstanding home equity loan and junior lien balance at March 31, 2014 was $18,000 and our largest outstanding home equity loan and junior lien balance at that date was $382,000, which was secured by residential property located in Fulton, New York and performing in accordance with its terms.

Home equity loans and home equity lines of credit are generally underwritten using the same criteria that we use to underwrite one- to four-family residential mortgage loans. We typically originate home equity loans and home equity lines of credit on the basis of the applicant's credit history, an assessment of the applicant's ability to meet existing obligations and payments on the proposed loan and the value of the collateral securing the loan.  Home equity loans are offered with fixed interest rates. Lines of credit are offered with adjustable rates, which are indexed to the prime rate, and with a draw period up to 10 years, with a payback period up to 20 years.  The loan-to-value ratio for our home equity loans is generally limited to 80% when combined with the first security lien, if

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applicable.  The loan to value of our home equity lines of credit are generally limited to 80%, unless Pathfinder Bank holds the first mortgage. If we hold the first mortgage, we will permit a loan to value of up to 90% and adjust the interest rate and underwriting standards to compensate for the additional risk.

For all first lien position mortgage loans, we utilize outside independent appraisers. For second position mortgage loans where we also hold the existing first mortgage, we will use the lesser of the existing appraisal used in underwriting the first mortgage or assessed value. For all other second mortgage loans, we will use a third-party service which gathers all data from real property tax offices and gives the property a low, middle and high value, together with similar properties for comparison. The middle value from the third-party service will be the value used in underwriting. If the valuation method for the loan amount requested does not provide a value, or the value is not sufficient to support the loan request and it is determined that the borrower(s) are credit worthy, a full appraisal will be ordered.

Home equity loans and junior liens secured by junior mortgages have greater risk than one- to four-family residential mortgage loans secured by first mortgages. We face the risk that the collateral will be insufficient to compensate us for loan losses and costs of foreclosure, after repayment of the senior mortgages, if applicable. When customers default on their loans, we attempt to work out the relationship in order to avoid foreclosure because the value of the collateral may not be sufficient to compensate us for the amount of the unpaid loan and we may be unsuccessful in recovering the remaining balance from those customers. Moreover, decreases in real estate values could adversely affect our ability to fully recover the loan balance in the event of a default.

Consumer Loans.   We are authorized to make loans for a variety of personal and consumer purposes. As of March 31, 2014, consumer loans totaled $4.0 million, or 1.1% of total loans, and consisted primarily of automobile, recreational vehicles and unsecured personal loans, as well as unsecured lines of credit and loans secured by deposit accounts.  As of March 31, 2014, $1.9 million of our consumer loans were unsecured. The average outstanding consumer loan balance at March 31, 2014 was $9,000 and our largest outstanding consumer loan balance at that date was $153,000, which is secured by a recreational vehicle and performing in accordance with its terms. Our procedure for underwriting consumer loans includes an assessment of the applicant’s credit history and ability to meet existing obligations and payments of the proposed loan, as well as an evaluation of the value of the collateral security, if any.

Consumer loans generally entail greater risk than one- to four-family residential mortgage loans, particularly in the case of loans that are unsecured or are secured by assets that tend to depreciate in value, such as automobiles. As a result, consumer loan collections are primarily dependent on the borrower’s continuing financial stability and thus are more likely to be adversely affected by job loss, divorce, illness or personal bankruptcy. In these cases, repossessed collateral for a defaulted consumer loan may not provide an adequate source of repayment for the outstanding loan, and the remaining value often does not warrant further substantial collection efforts against the borrower.

Loan Originations, Purchases, Sales and Servicing.   We benefit from a number of sources for our loan originations, including real estate broker referrals, existing customers, borrowers, builders, attorneys, and “walk-in” customers. Our loan origination activity may be affected adversely by a rising interest rate environment which may result in decreased loan demand.  Other factors, such as the overall health of the local economy and competition from other financial institutions, can also impact our loan originations. Although we originate both fixed-rate and adjustable-rate loans, our ability to generate each type of loan depends upon borrower demand, market interest rates, borrower preference for fixed- versus adjustable-rate loans, and the interest rates offered on each type of loan by other lenders in our market area. These lenders include commercial banks, savings institutions, credit unions, and mortgage banking companies that also actively compete for local real estate loans. Accordingly, the volume of loan originations may vary from period to period.

The majority of the fixed rate residential loans that are originated each year meet the underwriting guidelines established by Fannie Mae. While infrequent, in the past, we have sold residential mortgage loans into the secondary market, and we may do so in the future, although we continue to service them once they are sold. We did not sell any one- to four-family residential real estate loans during the three months ended March 31, 2014. For the year ended December 31, 2013, we made a bulk sale of $8.8 million in residential mortgage loans into the secondary market in order to manage our interest rate risk.

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From time to time, although infrequent, we may purchase loan participations in which we are not the lead lender. In these circumstances, we follow our customary loan underwriting and approval policies. At March 31, 2014, we had $3.3 million in loan participations in which we were not the lead lender. All loan participations in which we were not the lead lender are performing in accordance with their terms at March 31, 2014. We also have participated out portions of loans that exceeded our loans-to-one borrower legal lending limit and for risk diversification.  We do not purchase whole loans.

Loan Approval Procedures and Authority.   Pathfinder Bank’s lending activities follow written, non-discriminatory underwriting standards and loan origination procedures established by management and the board of directors. Our policies are designed to provide loan officers with guidelines on acceptable levels of risk, given a broad range of factors. The loan approval process is intended to assess the borrower’s ability to repay the loan, the viability of the loan and the adequacy of the value of the property that will secure the loan, if applicable.

The board of directors grants loan officers individual lending authority to approve extensions of credit. The level of authority for loan officers varies based upon the loan type, total relationship, form of collateral and risk rating of the borrower. Each loan officer is charged with the responsibility of achieving high credit standards. Individual lending authority can be increased, suspended or removed by the board of directors, as recommended by the President or Senior Vice President and Chief Credit Officer.

If a loan is in excess of any individual loan officer’s lending authority, the extension of credit must be referred to the Officer Loan Committee, which currently consists of the President (serving as chairman), the Senior Vice President and Chief Credit Officer, and the Senior Vice President and General Counsel. The President may also appoint additional members to the Officer Loan Committee, including members of the management team and Pathfinder Bank’s retail and commercial lenders. The Officer Loan Committee has authority to approve an extension of total credit up to $1.0 million for one- to four-residential real estate loans, $1.0 million for commercial real estate loans, $1.0 million for commercial loans, $1.0 million for unrated municipal loans, $2.0 million for rated municipal loans, $1.5 million for home equity and junior liens and $1.5 million for consumer loans. The Executive Loan Committee, which consists of all members of Pathfinder Bank’s board of directors, must approve all extensions of credit in excess of the limits described above for the Officer Loan Committee.

Loans to One Borrower.   Under New York law, New York savings banks are subject to loans-to-one borrower limits, which are substantially similar as those applicable to national banks, which restrict loans to one borrower to an amount equal to 15% of unimpaired capital and unimpaired surplus on an unsecured basis, and an additional amount equal to 10% of unimpaired capital and unimpaired surplus if the loan is secured by readily marketable collateral (generally, financial instruments and bullion, but not real estate), subject to exceptions. At March 31, 2014, our legal lending limit was $7.4 million. At March 31, 2014, our largest lending relationship to one borrower totaled $6.1 million, which is secured by residential real estate, a recreational vehicle, automobiles, a hotel and resort property, business assets and investment real estate, and complied with our legal lending limit at the time of origination. This lending relationship was performing in accordance with its terms at March 31, 2014. Our second largest lending relationship at March 31, 2014 was $5.5 million and is secured by business assets, a multi-family residential property, and non-owner occupied commercial real estate.  This lending relationship was performing in accordance with its terms at March 31, 2014.

Additionally, our internal loan policies limit the total related credit to be extended to any one borrower (after application of the rules of attribution), with respect to any and all loans with Pathfinder Bank to $4.5 million, subject to certain exceptions. At March 31, 2014, only three relationships exceeded this internal policy limit..

Delinquencies, Non-Performing Assets and Classified Assets

Loan Delinquencies and Collection Procedures. When a loan becomes delinquent, we make attempts to contact the borrower to determine the cause of the delayed payments and seek a reasonable solution to permit the loan to be brought current within a reasonable period of time. The outcome can vary with each individual borrower. In the case of mortgage loans and consumer loans, a late notice is sent 15 days after an account becomes delinquent. If delinquency persists, notices are sent at the 30 day delinquency mark, the 45 day delinquency mark and the 60 day delinquency mark. After 15 days, we attempt to establish telephone contact with the borrower. In the case of mortgage loans, included in every late notice is a letter that includes information regarding home-ownership

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counseling. As part of a workout agreement, we will accept partial payments during the month in order to bring the account current. If attempts to reach an agreement are unsuccessful and the customer is unable to comply with the terms of the workout agreement, we will review the account to determine if foreclosure is warranted, in which case, consistent with New York law, we send a 90 day notice of foreclosure and then a 30 day notice before legal proceedings are commenced. A consumer final demand letter is sent in the case of a consumer loan. In the case of commercial loans and commercial mortgage loans, we follow a similar notification practice with the exception of the previously mentioned information on home-ownership counseling. In addition, commercial loans do not require 90 day notices of foreclosure. Generally, commercial borrowers only receive 10 day notices before legal proceedings can be commenced. Commercial loans may experience longer workout times which may trigger a need for a loan modification that could meet the requirements of a troubled debt restructured loan.

Delinquent Loans. The following table sets forth our loan delinquencies, including non-accrual loans, by type, amount and percentage at the dates indicated.

	Loans Delinquent For:
	60—89 Days							90 Days or Greater							Total Delinquent Loans
	Number		Amount		Percent of Loan Category			Number		Amount		Percent of Loan Category			Number		Amount		Percent of Loan Category
	(Dollars in thousands)
At March 31, 2014
Residential real estate		17	$	1,032		0.62	%		26	$	1,873		1.12	%		43	$	2,905		1.74	%
Commercial real estate		3		269		0.26			13		3,817		3.72			16		4,086		3.98
Commercial and municipal		4		1,106		2.14			12		991		1.92			16		2,097		4.06
Home equity and junior lien		1		14		0.07			11		290		1.36			12		304		1.43
Consumer		2		34		0.86			2		12		0.30			4		46		1.16
Total loans		27	$	2,455		0.71	%		64	$	6,983		2.01	%		91	$	9,438		2.71	%

	Loans Delinquent For:
	60—89 Days							90 Days or Greater							Total Delinquent Loans
	Number		Amount		Percent of Loan Category			Number		Amount		Percent of Loan Category			Number		Amount		Percent of Loan Category
	(Dollars in thousands)
At December 31, 2013
Residential real estate		23	$	1,472		0.89	%		32	$	2,194		1.32	%		55	$	3,666		2.20	%
Commercial real estate		7		1,901		1.99			8		1,934		2.02			15		3,835		4.01
Commercial and municipal		12		1,402		2.68			9		775		1.48			21		2,177		4.17
Home equity and junior lien		11		281		1.33			17		402		1.90			28		683		3.24
Consumer		10		51		1.22			4		45		1.08			14		96		2.30
Total loans		63	$	5,107		1.50	%		70	$	5,350		1.57	%		133	$	10,457		3.06	%

	Loans Delinquent For:
	60—89 Days							90 Days or Greater							Total Delinquent Loans
	Number		Amount		Percent of Loan Category			Number		Amount		Percent of Loan Category			Number		Amount		Percent of Loan Category
	(Dollars in thousands)
At December 31, 2012
Residential real estate		14	$	1,161		0.67	%		29	$	2,046		1.18	%		43	$	3,207		1.84	%
Commercial real estate		3		1,833		2.23			9		1,794		2.18			12		3,627		4.41
Commercial and municipal		5		238		0.49			17		932		1.91			22		1,170		2.40
Home equity and junior lien		9		405		1.83			16		730		3.31			25		1,135		5.14
Consumer		3		42		1.21			4		46		1.33			7		88		2.54
Total loans		34	$	3,679		1.10	%		75	$	5,548		1.66	%		109	$	9,227		2.77	%

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	Loans Delinquent For:
	60—89 Days							90 Days or Greater							Total Delinquent Loans
	Number		Amount		Percent of Loan Category			Number		Amount		Percent of Loan Category			Number		Amount		Percent of Loan Category
	(Dollars in thousands)
At December 31, 2011
Residential real estate		13	$	934		0.59	%		24	$	1,428		0.90	%		37	$	2,362		1.49	%
Commercial real estate		1		4		0.01			7		1,623		2.21			8		1,627		2.22
Commercial and municipal		5		467		1.16			12		971		2.42			17		1,438		3.59
Home equity and junior lien		5		182		0.75			13		550		2.28			18		732		3.03
Consumer		2		2		0.05			4		156		3.77			6		158		3.82
Total loans		26	$	1,589		0.52	%		60	$	4,728		1.55	%		86	$	6,317		2.08	%

	Loans Delinquent For:
	60—89 Days							90 Days or Greater							Total Delinquent Loans
	Number		Amount		Percent of Loan Category			Number		Amount		Percent of Loan Category			Number		Amount		Percent of Loan Category
	(Dollars in thousands)
At December 31, 2010
Residential real estate		15	$	1,078		0.75	%		20	$	1,335		0.93	%		35	$	2,413		1.68	%
Commercial real estate		3		908		1.32			11		3,680		5.33			14		4,588		6.65
Commercial and municipal		2		301		0.76			8		544		1.37			10		845		2.13
Home equity and junior lien		10		371		1.47			8		303		1.20			18		674		2.68
Consumer		4		7		0.21			8		62		1.82			12		69		2.02
Total loans		34	$	2,665		0.94	%		55	$	5,924		2.08	%		89	$	8,589		3.02	%

	Loans Delinquent For:
	60—89 Days							90 Days or Greater							Total Delinquent Loans
	Number		Amount		Percent of Loan Category			Number		Amount		Percent of Loan Category			Number		Amount		Percent of Loan Category
	(Dollars in thousands)
At December 31, 2009
Residential real estate		9	$	297		0.23	%		14	$	1,181		0.90	%		23	$	1,478		1.12	%
Commercial real estate		─		─		0.00			8		877		1.41			8		877		1.41
Commercial and municipal		1		175		0.49			5		144		0.41			6		319		0.90
Home equity and junior lien		4		73		0.28			6		111		0.43			10		184		0.71
Consumer		5		49		1.37			─		─		0.00			5		49		1.37
Total loans		19	$	594		0.23	%		33	$	2,313		0.88	%		52	$	2,907		1.11	%

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Non-Performing Assets. The following table sets forth the amounts and categories of our non-performing assets at the dates indicated.

	March 31,			At December 31,
	2014			2013			2012			2011			2010			2009
				(Dollars in thousands)
Non-accrual loans:
Residential real estate	$	1,873		$	2,194		$	2,046		$	1,428		$	1,182		$	1,181
Commercial real estate		3,491			1,934			1,274			689			2,598			877
Commercial and municipal		797			690			817			849			480			144
Home equity and junior lien		251			402			424			550			303			111
Consumer		12			45			46			156			62			─
Total non-accrual loans		6,424			5,265			4,607			3,672			4,625			2,313
Non-accruing troubled debt restructured loans:
Residential real estate		─			─			─			─			153			─
Commercial real estate		326			─			520			934			1,082			─
Commercial and municipal		194			85			115			122			64			─
Home equity and junior lien		39			─			306			─			─			─
Consumer		─			─			─			─			─			─
Total non-accruing troubled debt restructured loans		559			85			941			1,056			1,299			─
Total non-performing loans		6,983			5,350			5,548			4,728			5,924			2,313
Foreclosed assets:
Foreclosed residential mortgage loans		415			341			241			244			106			181
Foreclosed commercial real estate		284			278			185			292			269			─
Foreclosed other assets		─			─			235			258			─			─
Total other real estate owned		699			619			661			794			375			181
Total non-performing assets	$	7,682		$	5,969		$	6,209		$	5,522		$	6,299		$	2,494
Accruing troubled debt restructured loans:
Residential real estate	$	400		$	402		$	145		$	149		$	─		$	─
Commercial real estate		1,231			1,570			1,262			446			437			1,549
Commercial and municipal		30			140			490			─			297			351
Home equity and junior lien		306			347			40			─			107			─
Consumer		─			─			─			─			─			─
Total accruing troubled debt restructured loans	$	1,967		$	2,459		$	1,937		$	595		$	841		$	1,900
Ratios:
Non-performing loans to total loans		2.01	%		1.57	%		1.66	%		1.55	%		2.08	%		0.88	%
Non-performing assets to total assets		1.46	%		1.18	%		1.30	%		1.25	%		1.54	%		0.67	%

For the three months ended March 31, 2014 and for the year ended December 31, 2013, gross interest income which would have been recorded had the non-performing loans been current in accordance with their original terms amounted to $130,000 and $117,000, respectively.  We recognized $21,000 and $172,000 of interest income on such loans during the three months ended March 31, 2014 and the year ended December 31, 2013, respectively.

Non-Accrual Loans. We generally cease accruing interest on our loans when contractual payments of principal or interest have become 90 days past due or management has serious doubts about further collectability of principal or interest, even though the loan is currently performing. A loan may remain on accrual status if it is in the process of collection and is either guaranteed or well secured. When a loan is placed on non-accrual status, unpaid interest credited to income is reversed. Interest received on non-accrual loans generally is applied against principal or interest and is recognized on the cash basis method. Generally, loans are restored to accrual status when the obligation is brought current, has performed in accordance with the contractual terms for a reasonable period of time and the ultimate collectability of the total contractual principal and interest is no longer in doubt. At March 31, 2014 and December 31, 2013, we had $6.4 million and $5.3 million in non-accrual loans, respectively, (excluding non-accruing troubled debt restructurings). Our non-accrual loans consisted primarily of non-accruing one- to four-family residential loans, which totaled $1.9 million at March 31, 2014 and $2.2 million at December 31, 2013, and

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commercial real estate loans, which totaled $3.5 million at March 31, 2014 and $2.0 million at December 31, 2013. The $1.5 million increase in non-accrual commercial real estate loans from December 31, 2013 to March 31, 2014 consisted primarily of two commercial lending relationships, one of which is secured by owner occupied commercial real estate and the other is secured by non-owner occupied commercial real estate.

Troubled Debt Restructurings.   Troubled debt restructurings are loan restructurings in which we, for economic or legal reasons related to an existing borrower’s financial difficulties, grant a concession to the debtor that we would not otherwise consider. Typically, a troubled debt restructuring involves a modification of terms of a debt, such as reduction of the stated interest rate for the remaining original life of the debt, extension of the maturity date at a stated interest rate lower than the current market rate for new debt with similar risk, reduction of the face amount of the debt, or reduction of accrued interest. We consider modifications only after analyzing the borrower’s current repayment capacity, evaluating the strength of any guarantors based on documented current financial information, and assessing the current value of any collateral pledged. These modifications are made only when there is a reasonable and attainable workout plan that has been agreed to by the borrower and that is in our best interests. No loan commitments were outstanding to our troubled debt restructured borrowers at March 31, 2014.

Loans on non-accrual status at the date of modification are initially classified as non-accrual troubled debt restructurings. At March 31, 2014 and December 31, 2013, we had $559,000 and $85,000 in non-accruing troubled debt restructurings, respectively. Our policy provides that troubled debt restructured loans are returned to accrual status after a period of satisfactory and reasonable future payment performance under the terms of the restructuring. Satisfactory payment performance is generally no less than six consecutive months of timely payments and demonstrated ability to continue to repay. At March 31, 2014 and December 31, 2013, we had $2.0 million and $2.5 million in accruing troubled debt restructurings, respectively. As of March 31, 2014, no loans that were modified as troubled debt restructurings within the previous twelve months defaulted after their restructure.

Non-Performing Loans.   Non-performing loans (including non-accruing troubled debt restructurings) increased to $7.0 million, or 2.01% of total loans, at March 31, 2014 from $5.4 million, or 1.57% of total loans, at December 31, 2013. This increase was due primarily to an increase of $1.9 million in non-accruing commercial real estate loans.

Non-performing commercial real estate loans consisted of 13 loans totaling $3.8 million at March 31, 2014. Non-performing one- to four-family residential real estate loans totaled $1.9 million at March 31, 2014 and consisted of 26 loans, the largest of which totaled $223,000.

At March 31, 2014, our three largest non-performing loan relationships were an $871,000 loan secured by an automobile service center, a $777,000 loan relationship secured by an automobile service center, and a $364,000 loan relationship secured by non-owner occupied real estate.

Foreclosed real estate.   Foreclosed real estate consists of property acquired through formal foreclosure, in-substance foreclosure or by deed in lieu of foreclosure, and is recorded at fair value less estimated costs to sell. Write-downs to fair value, which are required at the time of foreclosure, are charged to the allowance for loan losses. After transfer, adjustments to the carrying value of the properties that result from subsequent declines in value are charged to operations in the period in which the declines occur. Subsequent to foreclosure, valuations are updated periodically and assets are marked to current fair value, not to exceed the initial cost basis. In the determination of fair value subsequent to foreclosure, management also considers other factors or recent developments, such as, changes in absorption rates and market conditions from the time of valuation and anticipated sales values considering management’s plans for disposition. Either change could result in adjustment to lower the property value estimates indicated in the appraisals.

During the three months ended March 31, 2014, $197,000 of loans were transferred into real estate owned.  For the year ended December 31, 2013, $755,000 of loans were transferred into real estate owned. We had $699,000 and $619,000 in real estate owned at March 31, 2014 and December 31, 2013, respectively.

Other Loans of Concern.   Other than $4.3 million of loans designated by management as “special mention,” there were no other loans at March 31, 2014 that are not already disclosed where there is information

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about possible credit problems of borrowers that caused management to have serious doubts about the ability of the borrowers to comply with present loan repayment terms and that may result in disclosure of such loans in the future.

Classified Assets. Federal regulations provide for the classification of loans and other assets, such as debt and equity securities considered by the FDIC to be of lesser quality, as “substandard,” “doubtful” or “loss.” An asset is considered “substandard” if it is inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any. “Substandard” assets include those characterized by the “distinct possibility” that the insured institution will sustain “some loss” if the deficiencies are not corrected. Assets classified as “doubtful” have all of the weaknesses inherent in those classified “substandard,” with the added characteristic that the weaknesses present make “collection or liquidation in full,” on the basis of currently existing facts, conditions, and values, “highly questionable and improbable.” Assets classified as “loss” are those considered “uncollectible” and of such little value that their continuance as assets without the establishment of a specific allowance for loan losses is not warranted. Assets that do not currently expose the insured institution to sufficient risk to warrant classification in one of the aforementioned categories but possess weaknesses are designated as “special mention” by our management. At March 31, 2014, we had $4.3 million of loans designated as “special mention.”

When an insured institution classifies problem assets as either substandard or doubtful, it may establish general allowances in an amount deemed prudent by management to cover losses that were both probable and reasonable to estimate. General allowances represent allowances which have been established to cover accrued losses associated with lending activities that were both probable and reasonable to estimate, but which, unlike specific allowances, have not been allocated to particular problem assets. When an insured institution classifies problem assets as “loss,” it is required either to establish a specific allowance for losses equal to 100% of that portion of the asset so classified or to charge-off such amount. An institution’s determination as to the classification of its assets and the amount of its valuation allowances is subject to review by the regulatory authorities, which may require the establishment of additional general or specific allowances.

In connection with the filing of our periodic regulatory reports and in accordance with our classification of assets policy, we continuously assess the quality of our loan portfolio and we regularly review the problem loans in our loan portfolio to determine whether any loans require classification in accordance with applicable regulations. Loans are listed on the “watch list” initially because of emerging financial weaknesses even though the loan is currently performing as agreed, or delinquency status, or if the loan possesses weaknesses although currently performing. Management reviews the status of our loan portfolio delinquencies, by product types, with the full board of directors on a monthly basis. Individual classified loan relationships are discussed as warranted. If a loan deteriorates in asset quality, the classification is changed to “special mention,” “substandard,” “doubtful” or “loss” depending on the circumstances and the evaluation. Generally, loans 90 days or more past due are placed on nonaccrual status and classified “substandard.”

We also employ a risk grading system for our loans to help assure that we are not taking unnecessary and/or unmanageable risk. The primary objective of the loan risk grading system is to establish a method of assessing credit risk to further enable management to measure loan portfolio quality and the adequacy of the allowance for loan losses. Further, we contract with an external loan review firm to complete a credit risk assessment of the loan portfolio on a regular basis to help determine the current level and direction of our credit risk. The external loan review firm communicates the results of their findings to the Executive Loan Committee in writing and by periodically attending the Executive Loan Committee meetings. Any material issues discovered in an external loan review are also communicated to the President of Pathfinder Bank immediately.

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The following table sets forth our amounts of classified loans and loans designated as special mention as of March 31, 2014, December 31, 2013, 2012 and 2011. The classified loans totaled $14.0 million at March 31, 2014 and includes $7.0 million of nonperforming loans.

	At March 31,		At December 31,
	2014		2013		2012		2011
	(In thousands)
Classification of Loans:
Substandard	$	13,744	$	11,970	$	14,815	$	11,089
Doubtful		235		243		159		54
Loss		─		22		26		76
Total Classified Assets	$	13,979	$	12,235	$	15,000	$	11,219
Special Mention	$	4,313	$	4,112	$	3,523	$	1,623

The increase in classified assets in the first quarter of 2014 was due to a $1.8 million increase in substandard loans. Substandard loans at March 31, 2014 consisted of $5.4 million in commercial real estate and $5.2 million in one- to four-family residential real estate loans that were performing loans.

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Allowance for Loan Losses

The following table sets forth information regarding our allowance for loan losses and other ratios at or for the dates indicated.

	For the Three Months Ended  March 31,						For the Years Ended December 31,
	2014			2013			2013			2012			2011			2010			2009
	(Dollars in thousands)
Balance at beginning of period	$	5,041		$	4,501		$	4,501		$	3,980		$	3,648		$	3,078		$	2,472
Charge-offs:
Residential real estate		(12	)		(12	)		(153	)		(108	)		(237	)		(48	)		(48	)
Commercial real estate		(47	)		─			(46	)		(142	)		(205	)		(162	)		(69	)
Commercial and municipal		(143	)		(59	)		(273	)		(89	)		(99	)		(223	)		(3	)
Home equity and junior lien		(50	)		(81	)		(81	)		(8	)		(43	)		(76	)		(38	)
Consumer		(51	)		(28	)		(98	)		(161	)		(123	)		(81	)		(134	)
Total charge-offs		(303	)		(180	)		(651	)		(508	)		(707	)		(590	)		(293	)
Recoveries:
Residential real estate		─			12			47			75			49			19			1
Commercial real estate		─			─			19			14			─			55			─
Commercial and municipal		3			─			22			50			1			─			─
Home equity and junior lien		─			13			19			6			10			5			2
Consumer		13			16			52			59			39			31			19
Total  recoveries		16			41			159			204			99			110			22
Net (charge-offs)		(287	)		(139	)		(492	)		(304	)		(608	)		(480	)		(270	)
Provision for loan losses		245			324			1,032			825			940			1,050			876
Balance at end of period	$	4,999		$	4,686		$	5,041		$	4,501		$	3,980		$	3,648		$	3,078
Ratios:
Net charge-offs during the period to average loans outstanding during the period(1)		0.33	%		0.17	%		0.15	%		0.10	%		0.21	%		0.18	%		0.11	%
Net charge-offs during the period to non-performing loans at end of period		4.11			2.32			9.20			5.48			12.86			8.10			11.67
Allowance for loan losses to non-performing loans at end of period		71.59			78.32			94.22			81.13			84.18			61.58			133.07
Allowance for loan losses to total loans at end of period		1.44			1.38			1.48			1.35			1.31			1.28			1.17

(1) Annualized.

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The allowance for loan losses is maintained at a level considered adequate to provide for losses that can be reasonably anticipated. Management performs a quarterly evaluation of the adequacy of the allowance. The allowance is increased by the provision for loan losses, and decreased by charge-offs, net of recoveries. Loans deemed to be uncollectible are charged against the allowance for loan losses, and subsequent recoveries, if any, are credited to the allowance. All, or part, of the principal balance of loans receivable are charged off to the allowance as soon as it is determined that the repayment of all, or part, of the principal balance is highly unlikely. Non-residential consumer loans are generally charged off no later than 120 days past due on a contractual basis, unless productive collection efforts are providing results. Consumer loans may be charged off earlier in the event of bankruptcy, or if there is an amount that is deemed uncollectible. No portion of the allowance for loan losses is restricted to any individual loan product and the entire allowance is available to absorb any and all loan losses.

The allowance is based on three major components which are: (i) specific components for larger loans, (ii) recent historical losses and several qualitative factors applied to a general pool of loans, and (iii) an unallocated component.

The first component is the specific allowance that relates to loans that are classified as impaired. For these loans, an allowance is established when the discounted cash flows or collateral value of the impaired loan are lower than the carrying value of that loan. A loan is considered impaired when, based on current information and events, it is probable that we will be unable to collect the scheduled payments of principal or interest when due according to the contractual terms of the loan agreement. Impairment is measured by either the present value of the expected future cash flows discounted at the loan’s effective interest rate or the fair value of the underlying collateral if the loan is collateral dependent. The majority of our loans utilize the fair value of the underlying collateral. Factors considered by management in determining impairment include payment status, collateral value and the probability of collecting scheduled principal and interest payments when due. Loans that experience insignificant payment delays and payment shortfalls generally are not classified as impaired. Management determines the significance of payment delays and shortfalls on a case-by case basis, taking into consideration all of the circumstances surrounding the loan and the borrower, including the length and reason for the delay, the borrower’s prior payment record and the amount of shortfall in relation to what is owed.

The second component is the general allowance which covers pools of loans, by loan class, not considered impaired, smaller balance homogenous loans, such as residential real estate, home equity and other consumer loans. These pools of loans are evaluated for loss exposure first based on historical loss rates for each of these categories of loans. The ratio of net charge-offs to loans outstanding within each product class, over the most recent eight quarters, lagged by one quarter, is used to generate the historical loss rates. In addition, qualitative factors are added to the historical loss rates in arriving at the total allowance for loan losses needed for this general pool of loans. The qualitative factors include changes in national and local economic trends, the rate of growth in the portfolio, trends of delinquencies and nonaccrual balances, changes in loan policy, and changes in lending management experience and related staffing. Each factor is assigned a value to reflect improving, stable or declining conditions based on management’s best judgment using relevant information available at the time of the evaluation. These qualitative factors, applied to each product class, make the evaluation inherently subjective, as it requires material estimates that may be susceptible to significant revision as more information becomes available.

The third component is the unallocated allowance which is maintained to cover uncertainties that could affect management’s estimate of probable losses. The unallocated component of the allowance reflects the margin of imprecision inherent in the underlying assumptions used in the methodologies for estimating specific and general losses in the portfolio and generally comprises less than 10% of the total allowance for loan losses.

When a loan is determined to be impaired, we will reevaluate the collateral which secures the loan. For real estate loans, we will obtain a new appraisal or broker’s opinion, whichever is considered to provide the most accurate value in the event of sale. An evaluation of equipment held as collateral will be obtained from a firm able to provide such an evaluation. Collateral will be inspected not less than annually for all impaired loans and will be reevaluated not less than every two years. Appraised values are discounted to arrive at the estimated selling price of the collateral, which is considered to be the estimated fair value. The discounts also include estimated costs to sell the property. For commercial and industrial loans secured by non-real estate collateral, such as accounts receivable, inventory and equipment, estimated fair values are determined based on the borrower’s financial statements,

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inventory reports, account receivable agings or equipment appraisals or invoices. Indications of value from these sources are generally discounted based on the age of the financial information or the quality of the assets.

Large groups of homogeneous loans are collectively evaluated for impairment. Accordingly, we do not separately identify individual residential mortgage loans less than $300,000, home equity and other consumer loans for impairment disclosures, unless such loans are related to borrowers with impaired commercial loans or they are the subject to a troubled debt restructuring agreement for those with a carrying value in excess of $300,000.

In addition, the FDIC and NYDFS, as an integral part of their examination process, periodically review our allowance for loan losses and may require us to recognize additions to the allowance based on their judgments about information available to them at the time of their examination, which may not be currently available to management. Based on management’s comprehensive analysis of the loan portfolio, we believe the current level of the allowance for loan losses is adequate.

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Allocation of the Allowance for Loan Losses. The following table presents our allocation of the allowance for loan losses by loan category and the percentage of loans in each category to total loans at the periods indicated. Management believes that the allowance can be allocated by category only on an approximate basis. 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.

	At March 31,								At December 31,
	2014								2013							2012							2011
	Allowance for Loan Losses			Loan Amounts by Category		Percent of Loans in Each Category to Total Loans			Allowance for Loan Losses		Loan Amounts by Category		Percent of Loans in Each Category to Total Loans			Allowance for Loan Losses		Loan Amounts by Category		Percent of Loans in  Each Category to Total Loans			Allowance for Loan Losses		Loan Amounts by Category		Percent of Loans in Each Category to Total Loans
	(Dollars in thousands)
Residential real estate	$	604		$	168,536		48.4	%	$	649	$	168,493		49.3	%	$	811	$	176,968		53.1	%	$	664	$	162,395		53.2	%
Commercial real estate		2,436			102,506		29.5			2,302		95,510		28.0			1,748		82,357		24.6			1,346		73,628		24.2
Commercial and municipal		1,498			51,613		14.8			1,233		52,241		15.3			1,192		48,826		14.7			1,114		40,336		13.3
Home equity and junior lien		432			21,521		6.2			433		21,223		6.2			494		22,141		6.6			501		24,251		8.0
Consumer		102			3,965		1.1			136		4,166		1.2			168		3,456		1.0			162		4,140		1.4
Unallocated		(73	)		─		─			288		─		─			88		─		─			193		─		─
Total loans	$	4,999		$	348,141		100.0	%	$	5,041	$	341,633		100.0	%	$	4,501	$	333,748		100.0	%	$	3,980	$	304,750		100.0	%

	At December 31,
	2010							2009
	Allowance for Loan Losses		Loan Amounts by Category		Percent of Loans in Each Category to Total Loans			Allowance for Loan Losses			Loan Amounts by Category		Percent of Loans in Each Category to Total Loans
	(Dollars in thousands)
Residential real estate	$	750	$	147,722		51.7	%	$	763		$	135,102		51.5	%
Commercial real estate		1,204		69,060		24.2			1,809			62,250		23.7
Commercial and municipal		1,083		39,833		14.0			864			35,447		13.5
Home equity and junior lien		424		25,271		8.9			390			26,086		9.9
Consumer		89		3,410		1.2			76			3,580		1.4
Unallocated		98		─		─			(24	)		─		─
Total loans	$	3,648	$	285,296		100.0	%	$	3,078		$	262,465		100.0	%

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Investment Activities

Our investment policy is established by the board of directors. Our investment policy dictates that investment decisions will be made based on the safety of the investment, liquidity requirements, potential returns, cash flow targets, and consistency with our interest rate risk management. The Asset Liability Management Committee of the board of directors acts in the capacity of an investment committee and is responsible for overseeing our investment program and evaluating on an ongoing basis our investment policy and objectives. Our President and Chief Financial Officer have the authority to purchase securities within specific guidelines established by the investment policy. All transactions are reviewed by the board of directors at its regular meeting.

All investment securities must meet regulatory guidelines and be permissible bank investments, including United States Government obligations, securities of various federal agencies and of state and municipal governments, deposits at the FHLBNY, certificates of deposit at federally insured institutions, and federal funds. Within certain regulatory limits, we may also invest a portion of our assets in mutual funds, equity securities and investment grade corporate debt securities. As part of membership in the FHLBNY, we are required to maintain an investment in FHLBNY stock.

All securities purchased will be classified at the time of purchase as either held-to-maturity or available-for-sale. We do not maintain a trading account. Securities purchased with the intent and ability to hold until maturity will be classified as held-to-maturity. Securities placed in the held-to-maturity category will be accounted for at amortized cost.

Securities that do not qualify or are not categorized as held-to-maturity are classified as available-for-sale. This classification includes securities that may be sold in response to changes in interest rates, the security's prepayment risk, liquidity needs, the availability of and the yield on alternative investments, and funding sources and terms. These securities are reported at fair value, which is determined on a monthly basis. Unrealized gains and losses are reported as a separate component of capital, net of tax. The aggregate change in value of the portfolio is reported to the board of directors monthly.

The general objectives of the investment portfolio are to assist in the overall interest rate risk management of Pathfinder Bank, generate a reasonable rate of return consistent with the safety of principal, provide a source of liquidity, minimize our tax liability, and mitigate our interest rate and credit risk. We purchase securities to provide necessary liquidity for day-to-day operations and when investable funds exceed loan demand. The effect that the proposed security would have on our credit and interest rate risk and risk-based equity is also considered.

Securities classified as held to maturity, other than mortgage-backed securities and collateralized mortgage obligations, totaled $31.3 million at March 31, 2014 and consisted primarily of state and political subdivision securities, and to a lesser extent, Federal agency obligations and corporate securities. Our securities classified as available-for-sale, other than mortgage-backed securities and collateralized mortgage obligations, totaled $40.1 million at March 31, 2014, and consisted primarily of corporate securities and Federal agency obligations, which include Federal Farm Credit Bank notes, FHLBNY notes, Fannie Mae notes and Freddie Mac notes. For a discussion on mortgage backed securities, see “—Mortgage-Backed Securities.”

Included within the available for sale portfolio are three mutual fund positions. The first is a mutual fund backed by adjustable rate mortgage-backed securities and cash equivalents. The second equity security is a mutual fund consisting primarily of investment grade dividend-paying common stocks of large capitalization companies, i.e., companies with market capitalization in excess of $5.0 billion. The third fund, Financial Institutions Fund, LLC, invests primarily in equity securities issued by community banks and thrift institutions and holding companies of such banks and thrifts located principally in the Northeastern United States.  The fund seeks out banks and thrifts with less than $5.0 billion in assets that are high performing or ones that represent potential acquisition targets or are strategically located in a market where a major competitor was recently acquired by a larger institution.

We also have a $2.0 million investment in FHLBNY stock at March 31, 2014, which is classified separately from securities due to the restrictions on sale or transfer. For further information regarding our securities portfolio, see Note 4 to the consolidated financial statements.

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Mortgage-Backed Securities and Collateralized Mortgage Obligations

We purchase mortgage-backed securities and collateralized mortgage obligations guaranteed by Fannie Mae, Freddie Mac and Ginnie Mae. We invest in mortgage-backed securities and collateralized mortgage obligations to achieve positive interest rate spreads with minimal administrative expense, and to lower our credit risk. We regularly monitor the credit quality of this portfolio.

Mortgage-backed securities and collateralized mortgage obligations are created by the pooling of mortgages and the issuance of a security with an interest rate which is less than the interest rate on the underlying mortgages. These securities typically represent a participation interest in a pool of single-family or multi-family mortgages, although we focus our investments on mortgage related securities backed by one- to four-family real estate loans. The issuers of such securities pool and resell the participation interests in the form of securities to investors such as Pathfinder Bank, and in the case of government agency sponsored issues, guarantee the payment of principal and interest to investors. Mortgage-backed securities and collateralized mortgage obligations generally yield less than the loans that underlie such securities because of the cost of payment guarantees, if any, and credit enhancements. These fixed-rate securities are usually more liquid than individual mortgage loans.

At March 31, 2014, our held to maturity mortgage-backed securities totaled $8.8 million, which represented 1.7% of our total assets at that date.  At March 31, 2014, 100% of our held to maturity mortgage-backed securities had fixed rates of interest.  We purchased $3.3 million of held to maturity mortgage-backed securities during the three months ended March 31, 2014 and $1.0 million during the year ended December 31, 2013.

At March 31, 2014, our available for sale mortgage-backed securities totaled $24.4 million, which represented 4.5% of our total assets at that date.  At March 31, 2014, 100% of our available for sale mortgage-backed securities had fixed rates of interest.  We purchased $3.1 million of available for sale mortgage-backed securities during the three months ended March 31, 2014 and $9.4 million during the year ended December 31, 2013.

At March 31, 2014, our held to maturity collateralized mortgage obligations totaled $2.9 million.  At March 31, 2014, the entire held to maturity collateralized mortgage obligations portfolio consisted entirely of securities backed by government-sponsored enterprises or U.S. Government agencies. We did not hold any held to maturity private-label collateralized mortgage obligations.

At March 31, 2014, our available for sale collateralized mortgage obligations totaled $19.2 million. At March 31, 2014, the entire available for sale collateralized mortgage obligations portfolio consisted entirely of securities backed by government-sponsored enterprises or U.S. Government agencies. We did not hold any available for sale private-label collateralized mortgage obligations.

The collateralized mortgage obligations portfolio had a weighted average yield of 2.2% and a weighted average remaining life of 19.7 years at March 31, 2014.  The estimated fair value of our collateralized mortgage obligations portfolio at March 31, 2014 was $64,000 more than the amortized cost of $22.1 million.  Of the $22.1 million of collateralized mortgage obligations, $19.9 million are pledged as collateral for municipal deposits at March 31, 2014.  Investments in collateralized mortgage obligations involve a risk that actual prepayments may differ from estimated prepayments over the life of the security, which may require adjustments to the amortization of any premium or accretion of any discount relating to such instruments, thereby changing the net yield on such securities.  There is also reinvestment risk associated with the cash flows from such securities or if such securities are redeemed by the issuer.  In addition, the market value of such securities may be adversely affected in a rising interest rate environment, particularly since all of our collateralized mortgage obligations have a fixed rate of interest.  The relatively short weighted average remaining life of our collateralized mortgage obligation portfolio mitigates our potential risk of loss in a rising interest rate environment.

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Amortized Cost and Estimated Fair Value of Securities. The following table sets forth certain information regarding the amortized cost and estimated fair values of our securities as of the dates indicated.

	At March 31,				At December 31,
	2014				2013				2012				2011
	Amortized Cost		Estimated Fair Value		Amortized Cost		Estimated Fair Value		Amortized Cost		Estimated Fair Value		Amortized Cost		Estimated Fair Value
	(Dollars in thousands)
Investment securities held to maturity:
Debt investment securities
US Treasury, agencies and GSEs	$	4,814	$	4,800	$	1,872	$	1,847	$	─	$	─	$	─	$	─
State and political subdivisions		22,831		23,140		21,371		21,264		─		─		─		─
Corporate		3,692		3,742		3,746		3,718		─		─		─		─
Residential mortgage-backed – US agency		8,762		8,760		5,556		5,526		─		─		─		─
Collateralized mortgage obligations – US agency		2,891		2,917		1,867		1,867
Collateralized mortgage obligations – private label		─		─		─		─		─		─		─		─
Total investment securities held to maturity		42,990		43,359		34,412		34,222		─		─		─		─
Investment securities available for sale:
Debt investment securities
US Treasury, agencies and GSEs		19,910		19,598		16,935		16,597		6,175		6,183		5,025		5,073
State and political subdivisions		6,300		6,450		6,429		6,587		26,413		27,471		19,508		20,304
Corporate		11,870		12,060		13,498		13,696		22,942		23,006		21,086		20,434
Residential mortgage-backed – US agency		24,372		24,387		22,231		22,139		22,891		23,638		31,998		33,067
Collateralized mortgage obligations – US agency		19,175		19,213		20,147		20,003		24,222		24,613		17,667		17,989
Collateralized mortgage obligations – private label		─		─		─		─		296		305		505		519
Total debt investment securities available for sale		81,627		81,708		79,240		79,022		102,939		105,216		95,789		97,386
Equity investment securities
Mutual funds:
Ultra short mortgage fund		643		647		643		648		1,286		1,291		1,286		1,298
Large cap equity fund		456		655		456		651		905		1,081		905		1,024
Other mutual funds US agency		183		364		183		345		183		319		183		243
Common stock – financial services industry		270		289		271		293		420		432		443		444
Total equity investment securities available for sale		1,552		1,955		1,553		1,937		2,794		3,123		2,817		3,009
Total investment securities available for sale		83,179		83,663		80,793		80,959		105,733		108,339		98,606		100,395
Total investment securities	$	126,169	$	127,022	$	115,205	$	115,181	$	105,733	$	108,339	$	98,606	$	100,395

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Carrying Values, Yields and Maturities. The following table sets forth certain information regarding the carrying value, weighted average yields and contractual maturities of our securities portfolio as of March 31, 2014. Adjustable-rate mortgage-backed securities are included in the period in which interest rates are next scheduled to adjust.

	At March 31, 2014
	One Year or Less					More Than One Year through Five Years					More Than Five Years through Ten Years					More Than Ten Years					Total Securities
	Amortized Cost		Weighted Average Yield			Amortized Cost		Weighted Average  Yield			Amortized  Cost		Weighted Average  Yield			Amortized Cost		Weighted Average Yield			Amortized Cost		Estimated Fair Value		Weighted Average Yield
	(Dollars in thousands)
Investment securities held to maturity:
Debt investment securities
US Treasury, agencies and GSEs	$	─		─	%	$	1,009		1.69	%	$	3,805		2.31	%	$	─		─	%	$	4,814	$	4,800		2.18	%
State and political subdivisions		186		0.60			2,086		1.44			8,564		2.77			11,995		3.58			22,831		23,140		3.05
Corporate		334		4.46			─		─			1,726		4.37			1,632		2.52			3,692		3,742		3.56
Residential mortgage-backed – US agency		─		─			─		─			964		1.82			7,798		2.94			8,762		8,760		2.81
Collateralized mortgage obligations – US agency		─		─			─		─			2,891		3.16			─		─			2,891		2,917		3.16
Collateralized mortgage obligations – private label		─		─			─		─			─		─			─		─			─		─		─
Total investment securities held to maturity		520		3.08			3,095		1.52			17,950		2.84			21,425		3.26			42,990		43,359		2.96
Investment securities available for sale:
Debt investment securities
US Treasury, agencies and GSEs		1,002		0.24			14,898		0.84			4,010		1.50			─		─			19,910		19,598		0.94
State and political subdivisions		879		1.20			4,796		1.99			625		2.14			─		─			6,300		6,450		1.89
Corporate		4,128		1.42			7,742		2.11			─		─			─		─			11,870		12,060		1.87
Residential mortgage-backed – US agency		─		─			179		4.23			8,541		2.33			15,652		2.37			24,372		24,387		2.37
Collateralized mortgage obligations – US agency		─		─			─		─			3,618		1.73			15,557		2.16			19,175		19,213		2.08
Collateralized mortgage obligations – private label		─		─			─		─			─		─			─		─			─		─		─
Total debt investment securities available for sale		6,009		1.19			27,615		1.42			16,794		1.99			31,209		2.27			81,627		81,708		1.85
Equity investment securities
Mutual funds:
Ultra short mortgage fund		643		1.52			─		─			─		─			─		─			643		674		1.51
Large cap equity fund		456		2.40			─		─			─		─			─		─			456		655		2.40
Other mutual funds US agency		183		─			─		─			─		─			─		─			183		364		─
Common stock – financial services industry		270		4.84			─		─			─		─			─		─			270		289		4.84
Total equity investment securities available for sale		1,552		2.18			─		─			─		─			─		─			1,552		1,955		2.02
Total investment securities available for sale		7,561		1.25			27,615		1.42			16,794		1.99			31,209		2.27			83,179		83,663		1.85

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Sources of Funds

General.   Deposits have traditionally been our primary source of funds for use in lending and investment activities. We also rely on advances from the FHLBNY and CDARS as a form of brokered deposits. In addition to deposits and borrowings, we derive funds from scheduled loan payments, investment maturities, loan prepayments, retained earnings and income on interest earning assets. While scheduled loan payments and income on interest earning assets are relatively stable sources of funds, deposit inflows and outflows can vary widely and are influenced by prevailing market interest rates, economic conditions and competition from other financial institutions.

Deposits.  A majority of our depositors are persons or businesses who work or reside or operate in Oswego and Onondaga Counties. We offer a selection of deposit products, including checking, savings, money market deposit accounts, and certificates of deposit. Deposit account terms vary, with the principal differences being the minimum balance required, the amount of time the funds must remain on deposit and the interest rate. We establish interest rates, maturity terms, service fees and withdrawal penalties on a periodic basis. Management determines the rates and terms based on rates paid by competitors, our need for funds or liquidity, overall growth goals and federal and state regulations. The flow of deposits is influenced significantly by general economic conditions, changes in interest rates and competition. The variety of deposit accounts that we offer allows us to be competitive in generating deposits and to respond with flexibility to changes in our customers’ demands. We believe that deposits are a stable source of funds, but our ability to attract and maintain deposits at favorable rates will be affected by market conditions, including competition and prevailing interest rates. In addition, Pathfinder Commercial Bank holds municipal deposits, which have been a more volatile source of funds to Pathfinder Bank.

The CDARS is a form of brokered deposit program in which we have been a participant since 2009. In addition to offering depositors enhanced FDIC insurance coverage, being a participant in CDARS allows us to fund our balance sheet through CDARS’ One-Way Buy program. This program uses a competitive bid process for available deposits at specified terms. These deposits work well for us because of their weekly availability, coupled with their short term, which allows us to more closely mirror our funding needs.  We believe this arrangement is a viable source of funding provided that we maintain our “well-capitalized” status. Brokered deposit holdings are limited to 15% of reported total assets or $78.9 million as of March 31, 2014. At March 31, 2014, brokered deposits totaled $39.6 million (all of which are CDARS), or approximately 9.0% of total deposits. At March 31, 2014, we had $155.7 million in total time deposits, which includes certificates of deposit and CDARS.

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Deposit Accounts. The following table sets forth the dollar amount of savings deposits in the various types of deposit programs we offered as of the dates indicated.

	At or For the Three Months Ended March 31,										At or For the Year Ended December 31,
	2014										2013
	Average Balance		Amount		Percent			Weighted Average Rate			Average Balance		Amount		Percent			Weighted Average Rate
	(Dollars in thousands)
Deposit type:
NOW accounts	$	40,848	$	43,222		9.86	%		0.17	%	$	37,733	$	35,949		8.77	%		0.21	%
Money management accounts		13,312		13,452		3.07			0.15			13,962		13,337		3.25			0.19
MMDA accounts		90,462		94,032		21.45			0.42			81,734		83,867		20.45			0.45
Savings and club accounts		74,937		75,548		17.23			0.08			69,284		68,924		16.80			0.08
Time deposits		151,864		155,734		35.53			1.05			160,823		159,892		38.98			1.22
Demand deposits		52,054		56,365		12.86			0.00			48,814		48,171		11.75			0.00
Total deposits	$	423,477	$	438,353		100.00	%		0.50	%	$	412,350	$	410,140		100.00	%		0.60	%

	At or For the Year Ended December 31,										At or For the Year Ended December 31,
	2012										2011
	Average Balance		Amount		Percent			Weighted Average Rate			Average Balance		Amount		Percent			Weighted Average Rate
	(Dollars in thousands)
Deposit type:
NOW accounts	$	31,819	$	33,110		8.45	%		0.26	%	$	30,274	$	32,106		8.77	%		0.29	%
Money management accounts		14,395		14,441		3.69			0.30			12,964		14,249		3.89			0.33
MMDA accounts		77,401		73,519		18.76			0.55			64,352		70,588		19.28			0.68
Savings and club accounts		63,962		63,501		16.21			0.08			60,713		58,689		16.03			0.13
Time deposits		159,283		163,321		41.68			1.44			139,299		153,344		41.88			1.86
Demand deposits		40,759		43,913		11.21			0.00			35,971		37,153		10.15			0.00
Total deposits	$	387,619	$	391,805		100.00	%		0.75	%	$	343,573	$	366,129		100.00	%		0.94	%

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Maturities of Certificates of Deposit Accounts. The following table sets forth the amount and maturities of certificates of deposit accounts at the dates indicated.

	At March 31, 2014
	Less than Six Months		Six Months to One Year		Over One  Year to Three Years		Over Three Years		Total		Percent of Total
	(Dollars in thousands)
2.00% and below	$	69,123	$	27,061	$	15,482	$	17,446	$	129,112		82.90	%
2.01% to 3.00%		11,814		3,018		2,632		3,860		21,324		13.69
3.01% to 4.00%		342		230		1,254		410		2,236		1.44
4.01% to 5.00%		964		279		915		78		2,236		1.44
5.01% to 6.00%		826		─		─		─		826		0.53
6.00% and over		─		─		─		─		─		0.00
Total	$	83,069	$	30,588	$	20,283	$	21,794	$	155,734		100.00	%

Large Certificates. As of March 31, 2014, the aggregate amount of outstanding certificates of deposit at Pathfinder Bank in amounts greater than or equal to $100,000 was approximately $155.7 million. The following table presents the maturity of these certificates of deposit at such date.

Maturity Period	At March 31, 2014
	(In thousands)
Less than three months	$	40,935
Three to six months		15,531
Six months to one year		15,000
Over one year to three years		6,386
Over three years		9,001
Total	$	86,853

The following table sets forth certificates of deposit classified by interest rate as of the dates indicated.

			At December 31,
	At March 31, 2014		2013		2012		2011
	(In thousands)
Interest Rate:
2.00% and below	$	129,112	$	125,345	$	116,156	$	100,119
2.01% to 3.00%		19,984		28,523		39,339		38,931
3.01% to 4.00%		3,576		2,798		3,321		4,640
4.01% to 5.00%		2,236		2,400		3,722		8,763
5.01% to 6.00%		826		826		783		851
6.00% and over		─		─		─		40
Total	$	155,734	$	159,892	$	163,321	$	153,344

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Borrowings.  We may obtain advances primarily from the FHLBNY utilizing the security of the common stock we own in the FHLBNY and qualifying residential mortgage loans as collateral, provided certain standards related to creditworthiness are met. These advances are made pursuant to several credit programs, each of which has its own interest rate and range of maturities. FHLBNY advances are generally available to meet seasonal and other withdrawals of deposit accounts and to permit increased lending. The following table sets forth information with respect to our FHLBNY advances.

	At or for the Three Months ended March 31,						At or For the Year Ended December 31,
	2014			2013			2013			2012			2011
	(Dollars in thousands)
FHLB Advances:
Maximum outstanding at any month end	$	40,000		$	35,000		$	43,860		$	38,500		$	35,910
Balance at the end of period	$	33,000		$	25,000		$	40,000		$	34,000		$	25,000
Average balance during period	$	33,398		$	31,593		$	34,015		$	30,176		$	31,203
Weighted average interest rate at the end of period		1.43	%		2.91	%		1.31	%		2.58	%		3.22	%
Weighted average interest rate during period		1.40	%		2.37	%		1.70	%		2.65	%		2.95	%

In 2007, we formed the Pathfinder Statutory Trust II (the “Trust”) and the Trust issued 5,000 floating Trust Preferred Securities with a liquidation amount of $1,000 per preferred security for an aggregate offering price of $5,000,000. The proceeds of the $5,000,000 were used by the Trust to retire the original issuance, Pathfinder Statutory Trust I. The Debentures and Securities have a term of 30 years and carry an interest rate adjusted quarterly of three month LIBOR plus 1.65%. At March 31, 2014, this rate was 1.88%.

Employees

As of March 31, 2014, we had a total of 104 full-time employees and 20 part-time employees. The employees are not represented by a collective bargaining unit and we consider our relationship with our employees to be good.

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Properties

We conduct our business through our main office located in Oswego, New York, six branch offices located in Oswego County and a branch location in Onondaga County. We anticipate opening a business banking office in Syracuse, New York in third quarter of 2014. We believe that our facilities are adequate for the business conducted. The aggregate net book value of our facilities was $8.0 million at March 31, 2014.

Location	Year Acquired or Leased	Owned or Leased	Net Book Value of Real Property
Main Office:
214 West First Street
Oswego, New York  13126	1874	Owned	$	3.3 million
Branch Locations:
Plaza Branch
Route 104, Ames Plaza
Oswego, New York  13126	1989	Owned (1)	$	177,000	(4)
Mexico Branch
Norman & Main Streets
Mexico, New York  13114	1978	Owned	$	416,000
Oswego East Branch
34 East Bridge Street
Oswego, New York  13126	1994	Owned	$	752,000
Lacona Branch
1897 Harwood Drive
Lacona, New York 13083	2002	Owned	$	146,000
Fulton Branch
5 West First Street South
Fulton, New York  13069	2003	Owned (2)	$	625,000
Central Square Branch
3025 East Ave
Central Square, New York  13036	2005	Owned	$	1.2 million
Cicero Branch
6194 State Route 31
Cicero, New York 13039	2011	Owned	$	1.4 million
Syracuse Business Banking Office
302-310 South Salina Street
Syracuse, New York 13202	2014	Leased (3)

(1) The building is owned; the underlying land is leased with an annual rent of $22,000.

(2) The building is owned; the underlying land is leased with an annual rent of $33,000.

(3) The premises will be leased upon opening in the third quarter of 2014 with an annual rent of $58,000.

(4) Included in construction in progress was $330,000 of cost associated with a branch renovation process. The project is anticipated to be completed in June 2014.

Legal Proceedings

There are various claims and lawsuits to which we are periodically involved that are incidental to our business. At March 31, 2014, in the opinion of management, such claims and lawsuits in the aggregate are not expected to have a material adverse impact to our consolidated financial condition and results of operations.

Subsidiary Activities

Other than Pathfinder Bank, Pathfinder-Federal has one direct subsidiary, Pathfinder Statutory Trust II.

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Pathfinder Statutory Trust II is a non-consolidated Delaware statutory trust subsidiary that was formed in connection with the issuance of $5.2 million in trust preferred securities.

Pathfinder Bank has four wholly-owned subsidiaries, Pathfinder Commercial Bank, Pathfinder REIT, Inc., Whispering Oaks Development Corp and Pathfinder Risk Management Company, Inc.

Pathfinder Commercial Bank is a limited purpose, New York-chartered commercial bank subsidiary that serves the depository needs of municipalities and public entities in its market area. New York law requires municipal deposits to be held only by commercial banks.

Pathfinder REIT, Inc. is a New York corporation, formed as Pathfinder Bank’s real estate investment trust subsidiary.  Pathfinder REIT, Inc. operates and is taxed in a manner that enables it to qualify as a real estate investment trust under the Internal Revenue Code of 1986, as amended. As a result of this election, Pathfinder REIT, Inc. is not taxed at the corporate level on taxable income distributed to stockholders, provided that certain real estate investment trust qualification tests are met. At March 31, 2014, Pathfinder REIT, Inc. held $16.8 million in mortgages and mortgage related assets.

Whispering Oaks Development Corp. is a New York corporation, retained to operate or develop foreclosed real estate.

Pathfinder Risk Management Company, Inc. is a New York corporation, established to hold the 51% controlling interest of the FitzGibbons Agency, LLC acquired in December 2013. The FitzGibbons Agency, LLC is an Oswego County based property and casualty and life and health insurance brokerage business with $500,000 in annual revenues. Additional details can be found in Note 23 to the consolidated financial statements.

SUPERVISION AND REGULATION

General

Pathfinder Bank is a New York-chartered stock savings bank and upon completion of the conversion will be the wholly-owned subsidiary of New Pathfinder, a Maryland corporation, which will be a registered bank holding company. Pathfinder Bank’s deposits are insured up to applicable limits by the FDIC. Pathfinder Bank is subject to extensive regulation by the NYDFS, as its chartering agency, and by the FDIC, its primary federal regulator and deposit insurer. Pathfinder Bank is required to file reports with, and is periodically examined by, the FDIC and the NYDFS concerning its activities and financial condition and must obtain regulatory approvals prior to entering into certain transactions, including, but not limited to, mergers with or acquisitions of other financial institutions. As a registered bank holding company, New Pathfinder will be regulated by the Federal Reserve Board.

The regulatory and supervisory structure establishes a comprehensive framework of activities in which an institution can engage and is intended primarily for the protection of depositors and the deposit insurance funds, rather than for the protection of stockholders and creditors. The regulatory structure also gives the regulatory authorities extensive discretion in connection with their supervisory and enforcement activities and examination policies, including policies concerning the establishment of deposit insurance assessment fees, classification of assets and establishment of adequate loan loss reserves for regulatory purposes. Any change in such regulatory requirements and policies, whether by the New York legislature, the NYDFS, the FDIC, the Federal Reserve Board or the Unites States Congress, could have a material adverse impact on the financial condition and results of operations of New Pathfinder and Pathfinder Bank. As is further described below, the Dodd-Frank Act has significantly changed the bank regulatory structure and may affect the lending, investment and general operating activities of depository institutions and their holding companies.

Set forth below is a summary of certain material statutory and regulatory requirements applicable to New Pathfinder and Pathfinder Bank. The summary is not intended to be a complete description of such statutes and regulations and their effects on New Pathfinder and Pathfinder Bank.

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The Dodd-Frank Act

The Dodd-Frank Act significantly changed bank regulation and has affected the lending, investment, trading and operating activities of depository institutions and their holding companies. The Dodd-Frank Act also created a new Consumer Financial Protection Bureau with extensive powers to supervise and enforce consumer protection laws. The Consumer Financial Protection Bureau has broad rule-making authority for a wide range of consumer protection laws that apply to all banks and savings institutions, including the authority to prohibit “unfair, deceptive or abusive” acts and practices. The Consumer Financial Protection Bureau also has examination and enforcement authority over all banks and savings institutions with more than $10 billion in assets. Banks and savings institutions with $10 billion or less in assets, such as Pathfinder Bank, will continue to be examined by their applicable federal bank regulators. The Dodd-Frank Act also gave state attorneys general the ability to enforce applicable federal consumer protection laws.

The Dodd-Frank Act broadened the base for FDIC assessments for deposit insurance, permanently increased the maximum amount of deposit insurance to $250,000 per depositor. The Dodd-Frank Act also, among other things, requires originators of certain securitized loans to retain a portion of the credit risk, stipulates regulatory rate-setting for certain debit card interchange fees, repealed restrictions on the payment of interest on commercial demand deposits and contains a number of reforms related to mortgage originations. The Dodd-Frank Act increased the ability of stockholders to influence boards of directors by requiring companies to give stockholders a non-binding vote on executive compensation and so-called “golden parachute” payments. The Dodd-Frank Act also directed the Federal Reserve Board to promulgate rules prohibiting excessive compensation paid to company executives, regardless of whether the company is publicly traded or not.

Many of the provisions of the Dodd-Frank Act are subject to delayed effective dates or require the implementing regulations and, therefore, their impact on our operations cannot be fully determined at this time. However, it is likely that the Dodd-Frank Act will increase the regulatory burden, compliance costs and interest expense for Pathfinder Bank and New Pathfinder.

SBLF Participation

On September 1, 2011, we entered into a Securities Purchase Agreement with the U.S. Treasury pursuant to which the we sold to the Treasury 13,000 shares of our Series B Preferred Stock, having a liquidation amount of $1,000 per share for aggregate proceeds of $13.0 million. This transaction was entered into as part of the SBLF.

The Series B Preferred Stock is entitled to receive non-cumulative dividends payable quarterly, on each January 1, April 1, July 1 and October 1, beginning October 1, 2011.  The dividend rate, which is calculated on the aggregate liquidation amount, was initially set at 4.2% per annum based upon the level of “Qualified Small Business Lending”, or “QSBL” (as defined in the Securities Purchase Agreement) by Pathfinder Bank.  The dividend rate for dividend periods subsequent to the initial period is set based upon the “Percentage Change in Qualified Lending” (as defined in the Securities Purchase Agreement) between each dividend period and the “Baseline” QSBL level.  Such dividend rate may vary from 1% per annum to 5% per annum for the second through tenth dividend periods, and from 1% per annum to 7% per annum for the eleventh through the first half of the nineteenth dividend periods.  If the Series B Preferred Stock remains outstanding for more than four-and-one-half years, the dividend rate will be fixed at 9.0% annually.  Prior to that time, in general, the dividend rate decreases as the level of Pathfinder Bank’s QSBL increases.   Our dividend rate as of March 31, 2014 was 1.0%. Such dividends are not cumulative, but we may only declare and pay dividends on our common stock (or any other equity securities junior to the Series B Preferred Stock) if we have declared and paid dividends for the current dividend period on the Series B Preferred Stock. We also are subject to other restrictions on our ability to repurchase or redeem other securities.  

We may redeem the shares of Series B Preferred Stock, in whole or in part, at any time at a redemption price equal to the sum of the liquidation amount per share and the per-share amount of any unpaid dividends for the then-current period, subject to any required prior approval by the FDIC. We do not presently intend to repay SBLF in connection with the completion of the conversion.

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The SBLF requires us to file quarterly reports on QSBL lending, which must be audited annually. We must also make outreach efforts and advertise the availability of QSBL to organizations and individuals who represent minorities, women and veterans. We must annually certify that no business loans are made to principals of businesses who have been convicted of a sex crime against a minor. Finally, the SBLF requires us to file quarterly, annual and other reports provided to stockholders concurrently with the U.S. Treasury.

Simultaneously with the closing of the SBLF transaction on September 1, 2011, we exited TARP. Pursuant to our exit, we redeemed (repurchased) from the Treasury, largely using proceeds received from the issuance of the Series B Preferred Stock, all 6,771 shares of our Series A Preferred Stock, having a liquidation amount per share equal to $1,000. On February 1, 2012, we redeemed (repurchased) a warrant to purchase 154,354 shares of our common stock, par value $0.01 per share. The total redemption price of our TARP Series A Preferred Stock and the warrant to purchase 154,354 shares of our common stock, including all dividends paid to the Treasury, was approximately $7.3 million.

Supervisory Agreement

During May 2009, we entered into a Supervisory Agreement with the Office of Thrift Supervision. The agreement was issued in connection with the identification of certain violations of applicable statutory and regulatory restrictions on capital distributions and transactions with affiliates. On November 26, 2013, we were informed by the Federal Reserve Board that the Supervisory Agreement was terminated, indicating that we had complied with the terms of the Supervisory Agreement.

New York Bank Regulation

Pathfinder Bank derives its lending, investment, branching and other authority primarily from the applicable provisions of New York State Banking Law and the regulations of the NYDFS, as limited by federal laws and regulations. Under these laws and regulations, savings banks, including Pathfinder Bank, may invest in real estate mortgages, consumer and commercial loans, certain types of debt securities, including certain corporate debt securities and obligations of federal, state and local governments and agencies, certain types of corporate equity securities and certain other assets. Under the statutory authority for investing in equity securities, a savings bank may invest up to 7.5% of its assets in corporate stock, with an overall limit of 5% of its assets invested in common stock. Investment in the stock of a single corporation is limited to the lesser of 2% of the outstanding stock of such corporation or 1% of the savings bank’s assets, except as set forth below. Such equity securities must meet certain earnings ratios and other tests of financial performance. A savings bank’s lending powers are not subject to percentage of assets limitations, although there are limits applicable to single borrowers. A savings bank may also, pursuant to the “leeway” power, make investments not otherwise permitted under the New York State Banking Law. This power permits investments in otherwise impermissible investments of up to 1% of assets in any single investment, subject to certain restrictions and to an aggregate limit for all such investments of up to 5% of assets. Additionally, in lieu of investing in such securities in accordance with and reliance upon the specific investment authority set forth in the New York State Banking Law, savings banks are authorized to elect to invest under a “prudent person” standard in a wider range of investment securities as compared to the types of investments permissible under such specific investment authority. However, in the event a savings bank elects to utilize the “prudent person” standard, it will be unable to avail itself of the other provisions of the New York State Banking Law and regulations which set forth specific investment authority. Pathfinder Bank has not elected to conduct its investment activities under the “prudent person” standard. A savings bank may also exercise trust powers upon approval of the NYDFS. Pathfinder Bank does not presently have trust powers.

New York State chartered savings banks may also invest in subsidiaries under their service corporation investment authority. A savings bank may use this power to invest in corporations that engage in various activities authorized for savings banks, plus any additional activities that may be authorized by the NYDFS. Investment by a savings bank in the stock, capital notes and debentures of its service corporations is limited to 3% of the bank’s assets, and such investments, together with the bank’s loans to its service corporations, may not exceed 10% of the savings bank’s assets. Furthermore, New York banking regulations impose requirements on loans which a bank may make to its executive officers and directors and to certain corporations or partnerships in which such persons

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have equity interests. These requirements include that (i) certain loans must be approved in advance by a majority of the entire board of directors and the interested party must abstain from participating directly or indirectly in voting on such loan, (ii) the loan must be on terms that are not more favorable than those offered to unaffiliated third parties, and (iii) the loan must not involve more than a normal risk of repayment or present other unfavorable features.

Under the New York State Banking Law, the Superintendent may issue an order to a New York State chartered banking institution to appear and explain an apparent violation of law, to discontinue unauthorized or unsafe practices and to keep prescribed books and accounts. Upon a finding by the NYDFS that any director, trustee or officer of any banking organization has violated any law, or has continued unauthorized or unsafe practices in conducting the business of the banking organization after having been notified by the Superintendent to discontinue such practices, such director, trustee or officer may be removed from office after notice and an opportunity to be heard. Pathfinder Bank does not know of any past or current practice, condition or violation that may lead to any proceeding by the Superintendent or the NYDFS against Pathfinder Bank or any of its directors, trustees or officers.

New York State Community Reinvestment Regulation

Pathfinder Bank is also subject to provisions of the New York State Banking Law which imposes continuing and affirmative obligations upon banking institutions organized in New York State to serve the credit needs of its local community (“NYCRA”) which are substantially similar to those imposed by the Community Reinvestment Act. Pursuant to the NYCRA, a bank must file an annual NYCRA report and copies of all federal CRA reports with the NYDFS The NYCRA requires the NYDFS to make a biennial written assessment of a bank’s compliance with the NYCRA, utilizing a four-tiered rating system and make such assessment available to the public. The NYCRA also requires the Superintendent to consider a bank’s NYCRA rating when reviewing a bank’s application to engage in certain transactions, including mergers, asset purchases and the establishment of branch offices or automated teller machines, and provides that such assessment may serve as a basis for the denial of any such application. Pathfinder Bank’s NYCRA rating, dated December 31, 2012 was “satisfactory.”

Federal Regulations

Capital Requirements. Under the FDIC’s regulations, federally insured state-chartered banks that are not members of the Federal Reserve System (“state non-member banks”), such as Pathfinder Bank, are required to comply with minimum leverage capital requirements. For an institution not anticipating or experiencing significant growth and deemed by the FDIC to be, in general, a strong banking organization rated composite 1 under Uniform Financial Institutions Ranking System, the minimum capital leverage requirement is a ratio of Tier 1 capital to total assets of 3.0%. For all other institutions, the minimum leverage capital ratio is not less than 4.0%. Tier 1 capital is the sum of common stockholder’s equity, noncumulative perpetual preferred stock (including any related surplus) and minority investments in certain subsidiaries, less intangible assets (except for certain servicing rights and credit card relationships) and certain other specified items.

FDIC regulations also require state non-member banks to maintain certain ratios of regulatory capital to regulatory risk-weighted assets, or “risk-based capital ratios.” Risk-based capital ratios are determined by allocating assets and specified off-balance sheet items to four risk-weighted categories ranging from 0.0% to 100.0%. State non-member banks must maintain a minimum ratio of total capital to risk-weighted assets of at least 8.0%, of which at least one-half must be Tier 1 capital. Total capital consists of Tier 1 capital plus Tier 2 or supplementary capital items, which include allowances for loan losses in an amount of up to 1.25% of risk-weighted assets, cumulative preferred stock, subordinated debentures and certain other capital instruments, and a portion of the net unrealized gain on equity securities. The includable amount of Tier 2 capital cannot exceed the amount of the institution’s Tier 1 capital.

In July, 2013, the FDIC and the other federal bank regulatory agencies issued a final rule to revise their risk-based and leverage capital requirements and their method for calculating risk-weighted assets, to make them consistent with the agreements that were reached by the Basel Committee on Banking Supervision and certain provisions of the Dodd-Frank Act.  The final rule applies to all depository institutions, top-tier bank holding

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companies with total consolidated assets of $500 million or more, and top-tier savings and loan holding companies (“banking organizations”).  Among other things, the rule establishes a new common equity Tier 1 minimum capital requirement (4.5% of risk-weighted assets), increases the minimum Tier 1 capital to risk-based assets requirement (from 4% to 6% of risk-weighted assets) and assigns a higher risk weight (150%) to exposures that are more than 90 days past due or are on nonaccrual status and to certain commercial real estate facilities that finance the acquisition, development or construction of real property.  The final rule also limits a banking organization’s capital distributions and certain discretionary bonus payments if the banking organization does not hold a “capital conservation buffer” consisting of 2.5% of common equity Tier 1 capital to risk-weighted assets.  The final rule becomes effective for us on January 1, 2015. The capital conservation buffer requirement will be phased in beginning January 1, 2016 and ending January 1, 2019, when the full capital conservation buffer requirement will be effective.

At March 31, 2014, Pathfinder Bank was well-capitalized.

Standards for Safety and Soundness. As required by statute, the federal banking agencies have adopted final regulations and Interagency Guidelines Establishing Standards for Safety and Soundness to implement safety and soundness standards. The guidelines set forth the safety and soundness standards that the federal banking agencies use to identify and address problems at insured depository institutions before capital becomes impaired. The guidelines address internal controls and information systems, internal audit system, credit underwriting, loan documentation, interest rate exposure, asset growth, asset quality, earnings, compensation, fees and benefits and, more recently, safeguarding customer information. If the appropriate federal banking agency determines that an institution fails to meet any standard prescribed by the guidelines, the agency may require the institution to submit to the agency an acceptable plan to achieve compliance with the standard.

Business and Investment Activities. Under federal law, all state-chartered FDIC-insured banks, including savings banks, have been limited in their activities as principal and in their equity investments to the type and the amount authorized for national banks, notwithstanding state law. Federal law permits exceptions to these limitations. For example, certain state-chartered savings banks may, with FDIC approval, continue to exercise state authority to invest in common or preferred stocks listed on a national securities exchange and in the shares of an investment company registered under the Investment Company Act of 1940, as amended. The maximum permissible investment is the lesser of 100.0% of Tier 1 capital or the maximum amount permitted by New York law.

The FDIC is also authorized to permit state banks to engage in state authorized activities or investments not permissible for national banks (other than non-subsidiary equity investments) if they meet all applicable capital requirements and it is determined that such activities or investments do not pose a significant risk to the FDIC insurance fund. The FDIC has adopted regulations governing the procedures for institutions seeking approval to engage in such activities or investments. The Gramm-Leach-Bliley Act of 1999 specified that a state bank may control a subsidiary that engages in activities as principal that would only be permitted for a national bank to conduct in a “financial subsidiary,” if a bank meets specified conditions and deducts its investment in the subsidiary for regulatory capital purposes.

Prompt Corrective Regulatory Action. Federal law requires, among other things, that federal bank regulatory authorities take “prompt corrective action” with respect to banks that do not meet minimum capital requirements. For these purposes, the law establishes five capital categories: well capitalized, adequately capitalized, undercapitalized, significantly undercapitalized and critically undercapitalized.

The FDIC has adopted regulations to implement the prompt corrective action legislation. An institution is deemed to be “well capitalized” if it has a total risk-based capital ratio of 10.0% or greater, a Tier 1 risk-based capital ratio of 6.0% or greater and a leverage ratio of 5.0% or greater. An institution is “adequately capitalized” if it has a total risk-based capital ratio of 8.0% or greater, a Tier 1 risk-based capital ratio of 4.0% or greater, and generally a leverage ratio of 4.0% or greater. An institution is “undercapitalized” if it has a total risk-based capital ratio of less than 8.0%, a Tier 1 risk-based capital ratio of less than 4.0%, or generally a leverage ratio of less than 4.0%. An institution is deemed to be “significantly undercapitalized” if it has a total risk-based capital ratio of less than 6.0%, a Tier 1 risk-based capital ratio of less than 3.0%, or a leverage ratio of less than 3.0%. An institution is

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considered to be “critically undercapitalized” if it has a ratio of tangible equity (as defined in the regulations) to total assets that is equal to or less than 2.0%.

“Undercapitalized” banks must adhere to growth, capital distribution (including dividend) and other limitations and are required to submit a capital restoration plan. A bank’s compliance with such a plan must be guaranteed by any company that controls the undercapitalized institution in an amount equal to the lesser of 5% of the institution’s total assets when deemed undercapitalized or the amount necessary to achieve the status of adequately capitalized. If an “undercapitalized” bank fails to submit an acceptable plan, it is treated as if it is “significantly undercapitalized.” “Significantly undercapitalized” banks must comply with one or more of a number of additional measures, including, but not limited to, a required sale of sufficient voting stock to become adequately capitalized, a requirement to reduce total assets, cessation of taking deposits from correspondent banks, the dismissal of directors or officers and restrictions on interest rates paid on deposits, compensation of executive officers and capital distributions by the parent holding company. “Critically undercapitalized” institutions are subject to additional measures including, subject to a narrow exception, the appointment of a receiver or conservator within 270 days after it obtains such status.

The recently adopted final rule that will increase regulatory capital requirements will adjust the prompt corrective action categories accordingly.

Transactions with Related Parties. Transactions between a bank (and, generally, its subsidiaries) and its related parties or affiliates are limited by Sections 23A and 23B of the Federal Reserve Act. An affiliate of a bank is any company or entity that controls, is controlled by or is under common control with the bank. In a holding company context, the parent bank holding company and any companies which are controlled by such parent holding company are affiliates of the bank. Generally, Sections 23A and 23B of the Federal Reserve Act limit the extent to which the bank or its subsidiaries may engage in “covered transactions” with any one affiliate to 10% of such institution’s capital stock and surplus and contain an aggregate limit on all such transactions with all affiliates to an amount equal to 20% of such institution’s capital stock and surplus. The term “covered transaction” includes the making of loans, purchase of assets, issuance of a guarantee and similar transactions. In addition, loans or other extensions of credit by the institution to the affiliate are required to be collateralized in accordance with specified requirements. The law also requires that affiliate transactions be on terms and conditions that are substantially the same, or at least as favorable to the institution, as those provided to non-affiliates.

Pathfinder Bank’s authority to extend credit to its directors, executive officers and 10% stockholders, as well as to entities controlled by such persons, is currently governed by the requirements of Sections 22(g) and 22(h) of the Federal Reserve Act and Regulation O of the Federal Reserve Board. Among other things, these provisions generally require that extensions of credit to insiders:

· be made on terms that are substantially the same as, and follow credit underwriting procedures that are not less stringent than, those prevailing for comparable transactions with unaffiliated persons and that do not involve more than the normal risk of repayment or present other unfavorable features; and

· not exceed certain limitations on the amount of credit extended to such persons, individually and in the aggregate, which limits are based, in part, on the amount of Pathfinder Bank’s capital.

In addition, extensions of credit in excess of certain limits must be approved by Pathfinder Bank’s board of directors. Extensions of credit to executive officers are subject to additional limits based on the type of extension involved.

Enforcement. The FDIC has extensive enforcement authority over insured state savings banks, including Pathfinder Bank. That enforcement authority includes, among other things, the ability to assess civil money penalties, issue cease and desist orders and remove directors and officers. In general, enforcement actions may be initiated in response to violations of laws and regulations and unsafe or unsound practices. The FDIC also has authority under federal law to appoint a conservator or receiver for an insured bank under certain circumstances. The

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FDIC is required, with certain exceptions, to appoint a receiver or conservator for an insured state non-member bank if that bank was “critically undercapitalized” on average during the calendar quarter beginning 270 days after the date on which the institution became “critically undercapitalized.”

Federal Insurance of Deposit Accounts. The Dodd-Frank Act permanently increased the maximum amount of deposit insurance for banks, savings institutions and credit unions to $250,000 per depositor.  

Under the FDIC’s risk-based assessment system, insured institutions are assigned to one of four risk categories based on supervisory evaluations, regulatory capital levels and certain other risk factors. Rates are based on each institution’s risk category and certain specified risk adjustments. Stronger institutions pay lower rates while riskier institutions pay higher rates.

In February 2011, the FDIC published a final rule under the Dodd-Frank Act to reform the deposit insurance assessment system. The rule redefined the assessment base used for calculating deposit insurance assessments effective April 1, 2011. Under the rule, assessments are based on an institution’s average consolidated total assets minus average tangible equity instead of total deposits. The rule revised the assessment rate schedule to establish assessments ranging from 2.5 to 45 basis points. Deposit assessments were prepaid in December 2009 for the fourth quarter of 2009 and for calendar years 2010 through 2012. Estimated assessments were based on certain assumptions specified by the FDIC, including a 5% annual growth rate. Prepaid assessments are to be applied against actual assessments until the prepaid assessments are exhausted. Unused prepayments were returned to the institutions on June 28, 2013. We recorded the prepayment of assessments as a prepaid expense, which is being amortized to expense over three years. Our prepayments amount was $1.7 million and we received a reimbursement of $500,000.

In addition to the FDIC assessments, the Financing Corporation (“FICO”) is authorized to impose and collect, with the approval of the FDIC, assessments for anticipated payments, issuance costs and custodial fees on bonds issued by the FICO in the 1980s to recapitalize the former Federal Savings and Loan Insurance Corporation. The bonds issued by the FICO are due to mature in 2017 through 2019. For the quarter ended March 31, 2014, the annualized Financing Corporation assessment was equal to 0.64 of a basis point of total assets less tangible capital.

The Dodd-Frank Act increased the minimum target Deposit Insurance Fund ratio from 1.15% of estimated insured deposits to 1.35% of estimated insured deposits. The FDIC must seek to achieve the 1.35% ratio by June 30, 2020. It is intended that insured institutions with assets of $10 billion or more will fund the increase. The Dodd-Frank Act eliminated the 1.5% maximum fund ratio, instead leaving it to the discretion of the FDIC and the FDIC has exercised that discretion by establishing a long-term fund ratio of 2%.

The FDIC has authority to increase insurance assessments. Any significant increases would have an adverse effect on the operating expenses and results of operations of Pathfinder Bank. Management cannot predict what assessment rates will be in the future.

Insurance of deposits may be terminated by the FDIC upon a finding that an institution has engaged in unsafe or unsound practices, is in an unsafe or unsound condition to continue operations or has violated any applicable law, regulation, rule, order or condition imposed by the FDIC. We do not currently know of any practice, condition or violation that may lead to termination of our deposit insurance.

Community Reinvestment Act. Under the CRA, a bank has a continuing and affirmative obligation, consistent with its safe and sound operation, to help meet the credit needs of its entire community, including low and moderate income neighborhoods. The CRA does not establish specific lending requirements or programs for financial institutions nor does it limit an institution’s discretion to develop the types of products and services that it believes are best suited to its particular community. The CRA does require the FDIC, in connection with its examination of a bank, to assess the institution’s record of meeting the credit needs of its community and to take such record into account in its evaluation of certain applications by such institution, including applications to establish or acquire branches and merger with other depository institutions. The CRA requires the FDIC to provide a written evaluation of an institution’s CRA performance utilizing a four-tiered descriptive rating system. Pathfinder Bank’s latest FDIC CRA rating, dated October 9, 2012, was “satisfactory.”

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Federal Reserve System. The Federal Reserve Board regulations require savings institutions to maintain non-interest-earning reserves against their transaction accounts (primarily negotiable order of withdrawal (NOW) and regular checking accounts). The regulations generally provide that reserves be maintained against aggregate transaction accounts as follows: a 3% reserve ratio is assessed on net transaction accounts up to and including $58.8 million; a 10% reserve ratio is applied above $58.8 million. The first $10.7 million of otherwise reservable balances are exempted from the reserve requirements. The amounts are adjusted annually. Pathfinder Bank complies with the foregoing requirements.

Federal Home Loan Bank System. Pathfinder Bank is a member of the Federal Home Loan Bank System, which consists of twelve regional Federal Home Loan Banks. The Federal Home Loan Bank System provides a central credit facility primarily for member institutions as well as other entities involved in home mortgage lending. As a member of the FHLBNY, Pathfinder Bank is required to acquire and hold a specified amount of shares of capital stock in the FHLBNY. As of March 31, 2014, Pathfinder Bank was in compliance with this requirement.

Other Regulations

Interest and other charges collected or contracted for by Pathfinder Bank are subject to state usury laws and federal laws concerning interest rates. Pathfinder Bank’s operations are also subject to federal laws applicable to credit transactions, such as the:

· Truth-In-Lending Act, governing disclosures of credit terms to consumer borrowers;

· Real Estate Settlement Procedures Act, requiring that borrowers for mortgage loans for one- to four-family residential real estate receive various disclosures, including good faith estimates of settlement costs, lender servicing and escrow account practices, and prohibiting certain practices that increase the cost of settlement services;

· Home Mortgage Disclosure Act, requiring financial institutions to provide information to enable the public and public officials to determine whether a financial institution is fulfilling its obligation to help meet the housing needs of the community it serves;

· Equal Credit Opportunity Act, prohibiting discrimination on the basis of race, creed or other prohibited factors in extending credit;

· Fair Credit Reporting Act, governing the use and provision of information to credit reporting agencies;

· Fair Debt Collection Act, governing the manner in which consumer debts may be collected by collection agencies;

· Truth in Savings Act; and

· Rules and regulations of the various federal agencies charged with the responsibility of implementing such federal laws.

The operations of Pathfinder Bank also are subject to the:

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· Right to Financial Privacy Act, which imposes a duty to maintain confidentiality of consumer financial records and prescribes procedures for complying with administrative subpoenas of financial records;

· Electronic Funds Transfer Act and Regulation E promulgated thereunder, which govern automatic deposits to and withdrawals from deposit accounts and customers’ rights and liabilities arising from the use of automated teller machines and other electronic banking services;

· Check Clearing for the 21^st Century Act (also known as “Check 21”), which gives “substitute checks,” such as digital check images and copies made from that image, the same legal standing as the original paper check;

· USA PATRIOT Act, which requires savings banks operating to, among other things, establish broadened anti-money laundering compliance programs, due diligence policies and controls to ensure the detection and reporting of money laundering. Such required compliance programs are intended to supplement existing compliance requirements, also applicable to financial institutions, under the Bank Secrecy Act and the Office of Foreign Assets Control regulations; and

· Gramm-Leach-Bliley Act, which places limitations on the sharing of consumer financial information by financial institutions with unaffiliated third parties. Specifically, the Gramm-Leach-Bliley Act requires all financial institutions offering financial products or services to retail customers to provide such customers with the financial institution’s privacy policy and provide such customers the opportunity to “opt out” of the sharing of certain personal financial information with unaffiliated third parties.

Holding Company Regulation

In connection with the completion of the conversion, Pathfinder Bank will revoke its Section 10(l) election so that New Pathfinder will be a bank holding company under the Bank Holding Company Act of 1956, as amended subject to supervision and regulation by the Federal Reserve Board.

New Pathfinder, as a bank holding company, will be subject to examination, regulation, and periodic reporting under the Bank Holding Company Act of 1956, as amended, as administered by the Federal Reserve Board. New Pathfinder is required to obtain the prior approval of the Federal Reserve Board to acquire all, or substantially all, of the assets of any bank or bank holding company. Prior Federal Reserve Board approval would be required for New Pathfinder to acquire direct or indirect ownership or control of any voting securities of any bank or bank holding company if it would, directly or indirectly, own or control more than 5% of any class of voting shares of the bank or bank holding company.

A bank holding company is generally prohibited from engaging in, or acquiring, direct or indirect control of more than 5% of the voting securities of any company engaged in non-banking activities. One of the principal exceptions to this prohibition is for activities found by the Federal Reserve Board to be so closely related to banking or managing or controlling banks as to be a proper incident thereto. Some of the principal activities that the Federal Reserve Board has determined by regulation to be closely related to banking are: (i) making or servicing loans; (ii) performing certain data processing services; (iii) providing securities brokerage services; (iv) acting as fiduciary, investment or financial advisor; (v) leasing personal or real property under certain conditions; (vi) making investments in corporations or projects designed primarily to promote community welfare; and (vii) acquiring a savings association.

The Gramm-Leach-Bliley Act of 1999 authorizes a bank holding company that meets specified conditions, including depository institutions subsidiaries that are “well capitalized” and “well managed,” to opt to become a “financial holding company.” A “financial holding company” may engage in a broader array of financial activities than permitted a typical bank holding company. Such activities can include insurance underwriting and investment

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banking. New Pathfinder has elected “financial holding company” status to be effective upon completion of the conversion and reorganization, and has applied for the Federal Reserve Board’s non-objection.

New Pathfinder will be subject to the Federal Reserve Board’s consolidated capital adequacy guidelines for bank holding companies as it has more than $500 million in total assets.

A bank holding company is generally required to give the Federal Reserve Board prior written notice of any purchase or redemption of then outstanding equity securities if the gross consideration for the purchase or redemption, when combined with the net consideration paid for all such purchases or redemptions during the preceding 12 months, is equal to 10% or more of the company’s consolidated net worth. The Federal Reserve Board may disapprove such a purchase or redemption if it determines that the proposal would constitute an unsafe and unsound practice, or would violate any law, regulation, Federal Reserve Board order or directive, or any condition imposed by, or written agreement with, the Federal Reserve Board. The Federal Reserve Board has adopted an exception to that approval requirement for well-capitalized bank holding companies that meet certain other conditions.

The Federal Reserve Board has issued a policy statement regarding the payment of dividends by bank holding companies. In general, the Federal Reserve Board’s policies provide that dividends should be paid only out of current earnings and only if the prospective rate of earnings retention by the bank holding company appears consistent with the organization’s capital needs, asset quality and overall financial condition. The Federal Reserve Board’s policies also require that a bank holding company serve as a source of financial strength to its subsidiary banks by using available resources to provide capital funds during periods of financial stress or adversity and by maintaining the financial flexibility and capital-raising capacity to obtain additional resources for assisting its subsidiary banks where necessary. The Dodd-Frank Act codified the source of strength policy and requires the promulgation of implementing regulations. Under the prompt corrective action laws, the ability of a bank holding company to pay dividends may be restricted if a subsidiary bank becomes undercapitalized. These regulatory policies could affect the ability of New Pathfinder to pay dividends or otherwise engage in capital distributions.

The Federal Deposit Insurance Act makes depository institutions liable to the FDIC for losses suffered or anticipated by the insurance fund in connection with the default of a commonly controlled depository institution or any assistance provided by the FDIC to such an institution in danger of default. That law would have potential applicability if New Pathfinder ever held as a separate subsidiary a depository institution in addition to Pathfinder Bank.

New Pathfinder and Pathfinder Bank will be affected by the monetary and fiscal policies of various agencies of the United States Government, including the Federal Reserve System. In view of changing conditions in the national economy and in the money markets, it is impossible for management to accurately predict future changes in monetary policy or the effect of such changes on the business or financial condition of New Pathfinder or Pathfinder Bank.

New Pathfinder’s status as a registered bank holding company under the Bank Holding Company Act will not exempt it from certain federal and state laws and regulations applicable to corporations generally, including, without limitation, certain provisions of the federal securities laws.

Federal Securities Laws

We have filed with the Securities and Exchange Commission a registration statement under the Securities Act of 1933 for the registration of the shares of common stock to be issued pursuant to the stock offering. Upon completion of the stock offering, our common stock will be registered with the Securities and Exchange Commission under the Securities Exchange Act of 1934. We will be subject to the information, proxy solicitation, insider trading restrictions and other requirements under the Securities Exchange Act of 1934.

The registration under the Securities Act of 1933 of shares of common stock to be issued in the stock offering does not cover the resale of those shares. Shares of common stock purchased by persons who are not our

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affiliates may be resold without registration. Shares purchased by our affiliates will be subject to the resale restrictions of Rule 144 under the Securities Act of 1933. If we meet the current public information requirements of Rule 144 under the Securities Act of 1933, each affiliate of ours that complies with the other conditions of Rule 144, including those that require the affiliate’s sale to be aggregated with those of other persons, would be able to sell in the public market, without registration, a number of shares not to exceed, in any three-month period, the greater of 1% of our outstanding shares, or the average weekly volume of trading in the shares during the preceding four calendar weeks. In the future, we may permit affiliates to have their shares registered for sale under the Securities Act of 1933.

Sarbanes-Oxley Act of 2002

The Sarbanes-Oxley Act of 2002 addresses, among other issues, corporate governance, auditing and accounting, executive compensation, and enhanced and timely disclosure of corporate information. As directed by the Sarbanes-Oxley Act, our Chief Executive Officer and Chief Financial Officer will be required to certify that our quarterly and annual reports do not contain any untrue statement of a material fact. The rules adopted by the Securities and Exchange Commission under the Sarbanes-Oxley Act have several requirements, including having these officers certify that: they are responsible for establishing, maintaining and regularly evaluating the effectiveness of our internal control over financial reporting; they have made certain disclosures to our auditors and the audit committee of the board of directors about our internal control over financial reporting; and they have included information in our quarterly and annual reports about their evaluation and whether there have been changes in our internal control over financial reporting or in other factors that could materially affect internal control over financial reporting. We have prepared policies, procedures and systems designed to ensure compliance with these regulations.

TAXATION

Federal Taxation

General. Pathfinder Bancorp, MHC, Pathfinder-Federal and Pathfinder Bank are, and New Pathfinder will be, subject to federal income taxation in the same general manner as other corporations, with some exceptions discussed below. The following discussion of federal taxation is intended only to summarize certain pertinent federal income tax matters and is not a comprehensive description of the tax rules applicable to Pathfinder-Federal, New Pathfinder or Pathfinder Bank.

Method of Accounting. For federal income tax purposes, Pathfinder-Federal currently reports its income and expenses on the accrual method of accounting and uses a tax year ending December 31 for filing its federal and state income tax returns.

Bad Debt Reserves. Prior to 1996, Pathfinder Bank was permitted to establish a reserve for bad debts and to make annual additions to the reserve. These additions could, within specified formula limits, be deducted in arriving at our taxable income. As a result of tax law changes in 1996, Pathfinder Bank was required to use the specific charge-off method in computing its bad debt deduction beginning with its 1996 federal tax return. Savings institutions were required to recapture any excess reserves over those established as of December 31, 1987 (base year reserve). At March 31, 2014, Pathfinder Bank had no reserves subject to recapture in excess of its base year reserves.

Pathfinder-Federal is required to use the specific charge-off method to account for tax bad debt deductions.

Taxable Distributions and Recapture. Prior to 1996, bad debt reserves created prior to 1988 were subject to recapture into taxable income if Pathfinder Bank failed to meet certain thrift asset and definitional tests or made certain distributions. Tax law changes in 1996 eliminated thrift-related recapture rules. However, under current law, pre-1988 tax bad debt reserves remain subject to recapture if Pathfinder Bank makes certain non-dividend distributions, repurchases any of its common stock, pays dividends in excess of earnings and profits, or fails to

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qualify as a “bank” for tax purposes. At March 31, 2014, our total federal pre-base year bad debt reserve was approximately $1.3 million.

Alternative Minimum Tax. The Internal Revenue Code imposes an alternative minimum tax at a rate of 20% on a base of regular taxable income plus certain tax preferences, less any available exemption. The alternative minimum tax is imposed to the extent it exceeds the regular income tax. Net operating losses can offset no more than 90% of alternative taxable income. Certain payments of alternative minimum tax may be used as credits against regular tax liabilities in future years. Pathfinder-Federal was subject to $44,267 of alternative minimum tax for 2011. At March 31, 2014, Pathfinder-Federal had no such amounts available as credits for carryover.

Net Operating Loss Carryovers.  A financial institution may carry back net operating losses to the preceding two taxable years and forward to the succeeding 20 taxable years. A 2009 federal tax law change allows for a one-time carry back of either 2008 or 2009 taxable losses for up to five years. As of March 31, 2014, Pathfinder-Federal does not have a federal net operating loss carryforward.

Corporate Dividends-Received Deduction. Pathfinder-Federal may exclude from its federal taxable income 100% of dividends received from Pathfinder Bank as a wholly-owned subsidiary by filing consolidated tax returns. The corporate dividends-received deduction is 80% when the corporation receiving the dividend owns at least 20% of the stock of the distributing corporation. The dividends-received deduction is 70% when the corporation receiving the dividend owns less than 20% of the distributing corporation.

State Taxation

For 2014, we are subject to the New York State Franchise Tax on Banking Corporations in an annual amount equal to the greater of (i) 7.1% of Pathfinder Bank's "entire net income" allocable to New York State during the taxable year, or (ii) the applicable alternative minimum tax. The alternative minimum tax is generally the greater of (a) 0.01% of the value of Pathfinder Bank's assets allocable to New York State with certain modifications, (b) 3% of our "alternative entire net income" allocable to New York State, or (c) $1,250. Entire net income is similar to federal taxable income, subject to certain modifications and alternative entire net income is equal to entire net income without certain modifications. Net operating losses arising in the current period can be carried forward to the succeeding 20 taxable years.

Effective January 1, 2015, banking corporations will be taxed under the New York State General Business Corporation Franchise Tax provisions. The New York State tax rate on “entire net income” will be reduced from 7.1% to 6.5% effective January 1, 2016, and various modifications will be available to community banks (defined as banks with less than $8 billion in total assets) regarding deductions associated with interest income.

Our state tax returns have not been audited for the last five years.

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

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MANAGEMENT

Shared Management Structure

Each executive officer of New Pathfinder is also an executive officer of Pathfinder Bank. We expect that New Pathfinder and Pathfinder Bank will continue to have common executive officers until there is a business reason to establish separate management structures.

Executive Officers

The following table sets forth information regarding our executive officers. Age information is as of March 31, 2014. The executive officers of New Pathfinder and Pathfinder Bank are elected annually.

Name	Age	Position
Thomas W. Schneider	52	President and Chief Executive Officer, New Pathfinder and Pathfinder Bank
James A. Dowd	46	Senior Vice President and Chief Financial Officer, New Pathfinder and Pathfinder Bank
Melissa A. Miller	56	Senior Vice President and Chief Operating Officer, New Pathfinder and Pathfinder Bank
Edward A. Mervine	57	Senior Vice President, General Counsel and Corporate Secretary, New Pathfinder and Pathfinder Bank
Ronald Tascarella	55	Senior Vice President and Chief Credit Officer, New Pathfinder and Pathfinder Bank
Daniel R. Phillips	49	Senior Vice President and Chief Information Officer, Pathfinder Bank

The principal occupation during the past five years of each of our executive officers is set forth below. All directors and executive officers have held their present positions for all five years unless otherwise stated.

Thomas W. Schneider has been employed by Pathfinder Bank since 1988. Mr. Schneider is the President and Chief Executive Officer of Pathfinder-Federal and Pathfinder Bank. Prior to his appointment as President in 2000, Mr. Schneider was the Executive Vice President and Chief Financial Officer of Pathfinder-Federal and Pathfinder Bank. Mr. Schneider is a member of the Board of Directors of New Pathfinder, Pathfinder-Federal and Pathfinder Bank. Mr. Schneider provides the Board with extensive knowledge of our customers and lending markets.

James A. Dowd has been employed by Pathfinder Bank since 1994 and was appointed in 2000 as the Senior Vice President and Chief Financial Officer of Pathfinder-Federal and Pathfinder Bank. Mr. Dowd is responsible for the accounting, finance, marketing and facilities departments.

Melissa A. Miller has been employed by Pathfinder Bank since 1976. Since 2005, Ms. Miller has served as Senior Vice President and Chief Operating Officer of Pathfinder-Federal and Pathfinder Bank. Ms. Miller is responsible for deposit operations, branch administration and information services.

Edward A. Mervine is Senior Vice President, General Counsel and Corporate Secretary for Pathfinder-Federal and Pathfinder Bank. Prior to joining us in 2002, Mr. Mervine was a partner in the law firm of Bond Schoeneck & King, PLLC. Mr. Mervine is responsible for human resources, loss mitigation, security and legal and regulatory compliance.

Ronald Tascarella has been the Senior Vice President and Chief Credit Officer of Pathfinder Bank since 2006. Prior to joining us, he was Senior Vice President of Oswego County National Bank. Mr. Tascarella is responsible for Pathfinder Bank’s lending operations.

Daniel R. Phillips has been employed by Pathfinder Bank since 1999 and since January 2014, has served as Senior Vice President and Chief Information Officer of Pathfinder Bank. Prior to joining us, he was Assistant Vice President of Community Bank.  Mr. Phillips is responsible for electronic delivery channels, information security and technology platforms.

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Directors

New Pathfinder has nine directors. Directors serve three-year staggered terms so that approximately one-third of the directors are elected annually. Directors of Pathfinder Bank will be elected by New Pathfinder as its sole stockholder. The following table states our directors’ names, their ages as of March 31, 2014, the years when they began serving as directors of Pathfinder Bank and when their current term expires.

Name	Age	Position	Director Since	Term to Expire
Thomas W. Schneider	52	President, Chief Executive Officer and Director	2001	2015
John P. Funiciello	50	Director	2011	2015
Lloyd "Buddy" Stemple	53	Director	2005	2015
David A. Ayoub	51	Director	2012	2016
Adam C. Gagas(1)	42	Director	2014	2016
John F. Sharkey, III(2)	56	Director	2014	2016
William A. Barclay	45	Director	2011	2017
Chris R. Burritt	60	Chairman of the Board	1986	2017
George P. Joyce	63	Director	2000	2017

(1) Mr. Gagas was elected to the Board of Directors of Pathfinder-Federal effective April 23, 2014 and to the Board of Directors of Pathfinder Bank, effective March 17, 2014.

(2) Mr. Sharkey was elected to the Board of Directors of Pathfinder-Federal effective April 23, 2014 and to the Board of Directors of Pathfinder Bank, effective December 19, 2013.

The principal occupation during the past five years of each director, nominee and executive officer, as well as other relevant experience, is set forth below. All directors, nominees and executive officers have held their present positions for five years unless otherwise stated. None of our directors or nominees have been the subject of securities litigation, enforcement or bankruptcy in the past ten years.

Chris R. Burritt is the President and General Manager of R.M. Burritt Motors, Inc., an automobile dealership located in Oswego, New York. Mr. Burritt was elected Chairman of the Board effective January 1, 2014. In addition to his long term ownership and management of his well known local business, Mr. Burritt is active in community affairs. He presently serves on the Board of Directors of Oswego Hospital and is a member of its Finance/Operations Committee. Mr. Burritt also serves as Director of the NYS Automobile Dealers Association in Albany, NY. Mr. Burritt’s experience operating a local business and substantial ties to the communities served by Pathfinder Bank provides the Board with valuable insight into managing and overseeing a business.

George P. Joyce is the owner and operator of Laser Transit, Ltd., Lacona, New York, a Central New York logistics services provider. Mr. Joyce has earned a Bachelor Degree in Economics from SUNY Oswego. He has been a Controller for transportation and warehousing firm, as well as a manager in an IT consulting firm. He is also presently President of Intelliflex, LLC a third party logistics firm performing freight forwarding and outsourced logistics services for its customers. He has served as President and Chair of the Board of Trustees for Oswego Hospital, Chair of the Board of Operation Oswego County, Vice President of Seneca Hill Manor, Director of the Oswego College Foundation and numerous other community organizations. Mr. Joyce provides the Board with extensive financial and business experience as well as valuable insight into managing and overseeing a business.

Lloyd “Buddy” Stemple is the Chief Executive Officer of Constellium Rolled Products in Ravenswood, West Virginia, a global supplier of rolled aluminum to the Aerospace and Transportation materials industries. Mr. Stemple, until recently, was the Chief Executive Officer of Oman Aluminum Rolling Company. The Oman Aluminum Rolling Company is a new venture supported by the government of Oman which started commercial production of rolled aluminum in late 2013. Prior to his work in Oman, he was the Vice-President and General Manager of Novelis Specialty Products, Novelis Inc. which has manufacturing locations in Oswego, New York, Kingston, Ontario Canada and sales offices in Cleveland, Ohio and Detroit, Michigan. Mr. Stemple has an Engineering Degree and an MBA. His experience in large, publicly traded companies provides a unique perspective to our Board.

William A. Barclay is a graduate of St. Lawrence University and Syracuse University College of Law. An attorney and businessman, Mr. Barclay is a partner in the Syracuse law firm of Hiscock and Barclay, LLP, where he

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specializes in business law. Mr. Barclay has served on several community organizations throughout his career including the SUNY Oswego College Council, the Rosamond Gifford Zoo at Burnet Park, the Everson Museum of Art, and Northern Oswego County Health Services, Inc. In 2004, he was recognized as one of Oswego County Business Magazine’s Forty under 40, an honor given to Oswego County leaders under the age of 40. Mr. Barclay was also awarded the 2007 Martin Rose Economic Developer Merit Award for his commitment to the economic development process by helping to facilitate the attraction and retention of businesses in Oswego County. Mr. Barclay is currently a New York State Assemblyman for the 120th District, which includes Oswego, Onondaga and Jefferson counties. Mr. Barclay’s in-depth knowledge of economic development and the law provide the Board with a unique and valuable perspective into economic development and legal issues.

John P. Funiciello is a licensed real estate broker and developer who owns and operates J.F. Real Estate in Syracuse, NY. Mr. Funiciello began his career with Pyramid Brokerage Company and started J.F. Real Estate in 1992. J.F. Real Estate represents approximately three million square feet of commercial real estate in the Central New York Region. Mr. Funiciello is a graduate of the State University of New York at Cortland with a degree in Economics and a concentration in Business. He is an active member of the Syracuse community and has served on the Boards of the Consortium for Children’s Services and the Samaritan Center. Mr. Funiciello’s extensive real estate experience and knowledge of the local real estate market as well as his valuable insight into managing and overseeing a business brings valuable expertise to the Board.

David A. Ayoub serves as Partner-in-Charge of the Tax Department at the Syracuse firm of Bowers & Company, CPA’s. In that capacity, Mr. Ayoub consults on corporate mergers and acquisitions, as well as assists start-up businesses. In addition, he oversees the firm’s tax compliance, technical research, planning and consulting. Mr. Ayoub has over 25 years of accounting and taxation experience. Mr. Ayoub is a graduate of Rochester Institute of Technology with a BBA in Accounting and is a Certified Public Accountant in New York State. He is also a Member of the American Institute of Certified Public Accountants, as well as the New York State Society of Certified Public Accountants. Mr. Ayoub pursues an active role in the community, serving on Boards including the Manlius Village Public Library and Make-A-Wish Foundation. He has also worked previously with the United Way and Score. Mr. Ayoub’s extensive experience with corporate transactions as well as his experience in business and tax offers the Board an invaluable perspective of Pathfinder Bank’s business.

John F. Sharkey, III is President of Universal Metal Works, a custom metal fabrication facility, in Fulton, New York, and the Managing Partner of Universal Properties, LLC. Prior to his role with Universal Metal Works, Mr. Sharkey was President of Universal Joint Sales, a heavy-duty truck parts distributor, headquartered in Syracuse, New York. During his tenure at Universal Joint Sales, the company grew to 13 locations throughout the Northeast and Florida. In 1998, Mr. Sharkey sold Universal Joint Sales to FleetPride. For three years following the sale of the company, Mr. Sharkey acted as FleetPride’s Regional Vice President. Mr. Sharkey is an active member of the Central New York community, serving on Boards including the Council of Fleet Specialists, Rockwell International’s Distributor Advisory Council, and the Camillus Youth Hockey Association. He is also a committee member of the Syracuse Chapter of Ducks Unlimited. Mr. Sharkey’s management experience and business knowledge provides a valuable resource and perspective to the Board.

Adam C. Gagas has more than 15 years experience in global financial markets. He is the founder and CEO of Breakwall Asset Management, LLC, a New York State registered investment advisor located in Oswego. Mr. Gagas was an analyst on teams managing multi-billion dollar portfolios at Skandia Asset Management and Principal Global Investors in New York City. He was awarded an Alfa Fellowship and completed a yearlong professional placement as an institutional investment analyst at Alfa Capital in Moscow, Russia. He is also the owner/operator of Gagas Realty Corporation, a multi-property commercial real estate holding company. In addition, he is an adjunct instructor of Corporate Finance in the SUNY Oswego School of Business. Mr. Gagas earned a BA from Hobart College with majors in Economics and Russian Studies, and an MBA with a concentration in Finance from the Leonard N. Stern School of Business at New York University. His extensive community involvement includes serving as Treasurer of Oswego Health, chair of that organization’s Audit and Investment committees, and as a member of the Executive committee. Mr. Gagas is also a board member of Oswego’s historic Riverside Cemetery, and has previously held leadership positions with the Oswego YMCA and Oswego Opera Theater. Mr. Gagas

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provides the Board with extensive financial and business experience as well as valuable insight into managing and overseeing a business.

Board Independence

The board of directors determines the independence of each director in accordance with Nasdaq Stock Market rules, which include all elements of independence as set forth in the listing requirements for Nasdaq securities. The board of directors has determined that all of our directors are “independent” directors within the meaning of such standards, with the exception of Mr. Schneider. In evaluating the independence of our independent directors, we found no transactions between us and our independent directors that are not required to be reported in this prospectus and that had an impact on our determination as to the independence of our directors.

Codes of Business Conduct and Ethics

Pathfinder-Federal has adopted a code of business conduct and ethics that reflects current circumstances and Securities and Exchange Commission and Nasdaq definitions for such codes. The code of business conduct and ethics covers Pathfinder-Federal, Pathfinder Bank and other subsidiaries. Among other things, the code of business conduct and ethics includes provisions regarding honest and ethical conduct, conflicts of interest, full and fair disclosure, compliance with law, and reporting of and sanctions for violations. The code applies to all directors, officers and employees of Pathfinder-Federal and subsidiaries. We have posted a copy of the code of business conduct and ethics on our corporate website, at www.pathfinderbank.com, on the link “Investor Relations.” As further matters are documented, or if those documents (including the code of business conduct and ethics) are changed, waivers from the code of business conduct and ethics are granted, or new procedures are adopted, those new documents, changes and/or waivers will be posted on the corporate website at that address.

Transactions With Certain Related Persons

In accordance with Federal laws and regulations, Pathfinder Bank offers the same loan and deposit products and services to its officers and directors, as well as its associates, as those offered to our customers generally. However, regulations permit executive officers and directors to receive the same terms through programs that are widely available to other employees, as long as the executive officer or director is not given preferential treatment compared to the other participating employees.

In the ordinary course of business, Pathfinder Bank makes loans available to its directors, officers and employees. Full-time employees, and directors after one year of service, of Pathfinder Bank are entitled to receive a primary residence mortgage loan at an interest rate of 0.50% below market, consistent with applicable laws and regulations.

The chart below lists the named executive officers and directors who participated in the employee mortgage loan program during the years ended December 31, 2013, 2012 or 2011, and certain information with respect to their loans. No other directors or executive officers of Pathfinder-Federal participated in the employee mortgage loan program during the years ended December 31, 2013, 2012 or 2011.

Name	Largest Aggregate Balance 01/01/13 to 12/31/13		Interest Rate			Non- employee Interest Rate			Principal Balance 12/31/13		Principal Paid 01/01/13 to 12/31/13		Interest Paid 01/01/13 to 12/31/13
Thomas Schneider	$	193,240		5.250	%		5.750	%	$	188,156	$	5,084	$	10,024
Edward Mervine	$	100,478		3.375			3.875		$	88,651	$	11,827	$	3,209
James Dowd	$	126,840		2.625			3.125		$	122,912	$	3,927	$	5,866
Chris Burritt	$	85,630		3.250			3.750		$	65,833	$	19,797	$	2,490
Lloyd Stemple	$	264,123		2.750			3.250		$	248,878	$	15,246	$	7,072

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Name	Largest Aggregate Balance 01/01/12 to 12/31/12		Interest Rate			Non- employee Interest Rate			Principal Balance 12/31/12		Principal Paid 01/01/12 to 12/31/12		Interest Paid 01/01/12 to 12/31/12
Thomas Schneider	$	198,065		5.250	%		5.750	%	$	193,240	$	4,825	$	10,283
Edward Mervine	$	111,913		3.375			3.875		$	100,478	$	11,435	$	3,601
James Dowd	$	—		—			—		$	—	$	—	$	—
Chris Burritt	$	104,794		3.250			3.750		$	85,630	$	19,165	$	3,122
Lloyd Stemple	$	276,231		2.750			3.250		$	264,123	$	12,108	$	8,961

Name	Largest Aggregate Balance 01/01/11 to 12/31/11		Interest Rate			Non- employee Interest Rate			Principal Balance 12/31/11		Principal Paid 01/01/11 to 12/31/11		Interest Paid 01/01/11 to 12/31/11
Thomas Schneider	$	202,644		5.250	%		5.750	%	$	198,065	$	4,579	$	10,530
Edward Mervine	$	122,969		3.375			3.875		$	111,913	$	11,056	$	3,980
James Dowd	$	—		—			—		$	—	$	—	$	—
Chris Burritt	$	123,347		3.250			3.750		$	104,794	$	18,552	$	3,734
Lloyd Stemple	$	—		—			—		$	—	$	—	$	—

These loans neither involve more than the normal risk of collection nor present other unfavorable features. Loans made to directors or executive officers, including any modification of such loans, must be approved by a majority of disinterested members of the board of directors. The interest rate on loans to directors and officers is the same as that offered to other employees.

Since January 1, 2011, other than described above, and except for loans to directors made in the ordinary course of business that were made on substantially the same terms, including interest rates and collateral, as those prevailing at the time for comparable loans with persons not related to Pathfinder Bank and for which management believes neither involve more than the normal risk of collection nor present other unfavorable features, we and our subsidiaries have not had any transaction or series of transactions, or business relationships, nor are any such transactions or relationships proposed, in which the amount involved exceeds $120,000 and in which our directors, executive officers or 5% or more shareholders have a direct or indirect material interest.

Director Compensation

Each non-employee director receives an annual retainer of $13,100, a meeting fee of $700 for each Board meeting attended and $500 for each committee meeting attended. The Board Chair receives an additional retainer of $12,000. The Audit Committee Chairman receives an additional retainer of $6,000 and the chairman of all other committees receives an additional $100 for each committee meeting in which they serve in the capacity of committee chairman. Employee directors do not receive a retainer or monthly meeting fees. We paid a total of $289,908 in director fees during the year ended December 31, 2013.

Set forth below is director compensation for each of our non-employee directors for the year ended December 31, 2013.

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DIRECTOR COMPENSATION TABLE FOR THE YEAR ENDED DECEMBER 31, 2013
Name	Fees earned or paid in cash ($)		Stock Options ($) (1)		Non-qualified deferred compensation earnings ($) (2)		Total ($)
David A. Ayoub		41,201		30,400		—		71,601
William A. Barclay		33,601		—		—		33,601
Chris R. Burritt		31,901		—		15,989		47,890
John P. Funiciello		32,101		30,400		—		62,501
George P. Joyce		36,901		—		4,392		41,293
Lloyd “Buddy” Stemple		27,801		—		2,130		29,931
Janette Resnick (3)		51,901		—		512		52,413
L. William Nelson (4)		34,501		—		10,296		44,797

(1) Represents the grant date fair value of the stock option awards received by each director under the Pathfinder Bancorp, Inc. 2010 Stock Option Plan. The grant date fair value has been computed in accordance with the stock-based compensation accounting rules (FASB ASC Topic 718). A discussion of the assumptions used in calculating the award values may be found at Note 13 of our notes to our consolidated financial statements set forth in our Annual Report on Form 10-K for the fiscal year ended December 31, 2013. All stock options in this column vest at a rate of 20% per year, commencing on June 23, 2012, for all directors except Mr. Ayoub and Mr. Funiciello whose options will commence vesting on July 25, 2014. At December 31, 2013, there are 30,000 stock options outstanding for active directors.

(2) The non-qualified deferred compensation earnings represents the above market or preferential earnings on compensation that was deferred by each named director to the Trustee Deferred Fee Plan.

(3) Ms. Resnick, the former Chairman of the Board, retired as of December 31, 2013.

(4) Mr. Nelson, a former member of the Board, retired as of December 31, 2013.

(5) No named director received perquisites and any other personal benefits that exceeded, in the aggregate, $10,000.

Director fees are reviewed annually by the Compensation Committee for recommendation to the Board of Directors. The committee reviews relevant peer group data similar to that used in the executive compensation review. The Committee believes that an appropriate compensation is critical to attracting, retaining and motivating directors who have the qualities necessary to direct the Company.

Trustee (Director) Deferred Fee Plan.  Pathfinder Bank maintains the Trustee Deferred Fee Plan for members of the Board of Pathfinder Bank, Pathfinder-Federal, or Pathfinder Bancorp, MHC. A participant in the plan is eligible to defer, on a monthly basis, up to 100% of the monthly fees the participant would be entitled to receive each month.

Upon the earlier of the date on which the participant’s services are terminated or the participant attains his or her benefit age (as designated by the participant upon joining the plan), the participant will be entitled his or her deferred compensation benefit, which will commence on the date the participant attains his or her elected benefit age and will be payable in monthly installments for 10 years. In the event of a change in control of Pathfinder-Federal or Pathfinder Bank followed by the participant’s termination of services within 36 months thereafter, the participant will receive a deferred compensation benefit calculated as if the participant had made elective deferrals through his or her benefit age. Such benefit will commence on the date the participant attains his or her benefit age and will be payable in monthly installments for 10 years. If the participant dies after commencement of payment of the deferred compensation benefit, Pathfinder Bank will pay the participant’s beneficiary the remaining payments that were due.

In the event the participant becomes disabled, the participant will be entitled to receive the deferred compensation benefit as of the date of the participant’s disability. Such benefit will commence within 30 days following the date on which the participant is determined to be disabled and will be payable in monthly installments for 10 years. If the participant dies prior to the commencement of payment of the deferred compensation benefit, the participant’s beneficiary will be entitled to receive a survivor benefit.

Executive Compensation

Salary increases for Pathfinder Bank’s Named Executive Officers, including Mr. Schneider, for 2013 and 2012 are reflected in the Summary Compensation Table. The following table shows the compensation of Thomas W. Schneider, our principal executive officer, and the two most highly compensated other executive officers (“Named Executive Officers”) that received total compensation of $100,000 or more during the past fiscal year for

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services to Pathfinder Bancorp, Inc. or any of its subsidiaries during the years ended December 31, 2013 and 2012, respectively.

SUMMARY COMPENSATION TABLE
Name and Principal Position	Year	Salary ($)		Bonus ($) (1)		Non-Qualified Deferred Compensation Earnings ($) (2)		All Other Compensation ($)(3)		Total ($)
Thomas W. Schneider	2013		283,000		42,504		1,744		42,941		370,189
President and Chief	2012		270,000		29,318		1,460		80,814		381,592
Executive Officer
Edward A. Mervine	2013		167,000		19,576		—		14,404		200,980
Senior Vice President, General	2012		161,000		14,476		—		10,738		186,214
Counsel and Secretary
James A. Dowd	2013		160,000		17,798		2,440		11,270		191,508
Senior Vice President and Chief	2012		140,000		13,211		1,876		6,120		161,207
Financial Officer

(1) Current year performance-based bonus awards were paid during February 2014. The following bonuses were distributed to the Named executives: Thomas W. Schneider $39,562, Edward A. Mervine $17,903 and James A. Dowd $18,964.

(2) The non-qualified deferred compensation earnings represents the above market or preferential earnings on compensation that was deferred by each Named Executive Officer.

(3) All other compensation represents the following for each Named Executive Officer (“NEO”):

Named Executive	Year	Employee Savings Plan Company Contribution		Automobile Expense Reimbursement		Country Club Dues		Life Insurance Premium		Total
		($)		($)		($)		($)		($)
Thomas W. Schneider	2013		15,804		24,013		2,703		421		42,941
Edward A. Mervine	2013		13,983		—		—		421		14,404
James A. Dowd	2013		10,849		—		—		421		11,270

Employment Agreements.   The Company and its operating subsidiary, Pathfinder Bank, entered into employment agreements with Thomas W. Schneider and Edward A Mervine. The agreements have an initial term of three years. Unless notice of non-renewal is provided, the agreements renew annually.  The agreements provide for the payment of a base salary, which will be reviewed at least annually, and which may be increased. Under the agreements, the 2014 base salaries for Messrs. Schneider and Mervine are $283,000 and $172,000, respectively.  In addition to the base salary, each agreement provides for, among other things, participation in employee and welfare benefit plans and incentive compensation and bonus plans applicable to senior executive employees, and reimbursement of business expenses.

The executives are entitled to severance payments and benefits in the event of termination of employment under specified circumstances.  In the event their employment is terminated for reasons other than for cause, disability or retirement, or in the event they resign during the term of the agreement following:

(1) the failure to elect or re-elect or to appoint or re-appoint the executive to his executive position;

(2) a material change in the executives’ functions, duties, or responsibilities, which change would cause the executives’ position to become one of lesser responsibility, importance or scope;

(3) the liquidation or dissolution of Pathfinder-Federal or Pathfinder Bank, other than liquidations or dissolutions that are caused by reorganizations that do not affect the status of the executives;

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(4) a relocation of the executives’ principal place of employment by more than 30 miles from its location as of the date of the agreements;

(5) a material breach of the agreements by Pathfinder-Federal or Pathfinder Bank; or

(6) solely with respect to Mr. Schneider, a failure to be nominated, elected or re-elected to the Board,

the executives will be entitled to a severance payment equal to three times the sum of the their base salary and the highest rate of bonus awarded to them during the prior three years, payable as a single cash lump sum distribution within 30 days following their date of termination.  The executives will also become fully vested in and entitled to benefits granted pursuant to any stock option plan, recognition and retention plan and nonqualified defined compensation plan, if any. In addition, Pathfinder-Federal or Pathfinder Bank will continue to provide the executives with continued life insurance and non-taxable medical and dental coverage for the remaining term of the employment agreement.

If the executives voluntarily resign (without the occurrence of the specified circumstances listed above) from their employment with Pathfinder-Federal and Pathfinder Bank, the Board will have the discretion to provide severance pay to the executives, provided, however, that such amount does not exceed three times the average of the executives’ three preceding years’ base salary, including bonuses, any other cash compensation paid to the executives during such years, and the amount of contributions made on behalf of the executives to any employee benefit plans maintained by Pathfinder-Federal or Pathfinder Bank during such years.

Upon the occurrence of a change in control of Pathfinder-Federal or Pathfinder Bank (as defined in the employment agreement) followed by the executives’ termination of employment for any reason, other than for cause, the executives will be entitled to receive a single cash lump distribution equal to 2.99 times their average base salary over the previous five years, including bonuses, any other cash compensation paid to them during such years, and the amount of contributions made on behalf of the executives to any employee benefit plans maintained by Pathfinder-Federal or Pathfinder Bank during such years. The executives will also become fully vested in and entitled to benefits granted pursuant to any stock option plan, recognition and retention plan and nonqualified defined compensation plan, if any. In addition, Pathfinder-Federal or Pathfinder Bank will continue to provide the executives with continued life insurance and non-taxable medical and dental coverage for 36 months. In the event payments made to the executives include an “excess parachute payment,” as defined in Section 280G of the Internal Revenue Code, the payments will be reduced by the minimum dollar amount necessary to avoid this result. A conversion of Pathfinder Bancorp, MHC from mutual to stock in a second-step conversion would not be considered a change of control.

Should the executives become disabled, they would be entitled to receive their base salary for one year. The payment of base salary will commence within 30 days from the date the executive is determined to be disabled, and will be payable in equal monthly installments.

Upon the executives’ voluntary resignation from employment (without the occurrence of the specified circumstances listed above) the executives agree not to compete with Pathfinder-Federal or Pathfinder Bank for one year following resignation.

Change of Control Agreements.   Pathfinder-Federal and Pathfinder Bank have entered into a Change of Control Agreement with James A. Dowd and two other executive officers which provide certain benefits in the event the covered executive is “dismissed” from employment within a twelve month period following a change of control of Pathfinder-Federal or Pathfinder Bank. A conversion of Pathfinder Bancorp, MHC from mutual to stock form would not be considered a change of control under the change of control severance agreement. Although “dismissal” does not include a termination for cause or voluntary termination, it does include a voluntary resignation as a result of:

· a material change in the executive’s functional duties or responsibilities which would cause the executive’s position to become one of lesser responsibility, importance of scope.

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· a relocation of the executive’s principal place of employment by more than 30 miles from its location as of the date of the agreement.

· a material reduction in the benefits to the executive as of the date of the agreement,

provided the executive gives written notice to Pathfinder-Federal or Pathfinder Bank within 90 days of the initial occurrence of one of these events and Pathfinder-Federal and Pathfinder Bank have at least 30 days to cure the event.

In the event of such dismissal, the executive, or his or her beneficiary should the executive die subsequent to the dismissal, is entitled to a lump sum payment equal to the executive’s most recent annual base salary plus bonuses and any other cash compensation paid to the executive within the most recent twelve (12) month period. The executive is also entitled to continued life, medical and dental coverage for a period of twelve months subsequent to the dismissal, and will become fully vested in any stock option plans, deferred compensation plans, or restricted stock plans in which he or she participates.

Defined Contribution Supplemental Retirement Income Agreements.   Pathfinder Bank adopted a Supplemental Executive Retirement Plan (the “SERP”), effective January 1, 2014. The SERP benefits certain key senior executives of Pathfinder Bank who are selected by the Board to participate, including our Named Executive Officers, Thomas W. Schneider, Edward A. Mervine and James A. Dowd. The SERP is intended to provide a benefit from Pathfinder Bank upon retirement, death, disability or voluntary or involuntary termination of service (other than “for cause”), subject to the requirements of Section 409A of the Internal Revenue Code. Accordingly, the SERP obligates Pathfinder Bank to make a contribution to each executive’s account on the last business day of each calendar year. The award contribution for Messrs. Schneider, Mervine and Dowd will be $51,376, $25,000 and $25,000. In addition, Pathfinder Bank, may, but is not required to, make additional discretionary contributions to the executive’s accounts from time to time. All executives currently participating in the plan, including the Named Executive Officers, are fully vested in Pathfinder Bank’s contribution to the plan. In the event the executive is terminated involuntarily, except for cause, or resigns for good reason within 24 months following a change in control, Pathfinder Bank is required to make additional annual contributions the lesser of: (1) three years or (2) the number of years remaining until the executive’s benefit age, subject to potential reduction to avoid an excess parachute payment under Code Section 280G. In the event of the executive’s death, disability or termination within 24 months after a change in control, the executive’s account will be paid in a lump sum to the executive or his beneficiary, as applicable. In the event executive is entitled to a benefit from the SERP due to retirement or other termination of employment, the benefit will be paid either in a lump sum or in 10 annual installments as detailed in his or her participant agreement.

Executive Deferred Compensation Plan.   Pathfinder Bank maintains an Executive Deferred Compensation Plan for a select group of management employees, including our Named Executive Officers. A participant in the plan is eligible to defer, on a monthly basis, a percentage of compensation received from Pathfinder Bank, up to $750. The participant’s deferred compensation will be held by Pathfinder Bank in a grantor trust subject to the claims of Pathfinder Bank’s creditors in the event of Pathfinder Bank’s insolvency.

Upon the earlier of the date on which the participant terminates employment with Pathfinder Bank or attains his or her benefit age (as designated by the participant upon joining the plan), the participant will be entitled to his or her deferred compensation benefit, which will commence on the date the participant attains his or her elected benefit age and will be payable in monthly installments for 10 years. In the event of a change in control of Pathfinder-Federal or Pathfinder Bank followed by the participant’s termination of employment within 36 months thereafter, the participant will receive a deferred compensation benefit calculated as if the participant had made elective deferrals through his or her benefit age. Such benefit will commence on the date the participant attains his or her benefit age and will be payable in monthly installments for 10 years. If the participant dies after commencement of payment of the deferred compensation benefit, Pathfinder Bank will pay the participant’s beneficiary the remaining payments that were due.

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In the event the participant becomes disabled, the participant will be entitled to receive the deferred compensation benefit as of the participant’s date of disability. Such benefit will commence within 30 days following the date on which the participant is disabled and will be payable in monthly installments for 10 years. If the participant dies prior to the commencement of payment of the deferred compensation benefit, the participant’s beneficiary will be entitled to receive a survivor benefit.

Defined Benefit Plan. Pathfinder Bank maintains a tax-qualified noncontributory defined benefit plan (“Retirement Plan”). All salaried employees age 21 or older who have worked for Pathfinder Bank for at least one year and have been credited with 1,000 or more hours of employment with Pathfinder Bank during the year were, prior to the plan freeze described below, eligible to accrue benefits under the Retirement Plan. Pathfinder Bank contributes annually to the Retirement Plan an amount necessary to satisfy the actuarially determined minimum funding requirements in accordance with the Employee Retirement Income Security Act of 1974 as amended (“ERISA”).

At the normal retirement age of 65, the Retirement Plan is designed to provide a life annuity. The retirement benefit provided is equal to 1.5% of a participant’s average monthly compensation for periods after May 1, 2004, through the plan freeze date described below and 2.0% of the participant’s average monthly compensation for credited service prior to May 1, 2004 based on the average of the three consecutive years during the last 10 years of employment which provides the highest monthly average compensation multiplied by the participant’s years of credited service (not to exceed 30 years) to the normal retirement date. Retirement benefits also are payable upon retirement due to early and late retirement. Benefits also are paid from the Retirement Plan upon a Participant’s disability or death. A reduced benefit is payable upon early retirement at or after age 60. Upon termination of employment other than as specified above, a participant who was employed by Pathfinder Bank for a minimum of five years is eligible to receive his or her accrued benefit reduced for early retirement or a deferred retirement benefit commencing on such participant’s normal retirement date. Benefits are payable in various annuity forms. On December 31, 2013, the market value of the Retirement Plan trust fund was approximately $12.7 million. The Company was not required to make a contribution to the Plan in 2013.

The Company “froze” the Retirement Plan effective June 30, 2012 (“Plan Freeze Date”). After the Plan Freeze Date, no employee is permitted to commence or recommence participation in the Plan and no further benefits accrue to any plan participants. Employment service after the Plan Freeze Date does continue to be recognized for vesting purposes, however.

Employee Savings Plan.  Pathfinder Bank maintains an Employee Savings Plan which is a qualified, tax-exempt profit sharing plan with a “cash or deferred” feature that is tax-qualified under Section 401(k) of the Internal Revenue Code (the “401(k) Plan”). All employees who have attained age 21 and have completed 90 days of employment during which they worked at least 1,000 hours are eligible to participate.

Participants may elect to defer a percentage of their compensation each year instead of receiving that amount in cash, in an amount up to 75% of their compensation to the 401(k) Plan, provided that the amount deferred does not exceed $17,500 for 2014. In addition, for participants who are age 50 or older by the end of any taxable year, the participant may elect to defer additional amounts (called “catch-up contributions”) to the 401(k) Plan. The “catch-up contributions” may be made regardless of any other limitations on the amount that a participant may defer to the 401(k) Plan. The maximum “catch-up contribution” that a participant can make in 2014 is $5,500. For these purposes, “compensation” includes total compensation (including salary reduction contributions made under the 401(k) Plan or the flexible benefits plan sponsored by Pathfinder Bank), but does not include compensation in excess of $260,000 for 2014. Pathfinder Bank generally provides a match of 100% of the first 3% of the participating employees salary, plus 50% of the next 3% of the participating employees salary. All employee contributions and earnings thereon are fully and immediately vested. All employer matching contributions vest at the rate of 20% per year beginning at the end of a participant’s second year of service with Pathfinder Bank until a participant is 100% vested after six years of service. Participants also will vest in employer matching contributions when they reach the normal retirement age of 65 or later, or upon death or disability regardless of years of service.

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To partially offset the impact on employees due to the Retirement Plan freeze discussed above, the Company, on January 1, 2013, began making a 3% safe harbor contribution to all eligible participants in addition to the match contributions described above.

401(k) Plan benefits will be paid to each participant in a lump sum. For the plan year ended December 31, 2013, Pathfinder Bank made a contribution in the amount of $228,000 to the 401(k) Plan. In addition, the Company made a $173,000 safe harbor contribution to the plan in 2013. In connection with the offering, Pathfinder-Federal intends to allow participants in the 401(k) Plan to purchase New Pathfinder common stock with their 401(k) Plan account balances.

Employee Stock Ownership Plan.  Pathfinder Bank maintains an Employee Stock Ownership Plan (“ESOP”). Employees who are at least 21 years old with at least one year of employment with Pathfinder Bank are eligible to participate. The ESOP had borrowed funds from Pathfinder-Federal and used those funds to purchase shares of common stock for the plan. Collateral for the loan was the common stock purchased by the ESOP. The initial loan was fully repaid in 2005. The common stock that was purchased with the loan was held in a suspense account and allocated to participants’ accounts in the ESOP as the loan was repaid. On April 6, 2011, Pathfinder-Federal received regulatory approval to sell up to 125,000 additional shares of common stock to the ESOP, pursuant to a loan obtained from a third party lender to purchase the shares. Pathfinder Bank makes annual contributions to the ESOP which contributions are used by the ESOP to repay the third-party loan.

Benefits under the ESOP become vested in an ESOP participant at the rate of 20% per year, starting upon an employee’s completion of one year of credited service, and will be fully vested upon completion of five years of credited service. Participants’ interest in their account under the ESOP will also fully vest in the event of termination of service due to their normal retirement, death, disability, or upon a change in control (as defined in the plan). Vested benefits will be payable generally upon the participants’ termination of employment with Pathfinder Bank, and will be paid in the form of common stock, or to the extent participants’ accounts contain cash, benefits will be paid in cash. However, participants have the right to elect to receive their benefits entirely in the form of cash or common stock, or a combination of both.

In connection with the offering, the ESOP intends to purchase up to 4% of the shares issued in the offering by obtaining a loan from New Pathfinder which will be used to both refinance the remaining outstanding balance on the third party loan and purchase the additional shares. The ESOP loan from New Pathfinder will have a ten year term and will have a fixed rate of interest equal to the prime rate at the closing of the offering.

Stock Option Plan. The Pathfinder Bancorp, Inc. 2010 Stock Option Plan (the “Stock Option Plan”) was approved at our 2010 annual meeting. The Stock Option Plan authorizes the issuance of up to 150,000 shares of common stock pursuant to grants of stock option awards to our senior executive officers and outside directors. The options vest over 5 years (20% per year for each year of the participant’s service), have an exercise price of $9.00, (the market price on the date of the grant) and have an exercise period of 10 years from the date of the grant, June 23, 2011.

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Outstanding Equity Awards at Year-End.  The following table sets forth information with respect to our outstanding equity awards as of December 31, 2013 for the Named Executive Officers.

OUTSTANDING EQUITY AWARDS AT DECEMBER 31, 2013
	Option Awards
Name	Number of Securities Underlying Unexercised Options (#) Exercisable		Number of Securities Underlying Unexercised Options (#) Unexercisable (1)		Equity Incentive Awards: Number of Securities Underlying Unexercised Unearned Options		Option Exercise Price ($)		Option Expiration Date
Thomas A. Schneider		8,400		12,600		—		9.00	7/23/2021
Edward A. Mervine		5,400		8,100		—		9.00	7/23/2021
James A. Dowd		5,400		8,100		—		9.00	7/23/2021

(1) All stock options in this column vest at a rate of 20% per year, commencing on June 23, 2012.

Benefits to be Considered Following Completion of the Conversion

Following the stock offering, we intend to adopt one or more new stock-based benefit plans that will provide for grants of stock options and restricted common stock awards. If adopted within 12 months following the completion of the conversion, the aggregate number of shares reserved for the exercise of stock options or available for stock awards under the stock-based benefit plans would be limited to 10% and 4%, respectively, of the shares sold in the stock offering.

The stock-based benefit plans will not be established sooner than six months after the stock offering, and if adopted within one year after the stock offering, the plans must be approved by a majority of the votes eligible to be cast by our stockholders. If stock-based benefit plans are established more than one year after the stock offering, they must be approved by a majority of votes cast by our stockholders. The following additional restrictions would apply to our stock-based benefit plans only if such plans are adopted within one year after the stock offering:

· non-employee directors in the aggregate may not receive more than 30% of the options and restricted stock awards authorized under the plans;

· any one non-employee director may not receive more than 5% of the options and restricted stock awards authorized under the plans;

· any officer or employee may not receive more than 25% of the options and restricted stock awards authorized under the plans;

· any tax-qualified employee stock benefit plans and restricted stock plan, in the aggregate, may not acquire more than 10% of the shares sold in the offering, unless Pathfinder Bank has tangible capital of 10% or more, in which case tax-qualified employee stock benefit plans and restricted stock plans may acquire up to 12% of the shares sold in the offering;

· the options and restricted stock awards may not vest more rapidly than 20% per year, beginning on the first anniversary of stockholder approval of the plans;

· accelerated vesting is not permitted except for death, disability or upon a change in control of Pathfinder Bank or New Pathfinder; and

· our executive officers or directors must exercise or forfeit their options in the event that Pathfinder Bank becomes critically undercapitalized, is subject to enforcement action or receives a capital directive.

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We have not determined whether we will present stock-based benefit plans for stockholder approval prior to or more than 12 months after the completion of the conversion. In the event either federal or state regulators change their regulations or policies regarding stock-based benefit plans, including any regulations or policies restricting the size of awards and vesting of benefits as described above, the restrictions described above may not be applicable.

We may obtain the shares needed for our stock-based benefit plans by issuing additional shares of common stock from authorized but unissued shares or through stock repurchases.

The actual value of the shares awarded under stock-based benefit plans would be based in part on the price of New Pathfinder’s common stock at the time the shares are awarded. The stock-based benefit plans are subject to stockholder approval, and cannot be implemented until at least six months after the offering. The following table presents the total value of all shares of restricted stock that would be available for issuance under the stock-based benefit plans, assuming the shares are awarded when the market price of our common stock ranges from $8.00 per share to $14.00 per share.

Share Price		68,000 Shares Awarded at Minimum of Offering Range		80,000 Shares Awarded at Midpoint of Offering Range		92,000 Shares Awarded at Maximum of Offering Range		105,800 Shares Awarded at Adjusted Maximum of Offering Range
$	8.00	$	544,000	$	640,000	$	736,000	$	846,400
	10.00		680,000		800,000		920,000		1,058,000
	12.00		816,000		960,000		1,104,000		1,269,600
	14.00		952,000		1,120,000		1,288,000		1,481,200

The grant-date fair value of the options granted under the stock-based benefit plans will be based in part on the price of shares of common stock of New Pathfinder at the time the options are granted. The value also will depend on the various assumptions utilized in the option pricing model ultimately adopted. The following table presents the total estimated value of the options to be available for grant under the stock-based benefit plans, assuming the market price and exercise price for the stock options are equal and the range of market prices for the shares is $8.00 per share to $14.00 per share. The Black-Scholes option pricing model provides an estimate only of the fair value of the options, and the actual value of the options may differ significantly from the value set forth in this table.

Exercise Price		Grant-Date Fair Value Per Option		170,000 Options at Minimum of Offering Range		200,000 Options at Midpoint of Offering Range		230,000 Options at Maximum of Offering Range		264,500 Options at Adjusted Maximum of Offering Range
$	8.00	$	2.02	$	343,400	$	404,000	$	464,600	$	534,290
	10.00		2.52		428,400		504,000		579,600		666,540
	12.00		3.02		513,400		604,000		694,600		798,790
	14.00		3.53		600,100		706,000		811,900		933,685

The tables presented above are provided for informational purposes only. There can be no assurance that our stock price will not trade below $10.00 per share. Before you make an investment decision, we urge you to read this prospectus carefully, including, but not limited to, the section entitled “Risk Factors” beginning on page 19.

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BENEFICIAL OWNERSHIP OF COMMON STOCK

The following table provides the beneficial ownership of shares of common stock of Pathfinder-Federal held by our directors and executive officers, individually and as a group, and all individuals known to management to own more than 5% of our common stock as of [Stockholder Record Date]. Unless otherwise indicated, each of the named individuals has sole voting power and sole investment power with respect to the number of shares shown and has not pledged any shares of common stock as security for a loan.

Name of Beneficial Owner	Total Shares Beneficially Owned (5)		Percent of All Common Stock Outstanding
David A. Ayoub		750		*
William A. Barclay (1)		21,190		*
Chris R. Burritt (2)		3,700		*
John P. Funiciello		1,740		*
Adam C. Gagas (3)		83,816		3.2	%
George P. Joyce (4)		39,248		1.5	%
John F. Sharkey, III		—		*
Lloyd “Buddy” Stemple		11,824		*
Thomas W. Schneider		21,676		*
James A. Dowd		14,246		*
Edward A. Mervine		11,568		*
Melissa A. Miller		9,766		*
Daniel R. Phillips		2,771		*
Ronald Tascarella		16,854		*
All directors and executive officers as a group (14 persons)		239,149		9.12	%
Pathfinder Bancorp, MHC		1,583,239		60.4	%
214 West First Street
Oswego, New York 13126
Pathfinder Bank		196,019		7.47	%
Employee Stock Ownership Plan Trust
Trustee: Pentegra Trust Company
c/o Pentegra Services, Inc.
2 Enterprise Drive, Suite 408
Shelton, CT 06484

* Less than 1%.

(1) Mr. Barclay has sole voting and investment power over 7,000 shares and custodial voting power over

14,190 shares.

(2) Mr. Burritt has sole voting and investment power over 3,550 shares and voting power over 150 shares.

(3) Mr. Gagas has sole voting and investment power over 4,250 shares and voting power over 79,238

shares.

(4) Mr. Joyce has sole voting and investment power over 7,864 shares and voting power over 31,566

shares.

(5) ESOP shares allocated to executive officers are also included in their respective totals.

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SUBSCRIPTIONS BY DIRECTORS AND EXECUTIVE OFFICERS

The table below sets forth, for each of New Pathfinder’s directors and executive officers, and for all of these individuals as a group, the following information:

(i) the number of exchange shares to be held upon completion of the conversion, based upon their beneficial ownership of Pathfinder-Federal common stock as of [Stockholder Record Date];

(ii) the proposed purchases of subscription shares, assuming sufficient shares of common stock are available to satisfy their subscriptions; and

(iii) the total shares of common stock to be held upon completion of the conversion.

In each case, it is assumed that subscription shares are sold at the minimum of the offering range. See “The Conversion and Offering—Additional Limitations on Common Stock Purchases.” Federal regulations prohibit our directors and officers from selling the shares they purchase in the offering for one year after the date of purchase. Subscriptions by management through our 401(k) plan are included in the proposed purchases set forth below and will be counted as part of the maximum number of shares such individuals may subscribe for in the stock offering and as part of the maximum number of shares directors and officers may purchase in the stock offering.

	Number of		Proposed Purchases of Stock in the Offering (2)				Total Common Stock to be Held at Minimum of Offering Range (3)
Name of Beneficial Owner	Exchange Shares to Be Held (1)		Number of Shares		Amount		Number of Shares		Percentage of Shares Outstanding
David A. Ayoub		750		10,000		100,000		10,791		*
William A. Barclay		21,190		25,000		250,000		47,359		1.7
Chris R. Burritt		3,700		20,000		200,000		23,904		*
John P. Funiciello		1,740		20,000		200,000		21,836		*
Adam C. Gagas		83,816		12,000		120,000		100,442		3.6
George P. Joyce		39,248		2,500		25,000		43,914		1.6
Thomas W. Schneider		21,676		25,000		250,000		47,872		1.7
John F. Sharkey, III		―		20,000		200,000		20,000		*
Lloyd “Buddy” Stemple		11,824		25,000		250,000		37,476		1.3
James A. Dowd		14,246		20,000		200,000		35,032		1.3
Melissa A. Miller		9,766		5,000		50,000		15,305		*
Edward A. Mervine		11,568		10,000		100,000		22,206		*
Ronald Tascarella		16,854		25,000		250,000		42,784		1.5
Daniel R. Phillips		2,771		7,000		70,000		9,923		*
Total for Directors and Executive Officers		239,149		226,500	$	2,265,000		478,844		17.1	%

* Less than 1%.

(1) Based on information presented in “Beneficial Ownership of Common Stock,” and assuming an exchange ratio of 1.0552 at the minimum of the offering range.

(2) Includes proposed subscriptions, if any, by associates.

(3) At the maximum of the offering range, directors and executive officers would beneficially own 567,909 shares, or 15.0% of our outstanding shares of common stock when including stock options exercisable within 60 days of [Stockholder Record Date].

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THE CONVERSION AND OFFERING

The boards of directors of Pathfinder Bancorp, MHC and Pathfinder-Federal have approved the plan of conversion and reorganization. The plan of conversion and reorganization must also be approved by the depositors of Pathfinder Bank and the stockholders of Pathfinder-Federal. A special meeting of depositors and a special meeting of stockholders have been called for this purpose. The Federal Reserve Board has approved the application that includes the plan of conversion and reorganization; however, such approval does not constitute a recommendation or endorsement of the plan of conversion and reorganization by the Federal Reserve Board.

General

The boards of directors of Pathfinder Bancorp, MHC and Pathfinder-Federal initially adopted the plan of conversion and reorganization on April 8, 2014. Pursuant to the plan of conversion and reorganization, our organization will convert from the mutual holding company form of organization to the fully stock form. Pathfinder Bancorp, MHC, the mutual holding company parent of Pathfinder-Federal, will be merged into Pathfinder-Federal, and Pathfinder Bancorp, MHC will no longer exist. Pathfinder-Federal, which owns 100% of Pathfinder Bank, will be merged into a new Maryland corporation named Pathfinder Bancorp, Inc. As part of the conversion, the 60.4% ownership interest of Pathfinder Bancorp, MHC in Pathfinder-Federal will be offered for sale in the offering. When the conversion is completed, all of the outstanding common stock of Pathfinder Bank will be owned by New Pathfinder, and all of the outstanding common stock of New Pathfinder will be owned by public stockholders. Pathfinder Bancorp, MHC and Pathfinder-Federal will cease to exist. A diagram of our corporate structure before and after the conversion is set forth in the “Summary” section of this prospectus.

Under the plan of conversion and reorganization, at the completion of the conversion and offering, each share of Pathfinder-Federal common stock owned by persons other than Pathfinder Bancorp, MHC will be converted automatically into the right to receive shares of New Pathfinder common stock determined pursuant to an exchange ratio. The exchange ratio will ensure that immediately after the exchange of existing shares of Pathfinder-Federal for new shares of New Pathfinder, the public stockholders will own the same aggregate percentage of shares of common stock of New Pathfinder that they owned in Pathfinder-Federal immediately prior to the conversion, as adjusted for the assets of Pathfinder Bancorp, MHC, and excluding any shares they purchased in the offering and their receipt of cash paid in lieu of fractional shares. See “—Impact of Pathfinder Bancorp, MHC’s Assets On Minority Stock Ownership.”

We intend to retain between $7.1 million and $11.4 million of the net proceeds of the offering and to invest between $7.8 million and $12.5 million of the net proceeds in Pathfinder Bank. The conversion will be consummated only upon the issuance of at least the minimum number of shares of our common stock offered pursuant to the plan of conversion and reorganization.

The plan of conversion and reorganization provides that we will offer shares of common stock for sale in the subscription offering to eligible account holders, our tax-qualified employee benefit plans, including our employee stock ownership plan and 401(k) plans, supplemental eligible account holders and other depositors. In addition, we may offer common stock for sale in a community offering to members of the general public, with a preference given in the following order:

(i) Natural persons (including trusts of natural persons) residing in Oswego, Onondaga, Madison, Oneida, Cortland, Lewis, Jefferson, Cayuga and Wayne Counties, New York;

(ii) Pathfinder-Federal’s public stockholders as of [Stockholder Record Date]; and

(iii) the general public.

We have the right to accept or reject, in whole or in part, any orders to purchase shares of the common stock received in the community offering. The community offering may begin at the same time, during or after the

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subscription offering and must be completed within 45 days after the completion of the subscription offering unless otherwise extended by the Federal Reserve Board. See “—Community Offering.”

We also may offer for sale shares of common stock not purchased in the subscription or community offerings through a syndicated offering in which Keefe, Bruyette & Woods, Inc. will be sole book-running manager. See “—Syndicated Offering” herein.

We determined the number of shares of common stock to be offered in the offering based upon an independent valuation appraisal of the estimated pro forma market value of New Pathfinder. All shares of common stock to be sold in the offering will be sold at $10.00 per share. Investors will not be charged a commission to purchase shares of common stock in the offering. The independent valuation will be updated and the final number of the shares of common stock to be issued in the offering will be determined at the completion of the offering. See “—Stock Pricing and Number of Shares to be Issued” for more information as to the determination of the estimated pro forma market value of the common stock.

The following is a brief summary of the conversion and is qualified in its entirety by reference to the provisions of the plan of conversion and reorganization. A copy of the plan of conversion and reorganization is available for inspection at each branch office of Pathfinder Bank. The plan of conversion and reorganization is also filed as an exhibit to Pathfinder Bancorp, MHC’s application to convert from mutual to stock form of which this prospectus is a part, copies of which may be obtained from the Federal Reserve Board. The plan of conversion and reorganization is also filed as an exhibit to the registration statement we have filed with the Securities and Exchange Commission, of which this prospectus is a part. Copies of the registration statement may be obtained from the Securities and Exchange Commission or online at the Securities and Exchange Commission’s website, www.sec.gov. See “Where You Can Find Additional Information.”

Reasons for the Conversion and Offering

Our primary reasons for converting to the fully public stock form of ownership and undertaking the stock offering are to:

· Support organic growth.   Pathfinder Bank has experienced consistent organic deposit and loan growth over the past 6 years as we have expanded our geographical footprint, increased our emphasis on growing our commercial loan and deposit relationships, and leveraged certain market opportunities, including obtaining $13.0 million in capital through SBLF. At December 31, 2009, our total assets and total deposits were $371.7 million and $296.8 million, respectively, compared to our total assets and total deposits of $525.8 million and $438.4 million, respectively, at March 31, 2014. The conversion will enable us to support additional deposit and loan growth as we expand into the Syracuse market area with the opening of our new business banking office in the third quarter of 2014.

· Improve the liquidity of our shares of common stock.   The greater number of shares that will be outstanding after completion of the conversion and offering is expected to result in a more liquid and active market for New Pathfinder common stock than has existed for Pathfinder-Federal common stock. A more liquid and active market will make it easier for our stockholders to buy and sell our common stock and will give us greater flexibility in implementing capital management strategies.

· Enhance our regulatory capital position.   A strong capital position is essential to achieving our long-term objective of building stockholder value. While Pathfinder Bank exceeds all regulatory capital requirements, the proceeds from the offering will greatly strengthen our capital position and enable us to support our planned growth and expansion. Minimum regulatory capital requirements will also increase in the future under recently adopted regulations, and compliance with these new requirements will be essential to the continued implementation of our business strategy.

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· Eliminate the uncertainties associated with the mutual holding company structure under financial reform legislation.  Under the Dodd-Frank Wall Street Reform and Consumer Protection Act, or Dodd-Frank Act, the Federal Reserve Board became the federal regulator of all savings and loan holding companies and mutual holding companies. This has resulted in changes in regulations applicable to Pathfinder Bancorp, MHC and Pathfinder-Federal, particularly changes with respect to the waiver of dividends by Pathfinder Bancorp, MHC which is a key component of our mutual holding company structure and impacts the value of Pathfinder-Federal’s common stock. The Federal Reserve Board currently requires “grandfathered” mutual holding companies, like Pathfinder Bancorp, MHC, to obtain depositor approval and comply with other procedural requirements prior to waiving dividends, which makes dividend waivers more difficult and costly to obtain. As a result, Pathfinder Bancorp, MHC has not waived dividends declared on Pathfinder-Federal’s common stock during the past several years. Instead, all dividends declared by Pathfinder-Federal have been paid to Pathfinder Bancorp, MHC, as well as our public stockholders, resulting in a tax liability for Pathfinder Bancorp, MHC, fewer capital resources available to Pathfinder-Federal and Pathfinder Bank and a decrease in the exchange ratio for our public stockholders upon conversion to stock form. The conversion will eliminate our mutual holding company structure, and enable us to pay dividends to our stockholders without the limitations described above, subject to the customary legal, regulatory and financial considerations applicable to all financial institutions. See “Our Dividend Policy.” It also will eliminate the risk that the Federal Reserve Board will amend existing regulations applicable to the conversion process in a manner disadvantageous to our public stockholders or depositors.

· Transition us to a more familiar and flexible organizational structure.   The stock holding company structure is a more familiar form of organization, which we believe will make our common stock more appealing to investors, and will give us greater flexibility to access the capital markets through possible future equity and debt offerings, although we have no current plans, agreements or understandings regarding any additional securities offerings.

· Facilitate future mergers and acquisitions.   Although we do not currently have any understandings or agreements regarding any specific acquisition transaction, the stock holding company structure will give us greater flexibility to structure mergers and acquisitions of other financial institutions or financial services companies as opportunities arise, which will make us a more attractive and competitive bidder for such institutions. The additional capital raised in the offering also will enable us to consider larger merger transactions. In addition, although we intend to remain an independent financial institution, the stock holding company structure may make us a more attractive acquisition candidate for other institutions. Applicable regulations prohibit the acquisition of New Pathfinder for three years following completion of the conversion.

Approvals Required

The affirmative vote of a majority of the total votes eligible to be cast by the depositors of Pathfinder Bank is required to approve the plan of conversion and reorganization. By their approval of the plan of conversion and reorganization, the depositors of Pathfinder Bank will also be approving the merger of Pathfinder Bancorp, MHC into Pathfinder-Federal. The affirmative vote of the holders of at least two-thirds of the outstanding shares of common stock of Pathfinder-Federal and the affirmative vote of the holders of a majority of the outstanding shares of common stock of Pathfinder-Federal held by the public stockholders of Pathfinder-Federal (stockholders other than Pathfinder Bancorp, MHC) also are required to approve the plan of conversion and reorganization. The plan of conversion and reorganization also must be approved by the Federal Reserve Board, which has approved the application that includes the plan of conversion and reorganization. The NYDFS must also approve the amendment to Pathfinder Bank’s Restated Organization Certificate to create a liquidation account.

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Share Exchange Ratio for Current Common Stockholders

Federal regulations provide that in a conversion of a mutual holding company to stock form, the public common stockholders will be entitled to exchange their shares for common stock of the new stock holding company, provided that the mutual holding company demonstrates to the satisfaction of the Federal Reserve Board that the basis for the exchange is fair and reasonable. At the completion of the conversion, each publicly held share of Pathfinder-Federal common stock will be converted automatically into the right to receive a number of shares of New Pathfinder common stock. The number of shares of common stock will be determined pursuant to the exchange ratio, which ensures that the public stockholders will own the same percentage of common stock in New Pathfinder after the conversion as they held in Pathfinder-Federal immediately prior to the conversion, exclusive of their purchase of additional shares of common stock in the offering and their receipt of cash in lieu of fractional exchange shares. The exchange ratio will not depend on the market value of Pathfinder-Federal common stock. The exchange ratio will be based on the percentage of Pathfinder-Federal common stock held by the public, the independent valuation of New Pathfinder prepared by RP Financial, LC., and the number of shares of common stock issued in the offering. The exchange ratio is expected to range from approximately 1.0552 shares for each publicly held share of Pathfinder-Federal at the minimum of the offering range to 1.6417 shares for each publicly held share of Pathfinder-Federal at the adjusted maximum of the offering range.

The following table shows how the exchange ratio will adjust, based on the appraised value of New Pathfinder as of May 16, 2014, assuming public stockholders of Pathfinder-Federal own 39.2% of Pathfinder-Federal common stock immediately prior to the completion of the conversion. The table also shows how many shares of New Pathfinder a hypothetical owner of Pathfinder-Federal common stock would receive in the exchange for 100 shares of common stock owned at the completion of the conversion, depending on the number of shares issued in the offering.

	Shares to be Sold in This Offering					Shares of New Pathfinder to be Issued for Shares of Pathfinder-Federal					Total Shares of Common Stock to be Issued in Exchange and		Exchange		Equivalent Value of Shares Based Upon Offering		Equivalent Pro Forma Tangible Book Value Per Exchanged		Shares to be Received for 100 Existing
	Amount		Percent			Amount		Percent			Offering (1)		Ratio (1)		Price (2)		Share (3)		Shares (4)
Minimum		1,700,000		60.8	%		1,097,324		39.2	%		2,797,324		1.0552	$	10.55	$	15.37		105
Midpoint		2,000,000		60.8			1,290,969		39.2			3,290,969		1.2414		12.41		16.42		124
Maximum		2,300,000		60.8			1,484,614		39.2			3,784,614		1.4276		14.28		17.46		142
Adjusted Maximum		2,645,000		60.8			1,707,306		39.2			4,352,306		1.6417		16.42		18.65		164

_________________

(1) Valuation and ownership ratios reflect dilutive impact of Pathfinder Bancorp, MHC’s assets upon completion of the conversion. See “—Impact of Pathfinder Bancorp, MHC’s Assets On Minority Stock Ownership” for more information regarding the dilutive impact of Pathfinder Bancorp, MHC’s assets on the valuation and ownership ratios.

(2) Represents the value of shares of New Pathfinder common stock to be received in the conversion by a holder of one share of Pathfinder-Federal, pursuant to the exchange ratio, based upon the $10.00 per share offering price.

(3) Represents the pro forma tangible book value per share at each level of the offering range multiplied by the respective exchange ratio.

(4) Cash will be paid in lieu of fractional shares.

If you own shares of Pathfinder-Federal common stock in a brokerage account in “street name,” your shares will be exchanged automatically within your account, so you do not need to take any action to exchange your shares of common stock. If your shares are represented by physical Pathfinder-Federal stock certificates, after the completion of the conversion, our transfer agent will mail to you a transmittal form with instructions to surrender your stock certificate(s). You should not submit a stock certificate until you receive a transmittal form. A statement reflecting your ownership of New Pathfinder common stock will be mailed to you within five business days after the transfer agent receives a properly executed transmittal form and your Pathfinder-Federal stock certificate(s). New Pathfinder will not issue stock certificates.

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No fractional shares of New Pathfinder common stock will be issued to any public stockholder of Pathfinder-Federal. For each fractional share of common stock that otherwise would be issued, New Pathfinder will pay in cash an amount equal to the product obtained by multiplying the fractional share interest to which the holder otherwise would be entitled by the $10.00 per share offering price.

Pathfinder-Federal’s Series B Preferred Stock will not be redeemed in connection with the conversion and will be exchanged for preferred stock of New Pathfinder with the same rights and preferences identical to the Series B Preferred Stock of Pathfinder-Federal on a one for one exchange basis. No other preferred stock will be issued as a result of the conversion.

Outstanding options to purchase shares of Pathfinder-Federal common stock also will convert into and become options to purchase shares of New Pathfinder common stock based upon the exchange ratio. The aggregate exercise price, duration and vesting schedule of these options will not be affected by the conversion. At March 31, 2014, there were 105,500 outstanding options to purchase shares of Pathfinder-Federal common stock, 38,500 of which have vested. Such outstanding options will be converted into options to purchase 111,323 shares of New Pathfinder common stock at the minimum of the offering range and 150,611 shares of New Pathfinder common stock at the maximum of the offering range. Because federal regulations prohibit us from repurchasing our common stock during the first year following the conversion unless compelling business reasons exist for such repurchases, we may use authorized but unissued shares to fund option exercises that occur during the first year following the conversion. If all existing options were exercised and funded with authorized but unissued shares of common stock following the conversion, stockholders would experience ownership dilution of approximately 3.8% at the minimum of the offering range.

Effects of Conversion on Depositors, Borrowers and Depositors

Continuity. The conversion will not affect the normal business of Pathfinder Bank of accepting deposits and making loans. Pathfinder Bank will continue to be a New York-chartered savings bank and will continue to be regulated by the NYDFS and the FDIC. After the conversion, Pathfinder Bank will continue to offer existing services to depositors, borrowers and other customers. The directors serving Pathfinder-Federal at the time of the conversion will be the directors of New Pathfinder after the conversion.

Effect on Deposit Accounts. Pursuant to the plan of conversion and reorganization, each depositor of Pathfinder Bank at the time of the conversion will automatically continue as a depositor after the conversion, and the deposit balance, interest rate and other terms of such deposit accounts will not change as a result of the conversion. Each such account will be insured by the FDIC to the same extent as before the conversion. Depositors will continue to hold their existing certificates, passbooks and other evidences of their accounts.

Effect on Loans. No loan outstanding from Pathfinder Bank will be affected by the conversion, and the amount, interest rate, maturity and security for each loan will remain as it was contractually fixed prior to the conversion.

Effect on Voting Rights of Depositors. At present, all depositors of Pathfinder Bank have voting rights in, Pathfinder Bancorp, MHC as to all matters requiring depositor approval. Upon completion of the conversion, depositors will cease to have any voting rights. Upon completion of the conversion, all voting rights in Pathfinder Bank will be vested in New Pathfinder as the sole stockholder of Pathfinder Bank. The stockholders of New Pathfinder will possess exclusive voting rights with respect to New Pathfinder common stock.

Tax Effects. We have received an opinion of counsel with regard to the federal income tax consequences of the conversion and an opinion of our independent public accountant with regard to the state income tax consequences of the conversion to the effect that the conversion will not be a taxable transaction for federal or state income tax purposes to Pathfinder Bancorp, MHC, Pathfinder-Federal, the public stockholders of Pathfinder-Federal (except for cash paid for fractional shares), depositors of Pathfinder Bank, eligible account holders, supplemental eligible account holders, or Pathfinder Bank. See “—Material Income Tax Consequences.”

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Effect on Liquidation Rights.  Each depositor in Pathfinder Bank has both a deposit account in Pathfinder Bank and a pro rata ownership interest in the net worth of Pathfinder Bancorp, MHC based upon the deposit balance in his or her account. This ownership interest is tied to the depositor’s account and has no tangible market value separate from the deposit account. This ownership interest may only be realized in the event of a complete liquidation of Pathfinder Bancorp, MHC and Pathfinder Bank; however, there has never been a liquidation of a solvent mutual holding company. Any depositor who opens a deposit account obtains a pro rata ownership interest in Pathfinder Bancorp, MHC without any additional payment beyond the amount of the deposit. A depositor who reduces or closes his or her account receives a portion or all of the balance in the deposit account but nothing for his or her ownership interest in the net worth of Pathfinder Bancorp, MHC, which is lost to the extent that the balance in the account is reduced or closed.

Consequently, depositors in a stock subsidiary of a mutual holding company normally have no way of realizing the value of their ownership interest, which would be realizable only in the unlikely event that Pathfinder Bancorp, MHC and Pathfinder Bank are liquidated. If this occurs, the depositors of record at that time, as owners, would share pro rata in any residual surplus and reserves of Pathfinder Bancorp, MHC after other claims, including claims of depositors to the amounts of their deposits, are paid.

Under the plan of conversion, Eligible Account Holders and Supplemental Eligible Account Holders will receive an interest in liquidation accounts maintained by New Pathfinder and Pathfinder Bank in an aggregate amount equal to (i) Pathfinder Bancorp, MHC’s ownership interest in Pathfinder-Federal’s total stockholders’ equity as of the date of the latest statement of financial condition used in this prospectus plus (ii) the value of the net assets of Pathfinder Bancorp, MHC as of the date of the latest statement of financial condition of Pathfinder Bancorp, MHC prior to the consummation of the conversion (excluding its ownership of Pathfinder-Federal). New Pathfinder and Pathfinder Bank will hold the liquidation accounts for the benefit of Eligible Account Holders and Supplemental Eligible Account Holders who continue to maintain deposits in Pathfinder Bank after the conversion. The liquidation accounts would be distributed to Eligible Account Holders and Supplemental Eligible Account Holders who maintain their deposit accounts in Pathfinder Bank only in the event of a liquidation of (a) New Pathfinder and Pathfinder Bank or (b) Pathfinder Bank. The liquidation account in Pathfinder Bank would be used only in the event that New Pathfinder does not have sufficient assets to fund its obligations under its liquidation account. The total obligation of New Pathfinder and Pathfinder Bank under their respective liquidation accounts will never exceed the dollar amount of New Pathfinder’s liquidation account as adjusted from time to time pursuant to the plan of conversion and reorganization and federal regulations. See “—Liquidation Rights.”

Stock Pricing and Number of Shares to be Issued

The plan of conversion and reorganization and federal regulations require that the aggregate purchase price of the common stock sold in the offering must be based on the appraised pro forma market value of the common stock, as determined by an independent valuation. We have retained RP Financial, LC. to prepare an independent valuation appraisal. For its services in preparing the initial valuation, RP Financial, LC. will receive a fee of $55,000, payment for reimbursable expenses up to $10,000 and an additional $7,500 for each updated valuation prepared. We have paid RP Financial, LC. a nominal amount of other fees during the previous three years. We have agreed to indemnify RP Financial, LC. and its employees and affiliates against specified losses, including any losses in connection with claims under the federal securities laws, arising out of its services as independent appraiser, except where such liability results from RP Financial, LC.’s bad faith or negligence.

The independent valuation was prepared by RP Financial, LC. in reliance upon the information contained in this prospectus, including the consolidated financial statements of Pathfinder-Federal. RP Financial, LC. also considered the following factors, among others:

· the present results and financial condition of Pathfinder-Federal and the projected results and financial condition of New Pathfinder;

· the economic and demographic conditions in Pathfinder-Federal’s existing market area;

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· certain historical, financial and other information relating to Pathfinder-Federal;

· a comparative evaluation of the operating and financial characteristics of Pathfinder-Federal with those of other publicly traded savings institutions;

· the effect of the conversion and offering on New Pathfinder’s stockholders’ equity and earnings potential;

· the proposed dividend policy of New Pathfinder; and

· the trading market for securities of comparable institutions and general conditions in the market for such securities.

The independent valuation is also based on an analysis of a peer group of publicly traded savings and loan holding companies that RP Financial, LC. considered comparable to New Pathfinder under regulatory guidelines applicable to the independent valuation. Under these guidelines, a minimum of ten peer group companies are selected from the universe of all publicly-traded savings institutions with relatively comparable resources, strategies and financial and other operating characteristics. Such companies must also be traded on an exchange (such as Nasdaq or the New York Stock Exchange). The peer group companies selected for New Pathfinder also consisted of fully-converted stock institutions that were not subject to an actual or rumored acquisition and that had been in fully-converted form for at least one year. In addition, RP Financial, LC. limited the peer group companies to the following two selection criteria: (1) those institutions headquartered in the mid-Atlantic region of the U.S. with total assets between $250 million and $1.0 billion, a tangible equity/assets ratio greater than 7.5% and reporting positive core net income on a trailing twelve-month basis; and, (2) those institutions located in the Northeast region of the U.S. with total assets between $250 million and $1.0 billion, reporting positive core net income on a trailing twelve-month basis and a tangible equity/assets ratio greater than 7.5%.

The independent valuation appraisal considered the pro forma effect of the offering. Consistent with federal appraisal guidelines, the appraisal applied three primary methodologies: (i) the pro forma price-to-book value approach applied to both reported book value and tangible book value; (ii) the pro forma price-to-earnings approach applied to reported and core earnings; and (iii) the pro forma price-to-assets approach. The market value ratios applied in the three methodologies were based on the current market valuations of the peer group companies. RP Financial, LC. placed the greatest emphasis on the price-to-earnings and price-to-book approaches in estimating pro forma market value. RP Financial, LC. did not consider a pro forma price-to-assets approach to be as meaningful in preparing the appraisal.

In applying each of the valuation methods, RP Financial, LC. considered adjustments to the pro forma market value based on a comparison of New Pathfinder with the peer group. RP Financial, LC. made downward adjustments for financial condition, profitability, growth and viability of earnings, asset growth and primary market area. RP Financial made no adjustments for dividends, liquidity of the shares, marketing of the issue, management, or effect of government regulations and regulatory reform. The downward adjustment applied for financial condition was due to Pathfinder-Federal’s less favorable credit quality measures and higher costing capital structure. The downward adjustment applied for profitability, growth and viability of earnings took into consideration Pathfinder-Federal’s less favorable efficiency and expense coverage ratios and slightly higher ratio of loan loss provisions as a percent of average assets. The downward adjustment applied for asset growth was due to Pathfinder-Federal’s lower historical asset growth and, in particular, Pathfinder-Federal’s lower historical rate of loan growth. The downward adjustment applied for primary market area took into consideration Oswego County’s generally less favorable demographic measures and relatively high unemployment rate.

Included in RP Financial, LC.’s independent valuation were certain assumptions as to the pro forma earnings of New Pathfinder after the conversion that were used in determining the appraised value. These assumptions included estimated expenses, an assumed after-tax rate of return of 1.04% as of March 31, 2014 on the net offering proceeds and purchases in the open market of 4% of the common stock issued in the offering by the

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stock-based benefit plan at the $10.00 per share purchase price. See “Pro Forma Data” for additional information concerning assumptions included in the independent valuation and used in preparing pro forma data. The use of different assumptions may yield different results.

The independent valuation states that as of May 16, 2014, the estimated pro forma market value of New Pathfinder was $32.9 million. Based on federal regulations, this market value forms the midpoint of a range with a minimum of $28.0 million and a maximum of $37.8 million. The aggregate offering price of the shares will be equal to the valuation range multiplied by the percentage of Pathfinder-Federal common stock owned by Pathfinder Bancorp, MHC, as adjusted to reflect assets held by Pathfinder Bancorp, MHC (including the payment of a $0.03 per share dividend by Pathfinder-Federal to stockholders in the second quarter of 2014, and assuming the payment of an equivalent dividend in the third quarter of 2014 prior to the completion of the conversion). The number of shares offered will be equal to the aggregate offering price of the shares divided by the price per share. Based on the valuation range, the percentage of Pathfinder-Federal common stock owned by Pathfinder Bancorp, MHC and the $10.00 price per share, the minimum of the offering range is 1,700,000 shares, the midpoint of the offering range is 2,000,000 shares and the maximum of the offering range is 2,300,000 shares.

The board of directors of New Pathfinder reviewed the independent valuation and, in particular, considered the following:

· Pathfinder-Federal’s financial condition and results of operations;

· a comparison of financial performance ratios of Pathfinder-Federal to those of other financial institutions of similar size;

· market conditions generally and in particular for financial institutions; and

· the historical trading price of the publicly held shares of Pathfinder-Federal common stock.

All of these factors are set forth in the independent valuation. The board of directors also reviewed the methodology and the assumptions used by RP Financial, LC. in preparing the independent valuation and believes that such assumptions were reasonable. The offering range may be amended with the approval of the Federal Reserve Board, if required, as a result of subsequent developments in the financial condition of Pathfinder-Federal or Pathfinder Bank or market conditions generally. In the event the independent valuation is updated to amend the pro forma market value of New Pathfinder to less than $28.0 million or more than $43.5 million, the appraisal will be filed with the Securities and Exchange Commission by a post-effective amendment to New Pathfinder’s registration statement.

The following table presents a summary of selected pricing ratios for New Pathfinder (on a pro forma basis) based on earnings and other information as of and for the twelve months ended March 31, 2014 and for the peer group companies based on earnings and other information as of and for the twelve months ended March 31, 2014 or the most recent twelve-month period of financial data available, and stock price information as of May 16, 2014, as reflected in the appraisal report. Compared to the average pricing of the peer group, our pro forma pricing ratios at the midpoint of the offering range indicated a discount of 28.2% on a price-to-book value basis, a discount of 24.1% on a price-to-tangible book value basis and a discount of 16.9% on a price-to-earnings basis. Our board of directors, in reviewing and approving the appraisal, considered the range of price-to-earnings multiples and the range of price-to-book value and price-to-tangible book value ratios at the different amounts of shares to be sold in the offering. The appraisal did not consider one valuation approach to be more important than the other. The estimated appraised value and the resulting premium/discount took into consideration the potential financial effect of the conversion and offering as well as the trading price of Pathfinder-Federal’s common stock. The closing price of the common stock was $14.90 per share on May 16, 2014, the effective date of the appraisal, and $14.45 per share on April 8, 2014, the last trading day immediately preceding the announcement of the conversion.

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	Price-to-earnings multiple (1)			Price-to-book value ratio			Price-to-tangible book value ratio
New Pathfinder (on a pro forma basis, assuming completion of the conversion)
Adjusted Maximum		23.43	x		80.58	%		88.03	%
Maximum		20.29	x		74.46	%		81.77	%
Midpoint		17.58	x		68.45	%		75.59	%
Minimum		14.89	x		61.73	%		68.63	%
Valuation of peer group companies, all of which are fully converted (on an historical basis)
Averages		21.16	x		95.31	%		99.65	%
Medians		21.04	x		96.63	%		99.21	%

(1) Price-to-earnings multiples calculated by RP Financial, LC. in the independent appraisal are based on an estimate of “core,” or recurring, earnings on a trailing twelve-month basis through March 31, 2014 for New Pathfinder and March 31, 2014 or the most recent twelve-month period available for the peer group companies. These ratios are different than those presented in “Pro Forma Data.”

The independent valuation is not intended, and must not be construed, as a recommendation of any kind as to the advisability of purchasing our shares of common stock. RP Financial, LC. did not independently verify our consolidated financial statements and other information that we provided to them, nor did RP Financial, LC. independently value our assets or liabilities. The independent valuation considers Pathfinder Bank as a going concern and should not be considered as an indication of the liquidation value of Pathfinder Bank. Moreover, because the valuation is necessarily based upon estimates and projections of a number of matters, all of which may change from time to time, no assurance can be given that persons purchasing our common stock in the offering will thereafter be able to sell their shares at prices at or above the $10.00 price per share.

Following commencement of the subscription offering, the maximum of the valuation range may be increased by up to 15%, or up to $43.5 million, without resoliciting subscribers, which will result in a corresponding increase of up to 15% in the maximum of the offering range to up to 2,645,000 shares, to reflect changes in the market and financial conditions or demand for the shares.  We will not decrease the minimum of the valuation range and the minimum of the offering range without a resolicitation of subscribers.  The subscription price of $10.00 per share will remain fixed.  See “—Additional Limitations on Common Stock Purchases” as to the method of distribution of additional shares to be issued in the event of an increase in the offering range of up to 2,645,000 shares.

If the update to the independent valuation at the conclusion of the offering results in an increase in the maximum of the valuation range to more than $43.5 million and a corresponding increase in the offering range to more than 2,645,000 shares, or a decrease in the minimum of the valuation range to less than $28.0 million and a corresponding decrease in the offering range to fewer than 1,700,000 shares, then we will promptly return with interest at [interest rate]% per annum all funds previously delivered to us to purchase shares of common stock in the subscription and community offerings and cancel deposit account withdrawal authorizations and, after consulting with the Federal Reserve Board, we may terminate the plan of conversion and reorganization. Alternatively, we may establish a new offering range, extend the offering period and commence a resolicitation of purchasers or take other actions as permitted by the Federal Reserve Board in order to complete the offering. In the event that we extend the offering and conduct a resolicitation due to a change in the independent valuation, we will notify subscribers of the extension of time and of the rights of subscribers to place a new stock order for a specified period of time. Any single offering extension will not exceed 90 days; aggregate extensions may not conclude beyond ________, 2016, which is two years after the special meeting of depositors to vote on the conversion.

An increase in the number of shares to be issued in the offering would decrease both a subscriber’s ownership interest and New Pathfinder’s pro forma earnings and stockholders’ equity on a per share basis while increasing stockholders’ equity on an aggregate basis. A decrease in the number of shares to be issued in the offering would increase both a subscriber’s ownership interest and New Pathfinder’s pro forma earnings and stockholders’ equity on a per share basis, while decreasing stockholders’ equity on an aggregate basis.

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Copies of the independent valuation appraisal report of RP Financial, LC. and the detailed memorandum setting forth the method and assumptions used in the appraisal report are filed as exhibits to the documents specified under “Where You Can Find Additional Information.”

Subscription Offering and Subscription Rights

In accordance with the plan of conversion and reorganization, rights to subscribe for shares of common stock in the subscription offering have been granted in the following descending order of priority. The filling of all subscriptions that we receive will depend on the availability of common stock after satisfaction of all subscriptions of all persons having prior rights in the subscription offering and on the purchase and ownership limitations set forth in the plan of conversion and reorganization and as described below under “—Additional Limitations on Common Stock Purchases.”

Priority 1: Eligible Account Holders. Each depositor of Pathfinder Bank with aggregate deposit account balances of $50.00 or more (a “Qualifying Deposit”) at the close of business on March 31, 2013 (an “Eligible Account Holder”) will receive, without payment therefor, nontransferable subscription rights to purchase up to $250,000 (25,000 shares) of our common stock, subject to the overall purchase limitations. See “—Additional Limitations on Common Stock Purchases.” If there are not sufficient shares available to satisfy all subscriptions, shares will first be allocated so as to permit each Eligible Account Holder to purchase a number of shares sufficient to make his or her total allocation equal to the lesser of 100 shares or the number of shares for which he or she subscribed. Thereafter, any remaining shares will be allocated to each Eligible Account Holder whose subscription remains unfilled in the proportion that the amount of his or her Qualifying Deposit bears to the total amount of Qualifying Deposits of all subscribing Eligible Account Holders whose subscriptions remain unfilled. If an amount so allocated exceeds the amount subscribed for by any one or more Eligible Account Holders, the excess shall be reallocated among those Eligible Account Holders whose subscriptions are not fully satisfied until all available shares have been allocated.

To ensure proper allocation of our shares of common stock, each Eligible Account Holder must list on his or her stock order form all deposit accounts in which he or she has an ownership interest on March 31, 2013. In the event of an oversubscription, failure to list an account could result in fewer shares being allocated than if all accounts had been disclosed. In the event of an oversubscription, the subscription rights of Eligible Account Holders who are also directors or executive officers of Pathfinder-Federal or who are associates of such persons will be subordinated to the subscription rights of other Eligible Account Holders to the extent attributable to their increased deposits in the 12 months preceding March 31, 2013.

Priority 2: Tax-Qualified Plans. Our tax-qualified employee plans, including our employee stock ownership plan and 401(k) plan, will receive, without payment therefor, nontransferable subscription rights to purchase in the aggregate up to 10% of the shares of common stock sold in the offering, although our employee stock ownership plan intends to purchase 4% of the shares of common stock sold in the offering. If market conditions warrant, in the judgment of its trustees, the employee stock ownership plan may instead elect to purchase shares in the open market following the completion of the conversion, subject to the approval of the Federal Reserve Board. The amount of the subscription requests by the 401(k) plan will be determined by its participants, who will have the right to invest all or a portion of their 401(k) plan accounts in our common stock, subject to the maximum purchase limitations. However, to comply with the limitations applicable to our tax-qualified employee plans, our 401(k) plan may purchase no more than 6% of the shares of common stock sold in the offering.

Priority 3: Supplemental Eligible Account Holders. To the extent that there are sufficient shares of common stock remaining after satisfaction of subscriptions by Eligible Account Holders and our tax-qualified employee stock benefit plans, each depositor of Pathfinder Bank with a Qualifying Deposit at the close of business on [Supplemental Eligibility Record Date] who is not an Eligible Account Holder (“Supplemental Eligible Account Holder”) will receive, without payment therefor, nontransferable subscription rights to purchase up to $250,000 (25,000 shares) of common stock, subject to the overall purchase limitations. See “—Additional Limitations on Common Stock Purchases.” If there are not sufficient shares available to satisfy all subscriptions, shares will be

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allocated so as to permit each Supplemental Eligible Account Holder to purchase a number of shares sufficient to make his or her total allocation equal to the lesser of 100 shares of common stock or the number of shares for which he or she subscribed. Thereafter, any remaining shares will be allocated to each Supplemental Eligible Account Holder whose subscription remains unfilled in the proportion that the amount of his or her Qualifying Deposit bears to the total amount of Qualifying Deposits of all Supplemental Eligible Account Holders whose subscriptions remain unfilled. If an amount so allocated exceeds the amount subscribed for by any one or more Supplemental Eligible Account Holders, the excess shall be reallocated among those Supplemental Eligible Account Holders whose subscriptions are not fully satisfied until all available shares have been allocated.

To ensure proper allocation of common stock, each Supplemental Eligible Account Holder must list on the stock order form all deposit accounts in which he or she has an ownership interest at [Supplemental Eligibility Record Date]. In the event of an oversubscription, failure to list an account could result in fewer shares being allocated than if all accounts had been disclosed.

Priority 4: Other Depositors. To the extent that there are shares of common stock remaining after satisfaction of subscriptions by Eligible Account Holders, our tax-qualified employee stock benefit plans, and Supplemental Eligible Account Holders, each depositor of Pathfinder Bank as of the close of business on [Depositor Record Date] who is not an Eligible Account Holder or Supplemental Eligible Account Holder (“Other Depositors”) will receive, without payment therefor, nontransferable subscription rights to purchase up to $250,000 (25,000 shares) of common stock, subject to the overall purchase limitations. See “—Additional Limitations on Common Stock Purchases.” If there are not sufficient shares available to satisfy all subscriptions, shares will be allocated so as to permit each Other Depositor to purchase a number of shares sufficient to make his or her total allocation equal to the lesser of 100 shares of common stock or the number of shares for which he or she subscribed. Thereafter, any remaining shares will be allocated in the proportion that the amount of the subscription of each Other Depositor bears to the total amount of the subscriptions of all Other Depositors whose subscriptions remain unsatisfied.

To ensure proper allocation of common stock, each Other Depositor must list on the stock order form all deposit accounts in which he or she had an ownership interest at [Depositor Record Date]. In the event of an oversubscription, failure to list an account could result in fewer shares being allocated than if all accounts had been disclosed.

Expiration Date. The subscription offering will expire at 2:00 p.m., Eastern Time, on [expiration date], unless extended by us for up to 45 days or such additional periods with the approval of the Federal Reserve Board, if necessary. Subscription rights will expire whether or not each eligible depositor can be located. We may decide to extend the expiration date of the subscription offering for any reason, whether or not subscriptions have been received for shares at the minimum, midpoint or maximum of the offering range. Subscription rights which have not been exercised prior to the expiration date will become void.

We will not execute orders until at least the minimum number of shares of common stock have been sold in the offering. If at least 1,700,000 shares have not been sold in the offering by [extension date #1] and the Federal Reserve Board has not consented to an extension, all funds delivered to us to purchase shares of common stock in the offering will be returned promptly, with interest at [interest rate]% per annum for funds received in the subscription and community offerings, and all deposit account withdrawal authorizations will be cancelled. If an extension beyond [extension date #1] is granted by the Federal Reserve Board, we will resolicit purchasers in the offering as described under “—Procedure for Purchasing Shares—Expiration Date.”

Community Offering

To the extent that shares of common stock remain available for purchase after satisfaction of all subscriptions of Eligible Account Holders, our tax-qualified employee stock benefit plans, Supplemental Eligible Account Holders and Other Depositors, we may offer shares pursuant to the plan of conversion and reorganization to members of the general public in a community offering. Shares will be offered in the community offering with the following preferences:

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(i) Natural persons (including trusts of natural persons) residing in Oswego, Onondaga, Madison, Oneida, Cortland, Lewis, Jefferson, Cayuga and Wayne Counties, New York;

(ii) Pathfinder-Federal’s public stockholders as of [Stockholder Record Date]; and

(iii) the general public.

Subscribers in the community offering may purchase up to $250,000 (25,000 shares) of common stock, subject to the overall purchase limitations. See “—Additional Limitations on Common Stock Purchases.” The opportunity to purchase shares of common stock in the community offering category is subject to our right, in our sole discretion, to accept or reject any such orders in whole or in part either at the time of receipt of an order or as soon as practicable following the expiration date of the offering.

If we do not have sufficient shares of common stock available to fill the orders of natural persons (including trusts of natural persons) residing in Oswego, Onondaga, Madison, Oneida, Cortland, Lewis, Jefferson, Cayuga and Wayne Counties, New York, we will allocate the available shares among those persons in a manner that permits each of them, to the extent possible, to purchase the lesser of 100 shares or the number of shares subscribed for by such person. Thereafter, unallocated shares will be allocated among natural persons residing in those counties whose orders remain unsatisfied on an equal number of shares basis per order. If an oversubscription occurs due to the orders of public stockholders of Pathfinder-Federal or members of the general public, the allocation procedures described above will apply to the stock orders of such persons. In connection with the allocation process, orders received for shares of common stock in the community offering will first be filled up to a maximum of 2% of the shares sold in the offering, and thereafter any remaining shares will be allocated on an equal number of shares basis per order until all shares have been allocated.

The term “residing” or “resident” as used in this prospectus means any person who occupies a dwelling within Oswego, Onondaga, Madison, Oneida, Cortland, Lewis, Jefferson, Cayuga and Wayne Counties, New York, has a present intent to remain within this community for a period of time, and manifests the genuineness of that intent by establishing an ongoing physical presence within the community, together with an indication that this presence within the community is something other than merely transitory in nature. We may utilize deposit or loan records or other evidence provided to us to decide whether a person is a resident. In all cases, however, the determination shall be in our sole discretion.

Expiration Date.   The community offering may begin concurrently with, during or promptly after the subscription offering, and is currently expected (if commenced) to terminate at the same time as the subscription offering, and must terminate no more than 45 days following the subscription offering, unless extended. New Pathfinder may decide to extend the community offering for any reason and is not required to give purchasers notice of any such extension unless such period extends beyond [extension date #1], in which event we will resolicit purchasers.

Syndicated Offering

If feasible, our board of directors may decide to offer for sale shares of common stock not subscribed for or purchased in the subscription and community offerings in a syndicated offering, subject to such terms, conditions and procedures as we may determine, in a manner that will achieve a wide distribution of our shares of common stock.

If a syndicated offering is held, Keefe, Bruyette & Woods, Inc. will serve as sole book-running manager.  In the event that shares of common stock are sold in a syndicated offering, we will pay fees of 6% of the aggregate amount of common stock sold in the syndicated offering to Keefe, Bruyette & Woods, Inc. and any other broker-dealers included in the syndicated offering. The shares of common stock will be sold at the same price per share ($10.00 per share) that the shares are sold in the subscription offering and the community offering.

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In the event of a syndicated offering, it is currently expected that investors would follow the same general procedures applicable to purchasing shares in the subscription and community offerings (the use of order forms and the submission of funds directly to New Pathfinder for the payment of the purchase price of the shares ordered) except that payment must be in immediately available funds (bank checks, money orders, deposit account withdrawals from accounts at Pathfinder Bank or wire transfers). See “—Procedure for Purchasing Shares.” “Sweep” arrangements and delivery versus payment settlement will only be used in a syndicated offering to the extent consistent with Rules 10b-9 and 15c2-4 and then-existing guidance and interpretations thereof of the Securities and Exchange Commission regarding the conduct of “min/max” offerings.

If for any reason we cannot effect a syndicated offering of shares of common stock not purchased in the subscription and community offerings, or in the event that there are an insignificant number of shares remaining unsold after such offerings, we will try to make other arrangements for the sale of unsubscribed shares.  The Federal Reserve Board and the Financial Industry Regulatory Authority must approve any such arrangements.

Additional Limitations on Common Stock Purchases

The plan of conversion and reorganization includes the following additional limitations on the number of shares of common stock that may be purchased in the offering:

(i) No person may purchase fewer than 25 shares of common stock;

(ii) Tax qualified employee benefit plans, including our employee stock ownership plan and 401(k) plan, may purchase in the aggregate up to 10% of the shares of common stock issued in the offering, including shares issued in the event of an increase in the offering range of up to 15%;

(iii) Except for the employee stock ownership plan and 401(k) plan, as described above, no person or entity, together with associates or persons acting in concert with such person or entity, may purchase more than $500,000 (50,000 shares) of common stock in all categories of the offering combined;

(iv) Current stockholders of Pathfinder-Federal are subject to an ownership limitation. As previously described, current stockholders of Pathfinder-Federal will receive shares of New Pathfinder common stock in exchange for their existing shares of Pathfinder-Federal common stock. The number of shares of common stock that a stockholder may purchase in the offering, together with associates or persons acting in concert with such stockholder, when combined with the shares that the stockholder and his or her associates will receive in exchange for existing Pathfinder-Federal common stock, may not exceed 9.9% of the shares of common stock of New Pathfinder to be issued and outstanding at the completion of the conversion; and

(v) The maximum number of shares of common stock that may be purchased in all categories of the offering by executive officers and directors of Pathfinder Bank and their associates, in the aggregate, when combined with shares of common stock issued in exchange for existing shares, may not exceed 25% of the total shares issued in the conversion.

Depending upon market or financial conditions, our board of directors, with the approval of the Federal Reserve Board and without further approval of depositors of Pathfinder Bank, may decrease or increase the purchase limitations. If a purchase limitation is increased, subscribers in the subscription offering who ordered the maximum amount will be given the opportunity to increase their orders up to the then applicable limit. The effect of this type of resolicitation will be an increase in the number of shares of common stock owned by persons who choose to increase their orders. In the event that the maximum purchase limitation is increased to 5% of the shares sold in the offering, such limitation may be further increased to 9.99%, provided that orders for shares of common stock exceeding 5% of the shares sold in the offering shall not exceed in the aggregate 10% of the total shares sold in the offering.

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In the event of an increase in the offering range of up to 2,645,000 shares of common stock, shares will be allocated in the following order of priority in accordance with the plan of conversion and reorganization:

(i) to fill the subscriptions of our tax-qualified employee benefit plans, specifically the employee stock ownership plan, for up to 10% of the total number of shares of common stock issued in the offering;

(ii) in the event that there is an oversubscription at the Eligible Account Holder, Supplemental Eligible Account Holder or Other Member levels, to fill unfilled subscriptions of these subscribers according to their respective priorities; and

(iii) to fill unfilled subscriptions in the community offering, with preference given first to natural persons (including trusts of natural persons) residing in Oswego, Onondaga, Madison, Oneida, Cortland, Lewis, Jefferson, Cayuga and Wayne Counties, New York, then to Pathfinder-Federal’s public stockholders as of [Stockholder Record Date], and then to members of the general public.

The term “associate” of a person means:

(i) any corporation or organization, other than Pathfinder-Federal, Pathfinder Bank or a majority-owned subsidiary of Pathfinder Bank, of which the person is a senior officer, partner or 10% beneficial stockholder;

(ii) any trust or other estate in which the person has a substantial beneficial interest or serves as a trustee or in a similar fiduciary capacity; provided, however, it does not include any employee stock benefit plan in which the person has a substantial beneficial interest or serves as trustee or in a similar fiduciary capacity; and

(iii) any blood or marriage relative of the person, who either has the same home as the person or who is a director or officer of Pathfinder-Federal or Pathfinder Bank.

The term “acting in concert” means:

(i) knowing participation in a joint activity or interdependent conscious parallel action towards a common goal whether or not pursuant to an express agreement; or

(ii) a combination or pooling of voting or other interests in the securities of an issuer for a common purpose pursuant to any contract, understanding, relationship, agreement or other arrangement, whether written or otherwise.

A person or company that acts in concert with another person or company (“other party”) will also be deemed to be acting in concert with any person or company who is also acting in concert with that other party, except that any tax-qualified employee stock benefit plan will not be deemed to be acting in concert with its trustee or a person who serves in a similar capacity solely for determining whether common stock held by the trustee and common stock held by the employee stock benefit plan will be aggregated.

We have the sole discretion to determine whether prospective purchasers are “associates” or “acting in concert.” Persons having the same address, and persons exercising subscription rights through qualifying deposits registered at the same address will be deemed to be acting in concert unless we determine otherwise.

Our directors are not treated as associates of each other solely because of their membership on the board of directors. Common stock purchased in the offering will be freely transferable except for shares purchased by directors and certain officers of New Pathfinder or Pathfinder Bank and except as described below. Any purchases made by any associate of New Pathfinder or Pathfinder Bank for the explicit purpose of meeting the minimum number of shares of common stock required to be sold in order to complete the offering shall be made for

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investment purposes only and not with a view toward redistribution. In addition, under Financial Industry Regulatory Authority guidelines, members of the Financial Industry Regulatory Authority and their associates are subject to certain restrictions on transfer of securities purchased in accordance with subscription rights and to certain reporting requirements upon purchase of these securities. For a further discussion of limitations on purchases of our shares of common stock at the time of conversion and thereafter, see “—Certain Restrictions on Purchase or Transfer of Our Shares after Conversion” and “Restrictions on Acquisition of New Pathfinder.”

Plan of Distribution; Selling Agent and Underwriter Compensation

Subscription and Community Offerings.  To assist in the marketing of our shares of common stock in the subscription and community offerings, we have retained Keefe, Bruyette & Woods, Inc., which is a broker-dealer registered with the Financial Industry Regulatory Authority. Keefe, Bruyette & Woods, Inc. will assist us on a best efforts basis in the subscription and community offerings by:

· providing advice on the financial and securities market implications of the plan of conversion and reorganization;

· assisting in structuring the offering, including developing a market strategy for the offering;

· reviewing all offering documents, including the prospectus, stock order forms and related offering materials (we are responsible for the preparation and filing of such documents);

· assisting us in analyzing proposals from outside vendors retained in connection with the offering, as needed;

· assisting us in the drafting and distribution of press releases as required or appropriate; and

· providing general advice and assistance as may be reasonably necessary to promote the successful completion of the offering.

For these services, Keefe, Bruyette & Woods, Inc. will receive a success fee of $225,000. Included in the success fee is a management fee of $25,000, of which $12,500 was paid upon the signing of the engagement letter and $12,500 was paid upon the filing of New Pathfinder’s registration statement with the Securities and Exchange Commission.

Syndicated Offering.   In the event that we sell shares of common stock through a group of broker-dealers in a syndicated offering, Keefe, Bruyette & Woods, Inc. will be paid a fee equal to 1.0% of the dollar amount of total shares sold in the syndicated offering, which fee, along with the fee payable to selected dealers (which will include Keefe, Bruyette & Woods, Inc.) will not exceed 6.0% in the aggregate of the dollar amount of total shares sold in the syndicated offering. Keefe, Bruyette & Woods, Inc. will serve as sole book-running manager in such an offering. All fees payable with respect to a syndicated offering will be in addition to fees payable with respect to the subscription and community offerings. 

Expenses.   Keefe, Bruyette & Woods, Inc. also will be reimbursed for reasonable expenses in an amount not to exceed $30,000 and for attorney’s fees and expenses not to exceed $100,000. The expenses may be increased by mutual consent of Keefe, Bruyette & Woods, Inc. and Pathfinder Bank in the event of a material delay or resolicitation of the offering. Under such circumstances, Keefe, Bruyette & Woods, Inc. may be reimbursed for additional reasonable expenses not to exceed $10,000, or additional fees and expenses of its attorneys not to exceed $15,000.

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Records Management

We have also engaged Keefe, Bruyette & Woods, Inc. as records management agent in connection with the conversion and the subscription and community offerings. In its role as records management agent, Keefe, Bruyette & Woods, Inc., will among other things:

· consolidate deposit accounts, develop a central file and calculate eligible votes;

· design and prepare proxy forms and stock order forms;

· organize and supervise the Stock Information Center;

· tabulate proxy votes;

· support the inspector of election at the special meeting of depositors; and

· provide necessary subscription services to distribute, collect and tabulate stock orders in the subscription and community offerings.

For these services, Keefe, Bruyette & Woods, Inc. will receive a fee of $25,000, of which $5,000 has already been paid. We will also reimburse Keefe, Bruyette & Woods, Inc. for its reasonable out-of-pocket expenses in connection with these services not to exceed $5,000.

Indemnity

We will indemnify Keefe, Bruyette & Woods, Inc. against liabilities and expenses, including legal fees, incurred in connection with certain claims or litigation arising out of or based upon untrue statements or omissions contained in the offering materials for the common stock, including liabilities under the Securities Act of 1933, as amended.

Solicitation of Offers by Officers and Directors

Some of our directors and executive officers may participate in the solicitation of offers to purchase common stock in the subscription and community offerings. These persons will be reimbursed for their reasonable out-of-pocket expenses incurred in connection with the solicitation. Other regular employees of Pathfinder Bank may assist in the offering, but only in ministerial capacities, and may provide clerical work in effecting a sales transaction. No offers or sales may be made by tellers or at the teller counters. Investment-related questions of prospective purchasers will be directed to executive officers or registered representatives of Keefe, Bruyette & Woods, Inc. Our other employees have been instructed not to solicit offers to purchase shares of common stock or provide advice regarding the purchase of common stock. We will rely on Rule 3a4-1 under the Securities Exchange Act of 1934, as amended, and sales of common stock will be conducted within the requirements of Rule 3a4-1, so as to permit officers, directors and employees to participate in the sale of common stock. None of our officers, directors or employees will be compensated in connection with their participation in the offering.

Lock-up Agreements

We, and each of our directors and executive officers have agreed, subject to certain exceptions, that during the period beginning on the date of this prospectus and ending 90 days after the closing of the offering, without the prior written consent of Keefe, Bruyette & Woods, Inc., directly or indirectly, we will not (i) offer, pledge, sell, contract to sell, sell any option or contract to purchase, purchase any option or contract to sell, grant any option, right or warrant for the sale of, or otherwise dispose of or transfer any shares of Pathfinder-Federal or New Pathfinder stock or any securities convertible into or exchangeable or exercisable for Pathfinder-Federal or New Pathfinder stock, whether owned on the date of this prospectus or acquired after the date of this prospectus or with respect to which we or any of our directors or executive officers has or after the date of this prospectus acquires the

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power of disposition, or file any registration statement under the Securities Act of 1933, as amended, with respect to any of the foregoing, or (ii) enter into any swap or any other agreement or any transaction that transfers, in whole or in part, directly or indirectly, the economic consequence of ownership of Pathfinder-Federal or New Pathfinder stock, whether any such swap or transaction is to be settled by delivery of stock or other securities, in cash or otherwise.  In the event that either (1) during the period that begins on the date that is 15 calendar days plus three business days before the last day of the restricted period and ends on the last day of the restricted period, we issue an earnings release or material news or a material event relating to us occurs, or (2) prior to the expiration of the restricted period, we announce that we will release earnings results during the 16-day period beginning on the last day of the restricted period, the restrictions set forth above will continue to apply until the expiration of the date that is 15 calendar days plus three business days after the date on which the earnings release is issued or the material news or event related to us occurs.

Procedure for Purchasing Shares

Expiration Date. The offering will expire at 2:00 p.m., Eastern Time, on [expiration date], unless we extend the offering for up to 45 days, with the approval of the Federal Reserve Board, if required. This extension may be approved by us, in our sole discretion, without notice to purchasers in the offering. Any extension of the subscription and/or community offering beyond [extension date #1] would require the Federal Reserve Board’s approval. If the offering is so extended, all subscribers will be notified and given an opportunity to confirm, change or cancel their orders. If you do not respond to this notice, we will promptly return your funds with interest at [interest rate]% per annum or cancel your deposit account withdrawal authorization. If the offering range is decreased below the minimum of the offering range or is increased above the maximum of the offering range, all subscribers’ stock orders will be cancelled, their deposit account withdrawal authorizations will be cancelled, and funds submitted to us will be returned promptly, with interest at [interest rate]% per annum for funds received in the subscription and community offerings. We will then resolicit the subscribers, giving them an opportunity to place a new stock order for a period of time.

We reserve the right in our sole discretion to terminate the offering at any time and for any reason, in which case we will cancel any deposit account withdrawal authorizations and promptly return all funds submitted, with interest at [interest rate]% per annum from the date of receipt as described above.

Use of Order Forms. In order to purchase shares of common stock, you must properly complete an original stock order form and remit full payment. We are not required to accept orders submitted on photocopied or facsimiled order forms. All order forms must be received (not postmarked) prior to 2:00 p.m., Eastern Time, on [expiration date]. We are not required to accept order forms that are not received by that time, are not signed or are otherwise executed defectively or are received without full payment or without appropriate deposit account withdrawal instructions. We are not required to notify subscribers of incomplete or improperly executed order forms, and we have the right to waive or permit the correction of incomplete or improperly executed order forms. We do not represent, however, that we will do so and we have no affirmative duty to notify any prospective subscriber of any such defects. You may submit your order form and payment by mail using the stock order return envelope provided, or by overnight delivery to our Stock Information Center at the address noted on the stock order form. You may also hand-deliver stock order forms to our main office located at 214 West First Street, Oswego, New York. Hand-delivered stock order forms will only be accepted at this location. We will not accept stock order forms at our banking offices.

Once tendered, an order form cannot be modified or revoked without our consent. We reserve the absolute right, in our sole discretion, to reject orders received in the community offering, in whole or in part, at the time of receipt or at any time prior to completion of the offering. If you are ordering shares in the subscription offering, you must represent that you are purchasing shares for your own account and that you have no agreement or understanding with any person for the sale or transfer of the shares. We have the right to reject any order submitted in the offering by a person who we believe is making false representations or who we otherwise believe, either alone or acting in concert with others, is violating, evading, circumventing, or intends to violate, evade or circumvent the terms and conditions of the plan of conversion and reorganization. Our interpretation of the terms and conditions of the plan of conversion and reorganization and of the acceptability of the order forms will be final.

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By signing the order form, you will be acknowledging that the common stock is not a deposit or savings account and is not federally insured or otherwise guaranteed by Pathfinder Bank or the federal government, and that you received a copy of this prospectus. However, signing the order form will not result in you waiving your rights under the Securities Act of 1933 or the Securities Exchange Act of 1934.

Payment for Shares. Payment for all shares of common stock will be required to accompany all completed order forms for the purchase to be valid. Payment for shares in the subscription and community offerings may be made by:

(i) personal check, bank check or money order, made payable to Pathfinder Bancorp, Inc.; or

(ii) authorization of withdrawal of available funds from the types of Pathfinder Bank deposit accounts designated on the stock order form.

Appropriate means for designating withdrawals from deposit accounts without check-writing privileges at Pathfinder Bank are provided on the order form. The funds designated must be available in the account(s) at the time the order form is received. A hold will be placed on these funds, making them unavailable to the depositor. Funds authorized for withdrawal will continue to earn interest within the account at the contractual rate until the offering is completed, at which time the designated withdrawal will be made. Interest penalties for early withdrawal applicable to certificate of deposit accounts will not apply to withdrawals authorized for the purchase of shares of common stock; however, if a withdrawal results in a certificate of deposit account with a balance less than the applicable minimum balance requirement, the certificate of deposit will be cancelled at the time of withdrawal without penalty and the remaining balance will earn interest at the current passbook rate subsequent to the withdrawal. In the case of payments made by personal check, these funds must be available in the account(s). Checks and money orders received in the subscription and community offerings will be immediately cashed and placed in a segregated account at Pathfinder Bank and will earn interest at [interest rate]% per annum from the date payment is processed until the offering is completed or terminated.

You may not remit cash, Pathfinder Bank line of credit checks or any type of third-party checks (including those payable to you and endorsed over to New Pathfinder). You may not designate on your stock order form direct withdrawal from a Pathfinder Bank retirement account. See “—Using Individual Retirement Account Funds.” Additionally, you may not designate a direct withdrawal from Pathfinder Bank accounts with check-writing privileges. Please provide a check instead. If you request that we directly withdraw the funds, we reserve the right to interpret that as your authorization to treat those funds as if we had received a check for the designated amount, and we will immediately withdraw the amount from your account. If permitted by the Federal Reserve Board, in the event we resolicit large purchasers, as described above in “—Additional Limitations on Common Stock Purchases,” such purchasers who wish to increase their purchases will not be able to use personal checks to pay for the additional shares, but instead must pay for the additional shares using immediately available funds.

Once we receive your executed stock order form, it may not be modified, amended or rescinded without our consent, unless the offering is not completed by [extension date #1]. If the subscription and community offerings are extended past [extension date #1], all subscribers will be notified and given an opportunity to confirm, change or cancel their orders. If you do not respond to this notice, we will promptly return your funds with interest at [interest rate]% per annum or cancel your deposit account withdrawal authorization. We may resolicit purchasers for a specified period of time.

Regulations prohibit Pathfinder Bank from lending funds or extending credit to any persons to purchase shares of common stock in the offering.

We shall have the right, in our sole discretion, to permit institutional investors to submit irrevocable orders together with the legally binding commitment for payment and to thereafter pay for the shares of common stock for which they subscribe in the community offering at any time prior to 48 hours before the completion of the conversion. This payment may be made by wire transfer.

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If our employee stock ownership plan purchases shares in the offering, it will not be required to pay for such shares until completion of the offering, provided that there is a loan commitment from an unrelated financial institution or New Pathfinder to lend to the employee stock ownership plan the necessary amount to fund the purchase. In addition, if our 401(k) plan purchases shares in the offering, it will not be required to pay for such shares until completion of the offering.

Using Individual Retirement Account Funds.   If you are interested in using funds in your individual retirement account or other retirement account to purchase shares of common stock, you must do so through a self-directed retirement account. By regulation, Pathfinder Bank’s retirement accounts are not self-directed, so they cannot be invested in our shares of common stock. Therefore, if you wish to use funds that are currently in a Pathfinder Bank retirement account, you may not designate on the order form that you wish funds to be withdrawn from the account for the purchase of common stock. The funds you wish to use for the purchase of common stock will instead have to be transferred to an independent trustee or custodian, such as a brokerage firm, offering self-directed retirement accounts. The purchase must be made through that account. If you do not have such an account, you will need to establish one before placing a stock order. An annual administrative fee may be payable to the independent trustee or custodian. There will be no early withdrawal or Internal Revenue Service interest penalties for these transfers. Individuals interested in using funds in an individual retirement account or any other retirement account, whether held at Pathfinder Bank or elsewhere, to purchase shares of common stock should contact our Stock Information Center for guidance as soon as possible, preferably at least two weeks prior to the [expiration date] offering deadline. Processing such transactions takes additional time, and whether such funds can be used may depend on limitations imposed by the institutions where such funds are currently held. We cannot guarantee that you will be able to use such funds.

Delivery of Shares of Common Stock. All shares of common stock sold will be issued in book entry form. Stock certificates will not be issued. A statement reflecting ownership of shares of common stock issued in the subscription and community offerings will be mailed by our transfer agent to the persons entitled thereto at the registration address noted by them on their stock order forms as soon as practicable following consummation of the conversion and offering. We expect trading in the stock to begin on the day of completion of the conversion and stock offering or the next business day. It is possible that until a statement reflecting ownership of shares of common stock is available and delivered to purchasers, purchasers might not be able to sell the shares of common stock that they ordered, even though the shares of common stock will have begun trading. Your ability to sell the shares of common stock before receiving your statement will depend on arrangements you may make with a brokerage firm.

Other Restrictions. Notwithstanding any other provision of the plan of conversion and reorganization, no person is entitled to purchase any shares of common stock to the extent the purchase would be illegal under any federal or state law or regulation, including state “blue sky” regulations, or would violate regulations or policies of the Financial Industry Regulatory Authority, particularly those regarding free riding and withholding. We may ask for an acceptable legal opinion from any purchaser as to the legality of his or her purchase and we may refuse to honor any purchase order if an opinion is not timely furnished. In addition, we are not required to offer shares of common stock to any person who resides in a foreign country, or in a State of the United States with respect to which any of the following apply:

(i) a small number of persons otherwise eligible to subscribe for shares under the plan of conversion and reorganization reside in such state;

(ii) the issuance of subscription rights or the offer or sale of shares of common stock to such persons would require us, under the securities laws of such state, to register as a broker, dealer, salesman or agent or to register or otherwise qualify our securities for sale in such state; or

(iii) such registration or qualification would be impracticable for reasons of cost or otherwise.

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Restrictions on Transfer of Subscription Rights and Shares

Regulations of the Federal Reserve Board prohibit any person with subscription rights, including the Eligible Account Holders, Supplemental Eligible Account Holders and Other Depositors, from transferring or entering into any agreement or understanding to transfer the legal or beneficial ownership of the subscription rights issued under the plan of conversion and reorganization or the shares of common stock to be issued upon their exercise. These rights may be exercised only by the person to whom they are granted and only for his or her account. When registering your stock purchase on the order form, you cannot add the name(s) of others for joint stock registration who do not have subscription rights or who qualify only in a lower subscription offering priority than you do. You may add only those who are eligible to purchase shares of common stock in the subscription offering at your date of eligibility. Each person exercising subscription rights will be required to certify that he or she is purchasing shares solely for his or her own account and that he or she has no agreement or understanding regarding the sale or transfer of such shares. The regulations also prohibit any person from offering or making an announcement of an offer or intent to make an offer to purchase subscription rights or shares of common stock to be issued upon their exercise prior to completion of the offering.

We will pursue any and all legal and equitable remedies in the event we become aware of the transfer of subscription rights, and we will not honor orders that we believe involve the transfer of subscription rights.

Stock Information Center

Our banking office personnel may not, by law, assist with investment-related questions about the offering. If you have any questions regarding the conversion or offering, please call our Stock Information Center. The toll-free number is [telephone number]. The Stock Information Center is open Monday through Friday between 10:00 a.m. and 4:00 p.m., Eastern Time. The Stock Information Center will be closed on bank holidays.

Liquidation Rights

Liquidation prior to the conversion.  In the unlikely event that Pathfinder Bancorp, MHC is liquidated prior to the conversion, all claims of creditors of Pathfinder Bancorp, MHC would be paid first. Thereafter, if there were any assets of Pathfinder Bancorp, MHC remaining, these assets would first be distributed to certain depositors of Pathfinder Bank based on such depositors’ liquidation rights. The amount received by such depositors would be equal to their pro rata interest in the remaining value of Pathfinder Bancorp, MHC after claims of creditors, based on the relative size of their deposit accounts.

Liquidation following the conversion.  The plan of conversion and reorganization provides for the establishment, upon the completion of the conversion, of a liquidation account by New Pathfinder for the benefit of Eligible Account Holders and Supplemental Eligible Account Holders in an amount equal to (i) Pathfinder Bancorp, MHC’s ownership interest in Pathfinder-Federal’s total stockholders’ equity as of the date of the latest statement of financial condition used in this prospectus plus (ii) the value of the net assets of Pathfinder Bancorp, MHC as of the date of the latest statement of financial condition of Pathfinder Bancorp, MHC prior to the consummation of the conversion (excluding its ownership of Pathfinder-Federal). The plan of conversion also provides for the establishment of a parallel liquidation account in Pathfinder Bank to support the New Pathfinder liquidation account in the event New Pathfinder does not have sufficient assets to fund its obligations under the New Pathfinder liquidation account.

In the unlikely event that Pathfinder Bank were to liquidate after the conversion, all claims of creditors, including those of depositors, would be paid first. However, except with respect to the liquidation account to be established in Pathfinder-Federal, a depositor’s claim would be solely for the principal amount of his or her deposit accounts plus accrued interest. Depositors generally would not have an interest in the value of the assets of Pathfinder Bank or New Pathfinder above that amount.

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The liquidation account established by New Pathfinder is designed to provide qualifying depositors a liquidation interest (exchanged for the liquidation interests such persons had in Pathfinder Bancorp, MHC) after the conversion in the event of a complete liquidation of New Pathfinder and Pathfinder Bank or a liquidation solely of Pathfinder Bank. Specifically, in the unlikely event that either (i) Pathfinder Bank or (ii) New Pathfinder and Pathfinder Bank were to liquidate after the conversion, all claims of creditors, including those of depositors, would be paid first, followed by a distribution to depositors as of March 31, 2013 and [Supplemental Eligibility Record Date] of their interests in the liquidation account maintained by New Pathfinder. Also, in a complete liquidation of both entities, or of Pathfinder Bank only, when New Pathfinder has insufficient assets (other than the stock of Pathfinder Bank) to fund the liquidation account distribution owed to Eligible Account Holders and Supplemental Eligible Account Holders, and Pathfinder Bank has positive net worth, then Pathfinder Bank shall immediately make a distribution to fund New Pathfinder’s remaining obligations under the liquidation account. In no event will any Eligible Account Holder or Supplemental Eligible Account Holder be entitled to a distribution that exceeds such holder’s interest in the liquidation account maintained by New Pathfinder as adjusted from time to time pursuant to the plan of conversion and federal regulations. If New Pathfinder is completely liquidated or sold apart from a sale or liquidation of Pathfinder Bank, then the New Pathfinder liquidation account will cease to exist and Eligible Account Holders and Supplemental Eligible Account Holders will receive an equivalent interest in the Pathfinder Bank liquidation account, subject to the same rights and terms as the New Pathfinder liquidation account.

Pursuant to the plan of conversion and reorganization, after two years from the date of conversion, New Pathfinder may upon written approval of the Federal Reserve Board and will upon the written request of the Federal Reserve Board, transfer the liquidation account and the depositors’ interests in such account to Pathfinder Bank and the liquidation account shall thereupon be subsumed into the liquidation account of Pathfinder Bank.

Under the rules and regulations of the Federal Reserve Board, a post-conversion merger, consolidation, or similar combination or transaction with another depository institution or depository institution holding company in which New Pathfinder or Pathfinder Bank is not the surviving institution, would not be considered a liquidation. In such a transaction, the liquidation account would be assumed by the surviving institution or company.

Each Eligible Account Holder and Supplemental Eligible Account Holder would have an initial pro-rata interest in the liquidation account for each deposit account, including savings accounts, transaction accounts such as negotiable order of withdrawal accounts, money market deposit accounts, and certificates of deposit, with a balance of $50.00 or more held in Pathfinder Bank on March 31, 2013 or [Supplemental Eligibility Record Date] equal to the proportion that the balance of each Eligible Account Holder’s and Supplemental Eligible Account Holder’s deposit account on March 31, 2013 and [Supplemental Eligibility Record Date], respectively, bears to the balance of all deposit accounts of Eligible Account Holders and Supplemental Eligible Account Holders in Pathfinder Bank on such date.

If, however, on any December 31 annual closing date commencing after the effective date of the conversion, the amount in any such deposit account is less than the amount in the deposit account on March 31, 2013 or [Supplemental Eligibility Record Date], or any other annual closing date, then the liquidation account as well as the interest in the liquidation account relating to such deposit account would be reduced from time to time by the proportion of any such reduction, and such interest will cease to exist if such deposit account is closed. In addition, no interest in the liquidation account would ever be increased despite any subsequent increase in the related deposit account. Payment pursuant to liquidation rights of Eligible Account Holders and Supplemental Eligible Account Holders would be separate and apart from the payment of any insured deposit accounts to such depositor. Any assets remaining after the above liquidation rights of Eligible Account Holders and Supplemental Eligible Account Holders are satisfied would be available for distribution to stockholders.

Material Income Tax Consequences

Completion of the conversion is subject to the prior receipt of an opinion of counsel or tax advisor with respect to the federal and state income tax consequences of the conversion to Pathfinder Bancorp, MHC, Pathfinder-Federal, Pathfinder Bank, Eligible Account Holders, Supplemental Eligible Account Holders and Other Depositors of Pathfinder Bancorp, MHC. Unlike private letter rulings, opinions of counsel or tax advisors are not binding on

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the Internal Revenue Service or any state taxing authority, and such authorities may disagree with such opinions. In the event of such disagreement, there can be no assurance that New Pathfinder or Pathfinder Bank would prevail in a judicial proceeding.

Pathfinder Bancorp, MHC, Pathfinder-Federal, Pathfinder Bank and New Pathfinder have received an opinion of counsel, Luse Gorman Pomerenk & Schick, P.C., regarding all of the material federal income tax consequences of the conversion, which includes the following:

1. The merger of Pathfinder Bancorp, MHC with and into Pathfinder-Federal will qualify as a tax-free reorganization within the meaning of Section 368(a)(1)(A) of the Internal Revenue Code.

2. The constructive exchange of Eligible Account Holders’ and Supplemental Eligible Account Holders’ liquidation interests in Pathfinder Bancorp, MHC for liquidation interests in Pathfinder-Federal will satisfy the continuity of interest requirement of Section 1.368-1(b) of the Federal Income Tax Regulations.

3. None of Pathfinder Bancorp, MHC, Pathfinder-Federal, Eligible Account Holders nor Supplemental Eligible Account Holders, will recognize any gain or loss on the transfer of the assets of Pathfinder Bancorp, MHC to Pathfinder-Federal in constructive exchange for liquidation interests in Pathfinder-Federal.

4. The basis of the assets of Pathfinder Bancorp, MHC and the holding period of such assets to be received by Pathfinder-Federal will be the same as the basis and holding period of such assets in Pathfinder Bancorp, MHC immediately before the exchange.

5. The merger of Pathfinder-Federal with and into New Pathfinder will constitute a mere change in identity, form or place of organization within the meaning of Section 368(a)(1)(F) of the Internal Revenue Code and, therefore, will qualify as a tax-free reorganization within the meaning of Section 368(a)(1)(F) of the Internal Revenue Code. Neither Pathfinder-Federal nor New Pathfinder will recognize gain or loss as a result of such merger.

6. The basis of the assets of Pathfinder-Federal and the holding period of such assets to be received by New Pathfinder will be the same as the basis and holding period of such assets in Pathfinder-Federal immediately before the exchange.

7. Current stockholders of Pathfinder-Federal will not recognize any gain or loss upon their exchange of Pathfinder-Federal common stock for New Pathfinder common stock.

8. Eligible Account Holders and Supplemental Eligible Account Holders will not recognize any gain or loss upon the constructive exchange of their liquidation interests in Pathfinder-Federal for interests in the liquidation account in New Pathfinder.

9. The exchange by the Eligible Account Holders and Supplemental Eligible Account Holders of the liquidation interests that they constructively received in Pathfinder-Federal for interests in the liquidation account established in New Pathfinder will satisfy the continuity of interest requirement of Section 1.368-1(b) of the Federal Income Tax Regulations.

10. Each stockholder’s aggregate basis in shares of New Pathfinder common stock (including fractional share interests) received in the exchange will be the same as the aggregate basis of Pathfinder-Federal common stock surrendered in the exchange.

11. Each stockholder’s holding period in his or her New Pathfinder common stock received in the exchange will include the period during which the Pathfinder-Federal common stock surrendered

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was held, provided that the Pathfinder-Federal common stock surrendered is a capital asset in the hands of the stockholder on the date of the exchange.

12. Cash received by any current stockholder of Pathfinder-Federal in lieu of a fractional share interest in shares of New Pathfinder common stock will be treated as having been received as a distribution in full payment in exchange for a fractional share interest of New Pathfinder common stock, which such stockholder would otherwise be entitled to receive. Accordingly, a stockholder will recognize gain or loss equal to the difference between the cash received and the basis of the fractional share. If the common stock is held by the stockholder as a capital asset, the gain or loss will be capital gain or loss.

13. It is more likely than not that the fair market value of the nontransferable subscription rights to purchase New Pathfinder common stock is zero. Accordingly, no gain or loss will be recognized by Eligible Account Holders, Supplemental Eligible Account Holders or Other Depositors upon distribution to them of nontransferable subscription rights to purchase shares of New Pathfinder common stock. Eligible Account Holders, Supplemental Eligible Account Holders and Other Depositors will not realize any taxable income as the result of the exercise by them of the nontransferable subscriptions rights.

14. It is more likely than not that the fair market value of the benefit provided by the liquidation account of Pathfinder Bank supporting the payment of the New Pathfinder liquidation account in the event New Pathfinder lacks sufficient net assets is zero. Accordingly, it is more likely than not that no gain or loss will be recognized by Eligible Account Holders and Supplemental Eligible Account Holders upon the constructive distribution to them of such rights in the Pathfinder Bank liquidation account as of the effective date of the merger of Pathfinder-Federal with and into New Pathfinder.

15. It is more likely than not that the basis of the shares of New Pathfinder common stock purchased in the offering by the exercise of nontransferable subscription rights will be the purchase price. The holding period of the New Pathfinder common stock purchased pursuant to the exercise of nontransferable subscription rights will commence on the date the right to acquire such stock was exercised.

16. No gain or loss will be recognized by New Pathfinder on the receipt of money in exchange for New Pathfinder common stock sold in the offering.

We believe that the tax opinions summarized above address all material federal income tax consequences that are generally applicable to Pathfinder Bancorp, MHC, Pathfinder-Federal, Pathfinder Bank, New Pathfinder and persons receiving subscription rights and stockholders of Pathfinder-Federal. With respect to items 13 and 15 above, Luse Gorman Pomerenk & Schick, P.C. noted that the subscription rights will be granted at no cost to the recipients, are legally non-transferable and of short duration, and will provide the recipient with the right only to purchase shares of common stock at the same price to be paid by members of the general public in any community offering. The firm further noted that RP Financial, LC. has issued a letter that the subscription rights have no ascertainable fair market value. The firm also noted that the Internal Revenue Service has not in the past concluded that subscription rights have value. Based on the foregoing, Luse Gorman Pomerenk & Schick, P.C. believes that it is more likely than not that the nontransferable subscription rights to purchase shares of common stock have no value. However, the issue of whether or not the nontransferable subscription rights have value is based on all the facts and circumstances. If the subscription rights granted to Eligible Account Holders, Supplemental Eligible Account Holders and Other Depositors are deemed to have an ascertainable value, receipt of these rights could result in taxable gain to those Eligible Account Holders, Supplemental Eligible Account Holders and Other Depositors who exercise the subscription rights in an amount equal to the ascertainable value, and we could recognize gain on a distribution. Eligible Account Holders, Supplemental Eligible Account Holders and Other Depositors are encouraged to consult with their own tax advisors as to the tax consequences in the event that subscription rights are deemed to have an ascertainable value.

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The opinion as to item 14 above is based on the position that: (i) no holder of an interest in a liquidation account has ever received any payment attributable to a liquidation account; (ii) the interests in the liquidation accounts are not transferable; (iii) the amounts due under the liquidation account with respect to each Eligible Account Holder and Supplemental Eligible Account Holder will be reduced as their deposits in Pathfinder Bank are reduced; and (iv) the Pathfinder Bank liquidation account payment obligation arises only if New Pathfinder lacks sufficient assets to fund the liquidation account.

In addition, we have received a letter from RP Financial, LC. stating its belief that the benefit provided by the Pathfinder Bank liquidation account supporting the payment of the liquidation account in the event New Pathfinder lacks sufficient net assets does not have any economic value at the time of the conversion. Based on the foregoing, Luse Gorman Pomerenk & Schick, P.C. believes it is more likely than not that such rights in the Pathfinder Bank liquidation account have no value. If such rights are subsequently found to have an economic value, income may be recognized by each Eligible Account Holder or Supplemental Eligible Account Holder in the amount of such fair market value as of the date of the conversion.

The opinion of Luse Gorman Pomerenk & Schick, P.C., unlike a letter ruling issued by the Internal Revenue Service, is not binding on the Internal Revenue Service and the conclusions expressed therein may be challenged at a future date. The Internal Revenue Service has issued favorable rulings for transactions substantially similar to the proposed conversion and offering, but any such ruling may not be cited as precedent by any taxpayer other than the taxpayer to whom the ruling is addressed. We do not plan to apply for a letter ruling concerning the transactions described herein.

We have also received an opinion from Bonadio & Co., LLP that the New York state income tax consequences are consistent with the federal income tax consequences.

The federal and state tax opinions have been filed with the Securities and Exchange Commission as exhibits to New Pathfinder’s registration statement.

Certain Restrictions on Purchase or Transfer of Our Shares after Conversion

All shares of common stock purchased in the offering by a director or certain officers of Pathfinder Bank generally may not be sold for a period of one year following the closing of the conversion, except in the event of the death of the director or officer. Our transfer agent will be given notice of this restriction on transfer, and instructions will be issued to the effect that any transfer within this time period of any record ownership of the shares other than as provided above is a violation of the restriction. Any shares of common stock issued at a later date as a stock dividend, stock split, or otherwise, with respect to the restricted stock will be similarly restricted. The directors and executive officers of New Pathfinder also will be restricted by the insider trading rules under the Securities Exchange Act of 1934.

Purchases of shares of our common stock by any of our directors, certain officers and their associates, during the three-year period following the closing of the conversion may be made only through a broker or dealer registered with the Securities and Exchange Commission, except with the prior written approval of the Federal Reserve Board. This restriction does not apply, however, to negotiated transactions involving more than 1% of our outstanding common stock or to purchases of our common stock by our stock option plan or any of our tax-qualified employee stock benefit plans or non-tax-qualified employee stock benefit plans, including any restricted stock plans.

Federal regulations prohibit New Pathfinder from repurchasing its shares of common stock during the first year following conversion unless compelling business reasons exist for such repurchases, or to fund management recognition plans that have been ratified by stockholders (with Federal Reserve Board approval) or tax-qualified employee stock benefit plans. In addition, the repurchase of shares of common stock is subject to Federal Reserve Board policy related to repurchases of shares by financial institution holding companies.

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COMPARISON OF STOCKHOLDERS’ RIGHTS FOR EXISTING STOCKHOLDERS OF PATHFINDER BANCORP, INC.

General. As a result of the conversion, existing common stockholders of Pathfinder-Federal will become common stockholders of New Pathfinder There are differences in the rights of common stockholders of Pathfinder-Federal and common stockholders of New Pathfinder caused by differences between federal and Maryland law and regulations and differences in Pathfinder-Federal’s federal stock charter and bylaws and New Pathfinder’s Maryland articles of incorporation and bylaws.

This discussion is not intended to be a complete statement of the differences affecting the rights of stockholders, but rather summarizes the material differences and similarities affecting the rights of stockholders. See “Where You Can Find Additional Information” for procedures for obtaining a copy of New Pathfinder’s articles of incorporation and bylaws.

Authorized Capital Stock. The authorized capital stock of Pathfinder-Federal consists of 10,000,000 shares of common stock, $0.01 par value per share, and 1,000,000 shares of preferred stock, $0.01 par value per share.

The authorized capital stock of New Pathfinder consists of 25,000,000 shares of common stock, $0.01 par value per share, and 10,000,000 shares of preferred stock, par value $0.01 per share.

Under Maryland General Corporation Law and New Pathfinder’s articles of incorporation, the board of directors may increase or decrease the number of authorized shares without stockholder approval. Stockholder approval is required to increase or decrease the number of authorized shares of Pathfinder-Federal.

Pathfinder-Federal’s charter and New Pathfinder’s articles of incorporation both authorize the board of directors to establish one or more series of preferred stock and, for any series of preferred stock, to determine the terms and rights of the series, including voting rights, dividend rights, conversion and redemption rates and liquidation preferences. As a result of the ability to fix voting rights for a series of preferred stock, our board of directors has the power, to the extent consistent with its fiduciary duty, to issue a series of preferred stock to persons friendly to management in order to attempt to block a hostile tender offer, merger or other transaction by which a third party seeks control. We currently have no plans for the issuance of additional shares for such purposes.

Issuance of Capital Stock. Pursuant to applicable laws and regulations, Pathfinder Bancorp, MHC is required to own not less than a majority of the outstanding shares of Pathfinder-Federal common stock. Pathfinder Bancorp, MHC will no longer exist following completion of the conversion.

New Pathfinder’s articles of incorporation do not contain restrictions on the issuance of shares of capital stock to directors, officers or controlling persons, whereas Pathfinder-Federal’s charter restricts such issuances to general public offerings, or to directors for qualifying shares, unless the share issuance or the plan under which they would generally be issued has been approved by stockholders. However, stock-based compensation plans, such as stock option plans and restricted stock plans, would have to be submitted for approval by New Pathfinder stockholders due to requirements of the Nasdaq Stock Market and in order to qualify stock options for favorable federal income tax treatment.

Voting Rights. Neither Pathfinder-Federal’s charter or bylaws nor New Pathfinder’s articles of incorporation or bylaws provide for cumulative voting for the election of directors. For additional information regarding voting rights, see “—Limitations on Voting Rights of Greater-than-10% Stockholders” below.

Payment of Dividends. Pathfinder-Federal’s ability to pay dividends depends, to a large extent, upon Pathfinder Bank’s ability to pay dividends to Pathfinder-Federal, which is restricted by New York statutes and by federal income tax considerations related to savings banks.

The same restrictions will apply to Pathfinder Bank’s payment of dividends to New Pathfinder. In addition, Maryland law generally provides that New Pathfinder is limited to paying dividends in an amount equal to

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its capital surplus over payments that would be owed upon dissolution to stockholders whose preferential rights upon dissolution are superior to those receiving the dividend, and to an amount that would not make it insolvent.

Board of Directors. Pathfinder-Federal’s bylaws and New Pathfinder’s articles of incorporation require the board of directors to be divided into three classes and that the members of each class shall be elected for a term of three years and until their successors are elected and qualified, with one class being elected annually.

Under Pathfinder-Federal’s bylaws, any vacancies on the board of directors may be filled by the affirmative vote of a majority of the remaining directors although less than a quorum of the board of directors. Persons elected by the board of directors of Pathfinder-Federal to fill vacancies may only serve until the next election of directors by stockholders. Under New Pathfinder’s bylaws, any vacancy occurring on the board of directors, including any vacancy created by reason of an increase in the number of directors, may be filled only by the affirmative vote of two-thirds of the remaining directors, and any director so chosen shall hold office for the remainder of the term to which the director has been elected and until his or her successor is elected and qualified.

Limitations on Liability.  The charter and bylaws of Pathfinder-Federal do not limit the personal liability of directors or officers.

New Pathfinder’s articles of incorporation provide that directors and officers will not be personally liable for monetary damages to New Pathfinder for certain actions as directors or officers, except for (i) receipt of an improper personal benefit, (ii) actions or omissions that are determined to have materially involved active and deliberate dishonesty, or (iii) to the extent otherwise provided by Maryland law. These provisions might, in certain instances, discourage or deter stockholders or management from bringing a lawsuit against directors or officers for a breach of their duties even though such an action, if successful, might benefit New Pathfinder.

Indemnification of Directors, Officers, Employees and Agents.  As generally allowed under current Federal Reserve Board regulations, Pathfinder-Federal will indemnify its directors, officers and employees for any reasonable costs incurred in connection with any litigation involving such person’s activities as a director, officer or employee if such person obtains a final judgment on the merits in his or her favor. In addition, indemnification is permitted in the case of a settlement, a final judgment against such person, or final judgment other than on the merits, if a majority of disinterested directors determines that such person was acting in good faith within the scope of his or her employment as he or she could reasonably have perceived it under the circumstances and for a purpose he or she could reasonably have believed under the circumstances was in the best interests of Pathfinder-Federal or its stockholders. Pathfinder-Federal also is permitted to pay ongoing expenses incurred by a director, officer or employee if a majority of disinterested directors concludes that such person may ultimately be entitled to indemnification. Before making any indemnification payment, Pathfinder-Federal is required to notify the Federal Reserve Board of its intention, and such payment cannot be made if the Federal Reserve Board objects to such payment.

The articles of incorporation of New Pathfinder provide that it shall indemnify (i) its current and former directors and officers to the fullest extent required or permitted by Maryland law, including the advancement of expenses, and (ii) other employees or agents to such extent as shall be authorized by the board of directors and Maryland law, all subject to any applicable federal law. Maryland law allows New Pathfinder to indemnify any person for expenses, liabilities, settlements, judgments and fines in suits in which such person has been made a party by reason of the fact that he or she is or was a director, officer or employee of New Pathfinder. No such indemnification may be given if the acts or omissions of the person are adjudged to be in bad faith and material to the matter giving rise to the proceeding, if such person is liable to the corporation for an unlawful distribution, or if such person personally received a benefit to which he or she was not entitled. The right to indemnification includes the right to be paid the expenses incurred in advance of final disposition of a proceeding.

Special Meetings of Stockholders. Pathfinder-Federal’s bylaws provide that special meetings of stockholders may be called by the chairman, the president, a majority of the members of the board of directors or the holders of not less than 10% of the outstanding capital stock entitled to vote at the meeting. New Pathfinder’s bylaws provide that special meetings of stockholders may be called by the chairman, the vice chairman, by a

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majority vote of the total authorized directors, or upon the written request of stockholders entitled to cast at least a majority of all votes entitled to vote at the meeting.

Stockholder Nominations and Proposals. Pathfinder-Federal’s bylaws provide that stockholders may submit nominations for election of directors at an annual meeting of stockholders and may propose any new business to be taken up at such a meeting by filing the proposal in writing with Pathfinder-Federal at least five days before the date of any such meeting.

New Pathfinder’s bylaws provide that any stockholder desiring to make a nomination for the election of directors or a proposal for new business at a meeting of stockholders must submit written notice to New Pathfinder at least 80 days prior and not earlier than 90 days prior to such meeting. However, if less than 90 days’ notice or prior public disclosure of the date of the meeting is given to stockholders, such written notice must be submitted by a stockholder not later than the tenth day following the day on which notice of the meeting was mailed to stockholders or such public disclosure was made.

Management believes that it is in the best interest of New Pathfinder and its stockholders to provide sufficient time to enable management to disclose to stockholders information about a dissident slate of nominations for directors. This advance notice requirement may also give management time to solicit its own proxies in an attempt to defeat any dissident slate of nominations, should management determine that doing so is in the best interests of stockholders generally. Similarly, adequate advance notice of stockholder proposals will give management time to study such proposals and to determine whether to recommend to the stockholders that such proposals be adopted. In certain instances, such provisions could make it more difficult to oppose management’s nominees or proposals, even if stockholders believe such nominees or proposals are in their best interests.

Stockholder Action Without a Meeting. The bylaws of Pathfinder-Federal provide that action may be taken without a meeting if all stockholders entitled to vote on such matter consent in writing. New Pathfinder’s bylaws do not provide for action to be taken by stockholders without a meeting. However, under Maryland law, action may be taken by stockholders without a meeting if all stockholders entitled to vote on the action consent to taking such action without a meeting.

Stockholder’s Right to Examine Books and Records. Pathfinder-Federal’s bylaws provide that it may either make available for inspection, at least 20 days prior to a stockholders meeting, a list of the stockholders of record entitled to vote at such meeting, or the Board of Directors may elect to follow the procedures described in 12 C.F.R. 239.26(d) of the Federal Reserve Board’s regulations regarding the right to examine books and records. The federal regulation noted above provides that stockholders may inspect and copy specified books and records after proper written notice for a proper purpose. Maryland law provides that a stockholder may inspect a company’s bylaws, stockholder minutes, annual statement of affairs and any voting trust agreements. However, only a stockholder or group of stockholders who together, for at least three months, hold at least 5% of the company’s total shares, have the right to inspect a company’s stock ledger, list of stockholders and books of accounts.

Limitations on Voting Rights of Greater-than-10% Stockholders.  New Pathfinder’s articles of incorporation provide that no beneficial owner, directly or indirectly, of more than 10% of the outstanding shares of common stock will be permitted to vote any shares in excess of such 10% limit. Pathfinder-Federal’s charter does not contain voting limits based on stock ownership.

In addition, federal regulations provide that for a period of three years following the date of the completion of the offering, no person, acting singly or together with associates in a group of persons acting in concert, may directly or indirectly offer to acquire or acquire the beneficial ownership of more than 10% of a class of New Pathfinder’s equity securities without the prior written approval of the Federal Reserve Board. Where any person acquires beneficial ownership of more than 10% of a class of New Pathfinder’s equity securities without the prior written approval of the Federal Reserve Board, the securities beneficially owned by such person in excess of 10% may not be voted by any person or counted as voting shares in connection with any matter submitted to the stockholders for a vote, and will not be counted as outstanding for purposes of determining the affirmative vote necessary to approve any matter submitted to the stockholders for a vote.

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Business Combinations with Interested Stockholders. Under Maryland law, “business combinations” between New Pathfinder and an interested stockholder or an affiliate of an interested stockholder are prohibited for five years after the most recent date on which the interested stockholder becomes an interested stockholder. These business combinations include a merger, consolidation, statutory share exchange or, in circumstances specified in the statute, certain transfers of assets, certain stock issuances and transfers, liquidation plans and reclassifications involving interested stockholders and their affiliates or issuance or reclassification of equity securities. Maryland law defines an interested stockholder as: (i) any person who beneficially owns 10% or more of the voting power of New Pathfinder’s voting stock after the date on which New Pathfinder had 100 or more beneficial owners of its stock; or (ii) an affiliate or associate of New Pathfinder at any time after the date on which New Pathfinder had 100 or more beneficial owners of its stock who, within the two-year period prior to the date in question, was the beneficial owner of 10% or more of the voting power of the then-outstanding voting stock of New Pathfinder. A person is not an interested stockholder under the statute if the board of directors approved in advance the transaction by which the person otherwise would have become an interested stockholder. However, in approving a transaction, the board of directors may provide that its approval is subject to compliance, at or after the time of approval, with any terms and conditions determined by the board.

After the five-year prohibition, any business combination between New Pathfinder and an interested stockholder generally must be recommended by the board of directors of New Pathfinder and approved by the affirmative vote of at least: (i) 80% of the votes entitled to be cast by holders of outstanding shares of voting stock of New Pathfinder, and (ii) two-thirds of the votes entitled to be cast by holders of voting stock of New Pathfinder other than shares held by the interested stockholder with whom or with whose affiliate the business combination is to be effected or held by an affiliate or associate of the interested stockholder. These super-majority vote requirements do not apply if New Pathfinder’s common stockholders receive a minimum price, as defined under Maryland law, for their shares in the form of cash or other consideration in the same form as previously paid by the interested stockholder for its shares.

Current federal regulations do not provide a vote standard for business combinations involving federal mid-tier stock holding companies.

Mergers, Consolidations and Sales of Assets.   Under New Pathfinder’s articles of incorporation, a merger or consolidation of New Pathfinder requires approval of a majority of all votes entitled to be cast by stockholders. However, no approval by stockholders is required for a merger if:

· the plan of merger does not make an amendment to the articles of incorporation that would be required to be approved by the stockholders;

· each stockholder of the surviving corporation whose shares were outstanding immediately before the effective date of the merger will hold the same number of shares, with identical designations, preferences, limitations, and rights, immediately after; and

· the number of shares of any class or series of stock outstanding immediately after the effective time of the merger will not increase by more than 20% the total number of voting shares outstanding immediately before the merger.

In addition, under certain circumstances the approval of the stockholders shall not be required to authorize a merger with or into a 90% owned subsidiary of New Pathfinder.

Under Maryland law, a sale of all or substantially all of New Pathfinder’s assets other than in the ordinary course of business, or a voluntary dissolution of New Pathfinder, requires the approval of its board of directors and the affirmative vote of two-thirds of the votes of stockholders entitled to be cast on the matter.

Current federal regulations do not provide a vote standard for mergers, consolidations or sales of assets by federal mid-tier stock holding companies.

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Evaluation of Offers.  The articles of incorporation of New Pathfinder provide that its board of directors, when evaluating a transaction that would or may involve a change in control of New Pathfinder (whether by purchases of its securities, merger, consolidation, share exchange, dissolution, liquidation, sale of all or substantially all of its assets, proxy solicitation or otherwise), may, in connection with the exercise of its business judgment in determining what is in the best interests of New Pathfinder and its stockholders and in making any recommendation to the stockholders, give due consideration to all relevant factors, including, but not limited to:

· the economic effect, both immediate and long-term, upon New Pathfinder’s stockholders, including stockholders, if any, who do not participate in the transaction;

· the social and economic effect on the present and future employees, creditors and customers of, and others dealing with, New Pathfinder and its subsidiaries and on the communities in which New Pathfinder and its subsidiaries operate or are located;

· whether the proposal is acceptable based on the historical, current or projected future operating results or financial condition of New Pathfinder;

· whether a more favorable price could be obtained for New Pathfinder’s stock or other securities in the future;

· the reputation and business practices of the other entity to be involved in the transaction and its management and affiliates as they would affect the employees of New Pathfinder and its subsidiaries;

· the future value of the stock or any other securities of New Pathfinder or the other entity to be involved in the proposed transaction;

· any antitrust or other legal and regulatory issues that are raised by the proposal;

· the business and historical, current or expected future financial condition or operating results of the other entity to be involved in the transaction, including, but not limited to, debt service and other existing financial obligations, financial obligations to be incurred in connection with the proposed transaction, and other likely financial obligations of the other entity to be involved in the proposed transaction; and

· the ability of New Pathfinder to fulfill its objectives as a financial institution holding company and on the ability of its subsidiary financial institution(s) to fulfill the objectives of a federally insured financial institution under applicable statutes and regulations.

If the board of directors determines that any proposed transaction should be rejected, it may take any lawful action to defeat such transaction.

Pathfinder-Federal’s charter and bylaws do not contain a similar provision.

Dissenters’ Rights of Appraisal.  Under Maryland law, stockholders of New Pathfinder will not have dissenters’ appraisal rights in connection with a plan of merger or consolidation to which New Pathfinder is a party as long as the common stock of New Pathfinder trades on a national securities exchange.

Current federal regulations do not provide for dissenters’ appraisal rights for stockholders of federal mid-tier stock holding companies.

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Amendment of Governing Instruments. No amendment of Pathfinder-Federal’s stock charter may be made unless it is first proposed by the board of directors then approved or preapproved by the Federal Reserve Board, and approved by the holders of a majority of the total votes eligible to be cast at a legal meeting. Amendments to Pathfinder-Federal’s bylaws require either preliminary approval by or post-adoption notice to the Federal Reserve Board as well as approval of the amendment by a majority vote of the authorized board of directors, or by a majority of the votes cast by the stockholders of Pathfinder-Federal at any legal meeting.

New Pathfinder’s articles of incorporation may be amended, upon the submission of an amendment by the board of directors to a vote of the stockholders, by the affirmative vote of at least two-thirds of the outstanding shares of common stock, or by the affirmative vote of a majority of the outstanding shares of common stock if at least two-thirds of the members of the whole board of directors approves such amendment; provided, however, that approval by at least 80% of the outstanding voting stock is generally required to amend the following provisions:

(i) The limitation on voting rights of persons who directly or indirectly beneficially own more than 10% of the outstanding shares of common stock;

(ii) The division of the board of directors into three staggered classes;

(iii) The ability of the board of directors to fill vacancies on the board;

(iv) The requirement that directors may only be removed for cause and by the affirmative vote of at least a majority of the votes eligible to be cast by stockholders;

(v) The ability of the board of directors to amend and repeal the bylaws;

(vi) The ability of the board of directors to evaluate a variety of factors in evaluating offers to purchase or otherwise acquire New Pathfinder;

(vii) The authority of the board of directors to provide for the issuance of preferred stock;

(viii) The validity and effectiveness of any action lawfully authorized by the affirmative vote of the holders of a majority of the total number of outstanding shares of common stock;

(ix) The number of stockholders constituting a quorum or required for stockholder consent;

(x) The indemnification of current and former directors and officers, as well as employees and other agents, by New Pathfinder;

(xi) The limitation of liability of officers and directors to New Pathfinder for money damages;

(xii) The inability of stockholders to cumulate their votes in the election of directors;

(xiii) The requirement that the forum for certain actions or disputes will be a state or federal court located within the State of Maryland;

(xiv) The advance notice requirements for stockholder proposals and nominations; and

(xv) The provision of the articles of incorporation requiring approval of at least 80% of the outstanding voting stock to amend the provisions of the articles of incorporation provided in (i) through (xiv) of this list.

The articles of incorporation also provide that the bylaws may be amended by the affirmative vote of a majority of our directors or by the stockholders by the affirmative vote of at least 80% of the total votes eligible to

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be voted at a duly constituted meeting of stockholders. Any amendment of this super-majority requirement for amendment of the bylaws would also require the approval of 80% of the outstanding voting stock.

RESTRICTIONS ON ACQUISITION OF NEW PATHFINDER

Although the board of directors of New Pathfinder is not aware of any effort that might be made to obtain control of New Pathfinder after the conversion, the board of directors believes that it is appropriate to include certain provisions as part of New Pathfinder’s articles of incorporation to protect the interests of New Pathfinder and its stockholders from takeovers which the board of directors might conclude are not in the best interests of Pathfinder Bank, New Pathfinder or New Pathfinder’s stockholders.

The following discussion is a general summary of the material provisions of Maryland law, New Pathfinder’s articles of incorporation and bylaws and certain other regulatory provisions that may be deemed to have an “anti-takeover” effect. The following description is necessarily general and is not intended to be a complete description of the document or regulatory provision in question. New Pathfinder’s articles of incorporation and bylaws are included as part of Pathfinder Bancorp, MHC’s application for conversion filed with the Federal Reserve Board and New Pathfinder’s registration statement filed with the Securities and Exchange Commission. See “Where You Can Find Additional Information.”

Maryland Law and Articles of Incorporation and Bylaws of New Pathfinder

Maryland law, as well as New Pathfinder’s articles of incorporation and bylaws, contain a number of provisions relating to corporate governance and rights of stockholders that may discourage future takeover attempts. As a result, stockholders who might desire to participate in such transactions may not have an opportunity to do so. In addition, these provisions will also render the removal of the board of directors or management of New Pathfinder more difficult.

Directors. The board of directors will be divided into three classes. The members of each class will be elected for a term of three years and only one class of directors will be elected annually. Thus, it would take at least two annual elections to replace a majority of the board of directors. The bylaws establish qualifications for board members, including restrictions on affiliations with competitors of Pathfinder Bank and restrictions based upon prior legal or regulatory violations. Further, the bylaws impose notice and information requirements in connection with the nomination by stockholders of candidates for election to the board of directors or the proposal by stockholders of business to be acted upon at an annual meeting of stockholders. Such notice and information requirements are applicable to all stockholder business proposals and nominations, and are in addition to any requirements under the federal securities laws.

Restrictions on Call of Special Meetings.  The articles of incorporation and bylaws provide that special meetings of stockholders can be called by the president, by a majority of the whole board of directors or upon the written request of stockholders entitled to cast at least a majority of all votes entitled to vote at the meeting.

Prohibition of Cumulative Voting.  The articles of incorporation prohibit cumulative voting for the election of directors.

Limitation of Voting Rights.  The articles of incorporation provide that in no event will any person who beneficially owns more than 10% of the then-outstanding shares of common stock, be entitled or permitted to vote any of the shares of common stock held in excess of the 10% limit. This provision has been included in the articles of incorporation in reliance on Section 2-507(a) of the Maryland General Corporation Law, which entitles stockholders to one vote for each share of stock unless the articles of incorporation provide for a greater or lesser number of votes per share or limit or deny voting rights.

Restrictions on Removing Directors from Office.  The articles of incorporation provide that directors may be removed only for cause, and only by the affirmative vote of the holders of at least a majority of the voting power

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of all of our then-outstanding common stock entitled to vote (after giving effect to the limitation on voting rights discussed above in “—Limitation of Voting Rights.”).

Authorized but Unissued Shares.  After the conversion, New Pathfinder will have authorized but unissued shares of common and preferred stock. See “Description of Capital Stock of New Pathfinder Following the Conversion.” The articles of incorporation authorize 10,000,000 shares of serial preferred stock. New Pathfinder is authorized to issue preferred stock from time to time in one or more series subject to applicable provisions of law, and the board of directors is authorized to fix the designations, and relative preferences, limitations, voting rights, if any, including without limitation, offering rights of such shares (which could be multiple or as a separate class). In the event of a proposed merger, tender offer or other attempt to gain control of New Pathfinder that the board of directors does not approve, it may be possible for the board of directors to authorize the issuance of a series of preferred stock with rights and preferences that would impede the completion of the transaction. An effect of the possible issuance of preferred stock therefore may be to deter a future attempt to gain control of New Pathfinder. The board of directors has no present plan or understanding to issue any preferred stock other than exchanging Pathfinder-Federal’s Series B Preferred Stock for preferred stock of New Pathfinder with rights and preferences identical to the Series B Preferred Stock of Pathfinder-Federal on a one for one exchange basis.

Amendments to Articles of Incorporation and Bylaws.  Amendments to the articles of incorporation must be approved by the board of directors and by the affirmative vote of at least two-thirds of the outstanding shares of common stock, or by the affirmative vote of a majority of the outstanding shares of common stock if at least two-thirds of the members of the whole board of directors approves such amendment; provided, however, that approval by at least 80% of the outstanding voting stock is generally required to amend certain provisions. A list of these provisions is provided under “Comparison of Stockholders’ Rights For Existing Stockholders of Pathfinder Bancorp, Inc.—Amendment of Governing Instruments” above.

The articles of incorporation also provide that the bylaws may be amended by the affirmative vote of a majority of New Pathfinder’s directors or by the stockholders by the affirmative vote of at least 80% of the total votes eligible to be cast at a duly constituted meeting of stockholders. Any amendment of this super-majority requirement for amendment of the bylaws would also require the approval of 80% of the total votes eligible to be cast.

The provisions requiring the affirmative vote of 80% of the total eligible votes eligible to be cast for certain stockholder actions have been included in the articles of incorporation of New Pathfinder in reliance on Section 2-104(b)(4) of the Maryland General Corporation Law. Section 2-104(b)(4) permits the articles of incorporation to require a greater proportion of votes than the proportion that would otherwise be required for stockholder action under the Maryland General Corporation Law.

Business Combinations with Interested Stockholders.  Maryland law restricts mergers, consolidations, sales of assets and other business combinations between New Pathfinder and an “interested stockholder.” See “Comparison of Stockholder Rights for Existing Stockholders of Pathfinder Bancorp, Inc.—Mergers, Consolidations and Sales of Assets” above.

Evaluation of Offers.  The articles of incorporation of New Pathfinder provide that its board of directors, when evaluating a transaction that would or may involve a change in control of New Pathfinder (whether by purchases of its securities, merger, consolidation, share exchange, dissolution, liquidation, sale of all or substantially all of its assets, proxy solicitation or otherwise), may, in connection with the exercise of its business judgment in determining what is in the best interests of New Pathfinder and its stockholders and in making any recommendation to the stockholders, give due consideration to all relevant factors, including, but not limited to, certain enumerated factors. For a list of these enumerated factors, see “Comparison of Stockholder Rights for Existing Stockholders of Pathfinder Bancorp, Inc.—Evaluation of Offers” above.

Purpose and Anti-Takeover Effects of New Pathfinder’s Articles of Incorporation and Bylaws.  Our board of directors believes that the provisions described above are prudent and will reduce our vulnerability to takeover attempts and certain other transactions that have not been negotiated with and approved by our board of

160

directors. These provisions also will assist us in the orderly deployment of the offering proceeds into productive assets during the initial period after the conversion. We believe these provisions are in the best interests of New Pathfinder and its stockholders. Our board of directors believes that it will be in the best position to determine the true value of New Pathfinder and to negotiate more effectively for what may be in the best interests of all our stockholders. Accordingly, our board of directors believes that it is in the best interests of New Pathfinder and all of our stockholders to encourage potential acquirers to negotiate directly with the board of directors and that these provisions will encourage such negotiations and discourage hostile takeover attempts. It is also the view of our board of directors that these provisions should not discourage persons from proposing a merger or other transaction at a price reflective of the true value of New Pathfinder and that is in the best interests of all our stockholders.

Takeover attempts that have not been negotiated with and approved by our board of directors present the risk of a takeover on terms that may be less favorable than might otherwise be available. A transaction that is negotiated and approved by our board of directors, on the other hand, can be carefully planned and undertaken at an opportune time in order to obtain maximum value for our stockholders, with due consideration given to matters such as the management and business of the acquiring corporation.

Although a tender offer or other takeover attempt may be made at a price substantially above the current market price, such offers are sometimes made for less than all of the outstanding shares of a target company. As a result, stockholders may be presented with the alternative of partially liquidating their investment at a time that may be disadvantageous, or retaining their investment in an enterprise that is under different management and whose objectives may not be similar to those of the remaining stockholders.

Despite our belief as to the benefits to stockholders of these provisions of New Pathfinder’s articles of incorporation and bylaws, these provisions also may have the effect of discouraging a future takeover attempt that would not be approved by our board of directors, but pursuant to which stockholders may receive a substantial premium for their shares over then current market prices. As a result, stockholders who might desire to participate in such a transaction may not have any opportunity to do so. Such provisions will also make it more difficult to remove our board of directors and management. Our board of directors, however, has concluded that the potential benefits outweigh the possible disadvantages.

Restated Organization Certificate of Pathfinder Bank

Pathfinder Bank’s Restated Organization Certificate will be amended to provide that for a period of three years from the closing of the conversion and offering, no person other than New Pathfinder may offer directly or indirectly to acquire the beneficial ownership of more than 10% of any class of equity security of Pathfinder Bank. In addition, during this three-year period, all shares owned over the 10% limit may not be voted on any matter submitted to stockholders for a vote.

Conversion Regulations

Federal Reserve Board regulations prohibit any person from making an offer, announcing an intent to make an offer or participating in any other arrangement to purchase stock or acquire stock or subscription rights in a converting institution or its holding company from another person prior to completion of its conversion. Further, without the prior written approval of the Federal Reserve Board, no person may make an offer or announcement of an offer to purchase shares or actually acquire shares of a converted institution or its holding company for a period of three years from the date of the completion of the conversion if, upon the completion of such offer, announcement or acquisition, the person would become the beneficial owner of more than 10% of the outstanding stock of the institution or its holding company. The Federal Reserve Board has defined “person” to include any individual, group acting in concert, corporation, partnership, association, joint stock company, trust, unincorporated organization or similar company, a syndicate or any other group formed for the purpose of acquiring, holding or disposing of securities of an insured institution. However, offers made exclusively to a bank or its holding company, or to an underwriter or member of a selling group acting on the converting institution’s or its holding company’s behalf for resale to the general public, are excepted. The regulation also provides civil penalties for willful violation or assistance in any such violation of the regulation by any person connected with the management

161

of the converting institution or its holding company or who controls more than 10% of the outstanding shares or voting rights of a converted institution or its holding company.

Change in Control Regulations

Under the Change in Bank Control Act, no person may acquire control of an insured savings bank or its parent holding company unless the Federal Reserve Board has been given 60 days’ prior written notice and has not issued a notice disapproving the proposed acquisition. The Federal Reserve Board takes into consideration certain factors, including the financial and managerial resources of the acquirer and the competitive effects of the acquisition. In addition, federal regulations provide that no company may acquire control of a savings bank without the prior approval of the Federal Reserve Board. Any company that acquires such control becomes a “bank holding company” subject to registration, examination and regulation by the Federal Reserve Board.

Control, as defined under federal law, means ownership, control of or holding irrevocable proxies representing more than 25% of any class of voting stock, control in any manner of the election of a majority of the company’s directors, or a determination by the Federal Reserve Board that the acquiror has the power to direct, or directly or indirectly to exercise a controlling influence over, the management or policies of the institution. Acquisition of more than 10% of any class of a bank holding company’s voting stock constitutes a rebuttable determination of control under the regulations under certain circumstances including where, as will be the case with New Pathfinder, the issuer has registered securities under Section 12 of the Securities Exchange Act of 1934. Federal Reserve Board regulations provide that parties seeking to rebut control will be provided an opportunity to do so in writing.

DESCRIPTION OF CAPITAL STOCK OF NEW PATHFINDER FOLLOWING THE CONVERSION

General

New Pathfinder is authorized to issue 25,000,000 shares of common stock, par value of $0.01 per share, and 10,000,000 shares of preferred stock, par value $0.01 per share. New Pathfinder currently expects to issue in the offering and exchange up to 3,784,614 shares of common stock, subject to adjustment up to 4,352,306 shares. Pathfinder-Federal’s Series B Preferred Stock will not be redeemed in connection with the conversion and will be exchanged for preferred stock of New Pathfinder with rights and preferences identical to the Series B Preferred Stock of Pathfinder-Federal on a one for one exchange basis. No other preferred stock will be issued in the conversion. Each share of common stock will have the same relative rights as, and will be identical in all respects to, each other share of common stock. Upon payment of the subscription price for the common stock, in accordance with the plan of conversion and reorganization, all of the shares of common stock will be duly authorized, fully paid and nonassessable.

The shares of common stock will represent nonwithdrawable capital, will not be an account of an insurable type, and will not be insured by the FDIC or any other government agency.

Common Stock

Dividends. New Pathfinder may pay dividends to an amount equal to the excess of our capital surplus over payments that would be owed upon dissolution to stockholders whose preferential rights upon dissolution are superior to those receiving the dividend, and to an amount that would not make us insolvent, as and when declared by our board of directors. The payment of dividends by New Pathfinder is also subject to limitations that are imposed by law and applicable regulation, including restrictions on payments of dividends that would reduce New Pathfinder’s assets below the then-adjusted balance of its liquidation account. The holders of common stock of New Pathfinder will be entitled to receive and share equally in dividends as may be declared by our board of directors out of funds legally available therefor. If New Pathfinder issues shares of preferred stock, the holders thereof may have a priority over the holders of the common stock with respect to dividends.

162

Voting Rights. Upon completion of the conversion, the holders of common stock of New Pathfinder will have exclusive voting rights in New Pathfinder. They will elect New Pathfinder’s board of directors and act on other matters as are required to be presented to them under Maryland law or as are otherwise presented to them by the board of directors. Generally, each holder of common stock will be entitled to one vote per share and will not have any right to cumulate votes in the election of directors. Any person who beneficially owns more than 10% of the then-outstanding shares of New Pathfinder’s common stock, however, will not be entitled or permitted to vote any shares of common stock held in excess of the 10% limit. If New Pathfinder issues shares of preferred stock, holders of the preferred stock may also possess voting rights. Certain matters require the approval of 80% of our outstanding common stock.

As a New York-chartered stock savings bank, corporate powers and control of Pathfinder Bank are vested in its board of trustees, who elect the officers of Pathfinder Bank and who fill any vacancies on the board of directors. Voting rights of Pathfinder Bank are vested exclusively in the owners of the shares of capital stock of Pathfinder Bank, which will be New Pathfinder, and voted at the direction of New Pathfinder’s board of directors. Consequently, the holders of the common stock of New Pathfinder will not have direct control of Pathfinder Bank.

Liquidation. In the event of any liquidation, dissolution or winding up of Pathfinder Bank, New Pathfinder, as the holder of 100% of Pathfinder Bank’s capital stock, would be entitled to receive all assets of Pathfinder Bank available for distribution, after payment or provision for payment of all debts and liabilities of Pathfinder Bank, including all deposit accounts and accrued interest thereon, and after distribution of the balance in the liquidation account to Eligible Account Holders and Supplemental Eligible Account Holders. In the event of liquidation, dissolution or winding up of New Pathfinder, the holders of its common stock would be entitled to receive, after payment or provision for payment of all its debts and liabilities (including payments with respect to its liquidation account), all of the assets of New Pathfinder available for distribution. If preferred stock is issued, the holders thereof may have a priority over the holders of the common stock in the event of liquidation or dissolution.

Preemptive Rights. Holders of the common stock of New Pathfinder will not be entitled to preemptive rights with respect to any shares that may be issued. The common stock is not subject to redemption.

Preferred Stock

None of the shares of New Pathfinder’s authorized preferred stock will be issued as part of the offering or the conversion. Preferred stock may be issued with preferences and designations as our board of directors may from time to time determine. Our board of directors may, without stockholder approval, issue shares of preferred stock with voting, dividend, liquidation and conversion rights that could dilute the voting strength of the holders of the common stock and may assist management in impeding an unfriendly takeover or attempted change in control. Pathfinder-Federal previously issued 13,000 shares of Series B Preferred Stock to the U.S. Treasury as part of the SBLF Program, for a purchase price of $13.0 million. The Series B Preferred Stock will not be redeemed in connection with the conversion and it will be exchanged into preferred stock of New Pathfinder with rights and preferences identical to the Series B Preferred Stock of Pathfinder-Federal on a one for one exchange basis. No other preferred stock will be issued as a result of the conversion.

TRANSFER AGENT

The transfer agent and registrar for New Pathfinder’s common stock is Registrar and Transfer Company, Cranford, New Jersey.

EXPERTS

The consolidated financial statements of Pathfinder-Federal and subsidiaries as of December 31, 2013 and 2012, and for each of the years in the two-year period ended December 31, 2013, have been included herein and in the registration statement in reliance upon the reports of Bonadio & Co., LLP, independent registered public accounting firm, appearing elsewhere herein, and upon the authority of said firm as experts in accounting and auditing.

163

RP Financial, LC. has consented to the publication herein of the summary of its report setting forth its opinion as to the estimated pro forma market value of the shares of common stock upon completion of the conversion and offering and its letters with respect to subscription rights and the liquidation accounts.

LEGAL MATTERS

Luse Gorman Pomerenk & Schick, P.C., Washington, D.C., counsel to New Pathfinder, Pathfinder Bancorp, MHC, Pathfinder-Federal and Pathfinder Bank, has issued to New Pathfinder its opinion regarding the legality of the common stock and the federal income tax consequences of the conversion. Attorneys with Luse Gorman Pomerenk & Schick, P.C., may exercise their subscription and voting rights as depositors of Pathfinder Bank in connection with the conversion and offering. Bonadio & Co., LLP has provided an opinion to us regarding the New York income tax consequences of the conversion. Certain legal matters will be passed upon for Keefe, Bruyette & Woods, Inc. by Goodwin Procter LLP, Washington, D.C.

WHERE YOU CAN FIND ADDITIONAL INFORMATION

New Pathfinder has filed with the Securities and Exchange Commission a registration statement under the Securities Act of 1933 with respect to the shares of common stock offered hereby. As permitted by the rules and regulations of the Securities and Exchange Commission, this prospectus does not contain all the information set forth in the registration statement. Such information, including the appraisal report which is an exhibit to the registration statement, can be examined without charge at the public reference facilities of the Securities and Exchange Commission located at 100 F Street, N.E., Washington, D.C. 20549, and copies of such material can be obtained from the Securities and Exchange Commission at prescribed rates. The Securities and Exchange Commission telephone number is 1-800-SEC-0330. In addition, the Securities and Exchange Commission maintains a web site (http://www.sec.gov) that contains reports, proxy and information statements and other information regarding registrants that file electronically with the Securities and Exchange Commission, including New Pathfinder. The statements contained in this prospectus as to the contents of any contract or other document filed as an exhibit to the registration statement are, of necessity, brief descriptions of the material terms of, and should be read in conjunction with, such contract or document.

Pathfinder Bancorp, MHC has filed with the Board of Governors of the Federal Reserve System an Application on Form AC with respect to the conversion, and New Pathfinder has filed with the Board of Governors of the Federal Reserve System a FR Y-3 with respect to its acquisition of Pathfinder Bank. This prospectus omits certain information contained in those applications. To obtain a copy of the applications filed with the Board of Governors of the Federal Reserve System, you may contact H. Robert Tillman, Assistant Vice President of the Federal Reserve Bank of Philadelphia, at (215) 574-4155. The plan of conversion and reorganization is available, upon request, at each of Pathfinder Bank’s offices.

In connection with the offering, New Pathfinder will register its common stock under Section 12(b) of the Securities Exchange Act of 1934 and, upon such registration, New Pathfinder and the holders of its common stock will become subject to the proxy solicitation rules, reporting requirements and restrictions on common stock purchases and sales by directors, officers and greater than 10% stockholders, the annual and periodic reporting and certain other requirements of the Securities Exchange Act of 1934. Under the plan of conversion and reorganization, New Pathfinder has undertaken that it will not terminate such registration for a period of at least three years following the offering.

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PATHFINDER BANCORP, INC.

Oswego, New York

CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2014 (Unaudited), December 31, 2013 and December 31, 2012

CONTENTS

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM	F-2
CONSOLIDATED FINANCIAL STATEMENTS
CONSOLIDATED STATEMENTS OF CONDITION	F-3
CONSOLIDATED STATEMENTS OF INCOME	F-4
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME	F-5
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY	F-7
CONSOLIDATED STATEMENTS OF CASH FLOWS	F-9
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS	F-11

F-1

Report of Independent Registered Public Accounting Firm

To the Board of Directors and Shareholders of

Pathfinder Bancorp, Inc.

Oswego, New York

We have audited the accompanying consolidated statements of condition of Pathfinder Bancorp, Inc. and subsidiaries (the “Company”) as of December 31, 2013 and 2012 and the related consolidated statements of income, comprehensive income, changes in shareholders’ equity and cash flows for each of the years then ended. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Pathfinder Bancorp, Inc. and subsidiaries as of December 31, 2013 and 2012 and the results of their operations and their cash flows for each of the years then ended in conformity with accounting principles generally accepted in the United States of America.

/s/ BONADIO & CO., LLP

Bonadio & Co., LLP

Syracuse, New York

March 17, 2014

F-2

PATHFINDER BANCORP, INC.

CONSOLIDATED STATEMENTS OF CONDITION

	(unaudited)
	March 31,			December 31,			December 31,
(In thousands, except share and per share data)	2014			2013			2012
ASSETS:
Cash and due from banks	$	7,164		$	6,535		$	6,435
Interest earning deposits		11,769			10,040			2,230
Total cash and cash equivalents		18,933			16,575			8,665
Interest earning time deposits		500			500			2,000
Available-for-sale securities, at fair value		83,663			80,959			108,339
Held-to-maturity securities, at amortized cost (fair value of $43,359 and $34,222, respectively)		42,990			34,412			-
Federal Home Loan Bank stock, at cost		2,035			2,440			1,929
Loans		348,142			341,633			333,748
Less: Allowance for loan losses		4,999			5,041			4,501
Loans receivable, net		343,143			336,592			329,247
Premises and equipment, net		11,832			11,644			10,108
Accrued interest receivable		1,813			1,715			1,717
Foreclosed real estate		699			619			426
Intangible assets, net		184			187			-
Goodwill		4,367			4,367			3,840
Bank owned life insurance		10,108			8,268			8,046
Other assets		5,579			5,515			3,479
Total assets	$	525,846		$	503,793		$	477,796
LIABILITIES AND SHAREHOLDERS' EQUITY:
Deposits:
Interest-bearing	$	381,987		$	361,969		$	347,892
Noninterest-bearing		56,365			48,171			43,913
Total deposits		438,352			410,140			391,805
Short-term borrowings		17,000			24,000			9,000
Long-term borrowings		16,826			16,853			25,964
Junior subordinated debentures		5,155			5,155			5,155
Accrued interest payable		98			86			140
Other liabilities		4,613			4,489			4,985
Total liabilities		482,044			460,723			437,049
Shareholders' equity:
Preferred stock - SBLF, par value $0.01 per share; $1,000 liquidation preference; 13,000 shares authorized; 13,000 shares issued and outstanding		13,000			13,000			13,000
Common stock, par value $0.01; authorized 10,000,000 shares; 2,979,969 shares issued and 2,623,182 shares outstanding		30			30			30
Additional paid in capital		8,264			8,226			8,120
Retained earnings		29,201			28,788			26,685
Accumulated other comprehensive loss		(1,522	)		(1,745	)		(1,318	)
Unearned ESOP		(798	)		(826	)		(936	)
Treasury stock, at cost; 356,787 shares		(4,761	)		(4,761	)		(4,834	)
Total Pathfinder Bancorp, Inc.shareholders' equity		43,414			42,712			40,747
Noncontrolling interest		388			358			-
Total equity		43,802			43,070			40,747
Total liabilities and shareholders' equity	$	525,846		$	503,793		$	477,796

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

F-3

PATHFINDER BANCORP, INC.

CONSOLIDATED STATEMENTS OF INCOME

	(unaudited)		(unaudited)
	For the three months ended				For the year ended
(In thousands, except per share data)	March 31, 2014		March 31, 2013		December 31, 2013			December 31, 2012
Interest and dividend income:
Loans, including fees	$	4,063	$	4,125	$	16,347		$	16,082
Debt securities:
Taxable		421		384		1,574			1,762
Tax-exempt		195		191		762			728
Dividends		33		34		174			165
Interest earning time deposits		2		6		19			24
Federal funds sold and interest earning deposits		1		1		7			4
Total interest income		4,715		4,741		18,883			18,765
Interest expense:
Interest on deposits		529		659		2,478			2,896
Interest on short-term borrowings		19		8		60			26
Interest on long-term borrowings		147		229		726			986
Total interest expense		695		896		3,264			3,908
Net interest income		4,020		3,845		15,619			14,857
Provision for loan losses		245		324		1,032			825
Net interest income after provision for loan losses		3,775		3,521		14,587			14,032
Noninterest income:
Service charges on deposit accounts		279		255		1,175			1,112
Earnings and gain on bank owned life insurance		60		61		224			309
Loan servicing fees		54		44		146			211
Net gains on sales and redemptions of investment securities		2		39		365			375
Net gains on sales of loans and foreclosed real estate		3		29		470			61
Debit card interchange fees		114		106		469			426
Other charges, commissions & fees		314		142		567			569
Total noninterest income		826		676		3,416			3,063
Noninterest expense:
Salaries and employee benefits		2,197		1,910		8,081			7,496
Building occupancy		407		365		1,476			1,427
Data processing		364		368		1,444			1,437
Professional and other services		175		159		659			654
Amortization of intangible assets		3		-		1			-
Advertising		133		116		537			453
FDIC assessments		95		84		415			311
Audits and exams		64		61		219			248
Other expenses		468		442		1,919			1,492
Total noninterest expenses		3,906		3,505		14,751			13,518
Income before income taxes		695		692		3,252			3,577
Provision for income taxes		176		187		847			929
Net income attributable to noncontrolling interest and Pathfinder Bancorp, Inc .		519		505		2,405			2,648
Net income attributable to noncontrolling interest		30		-		(1	)		-
Net income attributable to Pathfinder Bancorp Inc.		489		-		2,406			2,648
Preferred stock dividends		-		-		-			449
Net income available to common shareholders	$	489	$	505	$	2,406		$	2,199
Earnings per common share - basic	$	0.19	$	0.20	$	0.96		$	0.88
Earnings per common share - diluted	$	0.19	$	0.20	$	0.95		$	0.87
Dividends per common share	$	0.03	$	0.03	$	0.12		$	0.12

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

F-4

Pathfinder Bancorp, Inc.

Consolidated Statements of Comprehensive Income

(Unaudited)

	For the three months ended
(In thousands)	March 31, 2014			March 31, 2013
Net Income	$	519		$	505
Other Comprehensive Income (Loss)
Retirement Plans:
Net unrealized gains on retirement plans		11			95
Unrealized holding gains on financial derivative:
Change in unrealized holding losses on financial derivative		(3	)		-
Reclassification adjustment for interest expense included in net income		15			15
Net unrealized gain on financial derivative		12			15
Unrealized holding gains (losses) on available-for-sale securities:
Unrealized holding gains (losses) arising during the period		320			(374	)
Reclassification adjustment for net gains included in net income		(2	)		(39	)
Net unrealized gains (losses) on securities available-for-sale		318			(413	)
Accretion of net unrealized loss on securities transferred to held-to-maturity(1)		30			-
Other comprehensive income (loss), before tax		371			(303	)
Tax effect		(148	)		121
Other comprehensive income (loss), net of tax		223			(182	)
Comprehensive income	$	742		$	323
Comprehensive income attributable to noncontrolling interest	$	30		$	-
Comprehensive income attributable to Pathfinder Bancorp, Inc.	$	712		$	323
Tax Effect Allocated to Each Component of Other Comprehensive Income (Loss)
Retirement plan net losses recognized in plan expenses	$	(4	)	$	(38	)
Change in unrealized holding losses on financial derivative		1			-
Reclassification adjustment for interest expense included in net income		(6	)		(6	)
Unrealized holding (losses) gains arising during the period		(128	)		149
Reclassification adjustment for net gains included in net income		1			16
Accretion of net unrealized loss on securities transferred to held-to-maturity(1)		(12	)		-
Income tax effect related to other comprehensive income (loss)	$	(148	)	$	121

(1) The accretion of the unrealized holding losses in accumulated other comprehensive loss at the date of transfer partially offsets the amortization of the difference between the par value and the fair value of the investment securities at the date of transfer, and is an adjustment of yield.

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

F-5

Pathfinder Bancorp, Inc.
Consolidated Statements of Comprehensive Income

	Years Ended
(In thousands)	December 31, 2013			December 31, 2012
Net Income	$	2,405		$	2,648
Other Comprehensive Income
Retirement Plans:
Retirement plan net losses recognized in plan expenses		381			395
Gain on plan losses not recognized in plan expenses and pension plan curtailment		2,590			1,025
Net unrealized gains on retirement plans		2,971			1,420
Unrealized holding gains on financial derivative:
Change in unrealized holding losses on financial derivative		(2	)		(53	)
Reclassification adjustment for interest expense included in net income		62			58
Net unrealized gain on financial derivative		60			5
Unrealized holding (losses) gains on available-for-sale securities:
Unrealized holding (losses) gains arising during the period		(2,075	)		1,192
Reclassification adjustment for net gains included in net income		(365	)		(375	)
Net unrealized (losses) gains on securities available-for-sale securities		(2,440	)		817
Unrealized loss on securities transferred to held-to-maturity(1)		(1,302	)		-
Other comprehensive (loss) income, before tax		(711	)		2,242
Tax effect		284			(896	)
Other comprehensive (loss) income, net of tax		(427	)		1,346
Comprehensive income	$	1,978		$	3,994
Comprehensive income attributable to noncontrolling interest	$	(1	)	$	-
Comprehensive income attributable to Pathfinder Bancorp, Inc.	$	1,979		$	3,994
Tax Effect Allocated to Each Component of Other Comprehensive Income
Retirement plan net losses recognized in plan expenses	$	(152	)	$	(158	)
Gain on plan losses not recognized in plan expenses and pension plan curtailment		(1,036	)		(410	)
Change in unrealized holding losses on financial derivative		(1	)		21
Reclassification adjustment for interest expense included in net income		(24	)		(23	)
Unrealized holding (losses) gains arising during the period		830			(476	)
Reclassification adjustment for net gains included in net income		146			150
Unrealized loss on securities transferred to held-to-maturity(1)		521			-
Income tax effect related to other comprehensive income	$	284		$	(896	)

(1) The accretion of the unrealized holding losses in accumulated other comprehensive income at the date of transfer partially offsets the amortization of the difference between the par value and the fair value of the investment securities at the date of transfer, and is an adjustment of yield.

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

F-6

PATHFINDER BANCORP, INC.

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY

Three months ended March 31, 2014 and March 31, 2013

(Unaudited)

											Accumulated
					Additional						Other Com-									Non-
	Preferred		Common		Paid in			Retained			prehensive			Unearned			Treasury			controlling
(In thousands, except share and per share data)	Stock		Stock		Capital			Earnings			Loss			ESOP			Stock			Interest		Total
Balance, January 1, 2014	$	13,000	$	30	$	8,226		$	28,788		$	(1,745	)	$	(826	)	$	(4,761	)	$	358	$	43,070
Net income		-		-		-			489			-			-			-			30		519
Other comprehensive income, net of tax		-		-		-			-			223			-			-			-		223
ESOP shares earned (3,125 shares)		-		-		17			-			-			28			-			-		45
Stock based compensation		-		-		21			-			-			-			-			-		21
Common stock dividends declared ($0.03 per share)		-		-		-			(76	)		-			-			-			-		(76	)
Balance, March 31, 2014	$	13,000	$	30	$	8,264		$	29,201		$	(1,522	)	$	(798	)	$	(4,761	)	$	388	$	43,802
Balance, January 1, 2013	$	13,000	$	30	$	8,120		$	26,685		$	(1,318	)	$	(936	)	$	(4,834	)	$	-	$	40,747
Net income		-		-		-			505			-			-			-			-		505
Other comprehensive loss, net of tax		-		-		-			-			(182	)		-			-			-		(182	)
ESOP shares earned (3,125 shares)		-		-		7			-			-			27			-			-		34
Stock based compensation		-		-		20			-			-			-			-			-		20
Stock options exercised		-		-		(6	)		-			-			-			6			-		-
Common stock dividends declared ($0.03 per share)		-		-		-			(75	)		-			-			-			-		(75	)
Balance, March 31, 2013	$	13,000	$	30	$	8,141		$	27,115		$	(1,500	)	$	(909	)	$	(4,828	)	$	-	$	41,049

F-7

PATHFINDER BANCORP, INC.

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY

Years ended December 31, 2013 and December 31, 2012

											Accumulated
					Additional						Other Com-									Non
	Preferred		Common		Paid in			Retained			prehensive			Unearned			Treasury			controlling
(In thousands, except share and per share data)	Stock		Stock		Capital			Earnings			Loss			ESOP			Stock			Interest		Total
Balance, January 1, 2013	$	13,000	$	30	$	8,120		$	26,685		$	(1,318	)	$	(936	)	$	(4,834	)	$	-	$	40,747
Net income		-		-		-			2,406			-			-			-			-		2,406
Other comprehensive loss, net of tax		-		-		-			-			(427	)		-			-			-		(427	)
ESOP shares earned (12,500 shares)		-		-		53			-			-			110			-			-		163
Stock based compensation		-		-		81			-			-			-			-			-		81
Stock options exercised		-		-		(28	)		-			-			-			73			-		45
Common stock dividends declared ($0.12 per share)		-		-		-			(303	)		-			-			-			-		(303	)
Change in noncontrolling interest		-		-		-			-			-			-			-			358		358
Balance, December 31, 2013	$	13,000	$	30	$	8,226		$	28,788		$	(1,745	)	$	(826	)	$	(4,761	)	$	358	$	43,070
Balance, January 1, 2012	$	13,000	$	30	$	8,730		$	24,618		$	(2,664	)	$	(1,039	)	$	(4,834	)	$	-	$	37,841
Net income		-		-		-			2,648			-			-			-			-		2,648
Other comprehensive income, net of tax		-		-		-			-			1,346			-			-			-		1,346
Purchase of CPP Warrants from Treasury		-		-		(706	)		169			-			-			-			-		(537	)
Preferred stock dividends - SBLF		-		-		-			(449	)		-			-			-			-		(449	)
ESOP shares earned (11,645 shares)		-		-		11			-			-			103			-			-		114
Stock based compensation		-		-		79			-			-			-			-			-		79
Stock options exercised		-		-		6			-			-			-			-			-		6
Common stock dividends declared ($0.12 per share)		-		-		-			(301	)		-			-			-			-		(301	)
Balance, December 31, 2012	$	13,000	$	30	$	8,120		$	26,685		$	(1,318	)	$	(936	)	$	(4,834	)	$	-	$	40,747

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

F-8

PATHFINDER BANCORP, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

	(Unaudited)
	For the
	three months ended						Years Ended
	March 31,						December 31,
(In thousands)	2014			2013			2013			2012
OPERATING ACTIVITIES
Net income attributable to Pathfinder Bancorp, Inc.	$	489		$	505		$	2,406		$	2,648
Adjustments to reconcile net income to net cash flows from operating activities:
Provision for loan losses		245			324			1,032			825
Deferred income tax expense (benefit)		-			-			202			(276	)
Proceeds from sales of loans		-			182			11,459			212
Originations of loans held-for-sale		-			(172	)		(11,016	)		(195	)
Realized gains on sales and redemptions of:
Real estate acquired through foreclosure		(3	)		(19	)		(27	)		(44	)
Loans		-			(10	)		(443	)		(17	)
Available-for-sale investment securities		(2	)		(39	)		(365	)		(375	)
Premise and equipment		-			-			(6	)		-
Depreciation		198			176			715			781
Amortization of mortgage servicing rights		4			-			10			7
Amortization of deferred loan costs		27			34			111			160
Earnings on bank owned life insurance		(60	)		(59	)		(222	)		(272	)
Realized gain on proceeds from bank owned life insurance		-			(2	)		(2	)		(37	)
Net amortization of premiums and discounts on investment securities		157			222			722			1,053
Amortization of intangible assets		3			-			1			-
Stock based compensation and ESOP expense		66			54			243			193
Net change in accrued interest receivable		(98	)		(195	)		2			(32	)
Pension plan contribution		-			-			-			(2,600	)
Net change in other assets and liabilities		(56	)		(505	)		289			735
Net cash flows from operating activities		970			496			5,111			2,766
INVESTING ACTIVITIES
Purchase of investment securities available-for-sale		(6,064	)		(28,173	)		(30,036	)		(50,662	)
Purchase of investment securities held-to-maturity		(8,767	)		-			(10,433	)		-
Redemptions (purchases) of Federal Home Loan Bank stock		405			424			(511	)		(401	)
Proceeds from maturities of interest earning time deposits		-			-			1,500			-
Proceeds from maturities and principal reductions of  investment securities available-for-sale		3,436			8,067			21,831			26,346
Proceeds from maturities and principal reductions of  investment securities held-to-maturity		185			-			355			-
Proceeds from sales and redemptions of:
Available-for-sale investment securities		122			1,893			7,151			16,511
Real estate acquired through foreclosure		53			55			375			470
Premise and equipment		-			-			18			-
Acquisition of controlling interest in Fitzgibbons Agency, net of cash acquired of $18		-			-			(356	)		-
Purchase of bank owned life insurance		(1,780	)		-			-			-
Proceeds from bank owned life insurance		-			2			2			202
Net change in loans		(6,953	)		(5,369	)		(9,075	)		(29,819	)
Purchase of premises and equipment		(386	)		(236	)		(2,263	)		(192	)
Net cash flows from investing activities		(19,749	)		(23,337	)		(21,442	)		(37,545	)
FINANCING ACTIVITIES
Net change in demand deposits, NOW accounts, savings accounts,  money management deposit accounts, MMDA accounts and escrow deposits		32,369			30,973			21,764			15,700
Net change in time deposits and brokered deposits		(4,157	)		5,607			(3,429	)		9,976
Net change in short-term borrowings		(7,000	)		(9,000	)		15,000			9,000
Payments on long-term borrowings		(27	)		(28	)		(9,111	)		(4,110	)
Proceeds from long-term borrowings		-			-			-			4,000
Purchase of CPP warrants from the US Treasury		-			-			-			(537	)
Proceeds from exercise of stock options		-			-			45			5
Cash dividends paid to preferred shareholder - SBLF		-			(83	)		(83	)		(507	)
Cash dividends paid to common shareholders		(78	)		(75	)		(303	)		(301	)
Change in noncontrolling interest, net		30			-			358			-
Net cash flows from financing activities		21,137			27,394			24,241			33,226
Change in cash and cash equivalents		2,358			4,553			7,910			(1,553	)
Cash and cash equivalents at beginning of period		16,575			8,665			8,665			10,218
Cash and cash equivalents at end of period	$	18,933		$	13,218		$	16,575		$	8,665

F-9

CASH PAID DURING THE PERIOD FOR:
Interest	683	894	3,318	3,913
Income taxes	1	140	967	403
NON-CASH INVESTING ACTIVITY
Real estate acquired in exchange for loans	130	-	587	357
Transfer of available-for-sale securities to held-to-maturity	-	-	32,495	-

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

F-10

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.

Information with respect to the periods ended March 31, 2014 and March 31, 2013 is unaudited.

NOTE 1: Summary of Significant Accounting Policies

Nature of Operations and Basis of Presentation

The accompanying consolidated financial statements include the accounts of Pathfinder Bancorp, Inc. (the “Company”) and its wholly owned subsidiary, Pathfinder Bank (the “Bank”). The Bank has four wholly owned operating subsidiaries, Pathfinder Commercial Bank, Pathfinder Risk Management Company, Inc. (“PRMC”), Pathfinder REIT, Inc. and Whispering Oaks Development Corp. All significant inter-company accounts and activity have been eliminated in consolidation. Although the Company owns, through its subsidiary PRMC, 51% of the membership interest in Fitzgibbons Agency, LLC (“Fitzgibbons”), the Company is required to consolidate 100% of Fitzgibbons within the consolidated financial statements. The 49% of which the Company does not own is accounted for separately as noncontrolling interests within the consolidated financial statements.

The interim financial data as of March 31, 2014 and for the three months ended March 31, 2014 and March 31, 2013 is unaudited; in the opinion of management, the interim data includes all adjustments, consisting only of normal recurring adjustments, necessary to a fair statement of the results of the interim period.

The Company has seven offices located in Oswego County and one office in Onondaga County which opened for business in the first quarter of 2012. The Company plans to open an additional location in downtown Syracuse with a target opening in the 3rd quarter of 2014. The Company is primarily engaged in the business of attracting deposits from the general public in the Company’s market area, and investing such deposits, together with other sources of funds, in loans secured by one-to-four family residential real estate, commercial real estate, business assets and in investment securities.

Pathfinder Bancorp, M.H.C., (the “Holding Company”) a mutual holding company whose activity is not included in the accompanying consolidated financial statements, owns approximately 60.4% of the outstanding common stock of the Company.

Use of Estimates in the Preparation of Consolidated Financial Statements

The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Management has identified the allowance for loan losses, deferred income taxes, pension obligations, the annual evaluation of the Company’s goodwill for possible impairment and the evaluation of investment securities for other than temporary impairment and the estimation of fair values for accounting and disclosure purposes to be the accounting areas that require the most subjective and complex judgments, and as such, could be the most subject to revision as new information becomes available.

The Company is subject to the regulations of various governmental agencies. The Company also undergoes periodic examinations by the regulatory agencies which may subject it to further changes with respect to asset valuations, amounts of required loss allowances, and operating restrictions resulting from the regulators' judgments based on information available to them at the time of their examinations.

Significant Group Concentrations of Credit Risk

Most of the Company’s activities are with customers located primarily in Oswego and Onondaga counties of New York State.  A large portion of the Company’s portfolio is centered in residential and commercial real estate. The Company closely monitors real estate collateral values and requires additional reviews of commercial real estate

F-11

appraisals by a qualified third party for commercial real estate loans in excess of $400,000.  Note 4 discusses the types of securities that the Company invests in.  Note 5 discusses the types of lending that the Company engages in.  The Company does not have any significant concentrations to any one industry or customer.

Advertising

The Company follows the policy of charging the costs of advertising to expense as incurred.

Noncontrolling Interest

Noncontrolling interest represents the portion of ownership and profit or loss that is attributable to the minority owners of the Fitzgibbons Agency.

Cash and Cash Equivalents

Cash and cash equivalents include cash on hand, amounts due from banks and interest-bearing deposits (with original maturity of three months or less).

Investment Securities

The Company classifies investment securities as either available-for-sale or held-to-maturity. The Company does not hold any securities considered to be trading. Available-for-sale securities are reported at fair value, with net unrealized gains and losses reflected as a separate component of shareholders’ equity, net of the applicable income tax effect. Held-to-maturity securities are those that the Company has the ability and intent to hold until maturity and are reported at amortized cost. These securities include those that were transferred from available-for-sale to held-to-maturity in the third quarter of 2013, and more fully explained in Note 4 to the financial statements.

Gains or losses on investment security transactions are based on the amortized cost of the specific securities sold. Premiums and discounts on securities are amortized and accreted into income using the interest method over the period to maturity.

Note 4 to the consolidated financial statements includes additional information about the Company’s accounting policies with respect to the impairment of investment securities.

Federal Home Loan Bank Stock

Federal law requires a member institution of the Federal Home Loan Bank (“FHLB”) system to hold stock of its district FHLB according to a predetermined formula. The stock is carried at cost.

Mortgage Loans Held-for-Sale

Mortgage loans held-for-sale are carried at the lower of cost or fair value. Fair value is determined in the aggregate. There were no loans held-for-sale or forward commitments outstanding as of December 31, 2013 and 2012.

Transfers of Financial Assets

Transfers of financial assets, including sales of loans and loan participations, are accounted for as sales when control over the assets has been surrendered. Control over transferred assets is deemed to be surrendered when (1) the assets have been isolated from the Company, (2) the transferee obtains the right (free of conditions that constrain it from taking advantage of that right) to pledge or exchange the transferred assets, and (3) the Company does not maintain effective control over the transferred assets through an agreement to repurchase them before their maturity.

Loans

The Company grants mortgage, commercial, municipal, and consumer loans to customers. Loans that management has the intent and ability to hold for the foreseeable future or until maturity or pay-off are stated at their outstanding

F-12

unpaid principal balances, less the allowance for loan losses plus net deferred loan origination costs. The ability of the Company’s debtors to honor their contracts is dependent upon the real estate and general economic conditions in the market area. Interest income is generally recognized when income is earned using the interest method. Nonrefundable loan fees received and related direct origination costs incurred are deferred and amortized over the life of the loan using the interest method, resulting in a constant effective yield over the loan term. Deferred fees are recognized into income and deferred costs are charged to income immediately upon prepayment of the related loan.

The loans receivable portfolio is segmented into residential mortgage, commercial and consumer loans. The residential mortgage segment consists of one-to-four family first-lien residential mortgages and construction loans. Commercial loans consist of the following classes: real estate, lines of credit, other commercial and industrial, and municipal loans. Consumer loans include both home equity lines of credit and loans with junior liens and other consumer loans.

Allowance for Loan Losses

The allowance for loan losses represents management’s estimate of losses inherent in the loan portfolio as of the date of the statement of condition and it is recorded as a reduction of loans. The allowance is increased by the provision for loan losses, and decreased by charge-offs, net of recoveries. Loans deemed to be uncollectible are charged against the allowance for loan losses, and subsequent recoveries, if any, are credited to the allowance. All, or part, of the principal balance of loans receivable are charged off to the allowance as soon as it is determined that the repayment of all, or part, of the principal balance is highly unlikely. Non-residential consumer loans are generally charged off no later than 120 days past due on a contractual basis, unless productive collection efforts are providing results. Consumer loans may be charged off earlier in the event of bankruptcy, or if there is an amount that is deemed uncollectible. No portion of the allowance for loan losses is restricted to any individual loan product and the entire allowance is available to absorb any and all loan losses.

The allowance for loan losses is maintained at a level considered adequate to provide for losses that can be reasonably anticipated. Management performs a quarterly evaluation of the adequacy of the allowance. The allowance is based on three major components which are; specific components for larger loans, recent historical losses and several qualitative factors applied to a general pool of loans, and an unallocated component.

The first component is the specific component that relates to loans that are classified as impaired. For these loans, an allowance is established when the discounted cash flows or collateral value of the impaired loan is lower than the carrying value of that loan.

The second or general component covers pools of loans, by loan class, not considered impaired, smaller balance homogeneous loans, such as residential real estate, home equity and other consumer loans. These pools of loans are evaluated for loss exposure first based on historical loss rates for each of these categories of loans. The ratio of net charge-offs to loan outstandings within each product class, over the most recent eight quarters, lagged by one quarter, is used to generate the historical loss rates. In addition, qualitative factors are added to the historical loss rates in arriving at the total allowance for loan loss need for this general pool of loans. The qualitative factors include changes in national and local economic trends, the rate of growth in the portfolio, trends of delinquencies and nonaccrual balances, changes in loan policy, and changes in lending management experience and related staffing. Each factor is assigned a value to reflect improving, stable or declining conditions based on management’s best judgment using relevant information available at the time of the evaluation. These qualitative factors, applied to each product class, make the evaluation inherently subjective, as it requires material estimates that may be susceptible to significant revision as more information becomes available. Adjustments to the factors are supported through documentation of changes in conditions in a narrative accompanying the allowance for loan loss analysis and calculation.

The third or unallocated component is maintained to cover uncertainties that could affect management’s estimate of probable losses. The unallocated component of the allowance reflects the margin of imprecision inherent in the underlying assumptions used in the methodologies for estimating specific and general losses in the portfolio and generally comprises less than 10% of the total allowance for loan loss.

F-13

A loan is considered impaired when, based on current information and events, it is probable that the Company will be unable to collect the scheduled payments of principal or interest when due according to the contractual terms of the loan agreement. Factors considered by management in determining impairment include payment status, collateral value and the probability of collecting scheduled principal and interest payments when due. Loans that experience insignificant payment delays and payment shortfalls generally are not classified as impaired. Management determines the significance of payment delays and shortfalls on a case-by case basis, taking into consideration all of the circumstances surrounding the loan and the borrower, including the length and reason for the delay, the borrower’s prior payment record and the amount of shortfall in relation to what is owed. Impairment is measured by either the present value of the expected future cash flows discounted at the loan’s effective interest rate or the fair value of the underlying collateral if the loan is collateral dependent. The majority of the Company’s loans utilize the fair value of the underlying collateral.

An allowance for loan loss is established for an impaired loan if its carrying value exceeds its estimated fair value. The estimated fair values of substantially all of the Company’s impaired loans are measured based on the estimated fair value of the loan’s collateral. For loans secured by real estate, estimated fair values are determined primarily through third-party appraisals, less costs to sell. Appraised values are discounted to arrive at the estimated selling price of the collateral, which is considered to be the estimated fair value. The discounts also include estimated costs to sell the property.

For commercial and industrial loans secured by non-real estate collateral, such as accounts receivable, inventory and equipment, estimated fair values are determined based on the borrower’s financial statements, inventory reports, accounts receivable agings or equipment appraisals or invoices. Indications of value from these sources are generally discounted based on the age of the financial information or the quality of the assets.

Large groups of homogeneous loans are collectively evaluated for impairment. Accordingly, the Company does not separately identify individual residential mortgage loans less than $300,000, home equity and other consumer loans for impairment disclosures, unless such loans are related to borrowers with impaired commercial loans or they are the subject to a troubled debt restructuring agreement for those with a carrying value in excess of $300,000.

Commercial loans whose terms are modified are classified as troubled debt restructurings if the Company grants such borrowers concessions and it is deemed that those borrowers are experiencing financial difficulty. Concessions granted under a troubled debt restructuring generally include but are not limited to a temporary reduction in the interest rate or an extension of a loan’s stated maturity date. Commercial loans classified as troubled debt restructurings with a carrying value in excess of $100,000 are designated as impaired and evaluated as discussed above.

The allowance calculation methodology includes further segregation of loan classes into risk rating categories. The borrower’s overall financial condition, repayment sources, guarantors and value of the collateral, if appropriate, are evaluated not less than annually for commercial loans or when credit deficiencies arise on all loans. Credit quality risk ratings include regulatory classifications of special mention, substandard, doubtful and loss. See Note 5 for a description of these regulatory classifications.

In addition, Federal regulatory agencies, as an integral part of their examination process, periodically review the Company’s allowance for loan losses and may require the Company to recognize additions to the allowance based on their judgments about information available to them at the time of their examination, which may not be currently available to management. Based on management’s comprehensive analysis of the loan portfolio, management believes the current level of the allowance for loan losses is adequate.

Income Recognition on Impaired and Nonaccrual Loans

For all classes of loans receivable, the accrual of interest is discontinued when the contractual payment of principal or interest has become 90 days past due or management has serious doubts about further collectability of principal or interest, even though the loan may be currently performing. A loan may remain on accrual status if it is in the process of collection and is either guaranteed or well secured. When a loan is placed on nonaccrual status, unpaid interest is reversed and charged to interest income. Interest received on nonaccrual loans, including impaired loans, generally is either applied against principal or reported as interest income, according to management’s judgment as

F-14

to the collectability of principal. Generally, loans are restored to accrual status when the obligation is brought current, has performed in accordance with the contractual terms for a reasonable period of time, generally six months, and the ultimate collectability of the total contractual principal and interest is no longer in doubt. Nonaccrual troubled debt restructurings are restored to accrual status if principal and interest payments, under the modified terms, are current for six consecutive months after modification.

For nonaccrual loans, when future collectability of the recorded loan balance is expected, interest income may be recognized on a cash basis. In the case where a nonaccrual loan had been partially charged off, recognition of interest on a cash basis is limited to that which would have been recognized on the recorded loan balance at the contractual interest rate. Cash interest receipts in excess of that amount are recorded as recoveries to the allowance for loan losses until prior charge-offs have been fully recovered.

Off-Balance Sheet Credit Related Financial Instruments

In the ordinary course of business, the Company has entered into commitments to extend credit, including commitments under standby letters of credit. Such financial instruments are recorded when they are funded.

Premises and Equipment

Premises and equipment are stated at cost, less accumulated depreciation. Depreciation is computed on a straight-line basis over the estimated useful lives of the related assets, ranging up to 40 years for premises and 10 years for equipment. Maintenance and repairs are charged to operating expenses as incurred. The asset cost and accumulated depreciation are removed from the accounts for assets sold or retired and any resulting gain or loss is included in the determination of income.

Foreclosed Real Estate

Properties acquired through foreclosure, or by deed in lieu of foreclosure, are recorded at their fair value less estimated costs to sell. Fair value is typically determined based on evaluations by third parties. Costs incurred in connection with preparing the foreclosed real estate for disposition are capitalized to the extent that they enhance the overall fair value of the property. Any write-downs on the asset’s fair value less costs to sell at the date of acquisition are charged to the allowance for loan losses. Subsequent write downs and expenses of foreclosed real estate are included as a valuation allowance and recorded in noninterest expense.

Goodwill and Intangible Assets

Goodwill represents the excess cost of an acquisition over the fair value of the net assets acquired. Goodwill is not amortized, but is evaluated annually for impairment. Intangible assets, such as customer relationships, are amortized over their useful lives, generally over 15 years.

Mortgage Servicing Rights

Originated mortgage servicing rights are recorded at their fair value at the time of transfer of the related loans and are amortized in proportion to and over the period of estimated net servicing income or loss. The carrying value of the originated mortgage servicing rights is periodically evaluated for impairment or between annual evaluations under certain circumstances.

Stock-Based Compensation

Compensation costs related to share-based payment transactions are recognized based on the grant-date fair value of the stock-based compensation issued. Compensation costs are recognized over the period that an employee provides service in exchange for the award. Compensation costs related to the Employee Stock Ownership Plan are dependent upon the average stock price and the shares committed to be released to plan participants through the period in which income is reported.

F-15

Retirement Benefits

The Company has a non-contributory defined benefit pension plan that covered substantially all employees. On May 14, 2012, the Company informed its employees of its decision to freeze participation and benefit accruals under the plan, primarily to reduce some of the volatility in earnings that can accompany the maintenance of a defined benefit plan. The freeze became effective June 30, 2012. Compensation earned by employees up to June 30, 2012 is used for purposes of calculating benefits under the plan but there will be no future benefit accruals after this date. Participants as of June 30, 2012 will continue to earn vesting credit with respect to their frozen accrued benefits as they continue to work. Pension expense under these plans is charged to current operations and consists of several components of net pension cost based on various actuarial assumptions regarding future experience under the plans.

Gains and losses, prior service costs and credits, and any remaining transition amounts that have not yet been recognized through net periodic benefit cost are recognized in accumulated other comprehensive loss, net of tax effects, until they are amortized as a component of net periodic cost. Plan assets and obligations are measured as of the Company’s statement of condition date.

The Company has unfunded deferred compensation and supplemental executive retirement plans for selected current and former employees and officers that provide benefits that cannot be paid from a qualified retirement plan due to Internal Revenue Code restrictions. These plans are nonqualified under the Internal Revenue Code, and assets used to fund benefit payments are not segregated from other assets of the Company, therefore, in general, a participant's or beneficiary's claim to benefits under these plans is as a general creditor.

The Company sponsors an Employee Stock Ownership Plan (“ESOP”) covering substantially all full time employees. The cost of shares issued to the ESOP but not committed to be released to the participants is presented in the consolidated statement of condition as a reduction of shareholders’ equity. ESOP shares are released to the participants proportionately as the loan is repaid. The Company records ESOP compensation expense based on the shares committed to be released and allocated to the participant’s accounts multiplied by the average share price of the Company’s stock over the period. Dividends related to unallocated shares are recorded as compensation expense.

Derivative Financial Instruments

Derivatives are recorded on the statement of condition as assets and liabilities measured at their fair value. The accounting for increases and decreases in the value of derivatives depends upon the use of derivatives and whether the derivatives qualify for hedge accounting. The Company currently has one interest rate swap, which has been determined to be a cash flow hedge. The fair value of cash-flow hedging instruments (“Cash Flow Hedge”) is recorded in either other assets or other liabilities. On an ongoing basis, the statement of condition is adjusted to reflect the then current fair value of the Cash Flow Hedge. The related gains or losses are reported in other comprehensive income (loss) and are subsequently reclassified into earnings, as a yield adjustment in the same period in which the related interest on the hedged item (primarily a variable-rate debt obligation) affect earnings. To the extent that the Cash Flow Hedge is not effective, the ineffective portion of the Cash Flow Hedge is immediately recognized as interest expense.

Income Taxes

Provisions for income taxes are based on taxes currently payable or refundable and deferred income taxes on temporary differences between the tax basis of assets and liabilities and their reported amounts in the consolidated financial statements. Deferred tax assets and liabilities are reported in the consolidated financial statements at currently enacted income tax rates applicable to the period in which the deferred tax assets and liabilities are expected to be realized or settled.

Earnings Per Share

Basic earnings per common share are computed by dividing net income, after preferred stock dividends and preferred stock discount accretion, by the weighted average number of common shares outstanding throughout each year. Diluted earnings per share gives effect to weighted average shares that would be outstanding assuming the exercise of issued stock options and warrants using the treasury stock method. Unallocated shares of the Company’s

F-16

ESOP plan are not included when computing earnings per share until they are committed to be released.

Segment Reporting

The Company has evaluated the activities relating to its strategic business units. The controlling interest in the Fitzgibbons Agency is dissimilar in nature and management when compared to the Company’s other strategic business units which are judged to be similar in nature and management. The Company has determined that the Fitzgibbons Agency is below the reporting threshold in size in accordance with Accounting Standards Codification 280. Accordingly, the Company has determined it has no reportable segments.

Comprehensive Income (Loss)

Accounting principles generally require that recognized revenue, expenses, gains and losses be included in net income.  Although certain changes in assets and liabilities are reported as a separate component of the equity section of the statement of condition, such items, along with net income, are components of comprehensive income. 

Accumulated other comprehensive (loss) represents the sum of these items, with the exception of net income, as of the balance sheet date and is represented in the table below.

	As of December 31,
Accumulated Other Comprehensive Loss By Component:	2013			2012
Unrealized loss for pension and other postretirement obligations	$	(1,637	)	$	(4,608	)
Tax effect		655			1,843
Net unrealized loss for pension and other postretirement obligations		(982	)		(2,765	)
Unrealized loss on financial derivative instruments used in cash flow hedging relationships		(135	)		(195	)
Tax effect		54			78
Net unrealized loss on financial derivative instruments used in cash flow hedging relationships		(81	)		(117	)
Unrealized gains on available-for-sale securities		166			2,606
Tax effect		(67	)		(1,042	)
Net unrealized gains on available-for-sale securities		99			1,564
Unrealized loss on securities transferred to held-to-maturity		(1,302	)		-
Tax effect		521			-
Net unrealized loss on securities transferred to held-to-maturity		(781	)		-
Accumulated other comprehensive loss	$	(1,745	)	$	(1,318	)

Reclassifications

Certain amounts in the 2012 consolidated financial statements have been reclassified to conform to the current year presentation. These reclassifications had no effect on net income as previously reported.

F-17

NOTE 2: NEW ACCOUNTING PRONOUNCEMENTS

In January 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2014-04 – Receivables-Troubled Debt Restructurings by Creditors (Subtopic 310-40). Topic 310-40 provides guidance on situations in which a creditor obtains one or more collateral assets in satisfaction of all or part of the receivable. That guidance indicates that a creditor should reclassify a collateralized mortgage loan such that the loan should be derecognized and the collateral asset recognized when it determines that there has been in substance a repossession or foreclosure by the creditor, that is, the creditor receives physical possession of the debtor’s assets regardless of whether formal foreclosure proceedings take place. However, the terms in substance repossession or foreclosure and physical possession are not defined in the accounting literature and there is diversity about when a creditor should derecognize the loan receivable and recognize the real estate property. That diversity has been highlighted by recent extended foreclosure timelines and processes related to residential real estate properties. The amendments in this Update apply to all creditors who obtain physical possession (resulting from an in substance repossession or foreclosure) of residential real estate property collateralizing a consumer mortgage loan in satisfaction of a receivable and are effective for public business entities for annual periods, and interim periods within those annual periods, beginning after December 15, 2014. The Company does not expect a material impact on its consolidated statements of condition, results of operations, or cash flows.

F-18

NOTE 3: EARNINGS PER SHARE

Basic earnings per share are calculated by dividing net income available to common shareholders by the weighted average number of common shares outstanding during the period. Net income available to common shareholders is net income to Pathfinder Bancorp, Inc. less the total of preferred dividends declared. Diluted earnings per share include the potential dilutive effect that could occur upon the assumed exercise of issued stock options using the Treasury Stock method. Unallocated common shares held by the ESOP are not included in the weighted-average number of common shares outstanding for purposes of calculating earnings per common share until they are committed to be released to plan participants.

The following table sets forth the calculation of basic and diluted earnings per share:

	(Unaudited)
	Three months ended				Years Ended
	March 31,				December 31,
(In thousands, except per share data)	2014		2013		2013		2012
Basic Earnings Per Common Share
Net income available to common shareholders	$	489	$	505	$	2,406	$	2,199
Weighted average common shares outstanding		2,529		2,512		2,517		2,504
Basic earnings per common share	$	0.19	$	0.20	$	0.96	$	0.88
Diluted Earnings Per Common Share
Net income available to common shareholders	$	489	$	505	$	2,406	$	2,199
Weighted average common shares outstanding		2,529		2,512		2,517		2,504
Effect of assumed exercise of stock options		22		-		14		8
Effect of assumed exercise of stock warrants		-		-		-		4
Diluted weighted average common shares outstanding		2,551		2,512		2,531		2,516
Diluted earnings per common share	$	0.19	$	0.20	$	0.95	$	0.87

F-19

NOTE 4: INVESTMENT SECURITIES

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

	(Unaudited)
	March 31, 2014
			Gross		Gross			Estimated
	Amortized		Unrealized		Unrealized			Fair
(In thousands)	Cost		Gains		Losses			Value
Available-for-Sale Portfolio
Debt investment securities:
US Treasury, agencies and GSEs	$	19,910	$	3	$	(315	)	$	19,598
State and political subdivisions		6,300		154		(4	)		6,450
Corporate		11,870		190		-			12,060
Residential mortgage-backed - US agency		43,547		576		(523	)		43,600
Total		81,627		923		(842	)		81,708
Equity investment securities:
Mutual funds:
Ultra short mortgage fund		643		4		-			647
Large cap equity fund		456		199		-			655
Other mutual funds		183		181		-			364
Common stock - financial services industry		270		19		-			289
Total		1,552		403		-			1,955
Total available-for-sale	$	83,179	$	1,326	$	(842	)	$	83,663
Held-to-Maturity Portfolio
Debt investment securities:
US Treasury, agencies and GSEs	$	4,814	$	5	$	(19	)	$	4,800
State and political subdivisions		22,831		310		(1	)		23,140
Corporate		3,692		56		(6	)		3,742
Residential mortgage-backed - US agency		11,653		62		(38	)		11,677
Total held-to-maturity	$	42,990	$	433	$	(64	)	$	43,359

F-20

	December 31, 2013
			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	$	16,935	$	2	$	(340	)	$	16,597
State and political subdivisions		6,429		164		(6	)		6,587
Corporate		13,498		198		-			13,696
Residential mortgage-backed - US agency		42,378		496		(732	)		42,142
Total		79,240		860		(1,078	)		79,022
Equity investment securities:
Mutual funds:
Ultra short mortgage fund		643		5		-			648
Large cap equity fund		456		195		-			651
Other mutual funds		183		162		-			345
Common stock - financial services industry		271		22		-			293
Total		1,553		384		-			1,937
Total available-for-sale	$	80,793	$	1,244	$	(1,078	)	$	80,959
Held-to-Maturity Portfolio
Debt investment securities:
US Treasury, agencies and GSEs	$	1,872	$	-	$	(25	)	$	1,847
State and political subdivisions		21,371		11		(118	)		21,264
Corporate		3,746		16		(44	)		3,718
Residential mortgage-backed - US agency		7,423		-		(30	)		7,393
Total held-to-maturity	$	34,412	$	27	$	(217	)	$	34,222

	December 31, 2012
			Gross		Gross			Estimated
Available-for-Sale Portfolio	Amortized		Unrealized		Unrealized			Fair
(In thousands)	Cost		Gains		Losses			Value
Debt investment securities:
US Treasury, agencies and GSEs	$	6,175	$	16	$	(8	)	$	6,183
State and political subdivisions		26,413		1,065		(7	)		27,471
Corporate		22,942		468		(404	)		23,006
Residential mortgage-backed - US agency		47,113		1,139		(1	)		48,251
Residential mortgage-backed - private label		296		9		-			305
Total		102,939		2,697		(420	)		105,216
Equity investment securities:
Mutual funds:
Ultra short mortgage fund		1,286		5		-			1,291
Large cap equity fund		905		176		-			1,081
Other mutual funds		183		136		-			319
Common stock - financial services industry		420		12		-			432
Total		2,794		329		-			3,123
Total investment securities	$	105,733	$	3,026	$	(420	)	$	108,339

The Company’s investments in mortgage-backed securities include pass-through securities and collateralized mortgage obligations issued and guaranteed by Fannie Mae, Freddie Mac, and GNMA. As of December 31, 2013

F-21

and December 31, 2012, no private-label mortgage-backed securities or collateralized mortgage obligations were held in the securities portfolio. The Company’s investments in state and political obligation securities generally are municipal obligations that are general obligations supported by the general taxing authority of the issuer, and in some cases are insured. The obligations issued by school districts are supported by state aid. Primarily, these investments are issued by municipalities within New York State.

The Company elected to transfer 55 available-for-sale (“AFS”) securities with an aggregate fair value of $32.5 million to a classification of held-to-maturity (“HTM”) on September 30, 2013.  In accordance with FASB ASC 320-10-55-24, the transfer from AFS to HTM must be recorded at the fair value of the AFS securities at the time of transfer.  The net unrealized holding loss of $799,000, net of tax, at the date of transfer was retained in accumulated other comprehensive loss, with the associated pre-tax amount retained in the carrying value of the HTM securities.  Such amounts will be amortized to interest income over the remaining life of the securities.  The fair value of the transferred AFS securities became the book value of the HTM securities at September 30, 2013, with no unrealized gain or loss at this date.  Future reporting periods, with potential changes in market value for these securities, would likely record an unrealized gain or loss for disclosure purposes.

The amortized cost and estimated fair value of debt investments at March 31, 2014 by contractual maturity are shown below. Expected maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without penalties.

	(Unaudited)				(Unaudited)
	Available-for-Sale				Held-to-Maturity
	Amortized		Estimated		Amortized		Estimated
	Cost		Fair Value		Cost		Fair Value
(In thousands)
Due in one year or less	$	6,009	$	6,035	$	186	$	186
Due after one year through five years		27,436		27,602		3,943		3,940
Due after five years through ten years		4,635		4,471		13,581		13,682
Due after ten years		-		-		13,627		13,874
Sub-total		38,080		38,108		31,337		31,682
Residential mortgage-backed - US agency		43,547		43,600		11,653		11,677
Totals	$	81,627	$	81,708	$	42,990	$	43,359

The amortized cost and estimated fair value of debt investments at December 31, 2013 by contractual maturity are shown below. Expected maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without penalties.

	Available-for-Sale				Held-to-Maturity
	Amortized		Estimated		Amortized		Estimated
	Cost		Fair Value		Cost		Fair Value
(In thousands)
Due in one year or less	$	6,419	$	6,438	$	186	$	186
Due after one year through five years		25,648		25,835		824		825
Due after five years through ten years		4,634		4,446		12,360		12,302
Due after ten years		161		161		13,619		13,516
Sub-total		36,862		36,880		26,989		26,829
Residential mortgage-backed - US agency		42,378		42,142		7,423		7,393
Totals	$	79,240	$	79,022	$	34,412	$	34,222

F-22

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

	(Unaudited)
	March 31, 2014
	Less than Twelve Months							Twelve Months or More							Total
	Number of							Number of							Number of
	Individual		Unrealized			Fair		Individual		Unrealized			Fair		Individual		Unrealized			Fair
	Securities		Losses			Value		Securities		Losses			Value		Securities		Losses			Value
(Dollars in thousands)
Available-for-Sale
US Treasury, agencies and GSE's		11	$	(283	)	$	12,683		2	$	(32	)	$	1,974		13	$	(315	)	$	14,657
State and political subdivisions		2		(2	)		332		2		(2	)		181		4		(4	)		513
Corporate		-		-			-		-		-			-		-		-			-
Residential mortgage-backed - US agency		17		(317	)		18,471		5		(206	)		4,085		22		(523	)		22,556
Totals		30	$	(602	)	$	31,486		9	$	(240	)	$	6,240		39	$	(842	)	$	37,726
Held-to-Maturity
US Treasury, agencies and GSE's		3	$	(19	)	$	2,919		-	$	-		$	-		3	$	(19	)	$	2,919
State and political subdivisions		1		(1	)		1,472		-		-			-		1		(1	)		1,472
Corporate		1		(6	)		800		-		-			-		1		(6	)		800
Residential mortgage-backed - US agency		4		(38	)		4,282		-		-			-		4		(38	)		4,282
Totals		9	$	(64	)	$	9,473		-	$	-		$	-		9	$	(64	)	$	9,473

	December 31, 2013
	Less than Twelve Months							Twelve Months or More							Total
	Number of							Number of							Number of
	Individual		Unrealized			Fair		Individual		Unrealized			Fair		Individual		Unrealized			Fair
	Securities		Losses			Value		Securities		Losses			Value		Securities		Losses			Value
(Dollars in thousands)
Available-for-Sale
US Treasury, agencies and GSE's		14	$	(340	)	$	15,573		-	$	-		$	-		14	$	(340	)	$	15,573
State and political subdivisions		1		(4	)		114		3		(2	)		397		4		(6	)		511
Corporate		-		-			-		-		-			-		-		-			-
Residential mortgage-backed - US agency		25		(682	)		23,442		1		(50	)		878		26		(732	)		24,320
Totals		40	$	(1,026	)	$	39,129		4	$	(52	)	$	1,275		44	$	(1,078	)	$	40,404
Held-to-Maturity
US Treasury, agencies and GSE's		2	$	(25	)	$	1,847		-	$	-		$	-		2	$	(25	)	$	1,847
State and political subdivisions		37		(118	)		17,814		-		-			-		37		(118	)		17,814
Corporate		4		(44	)		3,171		-		-			-		4		(44	)		3,171
Residential mortgage-backed - US agency		6		(30	)		5,526		-		-			-		6		(30	)		5,526
Totals		49	$	(217	)	$	28,358		-	$	-		$	-		49	$	(217	)	$	28,358

F-23

	December 31, 2012
	Less than Twelve Months							Twelve Months or More							Total
	Number of							Number of							Number of
	Individual		Unrealized			Fair		Individual		Unrealized			Fair		Individual		Unrealized			Fair
Available-for-Sale	Securities		Losses			Value		Securities		Losses			Value		Securities		Losses			Value
(Dollars in thousands)
US Treasury, agencies and GSE's		1	$	(8	)	$	992		-	$	-		$	-		1	$	(8	)	$	992
State and political subdivisions		8		(7	)		2,008		-		-			-		8		(7	)		2,008
Corporate		2		(14	)		974		2		(390	)		1,580		4		(404	)		2,554
Residential mortgage-backed - US agency		2		(1	)		1,411		-		-			-		2		(1	)		1,411
Totals		13	$	(30	)	$	5,385		2	$	(390	)	$	1,580		15	$	(420	)	$	6,965

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

Management does not believe any individual unrealized loss in other securities within the portfolio as of March 31, 2014 (unaudited) represents OTTI. All securities are rated A2 or better by Moody’s, with the exception of two corporate securities and all have been in unrealized loss positions for eleven months or less, with the exception of the two previously mentioned corporate holdings, two US agency securities, two municipal securities and five mortgage-backed securities. The two GSE agency and two municipal securities have relatively insignificant unrealized loss positions. The unrealized losses reflected in the mortgage-backed security holdings are primarily attributable to changes in interest rates. The two corporate securities are floating rate notes which adjust quarterly based on 3-month Libor. The securities are reflecting unrealized losses due to current similar offerings being originated at higher spread to Libor, as the market currently demands a greater pricing premium for the associated risk. The Company does not intend to sell these securities, nor is it more likely than not that the Company will be required to sell these securities prior to the recovery of the amortized cost.

In determining whether OTTI has occurred for equity securities, the Company considers the applicable factors described above and the length of time the equity security’s fair value has been below the carrying amount. Management has determined that we have the intent and ability to retain the equity securities for a sufficient period of time to allow for recovery. All of the Company’s equity securities had a fair value greater than the book value at March 31, 2014 (unaudited).

Management does not believe any individual unrealized loss in other securities within the portfolio as of December 31, 2013 represents OTTI. One individual municipal security is rated below investment grade, yet the current unrealized loss is less than $1,000 and has only been in place for 1 month. All other related securities are rated A2 or better by Moody’s and have been in unrealized loss positions for 11 months or less, with the exception of 3 municipal securities and 1 mortgage-backed security. The 3 municipal securities are issuances from school districts located within the bank’s primary market area. The mortgage-backed security was issued by Fannie Mae. The unrealized losses in the portfolio are primarily attributable to changes in interest rates. The Company does not intend to sell these securities, nor is it more likely than not that the Company will be required to sell these securities prior to the recovery of the amortized cost.

F-24

In determining whether OTTI has occurred for equity securities, the Company considers the applicable factors described above and the length of time the equity security’s fair value has been below the carrying amount. Management has determined that we have the intent and ability to retain the equity securities for a sufficient period of time to allow for recovery. All of the Company’s equity securities had a fair value greater than the book value at December 31, 2013.

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

	(Unaudited)
	For the three months				For the twelve months
	ended March 31,				ended December 31,
(In thousands)	2014		2013		2013			2012
Realized gains	$	2	$	39	$	370		$	397
Realized losses		-		-		(5	)		(22	)
	$	2	$	39	$	365		$	375

As of March 31, 2014 (unaudited), securities with a fair value of $73.8 million were pledged to collateralize certain municipal deposit relationships. As of the same date, securities with a fair value of $21.0 million were pledged against certain borrowing arrangements.

As of December 31, 2013 and December 31, 2012, securities with a fair value of $58.6 million and $46.0 million, respectively, were pledged to collateralize certain municipal deposit relationships. As of the same dates, securities with a fair value of $21.6 million and $37.8 million were pledged against certain borrowing arrangements.

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

F-25

NOTE 5: LOANS

Major classifications of loans are as follows:

	(Unaudited)
	March 31,			December 31,			December 31,
(In thousands)	2014			2013			2012
Residential mortgage loans:
1-4 family first-lien residential mortgages	$	167,145		$	166,298		$	173,955
Construction		1,208			1,982			2,655
Total residential mortgage loans		168,353			168,280			176,610
Commercial loans:
Real estate		102,559			95,536			82,329
Lines of credit		14,883			14,444			13,748
Other commercial and industrial		33,949			32,675			31,477
Municipal		2,781			5,122			3,588
Total commercial loans		154,172			147,777			131,142
Consumer loans:
Home equity and junior liens		21,387			21,110			22,073
Other consumer		3,965			4,166			3,469
Total consumer loans		25,352			25,276			25,542
Total loans		347,877			341,333			333,294
Net deferred loan costs		265			300			454
Less allowance for loan losses		(4,999	)		(5,041	)		(4,501	)
Loans receivable, net	$	343,143		$	336,592		$	329,247

The Company originates residential mortgage, commercial and consumer loans largely to customers throughout Oswego, Onondaga, Jefferson, and Oneida counties. Although the Company has a diversified loan portfolio, a substantial portion of its borrowers’ abilities to honor their contracts is dependent upon the counties’ employment and economic conditions.

As of March 31, 2014 (unaudited) , residential mortgage loans with a carrying value of $116.6 million have been pledged by the Company to the Federal Home Loan Bank of New York (“FHLBNY”) under a blanket collateral agreement to secure the Company’s line of credit and term borrowings.

As of December 31, 2013 and December 31, 2012, residential mortgage loans with a carrying value of $114.8 million and $58.6 million, respectively, have been pledged by the Company to the Federal Home Loan Bank of New York (“FHLBNY”) under a blanket collateral agreement to secure the Company’s line of credit and term borrowings.

Loan Origination / Risk Management

The Company has lending policies and procedures in place that are designed to maximize loan income within an acceptable level of risk. Management and the Board of Directors reviews and approves these policies and procedures on a regular basis. A reporting system supplements the review process by frequently providing management with reports related to loan production, loan quality, loan delinquencies, nonperforming and potential problem loans. Diversification in the loan portfolio is a means of managing risk associated with fluctuations in economic conditions.

F-26

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

Portfolio Segment	Class
Residential Mortgage Loans	1-4 family first-lien residential mortgages
	Construction
Commercial Loans	Real estate
	Lines of credit
	Other commercial and industrial
	Municipal
Consumer Loans	Home equity and junior liens
	Other consumer

Risk Characteristics of Portfolio Segments

Each portfolio segment generally carries its own unique risk characteristics.

The residential mortgage loan segment is impacted by general economic conditions, unemployment rates in the Bank’s service area, real estate values and the forward expectation of improvement or deterioration in economic conditions.

The commercial loan segment is impacted by general economic conditions but, more specifically, the industry segment in which each borrower participates.  Unique competitive changes within a borrower’s specific industry, or geographic location could cause significant changes in the borrower’s revenue stream, and therefore, impact its ability to repay its obligations. Commercial real estate is also subject to general economic conditions but changes within this segment typically lag changes seen within the consumer and commercial segment.  Included within this portfolio are both owner occupied real estate, in which the borrower occupies the majority of the real estate property and upon which the majority of the sources of repayment of the obligation is dependent upon, and non-owner occupied real estate, in which several tenants comprise the repayment source for this portfolio segment.  The composition and competitive position of the tenant structure may cause adverse changes in the repayment of debt obligations for the non-owner occupied class within this segment.

The consumer loan segment is impacted by general economic conditions, unemployment rates in the Company’s service area, and the forward expectation of improvement or deterioration in economic conditions.

Real estate loans, including residential mortgages, commercial real estate loans and home equity, comprise 84% of the portfolio in 2013, identical to the composition in 2012. Loans secured by real estate provide the best collateral protection and thus significantly reduce the inherent risk in the portfolio.

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

F-27

Description of Credit Quality Indicators

The Company utilizes an eight tier risk rating system to evaluate the quality of its loan portfolio. Loans that are risk rated “1” through “4” are considered “Pass” loans. In accordance with regulatory guidelines, loans rated “5” through “8” are termed “criticized” loans and loans rated “6” through “8” are termed “classified” loans. A description of the Company’s credit quality indicators follows.

For Commercial Loans:

1. Prime: A loan that is fully secured by properly margined Pathfinder Bank deposit account(s) or an obligation of the US Government. It may also be unsecured if it is supported by a very strong financial condition and, in the case of a commercial loan, excellent management. There exists an unquestioned ability to repay the loan in accordance with its terms.

2. Strong: Desirable relationship of somewhat less stature than Prime grade. Possesses a sound documented repayment source, and back up, which will allow repayment within the terms of the loan. Individual loans backed by solid assets, character and integrity. Ability of individual or company management is good and well established. Probability of serious financial deterioration is unlikely.

3. Satisfactory: Stable financial condition with cash flow sufficient for debt service coverage. Satisfactory loans of average strength having some deficiency or vulnerability to changing economic or industry conditions but performing as agreed with documented evidence of repayment capacity. May be unsecured loans to borrowers with satisfactory credit and financial strength. Satisfactory provisions for management succession and a secondary source of repayment exists.

4. Satisfactory Watch: A four is not a criticized or classified credit. These credits do not display the characteristics of a criticized asset as defined by the regulatory definitions. A credit is given a Satisfactory Watch designation if there are matters or trends observed deserving attention somewhat beyond normal monitoring. Borrowing obligations may be handled according to agreement but could be adversely impacted by developing factors such as industry conditions, operating problems, litigation pending of a significant nature or declining collateral quality and adequacy.

5. Special Mention: A warning risk grade that portrays one or more weaknesses that may be tolerated in the short term. Assets in this category are currently protected but are potentially weak. This loan would not normally be booked as a new credit, but may have redeeming characteristics persuading the Bank to continue working with the borrower. Loans accorded this classification have potential weaknesses which may, if not checked or corrected, weaken the company’s assets, inadequately protect the Bank’s position or effect the orderly, scheduled reduction of the debt at some future time.

6. Substandard: The relationship is inadequately protected by the current net worth and cash flow capacity of the borrower, guarantor/endorser, or of the collateral pledged. Assets have a well-defined weakness or weaknesses that jeopardize the orderly liquidation of the debt. The relationship shows deteriorating trends or other deficient areas. The loan may be nonperforming and expected to remain so for the foreseeable future. Relationship balances may be adequately secured by asset value; however a deteriorated financial condition may necessitate collateral liquidation to effect repayment. A relationship with an unacceptable financial condition requiring excessive attention of the officer due to the nature of the credit risk or lack of borrower cooperation. All loans on nonaccrual or in a bankruptcy are not graded higher than Substandard.

7. Doubtful: The relationship has all the weaknesses inherent in a credit graded 5 with the added characteristic that the weaknesses make collection on the basis of currently existing facts, conditions and value, highly questionable or improbable. The possibility of some loss is extremely high, however its classification as an anticipated loss is deferred until a more exact determination of the extent of loss is determined. Loans in this category must be on nonaccrual.

F-28

8. Loss: Loans are considered uncollectible and of such little value that continuance as bankable assets is not warranted. It is not practicable or desirable to defer writing off this basically worthless asset even though partial recovery may be possible in the future.

For Residential Mortgage and Consumer Loans:

Residential mortgage and consumer loans are assigned a “Pass” rating unless the loan has demonstrated signs of weakness as indicated by the ratings below.

5. Special Mention: All loans sixty days past due are classified Special Mention. The loan is not upgraded until it has been current for six consecutive months.

6. Substandard: All loans 90 days past due are classified Substandard. The loan is not upgraded until it has been current for six consecutive months.

7. Doubtful: The relationship has all the weaknesses inherent in a credit graded 5 with the added characteristic that the weaknesses make collection on the basis of currently existing facts, conditions and value, highly questionable or improbable. The possibility of some loss is extremely high.

The risk ratings for classified loans are evaluated at least quarterly for commercial loans or when credit deficiencies arise, such as delinquent loan payments, for commercial, residential mortgage or consumer loans. See further discussion of risk ratings in Note 1.

F-29

The following table presents the segments and classes of the loan portfolio summarized by the aggregate pass rating and the criticized and classified ratings of special mention, substandard and doubtful within the Company's internal risk rating system:

	(Unaudited)
	As of March 31, 2014
			Special
(In thousands)	Pass		Mention		Substandard		Doubtful		Total
Residential mortgage loans:
1-4 family first-lien residential mortgages	$	160,143	$	1,749	$	5,240	$	13	$	167,145
Construction		1,208		-		-		-		1,208
Total residential mortgage loans		161,351		1,749		5,240		13		168,353
Commercial loans:
Real estate		95,836		1,276		5,447		-		102,559
Lines of credit		13,314		481		1,088		-		14,883
Other commercial and industrial		32,499		388		916		146		33,949
Municipal		2,781		-		-		-		2,781
Total commercial loans		144,430		2,145		7,451		146		154,172
Consumer loans:
Home equity and junior liens		19,948		401		962		76		21,387
Other consumer		3,856		18		91		-		3,965
Total consumer loans		23,804		419		1,053		76		25,352
Total loans	$	329,585	$	4,313	$	13,744	$	235	$	347,877

	As of December 31, 2013
			Special
(In thousands)	Pass		Mention		Substandard		Doubtful		Total
Residential mortgage loans:
1-4 family first-lien residential mortgages	$	160,013	$	1,649	$	4,622	$	14	$	166,298
Construction		1,982		-		-		-		1,982
Total residential mortgage loans		161,995		1,649		4,622		14		168,280
Commercial loans:
Real estate		90,162		918		4,456		-		95,536
Lines of credit		12,941		560		943		-		14,444
Other commercial and industrial		31,159		468		899		149		32,675
Municipal		5,122		-		-		-		5,122
Total commercial loans		139,384		1,946		6,298		149		147,777
Consumer loans:
Home equity and junior liens		19,567		487		976		80		21,110
Other consumer		4,040		30		74		22		4,166
Total consumer loans		23,607		517		1,050		102		25,276
Total loans	$	324,986	$	4,112	$	11,970	$	265	$	341,333

F-30

	As of December 31, 2012
			Special
(In thousands)	Pass		Mention		Substandard		Doubtful		Total
Residential mortgage loans:
1-4 family first-lien residential mortgages	$	166,801	$	1,323	$	5,831	$	-	$	173,955
Construction		2,655		-		-		-		2,655
Total residential mortgage loans		169,456		1,323		5,831		-		176,610
Commercial loans:
Real estate		76,719		1,685		3,925		-		82,329
Lines of credit		12,026		-		1,647		75		13,748
Other commercial and industrial		29,705		237		1,500		35		31,477
Municipal		3,588		-		-		-		3,588
Total commercial loans		122,038		1,922		7,072		110		131,142
Consumer loans:
Home equity and junior liens		20,078		145		1,801		49		22,073
Other consumer		3,199		133		111		26		3,469
Total consumer loans		23,277		278		1,912		75		25,542
Total loans	$	314,771	$	3,523	$	14,815	$	185	$	333,294

F-31

Nonaccrual and Past Due Loans

Loans are considered past due if the required principal and interest payments have not been received within thirty days of the payment due date.

An age analysis of past due loans, exclusive of deferred costs, segregated by class of loans were as follows:

	(Unaudited)
	As of March 31, 2014
	30-59 Days		60-89 Days		90 Days		Total				Total Loans
(In thousands)	Past Due		Past Due		and Over		Past Due		Current		Receivable
Residential mortgage loans:
1-4 family first-lien residential mortgages	$	1,844	$	1,032	$	1,873	$	4,749	$	162,396	$	167,145
Construction		-		-		-		-		1,208		1,208
Total residential mortgage loans		1,844		1,032		1,873		4,749		163,604		168,353
Commercial loans:
Real estate		474		269		3,817		4,560		97,999		102,559
Lines of credit		176		-		476		652		14,231		14,883
Other commercial and industrial		672		1,106		515		2,293		31,656		33,949
Municipal		-		-		-		-		2,781		2,781
Total commercial loans		1,322		1,375		4,808		7,505		146,667		154,172
Consumer loans:
Home equity and junior liens		238		14		290		542		20,845		21,387
Other consumer		4		34		12		50		3,915		3,965
Total consumer loans		242		48		302		592		24,760		25,352
Total loans	$	3,408	$	2,455	$	6,983	$	12,846	$	335,031	$	347,877

	As of December 31, 2013
	30-59 Days		60-89 Days		90 Days		Total				Total Loans
(In thousands)	Past Due		Past Due		and Over		Past Due		Current		Receivable
Residential mortgage loans:
1-4 family first-lien residential mortgages	$	2,213	$	1,472	$	2,194	$	5,879	$	160,419	$	166,298
Construction		-		-		-		-		1,982		1,982
Total residential mortgage loans		2,213		1,472		2,194		5,879		162,401		168,280
Commercial loans:
Real estate		1,407		1,901		1,934		5,242		90,294		95,536
Lines of credit		341		113		381		835		13,609		14,444
Other commercial and industrial		2,045		1,289		394		3,728		28,947		32,675
Municipal		-		-		-		-		5,122		5,122
Total commercial loans		3,793		3,303		2,709		9,805		137,972		147,777
Consumer loans:
Home equity and junior liens		954		281		402		1,637		19,473		21,110
Other consumer		46		51		45		142		4,024		4,166
Total consumer loans		1,000		332		447		1,779		23,497		25,276
Total loans	$	7,006	$	5,107	$	5,350	$	17,463	$	323,870	$	341,333

F-32

	As of December 31, 2012
	30-59 Days		60-89 Days		90 Days		Total				Total Loans
(In thousands)	Past Due		Past Due		and Over		Past Due		Current		Receivable
Residential mortgage loans:
1-4 family first-lien residential mortgages	$	2,698	$	1,161	$	2,046	$	5,905	$	168,050	$	173,955
Construction		-		-		-		-		2,655		2,655
Total residential mortgage loans		2,698		1,161		2,046		5,905		170,705		176,610
Commercial loans:
Real estate		1,706		1,833		1,794		5,333		76,996		82,329
Lines of credit		496		153		334		983		12,765		13,748
Other commercial and industrial		1,279		85		598		1,962		29,515		31,477
Municipal		-		-		-		-		3,588		3,588
Total commercial loans		3,481		2,071		2,726		8,278		122,864		131,142
Consumer loans:
Home equity and junior liens		207		405		730		1,342		20,731		22,073
Other consumer		26		42		46		114		3,355		3,469
Total consumer loans		233		447		776		1,456		24,086		25,542
Total loans	$	6,412	$	3,679	$	5,548	$	15,639	$	317,655	$	333,294

Nonaccrual loans, segregated by class of loan, were as follows:

	(Unaudited)
	March 31,		December 31,		December 31,
(In thousands)	2014		2013		2012
Residential mortgage loans:
1-4 family first-lien residential mortgages	$	1,873	$	2,194	$	2,046
		1,873		2,194		2,046
Commercial loans:
Real estate		3,817		1,934		1,794
Lines of credit		476		381		334
Other commercial and industrial		515		394		598
		4,808		2,709		2,726
Consumer loans:
Home equity and junior liens		290		402		730
Other consumer		12		45		46
		302		447		776
Total nonaccrual loans	$	6,983	$	5,350	$	5,548

There were no loans past due ninety days or more and still accruing interest at March 31, 2014(unaudited), December 31, 2013 or 2012.

The Company is required to disclose certain activities related to Troubled Debt Restructurings (“TDR”s) in accordance with accounting guidance.  Certain loans have been modified in a TDR where economic concessions have been granted to a borrower who is experiencing, or expected to experience, financial difficulties. These economic concessions could include a reduction in the loan interest rate, extension of payment terms, reduction of principal amortization, or other actions that it would not otherwise consider for a new loan with similar risk characteristics.

The Company is required to disclose new TDRs for each reporting period for which an income statement is being presented.

F-33

The Company has determined that there were no new TDRs for the three month periods ending March 31, 2014 (unaudited) and March 31, 2013 (unaudited) .

The Company has determined that there was a new TDR with a recorded investment of $404,000 in the year ended December 31, 2013.

· The modification made within the residential real estate loan class resulted in a pre-modification and post-modification recorded investment of $400,000 and $407,000, respectively. The post-modification recorded investment included late charges, accrued interest, and closing costs as a result of the restructuring. Economic concessions granted included a reduction in loan interest rate, extended payment terms, and an advance of additional monies for closing costs without an associated increase in collateral. The Company was required to establish a specific reserve against this loan of $61,000, which was a component of the provision for loan losses in the third quarter of 2013.

The Company has determined that there were $1.1 million of recorded investment in new TDRs in the year ended December 31, 2012. The following highlights the qualitative and quantitative information by loan class.

· Modifications made within the commercial real estate loan class included two loans with pre-modification and post-modification recorded investments of $564,000 and $358,000, respectively. Economic concessions granted included interest only periods, extended payment terms and a reduction in loan interest rate. The Company was required to increase the reserve against these two loans by $211,000 which was a component of the provision for loan losses in the third quarter of 2012.

· Modifications made within the home equity and junior liens loan class included two loans with pre-modification and post-modification recorded investments which were unchanged at $279,000. Economic concessions granted included interest only periods, extended payment terms and a reduction in loan interest rate. An additional provision was not required as a result of these modifications.

· The first modification made within the other commercial and industrial loan class included a consolidation of three credit facilities into a single loan with a pre-modification and post-modification recorded investment of $439,000 and $468,000, respectively. The post-modification recorded investment included late charges, accrued interest, and closing costs as a result of the restructuring. Economic concessions granted included reduced principal amortization and an extended payment term. Management’s review indicates adequate collateral coverage in support of this loan. An additional provision was not required as a result of this modification. The second modification made in this loan class resulted in a pre-modification and post-modification recorded investment of $84,000 and $18,000, respectively. Economic concessions granted included an advance of additional monies without an associated increase in collateral and a 12 month interest only period. The Company was required to increase the reserve against this loan by $90,000, which was a component of the provision for loan losses in the fourth quarter of 2012.

The sole TDR executed in 2013 indicated above was not in payment default at any time during 2013 or the three month period ended March 31, 2014 (unaudited).

When the Company modifies a loan within a portfolio segment, a potential impairment is analyzed either based on the present value of the expected future cash flows discounted at the interest rate of the original loan terms or the fair value of the collateral less costs to sell. If it is determined that the value of the loan is less than its recorded investment, then impairment is recognized as a component of the provision for loan losses, an associated increase to the allowance for loan losses or as a charge-off to the allowance for loan losses in the current period.

F-34

Impaired Loans

The following table summarizes impaired loans information by portfolio class:

	(Unaudited)
	March 31, 2014
			Unpaid
	Recorded		Principal		Related
(In thousands)	Investment		Balance		Allowance
With no related allowance recorded:
1-4 family first-lien residential mortgages	$	954	$	954	$	-
Commercial real estate		2,085		2,085		-
Commercial lines of credit		193		197		-
Other commercial and industrial		288		293		-
Home equity and junior liens		289		289		-
Other consumer		-		-		-
With an allowance recorded:
1-4 family first-lien residential mortgages		400		400		57
Commercial real estate		3,314		3,335		742
Commercial lines of credit		283		285		233
Other commercial and industrial		316		316		226
Home equity and junior liens		165		165		81
Other consumer		2		2		2
Total:
1-4 family first-lien residential mortgages		1,354		1,354		57
Commercial real estate		5,399		5,420		742
Commercial lines of credit		476		482		233
Other commercial and industrial		604		609		226
Home equity and junior liens		454		454		81
Other consumer		2		2		2
Totals	$	8,289	$	8,321	$	1,341

F-35

	December 31, 2013						December 31, 2012
			Unpaid						Unpaid
	Recorded		Principal		Related		Recorded		Principal		Related
(In thousands)	Investment		Balance		Allowance		Investment		Balance		Allowance
With no related allowance recorded:
1-4 family first-lien residential mortgages	$	550	$	550	$	-	$	844	$	844	$	-
Commercial real estate		1,496		1,499		-		1,554		1,571		-
Commercial lines of credit		196		196		-		358		370		-
Other commercial and industrial		266		266		-		657		801		-
Home equity and junior liens		294		294		-		380		380		-
Other consumer		-		-		-		-		-		-
With an allowance recorded:
1-4 family first-lien residential mortgages		402		402		59		1,307		1,307		215
Commercial real estate		2,045		2,054		649		1,182		1,182		401
Commercial lines of credit		185		200		135		-		-		-
Other commercial and industrial		139		139		107		225		230		207
Home equity and junior liens		165		165		84		155		155		95
Other consumer		2		2		2		5		5		5
Total:
1-4 family first-lien residential mortgages		952		952		59		2,151		2,151		215
Commercial real estate		3,541		3,553		649		2,736		2,753		401
Commercial lines of credit		381		396		135		358		370		-
Other commercial and industrial		405		405		107		882		1,031		207
Home equity and junior liens		459		459		84		535		535		95
Other consumer		2		2		2		5		5		5
Totals	$	5,740	$	5,767	$	1,036	$	6,667	$	6,845	$	923

F-36

The following table presents the average recorded investment in impaired loans for the indicated periods:

	(Unaudited)
	For the three months ended				For the twelve months ended
	March 31,				December 31,
(In thousands)	2014		2013		2013		2012
1-4 family first-lien residential mortgages	$	1,153	$	2,261	$	1,407	$	1,682
Commercial real estate		4,470		3,294		3,605		2,506
Commercial lines of credit		429		407		406		417
Other commercial and industrial		505		859		694		718
Home equity and junior liens		457		583		512		488
Other consumer		2		4		3		3
Total	$	7,016	$	7,408	$	6,627	$	5,814

The following table presents the interest income recognized on impaired loans for the indicated periods:

	(Unaudited)
	For the three months ended				For the twelve months ended
	March 31,				December 31,
(In thousands)	2014		2013		2013		2012
1-4 family first-lien residential mortgages	$	5	$	30	$	26	$	108
Commercial real estate		28		45		176		71
Commercial lines of credit		1		4		15		14
Other commercial and industrial		13		5		32		29
Home equity and junior liens		19		15		28		10
Other consumer		-		-		-		1
Total	$	66	$	99	$	277	$	233

F-37

NOTE 6: ALLOWANCE FOR LOAN LOSSES

Changes in the allowance for loan losses for the indicated periods and information pertaining to the allocation of the allowance for loan losses and balances of the allowance for loan losses and loans receivable based on individual and collective impairment evaluation by loan portfolio class at the indicated dates are summarized in the tables below. An allocation of a portion of the allowance to a given portfolio class does not limit the Company’s ability to absorb losses in another portfolio class.

	(Unaudited)
	For the three months ended March 31, 2014
	1-4 family
	first-lien			Residential								Other
	residential			construction		Commercial			Commercial			commercial
(In thousands)	mortgage			mortgage		real estate			lines of credit			and industrial
Allowance for loan losses:
Beginning Balance	$	649		$	-	$	2,302		$	397		$	834
Charge-offs		(12	)		-		(47	)		(85	)		(58	)
Recoveries		-			-		-			2			1
Provisions		(33	)		-		181			209			197
Ending balance	$	604		$	-	$	2,436		$	523		$	974
Ending balance: related to loans individually evaluated for impairment	$	57		$	-	$	742		$	233		$	226
Ending balance: related to loans collectively evaluated for impairment	$	547		$	-	$	1,694		$	290		$	748
Loans receivables:
Ending balance	$	167,145		$	1,208	$	102,559		$	14,883		$	33,949
Ending balance: individually evaluated for impairment	$	1,354		$	-	$	5,399		$	476		$	604
Ending balance: collectively evaluated for impairment	$	165,791		$	1,208	$	97,160		$	14,407		$	33,345

				Home equity			Other
	Municipal			and junior liens			consumer			Unallocated			Total
Allowance for loan losses:
Beginning Balance	$	2		$	433		$	136		$	288		$	5,041
Charge-offs		-			(50	)		(51	)		-			(303	)
Recoveries		-			-			13			-			16
Provisions		(1	)		49			4			(361	)		245
Ending balance	$	1		$	432		$	102		$	(73	)	$	4,999
Ending balance: related to loans individually evaluated for impairment	$	-		$	81		$	2		$	-		$	1,341
Ending balance: related to loans collectively evaluated for impairment	$	1		$	351		$	100		$	(73	)	$	3,658
Loans receivables:
Ending balance	$	2,781		$	21,387		$	3,965					$	347,877
Ending balance: individually evaluated for impairment	$	-		$	454		$	2					$	8,289
Ending balance: collectively evaluated for impairment	$	2,781		$	20,933		$	3,963					$	339,588

F-38

	(Unaudited)
	For the three months ended March 31, 2013
	1-4 family
	first-lien			Residential							Other
	residential			construction		Commercial		Commercial			commercial
(In thousands)	mortgage			mortgage		real estate		lines of credit			and industrial
Allowance for loan losses:
Beginning Balance	$	811		$	-	$	1,748	$	440		$	750
Charge-offs		(12	)		-		-		(49	)		(10	)
Recoveries		12			-		-		-			-
Provisions		17			-		147		82			114
Ending balance	$	828		$	-	$	1,895	$	473		$	854
Ending balance: related to loans individually evaluated for impairment	$	172		$	-	$	451	$	100		$	242
Ending balance: related to loans collectively evaluated for impairment	$	656		$	-	$	1,444	$	373		$	612
Loans receivables:
Ending balance	$	177,411		$	778	$	84,308	$	13,461		$	32,826
Ending balance: individually evaluated for impairment	$	2,370		$	-	$	3,852	$	456		$	836
Ending balance: collectively evaluated for impairment	$	175,041		$	778	$	80,456	$	13,005		$	31,990

			Home equity			Other
	Municipal		and junior liens			consumer			Unallocated			Total
Allowance for loan losses:
Beginning Balance	$	2	$	494		$	168		$	88		$	4,501
Charge-offs		-		(81	)		(28	)		-			(180	)
Recoveries		-		13			16			-			41
Provisions		-		63			(17	)		(82	)		324
Ending balance	$	2	$	489		$	139		$	6		$	4,686
Ending balance: related to loans individually evaluated for impairment	$	-	$	93		$	3		$	-		$	1,061
Ending balance: related to loans collectively evaluated for impairment	$	2	$	396		$	136		$	6		$	3,625
Loans receivables:
Ending balance	$	4,538	$	21,552		$	3,643					$	338,517
Ending balance: individually evaluated for impairment	$	-	$	632		$	3					$	8,149
Ending balance: collectively evaluated for impairment	$	4,538	$	20,920		$	3,640					$	330,368

F-39

	December 31, 2013
	1-4 family
	first-lien			Residential								Other
	residential			construction		Commercial			Commercial			commercial
(In thousands)	mortgage			mortgage		real estate			lines of credit			and industrial
Allowance for loan losses:
Beginning Balance	$	811		$	-	$	1,748		$	440		$	750
Charge-offs		(153	)		-		(46	)		(124	)		(149	)
Recoveries		47			-		19			22			-
Provisions		(56	)		-		581			59			233
Ending balance	$	649		$	-	$	2,302		$	397		$	834
Ending balance: related to loans individually evaluated for impairment	$	59		$	-	$	649		$	135		$	107
Ending balance: related to loans collectively evaluated for impairment	$	590		$	-	$	1,653		$	262		$	727
Loans receivables:
Ending balance	$	166,298		$	1,982	$	95,536		$	14,444		$	32,675
Ending balance: individually evaluated for impairment	$	952		$	-	$	3,541		$	381		$	405
Ending balance: collectively evaluated for impairment	$	165,346		$	1,982	$	91,995		$	14,063		$	32,269

			Home equity			Other
	Municipal		and junior liens			consumer			Unallocated		Total
Allowance for loan losses:
Beginning Balance	$	2	$	494		$	168		$	88	$	4,501
Charge-offs		-		(81	)		(98	)		-		(651	)
Recoveries		-		19			52			-		159
Provisions		-		1			14			200		1,032
Ending balance	$	2	$	433		$	136		$	288	$	5,041
Ending balance: related to loans individually evaluated for impairment	$	-	$	84		$	2		$	-	$	1,036
Ending balance: related to loans collectively evaluated for impairment	$	2	$	349		$	134		$	288	$	4,005
Loans receivables:
Ending balance	$	5,122	$	21,110		$	4,166				$	341,333
Ending balance: individually evaluated for impairment	$	-	$	459		$	2				$	5,740
Ending balance: collectively evaluated for impairment	$	5,122	$	20,651		$	4,164				$	335,592

F-40

	December 31, 2012
	1-4 family
	first-lien			Residential								Other
	residential			construction		Commercial			Commercial			commercial
(In thousands)	mortgage			mortgage		real estate			lines of credit			and industrial
Allowance for loan losses:
Beginning Balance	$	664		$	-	$	1,346		$	463		$	649
Charge-offs		(108	)		-		(142	)		-			(89	)
Recoveries		75			-		14			50			-
Provisions		180			-		530			(73	)		190
Ending balance	$	811		$	-	$	1,748		$	440		$	750
Ending balance: related to loans individually evaluated for impairment	$	215		$	-	$	401		$	-		$	207
Ending balance: related to loans collectively evaluated for impairment	$	596		$	-	$	1,347		$	440		$	543
Loans receivables:
Ending balance	$	173,955		$	2,655	$	82,329		$	13,748		$	31,477
Ending balance: individually evaluated for impairment	$	2,151		$	-	$	2,736		$	358		$	882
Ending balance: collectively evaluated for impairment	$	171,804		$	2,655	$	79,593		$	13,390		$	30,595

			Home equity			Other
	Municipal		and junior liens			consumer			Unallocated			Total
Allowance for loan losses:
Beginning Balance	$	2	$	501		$	162		$	193		$	3,980
Charge-offs		-		(8	)		(161	)		-			(508	)
Recoveries		-		6			59			-			204
Provisions		-		(5	)		108			(105	)		825
Ending balance	$	2	$	494		$	168		$	88		$	4,501
Ending balance: related to loans individually evaluated for impairment	$	-	$	95		$	5		$	-		$	923
Ending balance: related to loans collectively evaluated for impairment	$	2	$	399		$	163		$	88		$	3,578
Loans receivables:
Ending balance	$	3,588	$	22,073		$	3,469					$	333,294
Ending balance: individually evaluated for impairment	$	-	$	535		$	5					$	6,667
Ending balance: collectively evaluated for impairment	$	3,588	$	21,538		$	3,464					$	326,627

F-41

NOTE 7: SERVICING

Loans serviced for others are not included in the accompanying consolidated statements of condition. The unpaid principal balances of mortgage and other loans serviced for others were $28,597,000 and $24,775,000 at December 31, 2013 and 2012, respectively. The balance of capitalized servicing rights included in other assets at December 31, 2013 and 2012, was $80,000 and $2,000, respectively.

The following summarizes mortgage servicing rights capitalized and amortized:

(In thousands)	2013		2012
Mortgage servicing rights capitalized	$	88	$	2
Mortgage servicing rights amortized	$	10	$	7

NOTE 8: PREMISES AND EQUIPMENT

A summary of premises and equipment at December 31, is as follows:

(In thousands)	2013		2012
Land	$	1,794	$	1,544
Buildings		9,711		10,056
Furniture, fixtures and equipment		9,827		9,051
Construction in progress		1,718		186
		23,050		20,837
Less: Accumulated depreciation		11,406		10,729
	$	11,644	$	10,108

The $1.5 million increase in Construction in progress relates principally to the Bank’s purchase of three properties in the amount of $1.4 million from the Mutual Holding Company in December 2013. Depreciation of these properties will begin in 2014 in accordance with the Bank’s fixed asset policy.

NOTE 9: GOODWILL AND INTANGIBLE ASSETS

Goodwill represents the excess cost of an acquisition over the fair value of the net assets acquired. Goodwill is not amortized, but is evaluated annually for impairment or between annual evaluations in certain circumstances. Management performs an annual assessment of the Company’s goodwill to determine whether or not any impairment of the carrying value may exist. The Company is permitted to assess qualitative factors to determine if it is more likely than not that the fair value of the reporting unit is less than the carrying value. For purposes of this assessment, management considers the Company and its subsidiaries as a whole to be the reporting unit. Based on the results of the assessment, management has determined that the carrying value of goodwill in the amount of $4.4 million is not impaired as of December 31, 2013.

Of the total amount of the goodwill carried in the Company’s books as of December 31, 2013, $3.8 million of this amount is due to prior periods’ acquisitions of branches and $526,000 is due to the acquisition of the Fitzgibbons Agency. The latter is more fully disclosed in Note 23 to the Notes to Consolidated Financial Statements contained herein.

The identifiable intangible asset of $187,000 as of December 31, 2013 is due to the acquisition of the Fitzgibbons Agency and represents the customer list intangible. This amount differs from the $188,000 recorded at the time of acquisition on December 1, 2013 due to amortization of $1,000 taken during December 2013. The future weighted amortization of this intangible asset is 7.5 years.

F-42

The gross carrying amount and accumulated amortization for this identifiable intangible asset are as follows:

	December 31,
(In thousands)	2013			2012
Gross carrying amount	$	188		$	-
Accumulated amortization		(1	)		-
Net amortizing intangibles	$	187		$	-

The estimated amortization expense for each of the five succeeding years ended December 31, is as follows:

(In thousands)
2014	$	13
2015		13
2016		13
2017		13
2018		13
Thereafter	$	122

NOTE 10: DEPOSITS

A summary of deposits at December 31, is as follows:

(In thousands)	2013		2012
Savings accounts	$	68,924	$	63,501
Time accounts		71,165		78,176
Time accounts of $100,000 or more		88,727		85,145
Money management accounts		13,337		14,441
MMDA accounts		83,867		73,519
Demand deposit interest-bearing		32,281		29,693
Demand deposit noninterest-bearing		48,171		43,913
Mortgage escrow funds		3,668		3,417
Total Deposits	$	410,140	$	391,805

At December 31, 2013, the scheduled maturities of time deposits are as follows:

(In thousands)
Year of Maturity:
2014	$	118,732
2015		18,857
2016		4,981
2017		7,603
2018		3,521
Thereafter		6,198
Total	$	159,892

F-43

NOTE 11: BORROWED FUNDS

The composition of borrowings (excluding junior subordinated debentures) at December 31 is as follows:

(In thousands)	2013		2012
Short-term:
FHLB Advances	$	24,000	$	9,000
Long-term:
FHLB advances	$	16,000	$	20,000
ESOP loan payable		853		964
Citigroup Repurchase agreements		-		5,000
Total long-term borrowings	$	16,853	$	25,964

Terms of the ESOP loan payable, which is based on a variable rate, are detailed in Note 14.

The principal balances, interest rates and maturities of the remaining borrowings, all of which are at a fixed rate, at December 31, 2013 are as follows:

Term	Principal		Rates
(Dollars in thousands)
Advances with FHLB
due within 1 year		5,000	2.85% - 3.07%
due within 2 years		2,000	2.79%
due within 3 years		3,000	2.12%
due within 4 years		4,000	1.36% - 2.56%
due within 10 years		2,000	2.55%
Total advances with FHLB	$	16,000
Total long-term fixed rate borrowings	$	16,000

At December 31, 2013, scheduled repayments of long-term debt are as follows (in thousands):

2014	$	5,110
2015		2,110
2016		3,110
2017		4,110
2018		110
Thereafter		2,303
	$	16,853

The Company has access to Federal Home Loan Bank advances, under which it can borrow at various terms and interest rates. Residential mortgage loans with a carrying value of $114.8 million and FHLB stock with a carrying value of $2.4 million have been pledged by the Company under a blanket collateral agreement to secure the Company’s borrowings at December 31, 2013. The total outstanding indebtedness under borrowing facilities with the FHLB cannot exceed the total value of the assets pledged under the blanket collateral agreement. The Company has a $21.6 million line of credit available at December 31, 2013 with the Federal Reserve Bank of New York through its Discount Window and has pledged various corporate and municipal securities against the line. The

F-44

Company has $13.4 million in lines of credit available with three other correspondent banks. $6.4 million of that line of credit is available on an unsecured basis and the remaining $7.0 million must be collateralized with marketable investment securities. Interest on the lines is determined at the time of borrowing.

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. 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 Federal Deposit Insurance Corporation and the Federal Reserve Board (“FRB”). The capital securities of the trust are a pooled trust preferred fund of Preferred Term Securities VI, Ltd. and are tied to the 3-month LIBOR (25 basis points) plus 1.65% for a total of 1.90% at December 31, 2013 with a five-year call provision. The Company guarantees all of these securities.

The Company's equity interest in the trust subsidiary of $155,000 is reported in "Other assets". For regulatory reporting purposes, the Federal Reserve 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.

NOTE 12: Employee Benefits and Deferred Compensation and Supplemental Retirement Plans

The Company has a noncontributory defined benefit pension plan covering substantially all employees. The plan provides defined benefits based on years of service and final average salary. On May 14, 2012, the Company informed its employees of its decision to freeze participation and benefit accruals under the plan, primarily to reduce some of the volatility in earnings that can accompany the maintenance of a defined benefit plan. The freeze became effective June 30, 2012. Compensation earned by employees up to June 30, 2012 is used for purposes of calculating benefits under the plan but there will be no future benefit accruals after this date. Participants as of June 30, 2012 will continue to earn vesting credit with respect to their frozen accrued benefits as they continue to work. In addition, the Company provides certain health and life insurance benefits for a limited number of eligible retired employees. The healthcare plan is contributory with participants’ contributions adjusted annually; the life insurance plan is noncontributory. Employees with less than 14 years of service as of January 1, 1995, are not eligible for the health and life insurance retirement benefits.

F-45

The following tables set forth the changes in the plans’ benefit obligations, fair value of plan assets and the plans’ funded status as of December 31:

	Pension Benefits						Postretirement Benefits
(In thousands)	2013			2012			2013			2012
Change in benefit obligations:
Benefit obligations at beginning of year	$	9,465		$	10,167		$	450		$	401
Service cost		-			166			-			-
Interest cost		379			397			18			17
Actuarial (gain) loss		(1,277	)		863			(28	)		68
Curtailment gain		-			(1,919	)		-			-
Benefits paid		(234	)		(209	)		(38	)		(36	)
Benefit obligations at end of year		8,333			9,465			402			450
Change in plan assets:
Fair value of plan assets at beginning of year		10,786			7,549			-			-
Actual return on plan assets		2,139			846			-			-
Benefits paid		(234	)		(209	)		(38	)		(36	)
Employer contributions		-			2,600			38			36
Fair value of plan assets at end of year		12,691			10,786			-			-
Funded Status - asset (liability)	$	4,358		$	1,321		$	(402	)	$	(450	)

Amounts recognized in accumulated other comprehensive loss as of December 31 are as follows:

	Pension Benefits				Postretirement Benefits
(In thousands)	2013		2012		2013		2012
Net loss, net of curtailment gain	$	1,543	$	4,466	$	94	$	142
Tax Effect		617		1,786		38		57
	$	926	$	2,680	$	56	$	85

Gains and losses in excess of 10% of the greater of the benefit obligation or the fair value of assets are amortized over the average remaining service period of active participants.

The accumulated benefit obligation for the defined benefit pension plan was $8,333,000 and $9,465,000 at December 31, 2013 and 2012, respectively. The postretirement plan had an accumulated benefit obligation of $402,000 and $450,000 at December 31, 2013 and 2012, respectively.

The significant assumptions used in determining the benefit obligations as of December 31, are as follows:

	Pension Benefits						Postretirement Benefits
	2013			2012			2013			2012
Weighted average discount rate		4.95	%		4.05	%		4.95	%		4.05	%
Rate of increase in future compensation levels		-			-			-			-

F-46

Assumed health care cost trend rates have a significant effect on the amounts reported for the postretirement health care plan. The annual rates of increase in the per capita cost of covered medical and prescription drug benefits for future years were assumed to be 7.0% for 2014, gradually decreasing to 5.00% in 2018 and remain at that level thereafter.

The composition of the net periodic benefit plan cost for the three months ended March 31 is as follows:

	(Unaudited)						(Unaudited)
	Pension Benefits						Postretirement Benefits
(In thousands)	2014			2013			2014		2013
Service cost	$	-		$	-		$	-	$	-
Interest cost		102			95			5		4
Expected return on plan assets		(236	)		(214	)		-		-
Amortization of transition obligation		-			-			-		-
Amortization of net losses		8			90			3		5
Net periodic benefit plan (benefit) cost	$	(126	)	$	(29	)	$	8	$	9

The composition of the net periodic benefit plan cost for the years ended December 31 is as follows:

	Pension Benefits						Postretirement Benefits
	2013			2012			2013		2012
(In thousands)
Service cost	$	-		$	166		$	-	$	-
Interest cost		379			397			18		17
Expected return on plan assets		(854	)		(809	)		-		-
Amortization of transition obligation		-			-			-		2
Amortization of net losses		361			381			20		13
Net periodic benefit plan (benefit) cost	$	(114	)	$	135		$	38	$	32

The Company will evaluate the need for further contributions to the defined benefit pension plan during 2014. The prepaid pension asset is recorded in other assets on the statement of condition as of March 31, 2014, December 31, 2013 and 2012.

The significant assumptions used in determining the net periodic benefit plan cost for years ended December 31, were as follows:

	Pension Benefits						Postretirement Benefits
	2013			2012			2013			2012
Weighted average discount rate		4.05	%		4.40	%		4.05	%		4.40	%
Expected long term rate of return on plan assets		8.00	%		8.00	%		-			-
Rate of increase in future compensation levels		-			-			-			-

The long term rate of return on assets assumption was set based on historical returns earned by equities and fixed income securities, adjusted to reflect expectations of future returns as applied to the plan’s target allocation of asset classes. Equities and fixed income securities were assumed to earn real rates of return in the ranges of 5.0%-9.0% and 2.0%-6.0%, respectively. The long-term inflation rate was estimated to be 3.0%. When these overall return expectations are applied to the plan’s target allocation, the expected rate of return was determined to be in the range of 7.0% to 11.0%. Management has chosen to use a 7.5% expected long-term rate of return to reflect current economic conditions and expected returns.

F-47

The estimated net actuarial loss that will be amortized from accumulated other comprehensive loss into net periodic benefit plan cost during 2014 is $30,000. The estimated amortization of the unrecognized transition obligation and actuarial loss for the post retirement health plan in 2014 is $13,000. The expected net periodic benefit plan cost for 2014 is estimated at a $474,000 negative expense for both retirement plans.

Plan assets are invested in diversified investment funds of the RSI Retirement Trust (the “Trust”), a private placement investment fund. The investment funds include a series of equity and bond mutual funds or commingled trust funds, each with its own investment objectives, investment strategies and risks, as detailed in the Statement of Investment Objectives and Guidelines. The Trust has been given discretion by the Plan Sponsor to determine the appropriate strategic asset allocation versus plan liabilities, as governed by the Trust’s Statement of Investment Objectives and Guidelines.

The long-term investment objectives are to maintain plan assets at a level that will sufficiently cover long-term obligations and to generate a return on plan assets that will meet or exceed the rate at which long-term obligations will grow. A broadly diversified combination of equity and fixed income portfolios and various risk management techniques are used to help achieve these objectives.

In addition, significant consideration is paid to the plan’s funding levels when determining the overall asset allocation. If the plan is considered to be well-funded, approximately 65% of the plan’s assets are allocated to equities and approximately 35% allocated to fixed-income. Asset rebalancing normally occurs when the equity and fixed-income allocations vary by more than 10% from their respective targets (i.e., a 10% policy range guideline).

The investment goal is to achieve investment results that will contribute to the proper funding of the pension plan by exceeding the rate of inflation over the long-term. In addition, investment managers for the Trust are expected to provide above average performance when compared to their peer managers. Performance volatility is also monitored. Risk/volatility is further managed by the distinct investment objectives of each of the Trust funds and the diversification within each fund.

Pension plan assets measured at fair value are summarized below:

	At December 31, 2013
							Total Fair
(In thousands)	Level 1		Level 2		Level 3		Value
Asset Category:
Mutual funds - equity
Large-cap value (a)	$	1,372	$	-	$	-	$	1,372
Small-cap core (b)		1,801		-		-		1,801
Large-cap Growth (c)		2,068		-		-		2,068
International Core (d)		1,447		-		-		1,447
Common/collective trusts - equity
Large-cap core (e)		-		1,533		-		1,533
Large-cap value (f)		-		771		-		771
Common/collective trusts - fixed income
Market duration fixed (g)		-		1,226		-		1,226
Mutual Funds-Fixed Income
Intermediate duration (h)		2,473		-		-		2,473
Company common stock		-		-		-		-
Cash Equivalents-Money market		-		-		-		-
Total	$	9,161	$	3,530	$	-	$	12,691

F-48

(a) This category consists of investments whose sector and industry exposures are maintained within a narrow band around Russell 1000 index. The portfolio holds approximately 150 stocks.

(b) This category contains stocks whose sector weightings are maintained within a narrow band around those of the Russell 2000 index. The portfolio will typically hold more than 300 stocks.

(c) This category consists of a pair of mutual funds, one that seeks fast growing large-cap companies with sustainable franchises and positive price momentum, the other invests primarily in large cap growth companies based in the US.

(d) This category has investments in medium to large non-US companies, including high quality, durable growth companies and companies based in countries with stable economic and political systems.

(e) This fund tracks the performance of the S&P 500 Index by purchasing the securities represented in the Index in approximately the same weightings as the Index.

(f) This category contains large-cap stocks with above-average yields. The portfolio typically holds between 60 and 70 stocks.

(g) This category consists of an index fund that tracks the Barclays Capital U.S. Aggregate Bond Index. The fund invests in Treasury, agency, corporate, mortgage-backed and asset-backed securities.

(h) This category consists of two funds, one containing a diversified portfolio of high-quality bonds and other fixed income securities, including U.S. Government obligations, mortgage-related and asset backed securities, corporate and municipal bonds, CMOs, and other securities rated Baa or better. The second fund emphasizes a more globally diversified portfolio of higher-quality, intermediate-term bonds.

F-49

	At December 31, 2012
							Total Fair
(In thousands)	Level 1		Level 2		Level 3		Value
Asset Category:
Mutual funds - equity
Large-cap value (a)	$	1,018	$	-	$	-	$	1,018
Small-cap core (b)		1,339		-		-		1,339
Large-cap core (c)		752		-		-		752
Large-cap value (d)		1,239		-		-		1,239
Common/collective trusts - equity
Large-cap core (e)		-		1,191		-		1,191
Large-cap value (f)		-		595		-		595
Large-cap growth (g)		-		792		-		792
Common/collective trusts - fixed income
Market duration fixed (h)		-		3,860		-		3,860
Cash Equivalents-Money market		-		-		-		-
Total	$	4,348	$	6,438	$	-	$	10,786

(a) This category consists of investments whose sector and industry exposures are maintained within a narrow band around Russell 1000 index. The portfolio holds approximately 150 stocks.

(b) This category contains stocks whose sector weightings are maintained within a narrow band around those of the Russell 2000 index. The portfolio will typically hold more than 150 stocks.

(c) This category consists of a mutual fund that seeks fast growing large-cap companies with sustainable franchises and positive price momentum. The portfolio holds 60 to 90 stocks.

(d) This category has investments in medium to large non-US companies, including high quality, durable growth companies and companies based in countries with stable economic and political systems.

(e) This fund tracks the performance of the S&P 500 Index by purchasing the securities represented in the Index in approximately the same weightings as the Index.

(f) This category contains large-cap stocks with above-average yields. The portfolio typically holds between 60 and 70 stocks.

(g) This category consists of a portfolio of between 35 and 55 stocks of fast growing, predictable, and cyclical large cap growth companies.

(h) This category consists of an index fund that tracks the Barclays Capital U.S. Aggregate Bond Index. The fund invests in Treasury, agency, corporate, mortgage-backed and asset-backed securities.

Funds that are mutual funds and actively traded qualify as “Level 1” assets because market values are readily available and accessible (“using quoted prices in active markets”).  Funds referred to as “common/collective trusts” are proprietary funds that are not available to the general public, and therefore classified as Level 2.  The value of these are determined based on underlying assets which may be securities having quoted prices in active markets, mutual funds, or fixed income securities whose methodology for determining fair value is described in Note 20.

For the fiscal year ending December 31, 2014, the Bank expects to contribute approximately $36,000 to the postretirement plan. In January 2012, the Bank made a contribution of $2.6 million to the pension plan in response to the unfunded pension liability of $2.6 million recorded at December 31, 2011. No additional contributions were made in 2013. The Company may consider an additional contribution in 2014.

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The following benefit payments, which reflect expected future service, as appropriate, are expected to be paid from both retirement plans:

	Pension		Postretirement
(In thousands)	Benefits		Benefits		Total
Years ending December 31:
2014	$	254	$	36	$	290
2015		260		36		296
2016		264		36		300
2017		282		37		319
2018		291		36		327
Years 2019 - 2023		1,708		158		1,866

The Company also offers a 401(k) plan to its employees. Contributions to this plan by the Company were $228,000 and $208,000 for 2013 and 2012, respectively. In addition, the Company made a $173,000 safe harbor contribution to the plan in 2013.

The Company maintains optional deferred compensation plans for its directors and certain executive officers, whereby fees and income normally received are deferred and paid by the Company based upon a payment schedule commencing at age 65 and continuing monthly for 10 years. Directors must serve on the board for a minimum of 5 years to be eligible for the Plan. At December 31, 2013 and 2012, other liabilities include approximately $1,990,000 and $1,979,000, respectively, relating to deferred compensation. Deferred compensation expense for the years ended December 31, 2013 and 2012 amounted to approximately $208,000 and $217,000, respectively.

The Company has a supplemental executive retirement plan (“SERP”) for the benefit of a retired Chief Executive Officer at December 31, 2013.  A SERP was in place for the benefit of the present Chief Executive Officer at December 31, 2012 but was terminated on December 31, 2012 with the proceeds of the trust distributed on that date.  At December 31, 2013 and 2012, other liabilities included approximately $125,000 and $173,000, respectively, accrued under this plan related only to the retired CEO.  Compensation expense includes approximately $12,000 relating to the supplemental executive retirement plan for the year ended December 31, 2013 and $16,000 for the year ended December 31, 2012. 

To assist in the funding of the Company’s benefits under the supplemental executive retirement plan, the Company is the owner of single premium life insurance policies on selected participants. At December 31, 2013 and 2012, the cash surrender values of these policies were $8,268,000 and $8,046,000, respectively.

The Bank adopted a Supplemental Executive Retirement Plan (the “SERP”), effective January 1, 2014. The SERP benefits certain key senior executives of the Bank who are selected by the Board to participate, including our Named Executive Officers. The SERP is intended to provide a benefit from the Bank upon retirement, death, disability or voluntary or involuntary termination of service (other than “for cause”), subject to the requirements of Section 409A of the Internal Revenue Code. Accordingly, the SERP obligates the Bank to make a contribution to each executive’s account on the last business day of each calendar year. In addition, the Bank, may, but is not required to, make additional discretionary contributions to the executive’s accounts from time to time. All executives currently participating in the plan, including the Named Executive Officers, are fully vested in the Bank’s contribution to the plan. In the event the executive is terminated involuntarily or resigns for good reason within 24 months following a change in control, the Bank is required to make additional annual contributions the lesser of: (1) three years or (2) the number of years remaining until the executive’s benefit age, subject to potential reduction to avoid an excess parachute payment under Code Section 280G. In the event of the executive’s death, disability or termination within 24 months after a change in control, the executive’s account will be paid in a lump sum to the executive or his beneficiary, as applicable. In the event executive is entitled to a benefit from the SERP due to retirement or other termination of employment, the benefit will be paid either in a lump sum or in 10 annual installments as detailed in his or her participant agreement.

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NOTE 13: Stock Based Compensation PlanS

The April 2010 Stock Option Plan

In June 2011, the Board of Directors of the Company approved the grant of stock option awards to its Directors and Executive Officers under the 2010 Stock Option Plan that was approved at the Annual Meeting of Shareholders on April 28, 2010 when 150,000 shares were authorized for award. A total of 45,000 stock option awards were granted to the nine directors of the Company and 75,000 stock option awards, in total, were granted to the Chief Executive Officer and the Company’s four Senior Vice Presidents. The awards will vest ratably over five years (20% per year for each year of the participant’s service with the Company) and will expire ten years from the date of the grant, or June 2021. The fair value of each option grant was established at the date of grant using the Black-Scholes option pricing model. The Black-Scholes model used the following weighted average assumptions: risk-free interest rate of 2.2%; volatility factors of the expected market price of the Company's common stock of .45; weighted average expected lives of the options of 7.0 years: cash dividend yield of 1.49%. Based upon these assumptions, the weighted average fair value of options granted was $3.77.

In July 2013, the Board of Directors of the Company approved the grant of 10,000 stock option awards in total to two newly elected Directors of the Company. The awards will vest ratably over five years (20% per year for each year of the participant’s service with the Company) and will expire ten years from the date of the grant, or July 2023. The fair value of each option grant was established at the date of grant using the Black-Scholes option pricing model. The Black-Scholes model used the following weighted average assumptions: risk-free interest rate of 2.0%; volatility factors of the expected market price of the Company's common stock of .45; weighted average expected lives of the options of 7.0 years: cash dividend yield of 1.0%. Based upon these assumptions, the weighted average fair value of options granted was $6.08.

The compensation expense of the awards is based on the fair value of the instruments on the date of grant. The Company recorded compensation expense in the amount of $80,000 and $81,000 in 2013 and 2012, respectively, and is expected to record $84,000 in each of the years 2014 through 2015, and $46,000, $12,000, and $7,000 in the years 2016 through 2018.

At December 31, 2013, there were 105,000 options outstanding, of which 38,000 were exercisable at an exercise price of $9.00, and an average remaining contractual life of 7.5 years. Expiring options in 2013 were the result of Director attrition.

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Activity in the stock option plans is as follows:

				Weighted
	Options			Average		Shares
(Shares in thousands)	Outstanding			Exercise Price		Exercisable
Outstanding at December 31, 2011		120		$	9.00		-
Granted		-		$	-		-
Newly Vested		-			9.00		23
Exercised		(1	)		9.00		(1	)
Expired		(13	)		9.00		-
Outstanding at December 31, 2012		106		$	9.00		22
Granted		10		$	13.88		-
Newly Vested		-			9.00		21
Exercised		(5	)		9.00		(5	)
Expired		(6	)		9.00		-
Outstanding at December 31, 2013		105		$	9.00		38

The aggregate intrinsic value of a stock option represents the total pre-tax intrinsic value (the amount by which the current market value of the underlying stock exceeds the exercise price of the option) that would have been received by the option holders had all option holders exercised their options prior to the expiration date. The intrinsic value can change based on fluctuations in the market value of the Company’s stock. At December 31, 2013, the intrinsic value of the stock options was $430,000. At December 31, 2012, the intrinsic value of the stock options was $138,000.

NOTE 14: EMPLOYEE STOCK OWNERSHIP PLAN

The Company established the Pathfinder Bank Employee Stock Ownership Plan (“Plan”) to purchase stock of the Company for the benefit of its employees. In July 2011, the Plan received a $1.1 million loan from Community Bank, N.A., guaranteed by the Company, to fund the Plan’s purchase of 125,000 shares of the Company’s treasury stock. The loan is being repaid in equal quarterly installments of principal plus interest over ten years beginning October 1, 2011. Interest accrues at the Wall Street Journal Prime Rate plus 1.00%, and is secured by the unallocated shares of the ESOP stock. In accordance with the payment of principal on the loan, a proportionate number of shares are allocated to the employees over the ten year time horizon of the loan. Participants’ vesting interest in the shares of Company stock is at the rate of 20% per year. The Company recorded $175,000 and $127,000 in compensation expense in 2013 and 2012, respectively, including $12,000 and $13,000 for dividends on unallocated shares in these same time periods. At December 31, 2013, there were 93,750 unearned ESOP shares with a fair value of $1.3 million.

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NOTE 15: Income Taxes

The provision for income taxes for the years ended December 31, is as follows:

(In thousands)	2013		2012
Current	$	645	$	1,205
Deferred		202		(276	)
	$	847	$	929
The provision for income taxes includes the following:

(In thousands)	2013		2012
Federal Income Tax	$	721	$	873
New York State Franchise Tax		126		56
	$	847	$	929

The components of the net deferred tax (liability) asset, included in other assets or other liabilities as of December 31, are as follows:

(In thousands)	2013			2012
Assets:
Deferred compensation	$	818		$	833
Allowance for loan losses		1,950			1,741
Postretirement benefits		155			174
Mortgage recording tax credit carryforward		151			206
Impairment losses on investment securities		183			337
Capital loss carryforward		339			293
Held-to-maturity securities		504			-
Other		188			284
Total		4,288			3,868
Liabilities:
Pension asset		(1,686	)		(511	)
Depreciation		(783	)		(703	)
Accretion		(159	)		(52	)
Loan origination fees		(105	)		(176	)
Intangible assets		(1,486	)		(1,486	)
Investment securities and financial derivative		(64	)		(1,008	)
Prepaid expenses		(52	)		(52	)
Total		(4,335	)		(3,988	)
		(47	)		(120	)
Less: deferred tax asset valuation allowance		(458	)		(458	)
Net deferred tax liability	$	(505	)	$	(578	)

Realization of deferred tax assets is dependent upon the generation of future taxable income or the existence of sufficient taxable income within the carry back period. A valuation allowance is provided when it is more likely than not that some portion, or all of the deferred tax assets, will not be realized. In assessing the need for a valuation allowance, management considers the scheduled reversal of the deferred tax liabilities, the level of historical taxable income and the projected future level of taxable income over the periods in which the temporary differences comprising the deferred tax assets will be deductible. The judgment about the level of future taxable income is inherently subjective and is reviewed on a continual basis as regulatory and business factors change. The valuation allowance of $458,000 represents the portion of the deferred tax asset that management believes may not be

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realizable, as the Company may not generate sufficient capital gains to offset its capital losses.

A reconciliation of the federal statutory income tax rate to the effective income tax rate for the years ended December 31, is as follows:

	2013			2012
Federal statutory income tax rate		34.0	%		34.0	%
State tax, net of federal benefit		2.6			1.0
Tax-exempt interest income		(8.5	)		(7.3	)
Increase in value of bank owned life insurance less premiums paid		(2.1	)		(2.3	)
Gain on proceeds from bank owned life insurance		-			(0.4	)
Other		-			1.0
Effective income tax rate		26.0	%		26.0	%

At December 31, 2013 and 2012, the Company did not have any uncertain tax positions. The Company’s policy is to recognize interest and penalties, if any, in income tax expense in the Consolidated Statements of Income. The tax years subject to examination by the Federal and New York State taxing authorities are the years ended December 31, 2010 through 2012.

NOTE 16: Commitments and Contingencies

The Company is 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. Such commitments involve, to varying degrees, elements of credit risk in excess of the amount recognized in the consolidated statement of condition. The contractual amount of those commitments to extend credit reflects the extent of involvement the Company has in this particular class of financial instrument. The Company’s exposure to credit loss in the event of nonperformance by the other party to the financial instrument for commitments to extend credit is represented by the contractual amount of the instrument. The Company uses the same credit policies in making commitments as it does for on-balance sheet instruments.

The Company does not issue any guarantees that would require liability recognition or disclosure, other than its standby letters of credit. Standby letters of credit are conditional commitments issued by the Company to guarantee the performance of a customer to a third party. Generally, all letters of credit when issued have expiration dates within one year of issuance. The credit risk involved in issuing letters of credit is essentially the same as those that are involved in extending loan facilities to customers. The Company generally holds collateral and/or personal guarantees supporting these commitments. The Company had $4.8 million of standby letters of credit outstanding as of March 31, 2014. Management believes that the proceeds obtained through a liquidation of collateral and the enforcement of guarantees would be sufficient to cover the potential amount of future payments required under the corresponding guarantees. The fair value of standby letters of credit was not significant to the Company’s consolidated financial statements.

At December 31, 2013 and 2012, the following financial instruments were outstanding whose contract amounts represent credit risk:

	Contract Amount
(In thousands)	2013		2012
Commitments to grant loans	$	16,008	$	25,145
Unfunded commitments under lines of credit		20,429		19,017
Standby letters of credit		4,563		1,481

Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since some of the commitment amounts are expected to expire without being drawn upon,

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the total commitment amounts do not necessarily represent future cash requirements. The Company evaluates each customer’s creditworthiness on a case-by-case basis. The amount of collateral obtained, if deemed necessary by the Company upon extension of credit, is based on management’s credit evaluation of the counter party. Collateral held varies but may include residential real estate and income-producing commercial properties. Loan commitments outstanding at December 31, 2013 with fixed interest rates amounted to approximately $2.6 million. Loan commitments, including unused lines of credit and standby letters of credit, outstanding at December 31, 2013 with variable interest rates amounted to approximately $38.4 million. These outstanding loan commitments carry current market rates.

Unfunded commitments under standby letters of credit, revolving credit lines and overdraft protection agreements are commitments for possible future extensions of credit to existing customers. These lines of credit usually do not contain a specified maturity date and may not be drawn upon to the total extent to which the Company is committed.

Letters of credit written are conditional commitments issued by the Company to guarantee the performance of a customer to a third party. Generally, all letters of credit, when issued have expiration dates within one year. The credit risk involved in issuing letters of credit is essentially the same as those that are involved in extending loan facilities to customers. The Company generally holds collateral and/or personal guarantees supporting these commitments. Management believes that the proceeds obtained through a liquidation of collateral and the enforcement of guarantees would be sufficient to cover the potential amount of future payments required under the corresponding guarantees. The amount of the liability as of December 31, 2013 and 2012 for guarantees under standby letters of credit issued is not material.

The Company leases land and leasehold improvements under agreements that expire in various years with renewal options over the next 30 years. Rental expense, included in building occupancy expense, amounted to $83,000 for 2013 and $65,000 for 2012.

Approximate minimum rental commitments for non-cancelable operating leases are as follows:

Years Ending December 31:
(In thousands)
2014	$	98
2015		91
2016		91
2017		91
2018		58
Total minimum lease payments	$	429

Included in the above table of minimum rental commitments is the lease on the new Syracuse branch which is targeted for opening in the second quarter of 2014. The Company is expecting to pay $58,000 on an annual basis with $43,000 included in 2014.

NOTE 17: Dividends and Restrictions

The Board of Directors of Pathfinder Bancorp, M.H.C., determines whether the Holding Company will waive or receive dividends declared by the Company, subject to regulatory approval, each time the Company declares a dividend, which is expected to be on a quarterly basis. The Holding Company may elect to receive dividends and utilize such funds to pay expenses or for other allowable purposes. The FRB has indicated that (i) the Holding Company shall provide the FRB annually with written notice of its intent to waive its dividends prior to the proposed date of the dividend and the FRB shall have the authority to approve or deny any dividend waiver request; (ii) if a waiver is granted, dividends waived by the Holding Company will be excluded from the Company’s capital accounts for purposes of calculating dividend payments to minority shareholders. During 2013 and 2012, the Company paid or accrued dividends totaling $190,000 to the Holding Company in each of these two years. The Holding Company did not waive the right to receive its portion of the cash dividends declared during 2013 or 2012.

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The Company's ability to pay dividends to its shareholders is largely dependent on the Bank's ability to pay dividends to the Company. In addition to state law requirements and the capital requirements discussed in Note 18, federal statutes, regulations and policies limit the circumstances under which the Bank may pay dividends. The amount of retained earnings legally available under these regulations approximated $6,833,000 as of December 31, 2013. Dividends paid by the Bank to the Company would be prohibited if the effect thereof would cause the Bank’s capital to be reduced below applicable minimum capital requirements. The Company is prohibited from accepting or directing the Bank to declare or pay a dividend or other capital distributions without prior written approval of the Federal Reserve.

Since the Company has chosen to participate in the Treasury’s SBLF program, it is permitted to pay dividends on its common stock provided certain Tier 1 capital minimums are exceeded and SBLF dividends have been declared and paid to Treasury as of the most recent dividend period.

NOTE 18: Regulatory Matters

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 (set forth in the table below) 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 March 31, 2014 (unaudited), 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 total risk based, Tier 1 risk-based and Tier 1 leverage ratios as set forth in the tables below. There are no conditions or events since that notification that management believes have changed the Bank’s category.

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The Bank’s actual capital amounts and ratios as of March 31, 2014 (unaudited), December 31, 2013 and 2012 are presented in the following table.

											Minimum
											To Be "Well-
						Minimum					Capitalized"
						For Capital					Under Prompt
	Actual					Adequacy Purposes					Corrective Provisions
(Dollars in thousands)	Amount		Ratio			Amount		Ratio			Amount		Ratio
As of March 31, 2014: (unaudited)
Total Core Capital (to Risk-Weighted Assets)	$	48,582		13.8	%	$	28,100		8.0	%	$	35,125		10.0	%
Tier 1 Capital (to Risk-Weighted Assets)	$	44,011		12.5	%	$	14,050		4.0	%	$	21,075		6.0	%
Tier 1 Capital (to Assets)	$	44,011		8.7	%	$	20,165		4.0	%	$	25,207		5.0	%
As of December 31, 2013:
Total Core Capital (to Risk-Weighted Assets)	$	47,862		14.1	%	$	27,106		8.0	%	$	33,883		10.0	%
Tier 1 Capital (to Risk-Weighted Assets)	$	43,454		12.8	%	$	13,553		4.0	%	$	20,330		6.0	%
Tier 1 Capital (to Assets)	$	43,454		8.7	%	$	19,928		4.0	%	$	24,910		5.0	%
As of December 31, 2012:
Total Core Capital (to Risk-Weighted Assets)	$	45,763		14.2	%	$	25,808		8.0	%	$	32,259		10.0	%
Tier 1 Capital (to Risk-Weighted Assets)	$	41,574		12.9	%	$	12,904		4.0	%	$	19,356		6.0	%
Tier 1 Capital (to Assets)	$	41,574		8.8	%	$	18,831		4.0	%	$	23,539		5.0	%

On September 11, 2009, the Company entered into the Purchase Agreement with the United States Department of the Treasury, as part of the Capital Purchase Program (“CPP”) pursuant to which the Company issued and sold to Treasury: (i) 6,771 shares of the Company’s Fixed Rate Cumulative Perpetual Preferred Stock, Series A, par value $0.01 per share, having a liquidation amount per share equal to $1,000, for a total price of $6,771,000; and (ii) a Warrant to purchase 154,354 shares of the Company’s common stock, par value $0.01 per share, at an exercise price per share of $6.58. The Company contributed to the Bank, its subsidiary, $5,500,000 or 81.23% of the proceeds of the sale of the Series A Preferred Stock.

The $6,771,000 of proceeds was allocated to the Series A Preferred Stock and the Warrant based on their relative fair values at issuance ($6,065,000 was allocated to the Series A Preferred Stock and $706,000 to the Warrant).

On September 1, 2011, the Company redeemed all 6,771 shares of its Fixed Rate Cumulative Perpetual Preferred Stock Series A.  The Company paid $6,786,000 to the Treasury Department to redeem the Series A Preferred Stock, which included the original investment of $6,771,000, plus accrued dividends.

In connection with this redemption, on September 1, 2011, the Company entered into a Securities Purchase Agreement with the Secretary of the Treasury (“Treasury”) pursuant to which the Company sold to the Treasury, 13,000 shares of its Senior Non-Cumulative Perpetual Preferred Stock, Series B (“Series B Preferred Stock”), having a liquidation preference of $1,000 per share for aggregate proceeds of $13,000,000. This transaction was entered into as part of the Treasury’s Small Business Lending Fund Program (“SBLF”).

Accordingly, the Company is no longer subject to restrictions of the CPP program. The SBLF program does have its own requirements, which are summarized below:

The Series B Preferred Stock is entitled to receive non-cumulative dividends payable quarterly, on each January 1, April 1, July 1 and October 1, beginning October 1, 2011.  The dividend rate, which is calculated on the aggregate Liquidation Amount, was initially set at 4.2% per annum based upon the current level of “Qualified Small Business Lending”, or “QSBL” (as defined in the Securities Purchase Agreement) by the Company’s wholly owned subsidiary, the Bank.  The dividend rate for future dividend periods will be set based upon the “Percentage Change

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in Qualified Lending” (as defined in the Securities Purchase Agreement) between each dividend period and the “Baseline” QSBL level.  Such dividend rate may vary from 1% per annum to 5% per annum for the second through tenth dividend periods, from 1% per annum to 7% per annum for the eleventh through the first half of the nineteenth dividend periods.  If the Series B Preferred Stock remains outstanding for more than four-and-one-half years, the dividend rate will be fixed at 9%.  Prior to that time, in general, the dividend rate decreases as the level of the Bank’s QSBL increases.   The Company’s dividend rate as of the date of this report is 1.0%. Updated lending information provided to the US Treasury in early 2013 resulted in a credit against the dividend rate for 2013. Such dividends are not cumulative, but the Company may only declare and pay dividends on its common stock (or any other equity securities junior to the Series B Preferred Stock) if it has declared and paid dividends for the current dividend period on the Series B Preferred Stock, and will be subject to other restrictions on its ability to repurchase or redeem other securities.

The Company may redeem the shares of Series B Preferred Stock, in whole or in part, at any time at a redemption price equal to the sum of the Liquidation Amount per share and the per-share amount of any unpaid dividends for the then-current period, subject to any required prior approval by the Company’s primary federal banking regulator.

The Company’s ability to pay common stock dividends is conditional on payment of the Series B Preferred Stock Dividends described above. In addition, the SBLF program requires the Company to file quarterly reports on QSBL lending reported on by its Auditor annually. The Company must also outreach and advertise the availability of QSBL to organizations and individuals who represent minorities, woman and veterans. The Company must annually certify that no business loans are made to principals of businesses who have been convicted of a sex crime against a minor. Finally, the SBLF program requires the Company to file quarterly, annual and other reports provided to shareholders concurrently with the Treasury.

The Company’s goal is to maintain a strong capital position, consistent with the risk profile of its subsidiary banks that supports growth and expansion activities while at the same time exceeding regulatory standards. At March 31, 2014 (unaudited), December 31, 2013, and December 31, 2012 the Bank exceeded all regulatory required minimum capital ratios and 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 6% and a total risk-based capital ratio exceeding 10%.

The Bank is required to maintain average balances on hand or with the Federal Reserve Bank. At December 31, 2013 and 2012, these reserve balances amounted to $1,680,000 and $2,811,000, respectively, and are included in Cash and due from banks in the statement of condition.

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NOTE 19:INTEREST RATE DERIVATIVE

Derivative instruments are entered into primarily as a risk management tool of the Company. Financial derivatives are recorded at fair value as other liabilities. The accounting for changes in the fair value of a derivative depends on whether it has been designated and qualifies as part of a hedging relationship. For a fair value hedge, changes in the fair value of the derivative instrument and changes in the fair value of the hedged asset or liability are recognized currently in earnings. For a cash flow hedge, changes in the fair value of the derivative instrument, to the extent that it is effective, are recorded in other comprehensive income and subsequently reclassified to earnings as the hedged transaction impacts net income. Any ineffective portion of a cash flow hedge is recognized currently in earnings. See Note 20 for further discussion of the fair value of the interest rate derivative.

The Company has $5 million of floating rate trust preferred debt indexed to 3-month LIBOR. As a result, it is exposed to variability in cash flows related to changes in projected interest payments caused by changes in the benchmark interest rate. During the fourth quarter of fiscal 2009, the Company entered into an interest rate swap agreement, with a $2.0 million notional amount, to convert a portion of the variable-rate junior subordinated debentures to a fixed rate for a term of approximately 7 years at a rate of 4.96%.  The derivative is designated as a cash flow hedge. The hedging strategy ensures that changes in cash flows from the derivative will be highly effective at offsetting changes in interest expense from the hedged exposure.

The following table summarizes the fair value of outstanding derivatives and their presentation on the statements of condition as of the indicated dates:

	(Unaudited)
	March 31,		December 31,
(In thousands)	2014		2013		2012
Cash flow hedge:
Other liabilities	$	123	$	135	$	195

The change in accumulated other comprehensive loss, on a pretax basis, and the impact on earnings from the interest rate swap that qualifies as a cash flow hedge for the year indicated periods were as follows:

	(Unaudited)
	For the three months						For the twelve months
	ended March 31,						ended December 31,
(In thousands)	2014			2013			2013			2012
Balance as of the beginning of the period:	$	(135	)	$	(195	)	$	(195	)	$	(200	)
Amount of losses recognized in other comprehensive income		(3	)		-			(2	)		(53	)
Amount of loss reclassified from other comprehensive income and recognized as interest expense		15			15			62			58
Balance as of the end of the period:	$	(123	)	$	(180	)	$	(135	)	$	(195	)

No amount of ineffectiveness has been included in earnings and the changes in fair value have been recorded in other comprehensive income. Some or the entire amount included in accumulated other comprehensive loss would be reclassified into current earnings should a portion of, or the entire hedge no longer be considered effective, but at this time, management expects the hedge to remain fully effective during the remaining term of the swap.

The Company posted cash, of $200,000, under collateral arrangements to satisfy collateral requirements associated with the interest rate swap contract.

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NOTE 20: Fair Value MEASUREMENTS AND DISCLOSURES

Accounting guidance related to fair value measurements and disclosures specifies a hierarchy of valuation techniques based on whether the inputs to those valuation techniques are observable or unobservable. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect the Company’s market assumptions. These two types of inputs have created the following fair value hierarchy:

Level 1 – Quoted prices (unadjusted) for identical assets or liabilities in active markets that the entity has the ability to access as of the measurement date.

Level 2 – Quoted prices for similar assets and liabilities in active markets; quoted prices for identical or similar assets or liabilities in markets that are not active; and model-derived valuations in which all significant inputs and significant value drivers are observable in active markets.

Level 3 – Model-derived valuations in which one or more significant inputs or significant value drivers are unobservable.

An asset’s or liability’s level within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement.

In determining fair value, the Company utilizes valuation techniques that maximize the use of observable inputs, minimize the use of unobservable inputs, to the extent possible, and considers counterparty credit risk in its assessment of fair value.

The Company used the following methods and significant assumptions to estimate fair value:

Investment securities: The fair values of securities available-for-sale are obtained from an independent third party and are based on quoted prices on nationally recognized exchange where available (Level 1). If quoted prices are not available, fair values are measured by utilizing matrix pricing, which is a mathematical technique used widely in the industry to value debt securities without relying exclusively on quoted prices for specific securities but rather by relying on the securities’ relationship to other benchmark quoted securities (Level 2). Management made no adjustment to the fair value quotes that were received from the independent third party pricing service.

Interest rate swap derivative: The fair value of the interest rate swap derivative is calculated based on a discounted cash flow model. All future floating cash flows are projected and both floating and fixed cash flows are discounted to the valuation date. The curve utilized for discounting and projecting is built by obtaining publicly available third party market quotes for various swap maturity terms.

Impaired loans: Impaired loans are those loans in which the Company has measured impairment generally based on the fair value of the loan’s collateral. Fair value is generally determined based upon market value evaluations by third parties of the properties and/or estimates by management of working capital collateral or discounted cash flows based upon expected proceeds. These appraisals may include up to three approaches to value: the sales comparison approach, the income approach (for income-producing property), and the cost approach. Management modifies the appraised values, if needed, to take into account recent developments in the market or other factors, such as, changes in absorption rates or market conditions from the time of valuation and anticipated sales values considering management’s plans for disposition. Such modifications to the appraised values could result in lower valuations of such collateral. Estimated costs to sell are based on current amounts of disposal costs for similar assets. These measurements are classified as Level 3 within the valuation hierarchy. Impaired loans are subject to nonrecurring fair value adjustment upon initial recognition or subsequent impairment. A portion of the allowance for loan losses is allocated to impaired loans if the value of such loans is deemed to be less than the unpaid balance.

Foreclosed real estate: Fair values for foreclosed real estate are initially recorded based on market value evaluations by third parties, less costs to sell (“initial cost basis”). Any write-downs required when the related loan receivable is exchanged for the underlying real estate collateral at the time of transfer to foreclosed real estate are charged to the allowance for loan losses. Values are derived from appraisals, similar to impaired loans, of underlying collateral or discounted cash flow analysis. Subsequent to foreclosure, valuations are updated periodically and assets are marked to current fair value, not to exceed the initial cost basis. In the determination of fair value subsequent to foreclosure, management also considers other factors or recent developments, such as, changes in absorption rates and market

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conditions from the time of valuation and anticipated sales values considering management’s plans for disposition. Either change could result in adjustment to lower the property value estimates indicated in the appraisals. These measurements are classified as Level 3 within the fair value hierarchy.

The following tables summarize assets measured at fair value on a recurring basis as of March 31, 2014 (unaudited) segregated by the level of valuation inputs within the hierarchy utilized to measure fair value:

	(Unaudited)
	March 31, 2014
								Total Fair
(In thousands)	Level 1		Level 2			Level 3		Value
Available-for-sale portfolio
Debt investment securities:
US Treasury, agencies and GSEs	$	-	$	19,598		$	-	$	19,598
State and political subdivisions		-		6,450			-		6,450
Corporate		-		12,060			-		12,060
Residential mortgage-backed - US agency		-		43,600			-		43,600
Equity investment securities:
Mutual funds:
Ultra short mortgage fund		647		-			-		647
Large cap equity fund		655		-			-		655
Other mutual funds		-		364			-		364
Common stock - financial services industry		40		249			-		289
Total available-for-sale securities	$	1,342	$	82,321		$	-	$	83,663
Interest rate swap derivative	$	-	$	(123	)	$	-	$	(123	)

The following tables summarize assets measured at fair value on a recurring basis as of December 31, segregated by the level of valuation inputs within the hierarchy utilized to measure fair value:

	2013
								Total Fair
(In thousands)	Level 1		Level 2			Level 3		Value
Available-for-sale portfolio
Debt investment securities:
US Treasury, agencies and GSEs	$	-	$	16,597		$	-	$	16,597
State and political subdivisions		-		6,587			-		6,587
Corporate		-		13,696			-		13,696
Residential mortgage-backed - US agency		-		42,142			-		42,142
Residential mortgage-backed - private label		-		-			-		-
Equity investment securities:
Mutual funds:
Ultra short mortgage fund		648		-			-		648
Large cap equity fund		651		-			-		651
Other mutual funds		-		345			-		345
Common stock - financial services industry		42		251			-		293
Total available-for-sale securities	$	1,341	$	79,618		$	-	$	80,959
Interest rate swap derivative	$	-	$	(135	)	$	-	$	(135	)

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	2012
								Total Fair
(In thousands)	Level 1		Level 2			Level 3		Value
Available-for-sale portfolio
Debt investment securities:
US Treasury, agencies and GSEs	$	-	$	6,183		$	-	$	6,183
State and political subdivisions		-		27,471			-		27,471
Corporate		-		23,006			-		23,006
Residential mortgage-backed - US agency		-		48,251			-		48,251
Residential mortgage-backed - private label		-		305			-		305
Equity investment securities:
Mutual funds:
Ultra short mortgage fund		1,291		-			-		1,291
Large cap equity fund		1,081		-			-		1,081
Other mutual funds		-		319			-		319
Common stock - financial services industry		33		399			-		432
Total available-for-sale securities	$	2,405	$	105,934		$	-	$	108,339
Interest rate swap derivative	$	-	$	(195	)	$	-	$	(195	)

Certain assets and liabilities are measured at fair value on a nonrecurring basis; that is, the instruments are not measured at fair value on an ongoing basis but are subject to fair value adjustments in certain circumstances (for example, when there is evidence of impairment).

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The following tables summarize assets measured at fair value on a nonrecurring basis as of the indicated dates, segregated by the level of valuation inputs within the hierarchy utilized to measure fair value:

	(Unaudited)
	March 31, 2014
							Total Fair
(In thousands)	Level 1		Level 2		Level 3		Value
Impaired loans	$	-	$	-	$	1,254	$	1,254
Foreclosed real estate	$	-	$	-	$	130	$	130

	2013
							Total Fair
(In thousands)	Level 1		Level 2		Level 3		Value
Impaired loans	$	-	$	-	$	258	$	258
Foreclosed real estate	$	-	$	-	$	69	$	69

	2012
							Total Fair
(In thousands)	Level 1		Level 2		Level 3		Value
Impaired loans	$	-	$	-	$	773	$	773
Foreclosed real estate	$	-	$	-	$	96	$	96

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The following table presents additional quantitative information about assets measured at fair value on a nonrecurring basis and for which Level 3 inputs were used to determine fair value.

		Quantitative Information about Level 3 Fair Value Measurements
	Valuation	Unobservable	Range
	Techniques	Input	(Weighted Avg.)
At March 31, 2014 (Unaudited)
Impaired loans	Appraisal of collateral	Appraisal Adjustments	5% - 30% (15%)
	(Sales Approach)	Costs to Sell	4% - 50% (12%)
Foreclosed real estate	Appraisal of collateral	Appraisal Adjustments	15% - 15% (15%)
	(Sales Approach)	Costs to Sell	6% - 8% (7%)

		Quantitative Information about Level 3 Fair Value Measurements
	Valuation	Unobservable	Range
	Techniques	Input	(Weighted Avg.)
At December 31, 2013
Impaired loans	Appraisal of collateral	Appraisal Adjustments	5% - 30% (14%)
	(Sales Approach)	Costs to Sell	6% - 50% (12%)
Foreclosed real estate	Appraisal of collateral	Appraisal Adjustments	15% - 15% (15%)
	(Sales Approach)	Costs to Sell	6% - 7% (6%)

		Quantitative Information about Level 3 Fair Value Measurements
	Valuation	Unobservable	Range
	Techniques	Input	(Weighted Avg.)
At December 31, 2012
Impaired loans	Appraisal of collateral	Appraisal Adjustments	5% - 30% (21%)
		Costs to Sell	6% - 15% (12%)
Foreclosed real estate	Appraisal of collateral	Appraisal Adjustments	15% - 15% (15%)
		Costs to Sell	6% - 7% (6%)

There have been no transfers of assets into or out of any fair value measurement level during the quarter ended March 31, 2014 (unaudited). As of June 30, 2013, junior subordinated debentures with a carrying value of $5.2 million were transferred from a level 3 classification to a level 2 classification.

Required disclosures include fair value information of financial instruments, whether or not recognized in the consolidated statement of condition, for which it is practicable to estimate that value. In cases where quoted market prices are not available, fair values are based on estimates using present value or other valuation techniques. Those techniques are significantly affected by the assumptions used, including the discount rate and estimates of future

F-65

cash flows. In that regard, the derived fair value estimates cannot be substantiated by comparison to independent markets and, in many cases, could not be realized in immediate settlement of the instrument.

The Company has various processes and controls in place to ensure that fair value is reasonably estimated. The Company performs due diligence procedures over third party pricing service providers in order to support their use in the valuation process.

While the Company believes its valuation methods are appropriate and consistent with other market participants, the use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different estimate of fair value at the reporting date.

Management uses its best judgment in estimating the fair value of the Company’s financial instruments; however, there are inherent weaknesses in any estimation technique. Therefore, for substantially all financial instruments, the fair value estimates herein are not necessarily indicative of the amounts the Company could have realized in a sales transaction on the dates indicated. The estimated fair value amounts have been measured as of their respective period-ends, and have not been re-evaluated or updated for purposes of these financial statements subsequent to those respective dates. As such, the estimated fair values of these financial instruments subsequent to the respective reporting dates may be different than the amounts reported at each period-end.

The following information should not be interpreted as an estimate of the fair value of the entire Company since a fair value calculation is only provided for a limited portion of the Company’s assets and liabilities. Due to a wide range of valuation techniques and the degree of subjectivity used in making the estimates, comparisons between the Company’s disclosures and those of other companies may not be meaningful. The Company, in estimating its fair value disclosures for financial instruments, used the following methods and assumptions:

Cash and cash equivalents – The carrying amounts of these assets approximate their fair value and are classified as Level 1.

Interest earning time deposits – The carrying amounts of these assets approximate their fair value and are classified as Level 1.

Investment securities – The fair values of securities available-for-sale and held-to-maturity are obtained from an independent third party and are based on quoted prices on nationally recognized exchange where available (Level 1). If quoted prices are not available, fair values are measured by utilizing matrix pricing, which is a mathematical technique used widely in the industry to value debt securities without relying exclusively on quoted prices for specific securities, but rather by relying on the securities’ relationship to other benchmark quoted securities (Level 2). Management made no adjustment to the fair value quotes that were received from the independent third party pricing service.

Federal Home Loan Bank stock – The carrying amount of these assets approximates their fair value and are classified as Level 2.

Net loans – For variable-rate loans that re-price frequently, fair value is based on carrying amounts. The fair value of other loans (for example, fixed-rate commercial real estate loans, mortgage loans, and commercial and industrial loans) is estimated using discounted cash flow analysis, based on interest rates currently being offered in the market for loans with similar terms to borrowers of similar credit quality. Loan value estimates include judgments based on expected prepayment rates. The measurement of the fair value of loans, including impaired loans, is classified within Level 3 of the fair value hierarchy.

Accrued interest receivable and payable – The carrying amount of these assets approximates their fair value and are classified as Level 1.

Deposits – The fair values disclosed for demand deposits (e.g., interest-bearing and noninterest-bearing checking, passbook savings and certain types of money management accounts) are, by definition, equal to the amount payable on demand at the reporting date (i.e., their carrying amounts) and are classified within Level 1 of the fair value hierarchy. Fair values for fixed-rate certificates of deposit are estimated using a discounted cash flow calculation

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that applies interest rates currently being offered in the market on certificates of deposits to a schedule of aggregated expected monthly maturities on time deposits. Measurements of the fair value of time deposits are classified within Level 2 of the fair value hierarchy.

Borrowings – Fixed/variable term “bullet” structures are valued using a replacement cost of funds approach. These borrowings are discounted to the FHLBNY advance curve. Option structured borrowings’ fair values are determined by the FHLB for borrowings that include a call or conversion option. If market pricing is not available from this source, current market indications from the FHLBNY are obtained and the borrowings are discounted to the FHLBNY advance curve less an appropriate spread to adjust for the option. These measurements are classified as Level 2 within the fair value hierarchy.

Junior subordinated debentures – Current economic conditions have rendered the market for this liability inactive.  As such, the Company was formerly unable to determine a good estimate of fair value, resulting in a Level 3 classification at December 31, 2012.  As of June 30, 2013, the Company was able to secure a quote from its pricing service based on a Discounted Cash Flow methodology which resulted in a Level 2 classification for this borrowing.

Interest rate swap derivative – The fair value of the interest rate swap derivative is obtained from a third party pricing agent and is calculated based on a discounted cash flow model. All future floating cash flows are projected and both floating and fixed cash flows are discounted to the valuation date. The curve utilized for discounting and projecting is built by obtaining publicly available third party market quotes for various swap maturity terms, and therefore is classified within Level 2 of the fair value hierarchy.

F-67

The carrying amounts and fair values of the Company’s financial instruments as of the indicated dates are presented in the following table:

			(Unaudited)
			March 31, 2014				December 31, 2013				December 31, 2012
	Fair Value		Carrying		Estimated		Carrying		Estimated		Carrying		Estimated
(Dollars In thousands)	Hierarchy		Amounts		Fair Values		Amounts		Fair Values		Amounts		Fair Values
Financial assets:
Cash and cash equivalents		1	$	18,933	$	18,933	$	16,575	$	16,575	$	8,665	$	8,665
Interest earning time deposits		1		500		500		500		500		2,000		2,000
Investment securities - available-for-sale		1		1,342		1,342		1,341		1,341		2,405		2,405
Investment securities - available-for-sale		2		82,321		82,321		79,618		79,618		105,934		105,934
Investment securities - held-to-maturity		2		42,990		43,359		34,412		34,222		-		-
Federal Home Loan Bank stock		2		2,035		2,035		2,440		2,440		1,929		1,929
Net loans		3		343,143		349,472		336,592		343,660		329,247		341,389
Accrued interest receivable		1		1,813		1,813		1,715		1,715		1,717		1,717
Financial liabilities:
Demand Deposits, Savings, NOW and MMDA		1	$	282,620	$	282,620	$	250,248	$	250,248	$	228,484	$	228,484
Time Deposits		2		155,732		155,914		159,892		160,201		163,321		165,491
Borrowings		2		33,826		34,205		40,853		41,255		34,964		36,054
Junior subordinated debentures		2		5,155		5,152		5,155		4,825		-		-
Junior subordinated debentures		3		-		-		-		-		5,155		5,155
Accrued interest payable		1		98		98		86		86		140		140
Interest rate swap derivative		2		123		123		135		135		195		195

F-68

NOTE 21: Parent Company – Financial Information

The following represents the condensed financial information of Pathfinder Bancorp, Inc. as of and for the years ended December 31:

Statements of Condition	2013		2012
(In thousands)
Assets
Cash	$	1,147	$	1,482
Investments		42		33
Investment in bank subsidiary		46,699		44,206
Investment in non-bank subsidiary		155		155
Other assets		403		390
Total assets	$	48,446	$	46,266
Liabilities and Shareholders' Equity
Accrued liabilities	$	221	$	364
Junior subordinated debentures		5,155		5,155
Shareholders' equity		43,070		40,747
Total liabilities and shareholders' equity	$	48,446	$	46,266

Statements of Income	2013			2012
(In thousands)
Income
Dividends from bank subsidiary	$	-		$	1,200
Dividends from non-bank subsidiary		4			3
Total income		4			1,203
Expenses
Interest		162			168
Operating, net		109			114
Total expenses		271			282
(Loss) income before taxes and equity in undistributed net income of subsidiaries		(267	)		921
Tax benefit		69			72
(Loss) income before equity in undistributed net income of subsidiaries		(198	)		993
Equity in undistributed net income of subsidiaries		2,604			1,655
Net income	$	2,406		$	2,648

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Statements of Cash Flows	2013			2012
(In thousands)
Operating Activities
Net Income	$	2,406		$	2,648
Equity in undistributed net income of subsidiaries		(2,604	)		(1,655	)
Stock based compensation and ESOP expense		243			193
Net change in other assets and liabilities		(39	)		(93	)
Net cash flows from operating activities		6			1,093
Investing Activities
Capital contributed to wholly-owned bank subsidiary		-			-
Net cash flows from investing activities		-			-
Financing activities
Proceeds from exercise of stock options		45			5
Purchase of CPP Warrants from Treasury and redemption of CPP preferred stock		-			(537	)
Cash dividends paid to preferred shareholders		(83	)		(507	)
Cash dividends paid to common shareholders		(303	)		(301	)
Net cash flows from financing activities		(341	)		(1,340	)
Change in cash and cash equivalents		(335	)		(247	)
Cash and cash equivalents at beginning of year		1,482			1,729
Cash and cash equivalents at end of year	$	1,147		$	1,482

NOTE 22: RELATED PARTY TRANSACTIONS

In the ordinary course of business, the Company has granted loans to certain directors, executive officers and their affiliates (collectively referred to as “related parties”). These loans were made on substantially the same terms, including interest rates and collateral, as those prevailing at the time for comparable transactions with other unaffiliated parties and do not involve more than normal risk of collectability.

The following represents the activity associated with loans to related parties during the year ended December 31, 2013:

(In thousands)
Balance at the beginning of the year	$	5,829
Originations and Executive Officer additions		2,807
Principal payments		(337	)
Decrease due to Director attrition		(375	)
Balance at the end of the year	$	7,924

At December 31, 2013 and December 31, 2012, the Bank had no loan receivable from the Holding Company and $1.0 million, respectively. The Holding Company sold three properties to the Company in December 2013 allowing the loan receivable to be paid off. Interest paid by the Holding Company for the years ended 2013 and 2012 was $50,000 and $53,000, respectively.

Deposits of related parties at December 31, 2013 and December 31, 2012 were $1.6 million and $1.9 million, respectively.

In October 2002, the Company entered into a land lease with one of its directors, now retired, on an arms-length basis. In January 2006, the Company entered into a lease with the Holding Company for the use of a training facility.  This lease was executed on an arms-length basis.  During 2010, the Company entered into an arm’s length lease with the Holding Company for space that is then sub-leased by the Company to a charitable organization at below-market rents. Rent expense paid to the related parties during 2013 and 2012 was $29,000 and $21,000, respectively.

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NOTE 23: ACQUISITION OF INSURANCE AGENCY

On December 1, 2013, the Company, through its subsidiary, Pathfinder Bank, and its subsidiary, Pathfinder Risk Management Inc. (“PRMC”), executed a Purchase and Sale Agreement to acquire a 51% interest in the Fitzgibbons Agency, LLC (“Fitzgibbons”), a local insurance agency serving the same geographic area as Pathfinder Bank. In addition, PRMC acquired 100% of certain equipment of Fitzgibbons for use in the business. This acquisition allows the Company to create more value based non-interest income revenue through a significant crossover in customer base as well as a similarity of culture.  We believe that over time, both organic and acquisition growth within the Bank’s larger geographic footprint, as well as synergies from customer base access, will provide opportunities to grow and diversify our revenue through insurance services.

Acquisition costs related to this transaction were $27,000 and $8,000 in the periods ended December 31, 2013 and December 31, 2012, respectively, and were recorded in professional and other services within noninterest expense on the income statement.

The assets and liabilities assumed in the acquisition were recorded at their estimated fair values based on management's best estimates using information available at the date of acquisition.  The following table summarizes the estimated fair value of the assumed assets and liabilities (dollars in thousands):

Consideration paid:
Cash paid by PRMC	$	428
Fair value of noncontrolling interest		359
Total consideration	$	787
Identifiable assets acquired:
Cash and equivalents	$	18
Accounts receivable		1
Customer list intangible		188
Net premises and equipment		54
Total identified net assets	$	261
Goodwill:	$	526

F-71

NOTE 24: ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)

Changes in the components of accumulated other comprehensive income (loss) (“AOCI”), net of tax, for the periods indicated are summarized in the table below.

	(Unaudited)
	For the three months ended March 31, 2014
(In thousands)	Retirement Plans			Unrealized Gains and Losses on Financial Derivative			Unrealized Gains and Losses on Available-for- Sale Securities			Securities reclassified from AFS to HTM			Total
Beginning balance	$	(982	)	$	(81	)	$	99		$	(781	)	$	(1,745	)
Other comprehensive income (loss) before reclassifications		-			(2	)		192			18			208
Amounts reclassified from AOCI		7			9			(1	)		-			15
Ending balance	$	(975	)	$	(74	)	$	290		$	(763	)	$	(1,522	)

	(Unaudited)
	For the three months ended March 31, 2013
(In thousands)	Retirement Plans			Unrealized Gains and Losses on Financial derivative			Unrealized Gains and Losses on Available-for- Sale Securities			Securities reclassified from AFS to HTM		Total
Beginning balance	$	(2,765	)	$	(117	)	$	1,564		$	-	$	(1,318	)
Other comprehensive income (loss) before reclassifications		-			-			(225	)		-		(225	)
Amounts reclassified from AOCI		57			9			(23	)		-		43
Ending balance	$	(2,708	)	$	(108	)	$	1,316		$	-	$	(1,500	)

F-72

	For the year ended December 31, 2013
	Retirement Plans			Unrealized Gains and Losses on Financial Derivative			Unrealized Gains and Losses on Available-for- Sale Securities			Securities reclassified from AFS to HTM			Total
Beginning balance	$	(2,765	)	$	(117	)	$	1,564		$	-		$	(1,318	)
Other comprehensive income (loss) before reclassifications		1,554			(3	)		(1,246	)		(781	)		(476	)
Amounts reclassified from AOCI		229			39			(219	)		-			49
Ending balance	$	(982	)	$	(81	)	$	99		$	(781	)	$	(1,745	)

	For the year ended December 31, 2012
	Retirement Plans			Unrealized Gains and Losses on Financial derivative			Unrealized Gains and Losses on Available-for- Sale Securities			Unrealized Loss on Securities Transferred to Held-to- Maturity		Total
Beginning balance	$	(3,617	)	$	(120	)	$	1,073		$	-	$	(2,664	)
Other comprehensive income (loss) before reclassifications		615			(32	)		716			-		1,299
Amounts reclassified from AOCI		237			35			(225	)		-		47
Ending balance	$	(2,765	)	$	(117	)	$	1,564		$	-	$	(1,318	)

The following table presents the amounts reclassified out of each component of AOCI for the indicated periods:

	(Unaudited)
(In thousands)	For the three months ended
Details about AOCI1 components	March 31, 2014			March 31, 2013			Affected Line Item in the Statement of Income
Unrealized holding gain on financial derivative:
Reclassification adjustment for interest expense included in net income	$	(15	)	$	(15	)	Interest on long term borrowings
		6			6		Provision for income taxes
	$	(9	)	$	(9	)	Net Income
Retirement plan items
Retirement plan net losses recognized in plan expenses2	$	(11	)	$	(95	)	Salaries and employee benefits
		4			38		Provision for income taxes
	$	(7	)	$	(57	)	Net Income
Available-for-sale securities
Realized gain on sale of securities	$	2		$	39		Net gains on sales and redemptions of investment securities
		(1	)		(16	)	Provision for income taxes
	$	1		$	23		Net Income

¹ Amounts in parentheses indicates debits in net income.

² These items are included in net periodic pension cost.

   See Note 12 for additional information.

F-73

	For the year ended			For the year ended
Details about AOCI1 components	December 31, 2013			December 31, 2012			Affected Line Item in the Statement of Income
Unrealized holding gain on financial derivative:
Reclassification adjustment for interest expense included in net income	$	(62	)	$	(58	)	Interest on long term liabilities
		23			23		Provision for income taxes
	$	(39	)	$	(35	)	Net Income
Retirement plan items
Retirement plan net losses recognized in plan expenses2	$	(381	)	$	(395	)	Salaries and employee benefits
		152			158		Provision for income taxes
	$	(229	)	$	(237	)	Net Income
Available-for-sale securities
Realized gain on sale of securities	$	(365	)	$	(375	)	Net gains on sales and redemptions of investment securities
		146			150		Provision for income taxes
	$	(219	)	$	(225	)	Net Income

¹ Amounts in parentheses indicates debits in net income.

² These items are included in net periodic pension cost.

   See Note 12 for additional information.

NOTE 25: SUBSEQUENT EVENT (UNAUDITED)

On April 8, 2014, the Company, together with the Boards of Directors of Pathfinder Bancorp, MHC, the majority owner of the Company, and Pathfinder Bank, have unanimously adopted a Plan of Conversion and Reorganization (the “Plan of Conversion”).

Pursuant to the Plan of Conversion, Pathfinder Bancorp, MHC will sell its majority ownership in the Company in a “second-step” stock offering. Simultaneously, the Company, which is currently in the mutual holding company structure, will reorganize to a fully public stock holding company.

F-74

No person has been authorized to give any information or to make any representation other than as contained in this prospectus and, if given or made, such other information or representation must not be relied upon as having been authorized by Pathfinder Bancorp, Inc. or Pathfinder Bank. This prospectus does not constitute an offer to sell or a solicitation of an offer to buy any of the securities offered hereby to any person in any jurisdiction in which such offer or solicitation is not authorized or in which the person making such offer or solicitation is not qualified to do so, or to any person to whom it is unlawful to make such offer or solicitation in such jurisdiction. Neither the delivery of this prospectus nor any sale hereunder shall under any circumstances create any implication that there has been no change in the affairs of Pathfinder Bancorp, Inc. or Pathfinder Bank since any of the dates as of which information is furnished herein or since the date hereof.

Up to 2,300,000 Shares

(Subject to Increase to up to 2,645,000 Shares)

Pathfinder Bancorp, Inc.

(Proposed Holding Company for

Pathfinder Bank)

COMMON STOCK

par value $0.01 per share

__________________

PROSPECTUS

__________________

Keefe, Bruyette & Woods

               A Stifel Company

[prospectus date]

________________

These securities are not deposits or accounts and are not federally insured or guaranteed.

________________

Until ________, 2014, all dealers that effect transactions in these securities, whether or not participating in this offering, may be required to deliver a prospectus. This is in addition to the obligation of dealers to deliver a prospectus when acting as underwriters and with respect to their unsold allotments or subscriptions.

Dear Fellow Stockholder:

Pathfinder Bancorp, Inc. is soliciting stockholder votes regarding the mutual-to-stock conversion of Pathfinder Bancorp, MHC. Pursuant to a Plan of Conversion and Reorganization, our organization will convert from a partially public company to a fully public company by selling a minimum of 1,700,000 shares of common stock of a newly formed company, also named Pathfinder Bancorp, Inc. (“New Pathfinder”), which will become the holding company for Pathfinder Bank.

The Proxy Vote

We have received regulatory approval of the application that includes the Plan of Conversion and Reorganization. However, we must also receive the approval of our stockholders. Enclosed is a proxy statement/prospectus describing the proposals being presented at our special meeting of stockholders. Please promptly vote the enclosed proxy card. Our Board of Directors urges you to vote “FOR” the approval of the Plan of Conversion and Reorganization and “FOR” the other matters being presented at the special meeting.

The Exchange

At the conclusion of the conversion, your shares of Pathfinder Bancorp, Inc. common stock will be exchanged for shares of New Pathfinder common stock. The number of new shares that you receive will be based on an exchange ratio that is described in the proxy statement/prospectus. Shortly after the completion of the conversion, our exchange agent will send a transmittal form to each stockholder of Pathfinder Bancorp, Inc. who holds stock certificates. The transmittal form explains the procedure to follow to exchange your shares. Please do not deliver your certificate(s) before you receive the transmittal form. Shares of Pathfinder Bancorp, Inc. that are held in street name (e.g., in a brokerage account) will be converted automatically at the conclusion of the conversion; no action or documentation is required of you.

The Stock Offering

We are offering the shares of common stock of New Pathfinder for sale at $10.00 per share. The shares are first being offered in a subscription offering to eligible depositors of Pathfinder Bank. If all shares are not subscribed for in the subscription offering, shares may be available in a community offering to Pathfinder Bancorp, Inc. public stockholders and others not eligible to place orders in the subscription offering. If you may be interested in purchasing shares of our common stock, contact our Stock Information Center at [stock information #] to receive a stock order form and prospectus. The stock offering period is expected to expire on [expiration date].

If you have any questions, please refer to the Questions & Answers section herein.

We thank you for your support as a stockholder of Pathfinder Bancorp, Inc.

Sincerely,

Thomas W. Schneider

President and Chief Executive Officer

These securities are not deposits or savings accounts and are not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. None of the Securities and Exchange Commission, the Board of Governors of the Federal Reserve System, or any state securities regulator has approved or disapproved of these securities or determined if this proxy statement/prospectus is accurate or complete. Any representation to the contrary is a criminal offense.

PROSPECTUS OF PATHFINDER BANCORP, INC., A MARYLAND CORPORATION
PROXY STATEMENT OF PATHFINDER BANCORP, INC., A FEDERAL CORPORATION

Pathfinder Bank is converting from the mutual holding company structure to a fully-public stock holding company structure. Currently, Pathfinder Bank is a wholly-owned subsidiary of Pathfinder Bancorp, Inc., a federally chartered corporation, which we sometimes refer to in this document as “Pathfinder-Federal,” and Pathfinder Bancorp, MHC owns 60.4% of Pathfinder-Federal’s common stock. The remaining 39.6% of Pathfinder-Federal’s common stock is owned by public stockholders. As a result of the conversion, a newly formed Maryland corporation named Pathfinder Bancorp, Inc. (“New Pathfinder”) will replace Pathfinder-Federal as the holding company of Pathfinder Bank. Each share of Pathfinder-Federal common stock owned by the public will be exchanged for between 1.0552 and 1.4276 shares (or 1.6417 at the adjusted maximum) of common stock of New Pathfinder, so that immediately after the conversion Pathfinder-Federal’s existing public stockholders will own the same percentage of New Pathfinder common stock as they owned of Pathfinder-Federal’s common stock immediately prior to the conversion, excluding any new shares purchased by them in the offering, their receipt of cash in lieu of fractional exchange shares and as adjusted to reflect assets held by Pathfinder Bancorp, MHC. The actual number of shares that you will receive will depend on the percentage of Pathfinder-Federal common stock held by the public at the completion of the conversion, the final independent appraisal of New Pathfinder and the number of shares of New Pathfinder common stock sold in the offering described in the following paragraph. It will not depend on the market price of Pathfinder-Federal common stock. See “Proposal 1—Approval of the Plan of Conversion and Reorganization—Share Exchange Ratio” for a discussion of the exchange ratio. Based on the $____ per share closing price of Pathfinder-Federal common stock as of the last trading day prior to the date of this proxy statement/prospectus, unless at least __________ shares of New Pathfinder common stock are sold in the offering (which is between the _________ and the _______ of the offering range), the initial value of the New Pathfinder common stock you receive in the share exchange would be less than the market value of the Pathfinder-Federal common stock you currently own. See “Risk Factors—The market value of New Pathfinder common stock received in the share exchange may be less than the market value of Pathfinder Bancorp, Inc. common stock exchanged.”

Concurrently with the exchange offer, we are offering for sale up to 2,300,000 shares (subject to increase to 2,645,000 shares) of common stock of New Pathfinder, representing the ownership interest of Pathfinder Bancorp, MHC in Pathfinder-Federal. We are offering the shares of common stock to eligible depositors of Pathfinder Bank, to Pathfinder Bank’s tax qualified benefit plans and to the public, including Pathfinder-Federal stockholders, at a price of $10.00 per share. The conversion of Pathfinder Bancorp, MHC and the offering and exchange of common stock by New Pathfinder is referred to herein as the “conversion and offering.” After the conversion and offering are completed, Pathfinder Bank will be a wholly-owned subsidiary of New Pathfinder, and 100% of the common stock of New Pathfinder will be owned by public stockholders. As a result of the conversion and offering, Pathfinder-Federal and Pathfinder Bancorp, MHC will cease to exist.

Pathfinder-Federal’s common stock is currently traded on the Nasdaq Capital Market under the trading symbol “PBHC,” and we expect New Pathfinder’s shares of common stock will also trade on the Nasdaq Capital Market under the symbol “PBHC.”

The conversion and offering cannot be completed unless the stockholders of Pathfinder-Federal approve the Plan of Conversion and Reorganization of Pathfinder Bancorp, MHC. Pathfinder-Federal is holding a special meeting of stockholders at [Meeting Location], on [Meeting Date], at [Meeting Time], Eastern Time, to consider and vote upon the plan of conversion and reorganization. We must obtain the affirmative vote of the holders of (i) two-thirds of the total number of votes entitled to be cast at the special meeting by Pathfinder-Federal stockholders, including shares held by Pathfinder Bancorp, MHC, and (ii) a majority of the total number of votes entitled to be cast at the special meeting by Pathfinder-Federal stockholders other than Pathfinder Bancorp, MHC. Pathfinder Bancorp Inc.’s board of directors unanimously recommends that stockholders vote “FOR” the plan of conversion and reorganization.

This document serves as the proxy statement for the special meeting of stockholders of Pathfinder-Federal and the prospectus for the shares of New Pathfinder common stock to be issued in exchange for shares of Pathfinder-Federal common stock. We urge you to read this entire document carefully. You can also obtain information about us from documents that we have filed with the Securities and Exchange Commission and the Board of Governors of the Federal Reserve System (“Federal Reserve Board”). This document does not serve as the

prospectus relating to the offering by New Pathfinder of its shares of common stock in the offering, which is being made pursuant to a separate prospectus. Stockholders of Pathfinder-Federal are not required to participate in the stock offering.

This proxy statement/prospectus contains information that you should consider in evaluating the plan of conversion and reorganization. In particular, you should carefully read the section captioned “Risk Factors” beginning on page 10 for a discussion of certain risk factors relating to the conversion and offering.

These securities are not deposits or savings accounts and are not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency.

None of the Securities and Exchange Commission, the Board of Governors of the Federal Reserve System, the New York Department of Financial Services or any state securities regulator has approved or disapproved of these securities or determined if this proxy statement/prospectus is accurate or complete. Any representation to the contrary is a criminal offense.

For answers to your questions, please read this proxy statement/prospectus including the Questions and Answers section, beginning on page 1. Questions about voting on the plan of conversion and reorganization may be directed to AST Phoenix Advisors, at [Proxy solicitor #], Monday through Friday from ___ a.m. to ___ p.m., Eastern Time, and Saturdays from ___ a.m. to ____p.m., Eastern Time.

The date of this proxy statement/prospectus is [prospectus date], and it is first being mailed to stockholders of Pathfinder-Federal on or about [mail date].

PATHFINDER BANCORP, INC.

214 West First Street

Oswego, New York 13126

(315) 343-0057

NOTICE OF SPECIAL MEETING OF STOCKHOLDERS

On [Meeting Date], Pathfinder Bancorp, Inc. will hold a special meeting of stockholders at [Meeting Location]. The meeting will begin at [Meeting Time], Eastern Time. At the meeting, stockholders will consider and act on the following:

1. The approval of a plan of conversion and reorganization, whereby Pathfinder Bancorp, MHC and Pathfinder Bancorp, Inc., a federal corporation, will convert and reorganize from the mutual holding company structure to the stock holding company structure, as more fully described in the attached proxy statement/prospectus;

2. The approval of the adjournment of the special meeting, if necessary, to solicit additional proxies in the event that there are not sufficient votes at the time of the special meeting to approve the plan of conversion and reorganization;

3. The following informational proposals:

3a. Approval of a provision in New Pathfinder’s articles of incorporation requiring a super-majority vote of stockholders to approve certain amendments to New Pathfinder’s articles of incorporation;

3b. Approval of a provision in New Pathfinder’s articles of incorporation requiring a super-majority vote of stockholders to approve stockholder-proposed amendments to New Pathfinder’s bylaws;

3c. Approval of a provision in New Pathfinder’s articles of incorporation to limit the voting rights of shares beneficially owned in excess of 10% of New Pathfinder’s outstanding voting stock; and

Such other business that may properly come before the meeting.

NOTE: The board of directors is not aware of any other business to come before the meeting.

The provisions of New Pathfinder’s articles of incorporation that are summarized as informational proposals 3a through 3c were approved as part of the process in which our board of directors approved the plan of conversion and reorganization. These proposals are informational in nature only because the Federal Reserve Board’s regulations governing mutual-to-stock conversions do not provide for votes on matters other than the plan of conversion and reorganization. While we are asking you to vote with respect to each of the informational proposals listed above, the proposed provisions for which an informational vote is requested will become effective if stockholders approve the plan of conversion and reorganization, regardless of whether stockholders vote to approve any or all of the informational proposals.

The board of directors has fixed [Stockholder Record Date], as the record date for the determination of stockholders entitled to notice of and to vote at the special meeting and at any adjournment or postponement thereof.

Upon written request addressed to the Corporate Secretary of Pathfinder-Federal at the address given above, stockholders may obtain an additional copy of this proxy statement/prospectus and/or a copy of the plan of conversion and reorganization. In order to assure timely receipt of the additional copy of the proxy statement/prospectus and/or the plan of conversion and reorganization, the written request should be received by Pathfinder-Federal by [request date].

Please complete and sign the enclosed proxy card, which is solicited by the board of directors, and mail it promptly in the enclosed envelope. The proxy will not be used if you attend the meeting and vote in person.

	BY ORDER OF THE BOARD OF DIRECTORS
	Edward A. Mervine
	Corporate Secretary
Oswego, New York
[prospectus date]

TABLE OF CONTENTS

QUESTIONS AND ANSWERS FOR STOCKHOLDERS OF PATHFINDER BANCORP, INC. REGARDING THE PLAN OF CONVERSION AND REORGANIZATION	1
SUMMARY	6
RISK FACTORS	10
INFORMATION ABOUT THE SPECIAL MEETING	11
PROPOSAL 1 — APPROVAL OF THE PLAN OF CONVERSION AND REORGANIZATION	14
PROPOSAL 2 — ADJOURNMENT OF THE SPECIAL MEETING	16
PROPOSALS 3a THROUGH 3c — INFORMATIONAL PROPOSALS RELATED TO THE ARTICLES OF INCORPORATION OF NEW PATHFINDER.	16
SELECTED CONSOLIDATED FINANCIAL AND OTHER DATA	19
FORWARD-LOOKING STATEMENTS	19
HOW WE INTEND TO USE THE PROCEEDS FROM THE OFFERING	19
OUR DIVIDEND POLICY	19
MARKET FOR THE COMMON STOCK	19
HISTORICAL AND PRO FORMA REGULATORY CAPITAL COMPLIANCE	19
CAPITALIZATION	19
IMPACT OF PATHFINDER BANCORP, MHC’S ASSETS ON MINORITY STOCK OWNERSHIP	19
PRO FORMA DATA	19
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	19
BUSINESS OF NEW PATHFINDER AND PATHFINDER-FEDERAL	19
BUSINESS OF PATHFINDER BANK	19
SUPERVISION AND REGULATION	20
TAXATION	20
MANAGEMENT	20
BENEFICIAL OWNERSHIP OF COMMON STOCK	20
SUBSCRIPTIONS BY DIRECTORS AND EXECUTIVE OFFICERS	20
COMPARISON OF STOCKHOLDERS’ RIGHTS FOR EXISTING STOCKHOLDERS OF PATHFINDER BANCORP, INC.	20
RESTRICTIONS ON ACQUISITION OF NEW PATHFINDER	20
DESCRIPTION OF CAPITAL STOCK OF NEW PATHFINDER FOLLOWING THE CONVERSION	20
TRANSFER AGENT	20
EXPERTS	20
LEGAL MATTERS	20
WHERE YOU CAN FIND ADDITIONAL INFORMATION	20
STOCKHOLDER PROPOSALS	21
ADVANCE NOTICE OF BUSINESS TO BE CONDUCTED AT AN ANNUAL MEETING	21
IMPORTANT NOTICE REGARDING THE AVAILABILITY OF PROXY MATERIALS FOR THE SPECIAL MEETING	22
OTHER MATTERS	22
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS	F-1

QUESTIONS AND ANSWERS
FOR STOCKHOLDERS OF PATHFINDER BANCORP, INC.
REGARDING THE PLAN OF CONVERSION AND REORGANIZATION

You should read this document for more information about the conversion. The application that includes the plan of conversion and reorganization described herein has been approved by Pathfinder Bancorp, Inc.’s primary federal regulator, the Federal Reserve Board. However, such approval by the Federal Reserve Board does not constitute a recommendation or endorsement of the plan of conversion and reorganization.

Q. WHAT ARE STOCKHOLDERS BEING ASKED TO APPROVE?

A. Pathfinder-Federal stockholders as of [Stockholder Record Date] are being asked to vote on the plan of conversion and reorganization pursuant to which Pathfinder Bancorp, MHC will convert from the mutual to the stock form of organization. As part of the conversion, a newly formed Maryland corporation, New Pathfinder, is offering its common stock to eligible depositors of Pathfinder Bank, to Pathfinder Bank’s tax qualified benefit plans, to stockholders of Pathfinder-Federal as of [Stockholder Record Date] and to the public. The shares offered represent Pathfinder Bancorp, MHC’s current ownership interest in Pathfinder-Federal. Voting for approval of the plan of conversion and reorganization will also include approval of the exchange ratio and the articles of incorporation of New Pathfinder (including the anti-takeover provisions and provisions limiting stockholder rights). Your vote is important. Without sufficient votes “FOR” its adoption, we cannot implement the plan of conversion and reorganization and complete the stock offering.

In addition, Pathfinder-Federal stockholders are being asked to approve the adjournment of the special meeting, if necessary, to solicit additional proxies in the event that there are not sufficient votes at the time of the special meeting to approve the plan of conversion and reorganization.

Stockholders also are asked to vote on the following informational proposals with respect to the articles of incorporation of New Pathfinder:

· Approval of a provision requiring a super-majority vote to approve certain amendments to New Pathfinder’s articles of incorporation;

· Approval of a provision requiring a super-majority vote of stockholders to approve stockholder-proposed amendments to New Pathfinder’s bylaws; and

· Approval of a provision to limit the voting rights of shares beneficially owned in excess of 10% of New Pathfinder’s outstanding voting stock.

The provisions of New Pathfinder’s articles of incorporation that are included as informational proposals were approved as part of the process in which our board of directors approved the plan of conversion and reorganization. These proposals are informational in nature only, because the Federal Reserve Board’s regulations governing mutual-to-stock conversions do not provide for votes on matters other than the plan of conversion and reorganization. While we are asking you to vote with respect to each of the informational proposals listed above, the proposed provisions for which an informational vote is requested will become effective if stockholders approve the plan of conversion and reorganization, regardless of whether stockholders vote to approve any or all of the informational proposals. The provisions of New Pathfinder’s articles of incorporation that are summarized above as informational proposals may have the effect of deterring, or rendering more difficult, attempts by third parties to obtain control of New Pathfinder if such attempts are not approved by the board of directors, or may make the removal of the board of directors or management, or the appointment of new directors, more difficult.

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Your vote is important. Without sufficient votes “FOR” adoption of the plan of conversion and reorganization, we cannot implement the plan of conversion and reorganization and the related stock offering.

Q. WHAT ARE THE REASONS FOR THE CONVERSION AND RELATED OFFERING?

A. The primary reasons for the conversion and offering are to:

· support organic growth;

· improve the liquidity of our shares of common stock;

· enhance our regulatory capital position;

· eliminate the uncertainties associated with the mutual holding company structure under financial reform legislation;

· transition us to a more familiar and flexible organizational structure; and

· facilitate future mergers and acquisitions.

As a fully converted stock holding company, we will have greater flexibility in structuring mergers and acquisitions, including the form of consideration that we can use to pay for an acquisition. Our current mutual holding company structure limits our ability to offer shares of our common stock as consideration in a merger or acquisition since Pathfinder Bancorp, MHC is required to own a majority of Pathfinder-Federal’s outstanding shares of common stock. Potential sellers often want stock for at least part of the purchase price. Our new stock holding company structure will enable us to offer stock or cash consideration, or a combination of stock and cash, and therefore will enhance our ability to compete with other bidders when acquisition opportunities arise. We currently have no arrangements or understandings regarding any specific acquisition.

Q. WHAT WILL STOCKHOLDERS RECEIVE FOR THEIR EXISTING PATHFINDER-FEDERAL SHARES?

A. As more fully described in “Proposal 1 — Approval of the Plan of Conversion and Reorganization — Share Exchange Ratio,” depending on the number of shares sold in the offering, each share of common stock that you own at the time of the completion of the conversion will be exchanged for between 1.0552 shares at the minimum and 1.4276 shares at the maximum of the offering range (or 1.6417 shares at the adjusted maximum of the offering range) of New Pathfinder common stock (cash will be paid in lieu of any fractional shares). For example, if you own 100 shares of Pathfinder-Federal common stock, and the exchange ratio is 1.6417 (at the adjusted maximum of the offering range), after the conversion you will receive 164 shares of New Pathfinder common stock and $17.00 in cash, the value of the fractional share based on the $10.00 per share purchase price of stock in the offering.

If you own shares of Pathfinder-Federal common stock in a brokerage account in “street name,” your shares will be automatically exchanged within your account, and you do not need to take any action to exchange your shares of common stock or receive cash in lieu of fractional shares. If you own shares in the form of Pathfinder-Federal stock certificates, after the completion of the conversion and stock offering, our exchange agent will mail to you a transmittal form with instructions to surrender your stock certificates. A statement reflecting your ownership of shares of common stock of New Pathfinder and a check representing cash in lieu of fractional shares will be mailed to you within five business days after the transfer agent receives a properly executed transmittal form and your existing Pathfinder-Federal stock certificate(s). New Pathfinder will not issue stock certificates. You should not submit a stock certificate until you receive a transmittal form.

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Q. WHY WILL THE SHARES THAT I RECEIVE BE BASED ON A PRICE OF $10.00 PER SHARE RATHER THAN THE TRADING PRICE OF THE COMMON STOCK PRIOR TO COMPLETION OF THE CONVERSION?

A. The shares will be based on a price of $10.00 per share because that is the price at which New Pathfinder will sell shares in its stock offering. The amount of common stock New Pathfinder will issue at $10.00 per share in the offering and the exchange is based on an independent appraisal of the estimated market value of New Pathfinder, assuming the conversion and offering are completed. RP Financial, LC., an appraisal firm experienced in the appraisal of financial institutions, has estimated that, as of May 16, 2014, this market value was $32.9 million. Based on Federal Reserve Board regulations, the market value forms the midpoint of a range with a minimum of $28.0 million and a maximum of $37.8 million, which can be adjusted upward to $43.5 million. Based on this valuation and the valuation range, the number of shares of common stock of New Pathfinder that existing public stockholders of Pathfinder-Federal will receive in exchange for their shares of Pathfinder-Federal common stock is expected to range from 1,097,324 to 1,484,614, and can be adjusted up to 1,707,306, with a midpoint of 1,290,969 (a value of approximately $11.0 million to $14.8 million, which can be adjusted up to $17.1 million, with a midpoint of $12.9 million, at $10.00 per share). The number of shares received by the existing public stockholders of Pathfinder-Federal is intended to maintain their existing ownership in our organization (excluding any new shares purchased by them in the offering, their receipt of cash in lieu of fractional exchange shares and as adjusted to reflect assets held by Pathfinder Bancorp, MHC). The independent appraisal is based in part on Pathfinder-Federal’s financial condition and results of operations, the pro forma impact of the additional capital raised by the sale of shares of common stock in the offering, and an analysis of a peer group of ten publicly traded savings and loan holding companies that RP Financial, LC. considered comparable to Pathfinder-Federal.

Q. Does the exchange ratio depend on the TRADING price of PATHFINDER-FEDERAL common stock?

A. No, the exchange ratio will not be based on the market price of Pathfinder-Federal common stock. Instead, the exchange ratio will be based on the appraised value of New Pathfinder. The purpose of the exchange ratio is to maintain the ownership percentage of existing public stockholders of Pathfinder-Federal. Therefore, changes in the price of Pathfinder-Federal common stock between now and the completion of the conversion and offering will not affect the calculation of the exchange ratio.

Q. SHOULD I SUBMIT MY STOCK CERTIFICATES NOW?

A. No. If you hold stock certificate(s), instructions for exchanging the certificates will be sent to you by our exchange agent after completion of the conversion. If your shares are held in “street name” (e.g., in a brokerage account) rather than in certificate form, the share exchange will be reflected automatically in your account upon completion of the conversion.

Q. HOW DO I VOTE?

A. Mark your vote, sign each proxy card enclosed and return the card(s) to us, in the enclosed proxy reply envelope. For information on submitting your proxy, please refer to instructions on the enclosed proxy card. YOUR VOTE IS IMPORTANT. PLEASE VOTE PROMPTLY.

Q. IF MY SHARES ARE HELD IN STREET NAME, WILL MY BROKER, BANK OR OTHER NOMINEE AUTOMATICALLY VOTE ON THE PLAN ON MY BEHALF?

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A. No. Your broker, bank or other nominee will not be able to vote your shares without instructions from you. You should instruct your broker, bank or other nominee to vote your shares, using the directions that they provide to you.

Q. WHY SHOULD I VOTE? WHAT HAPPENS IF I DON’T VOTE?

A. Your vote is very important. We believe the conversion and offering are in the best interests of our stockholders. Not voting all the proxy card(s) you receive will have the same effect as voting “against” the plan of conversion and reorganization. Without sufficient favorable votes “for” the plan of conversion and reorganization, we cannot complete the conversion and offering.

Q. WHAT IF I DO NOT GIVE VOTING INSTRUCTIONS TO MY BROKER, BANK OR OTHER NOMINEE?

A. Your vote is important. If you do not instruct your broker, bank or other nominee to vote your shares, the unvoted proxy will have the same effect as a vote “against” the plan of conversion and reorganization.

Q. MAY I PLACE AN ORDER TO PURCHASE SHARES IN THE COMMUNITY OFFERING, IN ADDITION TO THE SHARES THAT I WILL RECEIVE IN THE EXCHANGE?

A. Yes. If you would like to receive a prospectus and stock order form, you must call our Stock Information Center at [stock information #], Monday through Friday between __:00 a.m. and __:00 p.m., Eastern Time. The Stock Information Center is closed on bank holidays.

Eligible depositors of Pathfinder Bank have priority subscription rights allowing them to purchase common stock in a subscription offering. Shares not purchased in the subscription offering may be available for sale to the public in a community offering, as described herein. In the event orders for New Pathfinder common stock in a community offering exceed the number of shares available for sale, shares may be allocated (to the extent shares remain available) first to cover orders of natural persons residing in Oswego, Onondaga, Madison, Oneida, Cortland, Lewis, Jefferson, Cayuga and Wayne Counties, New York; second to cover orders of Pathfinder-Federal stockholders as of [Stockholder Record Date]; and thereafter to cover orders of the general public.

Stockholders of Pathfinder-Federal are subject to an ownership limitation. Shares of common stock purchased in the offering by a stockholder and his or her associates or individuals acting in concert with the stockholder, plus any shares a stockholder and these individuals receive in the exchange for existing shares of Pathfinder-Federal common stock, may not exceed 9.9% of the total shares of common stock of New Pathfinder to be issued and outstanding after the completion of the conversion.

Please note that properly completed and signed stock order forms, with full payment, must be received (not postmarked) no later than 2:00 p.m., Eastern Time on [expiration date #1].

Q. WILL THE CONVERSION HAVE ANY EFFECT ON DEPOSIT AND LOAN ACCOUNTS AT PATHFINDER BANK?

A. No. The account number, amount, interest rate and withdrawal rights of deposit accounts will remain unchanged. Deposits will continue to be federally insured by the Federal Deposit Insurance Corporation up to the legal limit. Loans and rights of borrowers will not be affected. Depositors will no longer have voting rights in Pathfinder Bancorp, MHC as to matters currently requiring such vote. Pathfinder Bancorp, MHC will cease to exist after the conversion and offering. Only stockholders of New Pathfinder will have voting rights after the conversion and offering.

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OTHER QUESTIONS?

For answers to other questions, please read this proxy statement/prospectus. Questions about voting on the plan of conversion and reorganization may be directed to AST Phoenix Advisors, at [proxy solicitor #], Monday through Friday from __:00 a.m. to __:00 p.m., Eastern Time, and Saturdays from __:00 a.m. to __:00 p.m., Eastern Time. Questions about the stock offering may be directed to our Stock Information Center at [stock information #], Monday through Friday between __:00 a.m. and __:00 p.m., Eastern Time. The Stock Information Center is closed weekends and bank holidays.

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SUMMARY

This summary highlights material information from this proxy statement/prospectus and may not contain all the information that is important to you. To understand the conversion and other proposals fully, you should read this entire document carefully, including the sections entitled “Risk Factors,” “Proposal 1 — Approval of The Plan of Conversion and Reorganization,” “Proposal 2 — Adjournment of the Special Meeting,” “Proposals 3a through 3c — Informational Proposals Related to the Articles of Incorporation of New Pathfinder” and the consolidated financial statements and the notes to the consolidated financial statements.

The Special Meeting

Date, Time and Place. Pathfinder-Federal will hold its special meeting of stockholders at [Meeting Location], on [Meeting Date], at [Meeting Time], Eastern Time.

The Proposals. Stockholders will be voting on the following proposals at the special meeting:

1. The approval of a plan of conversion and reorganization, whereby Pathfinder Bancorp, MHC and Pathfinder Bancorp, Inc., a federal corporation, will convert and reorganize from the mutual holding company structure to the stock holding company structure, as more fully described in the attached proxy statement/prospectus;

2. The approval of the adjournment of the special meeting, if necessary, to solicit additional proxies in the event that there are not sufficient votes at the time of the special meeting to approve the plan of conversion;

The following informational proposals:

3a. Approval of a provision in New Pathfinder’s articles of incorporation requiring a super-majority vote of stockholders to approve certain amendments to New Pathfinder’s articles of incorporation;

3b. Approval of a provision in New Pathfinder’s articles of incorporation requiring a super-majority vote of stockholders to approve stockholder-proposed amendments to New Pathfinder’s bylaws;

3c. Approval of a provision in New Pathfinder’s articles of incorporation to limit the voting rights of shares beneficially owned in excess of 10% of New Pathfinder’s outstanding voting stock; and

Such other business that may properly come before the meeting.

The provisions of New Pathfinder’s articles of incorporation that are summarized as informational proposals 3a through 3c were approved as part of the process in which our board of directors approved the plan of conversion and reorganization. These proposals are informational in nature only, because the Federal Reserve Board’s regulations governing mutual-to-stock conversions do not provide for votes on matters other than the plan of conversion and reorganization. While we are asking you to vote with respect to each of the informational proposals listed above, the proposed provisions for which an informational vote is requested will become effective if stockholders approve the plan of conversion and reorganization, regardless of whether stockholders vote to approve any or all of the informational proposals. The provisions of New Pathfinder’s articles of incorporation that are summarized as informational proposals may have the effect of deterring or rendering more difficult attempts by third parties to obtain control of New Pathfinder, if such attempts are not approved by the board of directors, or may make the removal of the board of directors or management, or the appointment of new directors, more difficult.

Vote Required for Approval of Proposals by the Stockholders of Pathfinder-Federal

Proposal 1: Approval of the Plan of Conversion and Reorganization. We must obtain the affirmative vote of the holders of (i) two-thirds of the total number of votes entitled to be cast at the special meeting by

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Pathfinder-Federal stockholders, including shares held by Pathfinder Bancorp, MHC, and (ii) a majority of the total number of votes entitled to be cast at the special meeting by Pathfinder-Federal stockholders other than Pathfinder Bancorp, MHC.

Proposal 1 must also be approved by the depositors of Pathfinder Bank at a special meeting of depositors called for that purpose. Depositors will receive separate informational materials from Pathfinder Bancorp, MHC regarding the conversion.

Proposal 2: Approval of the adjournment of the special meeting. We must obtain the affirmative vote of at least a majority of the votes cast by Pathfinder-Federal stockholders at the special meeting to adjourn the special meeting, if necessary, to solicit additional proxies in the event that there are not sufficient votes at the time of the special meeting to approve the proposal to approve the plan of conversion and reorganization.

Informational Proposals 3a through 3c. The provisions of New Pathfinder’s articles of incorporation that are summarized as informational proposals were approved as part of the process in which the board of directors of Pathfinder-Federal approved the plan of conversion and reorganization. These proposals are informational in nature only, because the Federal Reserve Board’s regulations governing mutual-to-stock conversions do not provide for votes on matters other than the plan of conversion and reorganization. While we are asking you to vote with respect to each of the informational proposals listed above, the proposed provisions for which an informational vote is requested will become effective if stockholders approve the plan of conversion and reorganization, regardless of whether stockholders vote to approve any or all of the informational proposals. The provisions of New Pathfinder’s articles of incorporation that are summarized as informational proposals may have the effect of deterring or rendering more difficult attempts by third parties to obtain control of New Pathfinder, if such attempts are not approved by the board of directors, or may make the removal of the board of directors or management, or the appointment of new directors, more difficult.

Other Matters. We must obtain the affirmative vote of the majority of the votes cast by holders of outstanding shares of common stock of Pathfinder-Federal. At this time, we know of no other matters that may be presented at the special meeting.

Revocability of Proxies

You may revoke your proxy at any time before the vote is taken at the special meeting. To revoke your proxy, you must advise the corporate secretary of Pathfinder-Federal in writing before your common stock has been voted at the special meeting, deliver a later-dated proxy or attend the special meeting and vote your shares in person. Attendance at the special meeting will not in itself constitute revocation of your proxy.

Vote by Pathfinder Bancorp, MHC

Management anticipates that Pathfinder Bancorp, MHC, our majority stockholder, will vote all of its shares of common stock in favor of all the matters set forth above. If Pathfinder Bancorp, MHC votes all of its shares in favor of each proposal, the approval of the adjournment of the special meeting, if necessary, would be assured.

As of [Stockholder Record Date] the directors and executive officers of Pathfinder-Federal beneficially owned 239,149 shares, or approximately 9.12% of the outstanding shares of Pathfinder-Federal common stock, and Pathfinder Bancorp, MHC owned 1,583,239 shares, or approximately 60.4% of the outstanding shares of Pathfinder-Federal common stock.

Vote Recommendations

Your board of directors unanimously recommends that you vote “FOR” the plan of conversion and reorganization, “FOR” the adjournment of the special meeting, if necessary, and “FOR” the Informational Proposals 3a through 3c.

7

Our Business

[same as prospectus]

Plan of Conversion and Reorganization

The Boards of Directors of Pathfinder-Federal, Pathfinder Bancorp, MHC, Pathfinder Bank and New Pathfinder have adopted a plan of conversion and reorganization pursuant to which Pathfinder Bank will reorganize from a mutual holding company structure to a stock holding company structure. Public stockholders of Pathfinder-Federal will receive shares in New Pathfinder in exchange for their shares of Pathfinder-Federal common stock based on an exchange ratio. See “—The Exchange of Existing Shares of Pathfinder-Federal Common Stock.” This conversion to a stock holding company structure also includes the offering by New Pathfinder of shares of its common stock to eligible depositors of Pathfinder Bank and to the public, including Pathfinder-Federal stockholders, in a subscription offering and, if necessary, in a community offering and/or in a separate public offering through a syndicate of broker-dealers, referred to in this proxy statement/prospectus as the syndicated offering. Following the conversion and offering, Pathfinder Bancorp, MHC and Pathfinder-Federal will no longer exist, and New Pathfinder will be the parent company of Pathfinder Bank.

The conversion and offering cannot be completed unless the stockholders of Pathfinder-Federal approve the plan of conversion and reorganization. Pathfinder-Federal’s stockholders will vote on the plan of conversion and reorganization at Pathfinder-Federal’s special meeting. This document is the proxy statement used by Pathfinder-Federal’s board of directors to solicit proxies for the special meeting. It is also the prospectus of New Pathfinder regarding the shares of New Pathfinder common stock to be issued to Pathfinder-Federal’s stockholders in the share exchange. This document does not serve as the prospectus relating to the offering by New Pathfinder of its shares of common stock in the subscription offering and any community offering or syndicated community offering, which will be made pursuant to a separate prospectus.

Our Organizational Structure

[same as prospectus]

Business Strategy

[same as prospectus]

Reasons for the Conversion

[same as prospectus]

See “Proposal 1 — Approval of the Plan of Conversion and Reorganization” for a more complete discussion of our reasons for conducting the conversion and offering.

Conditions to Completion of the Conversion

[same as prospectus]

Impact of Pathfinder Bancorp, MHC’s Assets on Minority Stock Ownership

[same as prospectus]

The Exchange of Existing Shares of Pathfinder-Federal Common Stock

[same as prospectus]

8

How We Determined the Offering Range, the Exchange Ratio and the $10.00 Per Share Stock Price

[same as prospectus]

How We Intend to Use the Proceeds From the Offering

[same as prospectus]

Our Dividend Policy

[same as prospectus]

Purchases and Ownership by Officers and Directors

[same as prospectus]

Benefits to Management and Potential Dilution to Stockholders Resulting from the Conversion

[same as prospectus]

Market for Common Stock

[same as prospectus]

Tax Consequences

[same as prospectus]

Changes in Stockholders’ Rights for Existing Stockholders of Pathfinder-Federal

As a result of the conversion, existing stockholders of Pathfinder-Federal will become stockholders of New Pathfinder. Some rights of stockholders of New Pathfinder will be reduced compared to the rights stockholders currently have in Pathfinder-Federal The reduction in stockholder rights results from differences between the federal and Maryland charters and bylaws, and from distinctions between federal and Maryland law. Many of the differences in stockholder rights under the articles of incorporation and bylaws of New Pathfinder are not mandated by Maryland law but have been chosen by management as being in the best interests of New Pathfinder and all of its stockholders. The differences in stockholder rights in the articles of incorporation and bylaws of New Pathfinder include the following: (i) greater lead time required for shareholders to submit proposals for certain provisions of new business or to nominate directors; (ii) approval by at least 80% of outstanding shares required to amend the bylaws and certain provisions of the articles of incorporation; and (iii) a limit on voting rights of shares beneficially owned in excess of 10% of New Pathfinder’s outstanding voting stock. See “Comparison of Stockholders’ Rights For Existing Stockholders of Pathfinder-Federal” for a discussion of these differences.

Dissenters’ Rights

Stockholders of Pathfinder-Federal do not have dissenters’ rights in connection with the conversion and offering.

Important Risks in Owning New Pathfinder’s Common Stock

Before you vote on the conversion, you should read the “Risk Factors” section beginning on page 10 of this proxy statement/prospectus.

9

RISK FACTORS

You should consider carefully the following risk factors when deciding how to vote on the conversion and before purchasing shares of New Pathfinder common stock.

Risks Related to Our Business

[same as prospectus]

Risks Related to the Offering and the Exchange

The market value of New Pathfinder common stock received in the share exchange may be less than the market value of Pathfinder-Federal common stock exchanged.

The number of shares of New Pathfinder common stock you receive will be based on an exchange ratio that will be determined as of the date of completion of the conversion and offering. The exchange ratio will be based on the percentage of Pathfinder-Federal common stock held by the public prior to the completion of the conversion and offering, the final independent appraisal of New Pathfinder common stock prepared by RP Financial, LC. and the number of shares of common stock sold in the offering. The exchange ratio will ensure that existing public stockholders of Pathfinder-Federal common stock will own the same percentage of New Pathfinder common stock after the conversion and offering as they owned of Pathfinder-Federal common stock immediately prior to completion of the conversion and offering (excluding any new shares purchased by them in the offering, their receipt of cash in lieu of fractional exchange shares and as adjusted for assets held by Pathfinder Bancorp, MHC). The exchange ratio will not depend on the market price of Pathfinder-Federal common stock.

The exchange ratio ranges from 1.0552 shares at the minimum and 1.4276 shares at the maximum (or 1.6417 shares at the adjusted maximum) of the offering range of New Pathfinder common stock per share of Pathfinder-Federal common stock. Shares of New Pathfinder common stock issued in the share exchange will have an initial value of $10.00 per share. Depending on the exchange ratio and the market value of Pathfinder-Federal common stock at the time of the exchange, the initial market value of the New Pathfinder common stock that you receive in the share exchange could be less than the market value of the Pathfinder-Federal common stock that you currently own. Based on the most recent closing price of Pathfinder-Federal common stock prior to the date of this proxy statement /prospectus, which was $_____, unless at least _______ shares of New Pathfinder common stock are sold in the offering (which is between the midpoint and the maximum of the offering range), the initial value of the New Pathfinder common stock you receive in the share exchange would be less than the market value of the Pathfinder-Federal common stock you currently own.

There may be a decrease in stockholders’ rights for existing stockholders of Pathfinder-Federal.

As a result of the conversion, existing stockholders of Pathfinder-Federal will become stockholders of New Pathfinder. In addition to the provisions discussed above that may discourage takeover attempts that may be favored by stockholders, some rights of stockholders of New Pathfinder will be reduced compared to the rights stockholders currently have in Pathfinder-Federal. The reduction in stockholder rights results from differences between the federal and Maryland chartering documents and bylaws, and from differences between federal and Maryland law. Many of the differences in stockholder rights under the articles of incorporation and bylaws of New Pathfinder are not mandated by Maryland law but have been chosen by management as being in the best interests of New Pathfinder and its stockholders. The articles of incorporation and bylaws of New Pathfinder include the following provisions: (i) greater lead time required for stockholders to submit proposals for new business or to nominate directors; and (ii) approval by at least 80% of the outstanding shares of capital stock entitled to vote generally is required to amend the bylaws and certain provisions of the articles of incorporation; and (iii) a limit on voting rights of shares beneficially owned in excess of 10% of New Pathfinder’s outstanding voting stock. See “Comparison of Stockholders’ Rights For Existing Stockholders of Pathfinder Bancorp, Inc.” for a discussion of these differences.

[remaining risks same as prospectus]

10

INFORMATION ABOUT THE SPECIAL MEETING

General

This proxy statement/prospectus is being furnished to you in connection with the solicitation by the board of directors of Pathfinder-Federal of proxies to be voted at the special meeting of stockholders to be held at [Meeting Location], on [Meeting Date], at [Meeting Time], Eastern Time, and any adjournment or postponement thereof.

The purpose of the special meeting is to consider and vote upon the Plan of Conversion and Reorganization of Pathfinder Bancorp, MHC.

In addition, stockholders will vote on a proposal to approve the adjournment of the special meeting, if necessary, to solicit additional proxies in the event that there are not sufficient votes at the time of the special meeting to approve the proposal. Stockholders also will vote on informational proposals with respect to the articles of incorporation of New Pathfinder.

Voting in favor of or against the plan of conversion and reorganization includes a vote for or against the conversion of Pathfinder Bancorp, MHC to a stock holding company as contemplated by the plan of conversion and reorganization. Voting in favor of the plan of conversion and reorganization will not obligate you to purchase any shares of common stock in the offering and will not affect the balance, interest rate or federal deposit insurance of any deposits at Pathfinder Bank.

Who Can Vote at the Meeting

You are entitled to vote your Pathfinder-Federal common stock if our records show that you held your shares as of the close of business on [Stockholder Record Date]. If your shares are held in a stock brokerage account or by a bank or other nominee, you are considered the beneficial owner of shares held in street name and these proxy materials are being forwarded to you by your broker or nominee. As the beneficial owner, you have the right to direct your broker or nominee how to vote.

As of the close of business on [Stockholder Record Date], there were ___________ shares of Pathfinder-Federal common stock outstanding. Each share of common stock has one vote.

Attending the Meeting

If you are a stockholder as of the close of business on [Stockholder Record Date], you may attend the meeting. However, if you hold your shares in street name, you will need proof of ownership to be admitted to the meeting. A recent brokerage statement or a letter from a bank or broker are examples of proof of ownership. If you want to vote your shares of Pathfinder-Federal common stock held in street name in person at the meeting, you will have to get a written proxy in your name from the broker, bank or other nominee who holds your shares.

Quorum; Vote Required

The special meeting will be held only if there is a quorum. A quorum exists if a majority of the outstanding shares of common stock entitled to vote, represented in person or by proxy, is present at the meeting. If you return valid proxy instructions or attend the meeting in person, your shares will be counted for purposes of determining whether there is a quorum, even if you abstain from voting. Broker non-votes also will be counted for purposes of determining the existence of a quorum. A broker non-vote occurs when a broker, bank or other nominee holding shares for a beneficial owner does not vote on a particular proposal because the nominee does not have discretionary voting power with respect to that item and has not received voting instructions from the beneficial owner.

Proposal 1: Approval of the Plan of Conversion and Reorganization. We must obtain the affirmative vote of the holders of (i) two-thirds of the outstanding common stock of Pathfinder-Federal entitled to be cast at the special meeting, including shares held by Pathfinder Bancorp, MHC, and (ii) a majority of the outstanding shares of

11

common stock of Pathfinder-Federal entitled to be cast at the special meeting, other than shares held by Pathfinder Bancorp, MHC.

Proposal 2: Approval of the adjournment of the special meeting. We must obtain the affirmative vote of at least a majority of the votes cast by Pathfinder-Federal stockholders entitled to vote at the special meeting to adjourn the special meeting, if necessary, to solicit additional proxies in the event that there are not sufficient votes at the time of the special meeting to approve the proposal to approve the plan of conversion and reorganization.

Informational Proposals 3a through 3c: Approval of certain provisions in New Pathfinder’s articles of incorporation. The provisions of New Pathfinder’s articles of incorporation that are summarized as informational proposals were approved as part of the process in which the board of directors of Pathfinder-Federal approved the plan of conversion and reorganization. These proposals are informational in nature only, because the Federal Reserve Board’s regulations governing mutual-to-stock conversions do not provide for votes on matters other than the plan of conversion and reorganization. While we are asking you to vote with respect to each of the informational proposals, the proposed provisions for which an informational vote is requested will become effective if stockholders approve the plan of conversion and reorganization, regardless of whether stockholders vote to approve any or all of the informational proposals. The provisions of New Pathfinder’s articles of incorporation that are summarized as informational proposals may have the effect of deterring or rendering more difficult attempts by third parties to obtain control of New Pathfinder, if such attempts are not approved by the board of directors, or may make the removal of the board of directors or management, or the appointment of new directors, more difficult.

Other Matters. We must obtain the affirmative vote of the majority of the votes cast by holders of outstanding shares of common stock of Pathfinder-Federal. At this time, we know of no other matters that may be presented at the special meeting.

Shares Held by Pathfinder Bancorp, MHC and Our Officers and Directors

As of [Stockholder Record Date], Pathfinder Bancorp, MHC beneficially owned 1,583,239 shares of Pathfinder-Federal common stock. This equals approximately 60.4% of our outstanding shares. We expect that Pathfinder Bancorp, MHC will vote all of its shares in favor of Proposal 1—Approval of the Plan of Conversion and Reorganization, Proposal 2—Approval of the adjournment of the special meeting, and Informational Proposals 3a through 3c.

As of [Stockholder Record Date], our officers and directors beneficially owned 239,149 shares of Pathfinder-Federal common stock. This equals 9.12% of our outstanding shares and 23.0% of shares held by persons other than Pathfinder Bancorp, MHC.

Voting by Proxy

Our board of directors is sending you this proxy statement/prospectus to request that you allow your shares of Pathfinder-Federal common stock to be represented at the special meeting by the persons named in the enclosed proxy card. All shares of Pathfinder-Federal common stock represented at the meeting by properly executed and dated proxies will be voted according to the instructions indicated on the proxy card. If you sign, date and return a proxy card without giving voting instructions, your shares will be voted as recommended by our board of directors. Our board of directors recommends that you vote “FOR” approval of the plan of conversion and reorganization, “FOR” approval of the adjournment of the special meeting, if necessary, and “FOR” each of the Informational Proposals 3a through 3c.

If any matters not described in this proxy statement/prospectus are properly presented at the special meeting, the board of directors will use their judgment to determine how to vote your shares. We do not know of any other matters to be presented at the special meeting.

If your Pathfinder-Federal common stock is held in street name, you will receive instructions from your broker, bank or other nominee that you must follow to have your shares voted. Your broker, bank or other nominee

12

may allow you to deliver your voting instructions via the telephone or the Internet. Please see the instruction form provided by your broker, bank or other nominee that accompanies this proxy statement/prospectus.

Revocability of Proxies

You may revoke your proxy at any time before the vote is taken at the special meeting. To revoke your proxy, you must advise the corporate secretary of Pathfinder-Federal in writing before your common stock has been voted at the special meeting, deliver a later-dated proxy or attend the special meeting and vote your shares in person. Attendance at the special meeting will not in itself constitute revocation of your proxy.

Solicitation of Proxies

This proxy statement/prospectus and the accompanying proxy card are being furnished to you in connection with the solicitation of proxies for the special meeting by the board of directors. Pathfinder-Federal will pay the costs of soliciting proxies from its stockholders. To the extent necessary to permit approval of the plan of conversion and reorganization and the other proposals being considered, AST Phoenix Advisors, our proxy solicitor, and directors, officers or employees of Pathfinder-Federal and Pathfinder Bank may solicit proxies by mail, telephone and other forms of communication. We will reimburse such persons for their reasonable out-of-pocket expenses incurred in connection with such solicitation. For its services as information agent and stockholder proxy solicitor, we will pay AST Phoenix Advisors $5,000 plus out-of-pocket expenses and charges for telephone calls made and received in connection with the solicitation.

We will also reimburse banks, brokers, nominees and other fiduciaries for the expenses they incur in forwarding the proxy materials to you.

Participants in the Employee Stock Ownership Plan

If you participate in Pathfinder Bank Employee Stock Ownership Plan, you will receive a voting instruction form that reflects all shares you may direct the trustees to vote on your behalf under the plan. Under the terms of the Employee Stock Ownership Plan, the Employee Stock Ownership Plan trustee votes all shares held by the Employee Stock Ownership Plan, but each Employee Stock Ownership Plan participant may direct the trustee how to vote the shares of common stock allocated to his or her account. The Employee Stock Ownership Plan trustee, subject to the exercise of its fiduciary duties, will vote all unallocated shares of Pathfinder-Federal common stock held by the Employee Stock Ownership Plan and allocated shares for which no voting instructions are received in the same proportion as shares for which it has received timely voting instructions. The deadline for returning your voting instructions to the plan’s trustee is [ESOP deadline].

The board of directors recommends that you promptly sign and mark the enclosed proxy in favor of the above described proposals, including the adoption of the plan of conversion and reorganization, and promptly return it in the enclosed envelope. Voting the proxy card will not prevent you from voting in person at the special meeting. For information on submitting your proxy, please refer to the instructions on the enclosed proxy card.

Your prompt vote is very important. Failure to vote will have the same effect as voting against the plan of conversion and reorganization.

13

PROPOSAL 1 — APPROVAL OF THE PLAN OF CONVERSION AND REORGANIZATION

The boards of directors of Pathfinder-Federal and Pathfinder Bancorp, MHC have approved the Plan of Conversion and Reorganization of Pathfinder Bancorp, MHC. The plan of conversion and reorganization must also be approved by the depositors of Pathfinder Bank and the stockholders of Pathfinder-Federal. A special meeting of depositors and a special meeting of stockholders have been called for this purpose. The Federal Reserve Board has approved the application that includes the plan of conversion and reorganization; however, such approval does not constitute a recommendation or endorsement of the plan of conversion and reorganization by the Federal Reserve Board.

General

Pursuant to the plan of conversion and reorganization, our organization will convert from the mutual holding company form of organization to the fully stock form. Currently, Pathfinder Bank is a wholly-owned subsidiary of Pathfinder-Federal and Pathfinder Bancorp, MHC owns approximately 60.4% of Pathfinder-Federal’s common stock. The remaining 39.6% of Pathfinder-Federal’s common stock is owned by public stockholders. As a result of the conversion, a newly formed company, New Pathfinder, will become the holding company of Pathfinder Bank. Each share of Pathfinder-Federal common stock owned by the public will be exchanged for between 1.0552 shares at the minimum and 1.4276 shares at the maximum of the offering range (or 1.6417 shares at the adjusted maximum of the offering range) of New Pathfinder common stock, so that Pathfinder-Federal’s existing public stockholders will own the same percentage of New Pathfinder common stock as they owned of Pathfinder-Federal’s common stock immediately prior to the conversion (excluding any new shares purchased by them in the offering, their receipt of cash in lieu of fractional exchange shares and as adjusted for assets held by Pathfinder Bancorp, MHC). The actual number of shares that you will receive will depend on the percentage of Pathfinder-Federal common stock held by the public immediately prior to the completion of the conversion, the final independent appraisal of New Pathfinder and the number of shares of New Pathfinder common stock sold in the offering described in the following paragraph. It will not depend on the market price of Pathfinder-Federal common stock.

Concurrently with the exchange offer, New Pathfinder is offering up to 2,300,000 (subject to increase to 2,645,000 shares) shares of common stock for sale, representing the 60.8% ownership interest of Pathfinder Bancorp, MHC in Pathfinder-Federal (as adjusted for the assets of Pathfinder Bancorp, MHC), to eligible depositors and to the public at a price of $10.00 per share. After the conversion and offering are completed, Pathfinder Bank will be a wholly-owned subsidiary of New Pathfinder, and 100% of the common stock of New Pathfinder will be owned by public stockholders. As a result of the conversion and offering, Pathfinder-Federal and Pathfinder Bancorp, MHC will cease to exist.

New Pathfinder intends to contribute between $7.8 million and $12.5 million of the net proceeds to Pathfinder Bank and to retain between $7.1 million and $11.4 million of the net proceeds. The conversion will be consummated only upon the issuance of at least the minimum number of shares of our common stock offered pursuant to the plan of conversion and reorganization.

The plan of conversion and reorganization provides that we will offer shares of common stock in a “subscription offering” in the following descending order of priority:

(i) To depositors with accounts at Pathfinder Bank with aggregate balances of at least $50 at the close of business on March 31, 2013.

(ii) To our tax-qualified employee benefit plans (including Pathfinder Bank’s employee stock ownership plan and Pathfinder Bank’s 401(k) plan), which may subscribe for up to 10% of the shares of common stock sold in the offering. We expect our employee stock ownership plan to purchase 4% of the shares of common stock sold in the stock offering.

(iii) To depositors with accounts at Pathfinder Bank with aggregate balances of at least $50 at the close of business on [Supplemental Eligibility Record Date].

14

(iv) To depositors of Pathfinder Bank at the close of business on [Depositor Record Date].

Shares of common stock not purchased in the subscription offering may be offered for sale to the general public in a community offering, with a preference given first to natural persons (including trusts of natural persons) residing in Oswego, Onondaga, Madison, Oneida, Cortland, Lewis, Jefferson, Cayuga and Wayne Counties, New York, and then to Pathfinder-Federal’s public stockholders as of [Stockholder Record Date]. The community offering, if any, may begin concurrently with, during or promptly after the subscription offering. We also may offer for sale shares of common stock not purchased in the subscription offering or the community offering through a syndicated offering. Keefe, Bruyette & Woods, Inc. will act as sole book-running manager for the syndicated offering. We have the right to accept or reject, in our sole discretion, orders received in the community offering or syndicated offering. Any determination to accept or reject stock orders in the community offering or syndicated offering will be based on the facts and circumstances available to management at the time of the determination.

We determined the number of shares of common stock to be offered in the offering based upon an independent valuation of the estimated pro forma market value of New Pathfinder. All shares of common stock to be sold in the offering will be sold at $10.00 per share. Investors will not be charged a commission to purchase shares of common stock in the offering. The independent valuation will be updated and the final number of shares of common stock to be issued in the offering will be determined at the completion of the offering. See “—Stock Pricing and Number of Shares to be Issued” for more information as to the determination of the estimated pro forma market value of the common stock.

A copy of the plan of conversion and reorganization is available for inspection at each branch office of Pathfinder Bank and at the Federal Reserve Bank of Philadelphia. The plan of conversion and reorganization is also filed as an exhibit to Pathfinder Bancorp, MHC’s application to convert from mutual to stock form of which this proxy statement/prospectus is a part, copies of which may be obtained from the Federal Reserve Board. The plan of conversion and reorganization is also filed as an exhibit to the registration statement we have filed with the Securities and Exchange Commission, of which this proxy statement/prospectus is a part, copies of which may be obtained from the Securities and Exchange Commission or online at the Securities and Exchange Commission’s website. See “Where You Can Find Additional Information.”

The board of directors recommends that you vote “FOR” the Plan of Conversion and Reorganization of Pathfinder Bancorp, MHC.

[Remaining sections same as Prospectus under “The Conversion and Offering,” with the following to be added]

Exchange of Existing Stockholders’ Stock Certificates

The conversion of existing outstanding shares of Pathfinder-Federal common stock into the right to receive shares of New Pathfinder common stock will occur automatically at the completion of the conversion. As soon as practicable after the completion of the conversion, our exchange agent will send a transmittal form to each public stockholder of Pathfinder-Federal who holds physical stock certificates. The transmittal form will contain instructions on how to surrender certificates evidencing Pathfinder-Federal common stock in exchange for shares of New Pathfinder common stock in book entry form, to be held electronically on the books of our transfer agent. New Pathfinder will not issue stock certificates. We expect that a statement reflecting your ownership of shares of common stock of New Pathfinder common stock will be distributed within five business days after the exchange agent receives properly executed transmittal forms, Pathfinder-Federal stock certificates and other required documents. Shares held by public stockholders in street name (such as in a brokerage account) will be exchanged automatically upon the completion of the conversion; no transmittal forms will be mailed relating to these shares.

No fractional shares of New Pathfinder common stock will be issued to any public stockholder of Pathfinder-Federal when the conversion is completed. For each fractional share that would otherwise be issued to a stockholder who holds a stock certificate, we will pay by check an amount equal to the product obtained by multiplying the fractional share interest to which the holder would otherwise be entitled by the $10.00 offering

15

purchase price per share. Payment for fractional shares will be made as soon as practicable after the receipt by the exchange agent of the transmittal forms and the surrendered Pathfinder-Federal stock certificates. If your shares of common stock are held in street name, you will automatically receive cash in lieu of fractional shares in your account.

You should not forward your stock certificates until you have received transmittal forms, which will include forwarding instructions. After the conversion, stockholders will not receive shares of New Pathfinder common stock and will not be paid dividends on the shares of New Pathfinder common stock until existing certificates representing shares of Pathfinder-Federal common stock are surrendered for exchange in compliance with the terms of the transmittal form. When stockholders surrender their certificates, any unpaid dividends will be paid without interest. For all other purposes, however, each certificate that represents shares of Pathfinder-Federal common stock outstanding at the effective date of the conversion will be considered to evidence ownership of shares of New Pathfinder common stock into which those shares have been converted by virtue of the conversion.

If a certificate for Pathfinder-Federal common stock has been lost, stolen or destroyed, our exchange agent will issue a new stock certificate upon receipt of appropriate evidence as to the loss, theft or destruction of the certificate, appropriate evidence as to the ownership of the certificate by the claimant, and appropriate and customary indemnification, which is normally effected by the purchase of a bond from a surety company at the stockholder’s expense.

All shares of New Pathfinder common stock that we issue in exchange for existing shares of Pathfinder-Federal common stock will be considered to have been issued in full satisfaction of all rights pertaining to such shares of common stock, subject, however, to our obligation to pay any dividends or make any other distributions with a record date prior to the effective date of the conversion that may have been declared by us on or prior to the effective date, and which remain unpaid at the effective date.

PROPOSAL 2 — ADJOURNMENT OF THE SPECIAL MEETING

If there are not sufficient votes to constitute a quorum or to approve the plan of conversion and reorganization at the time of the special meeting, the proposals may not be approved unless the special meeting is adjourned to a later date or dates in order to permit further solicitation of proxies. In order to allow proxies that have been received by Pathfinder-Federal at the time of the special meeting to be voted for an adjournment, if necessary, Pathfinder-Federal has submitted the question of adjournment to its stockholders as a separate matter for their consideration. The board of directors of Pathfinder-Federal recommends that stockholders vote “FOR” the adjournment proposal. If it is necessary to adjourn the special meeting, no notice of the adjourned special meeting is required to be given to stockholders (unless the adjournment is for more than 30 days or if a new record date is fixed), other than an announcement at the special meeting of the hour, date and place to which the special meeting is adjourned.

The board of directors recommends that you vote “FOR” the adjournment of the special meeting, if necessary, to solicit additional proxies in the event that there are not sufficient votes at the time of the special meeting to approve the plan of conversion and reorganization.

PROPOSALS 3a THROUGH 3c — INFORMATIONAL PROPOSALS RELATED TO THE
ARTICLES OF INCORPORATION OF NEW PATHFINDER.

By their approval of the plan of conversion and reorganization as set forth in Proposal 1, the board of directors of Pathfinder-Federal has approved each of the informational proposals numbered 3a through 3c, all of which relate to provisions included in the articles of incorporation of New Pathfinder. Each of these informational proposals is discussed in more detail below.

As a result of the conversion, the public stockholders of Pathfinder-Federal, whose rights are presently governed by the charter and bylaws of Pathfinder-Federal, will become stockholders of New Pathfinder, whose rights will be governed by the articles of incorporation and bylaws of New Pathfinder. The following informational

16

proposals address the material differences between the governing documents of the two companies. This discussion is qualified in its entirety by reference to the charter and bylaws of Pathfinder-Federal and the articles of incorporation and bylaws of New Pathfinder. See “Where You Can Find Additional Information” for procedures for obtaining a copy of those documents.

The provisions of New Pathfinder’s articles of incorporation that are summarized as informational proposals 3a through 3c were approved as part of the process in which the board of directors of Pathfinder-Federal approved the plan of conversion and reorganization. These proposals are informational in nature only, because the Federal Reserve Board’s regulations governing mutual-to-stock conversions do not provide for votes on matters other than the plan of conversion and reorganization. Pathfinder-Federal’s stockholders are not being asked to approve these informational proposals at the special meeting. While we are asking you to vote with respect to each of the informational proposals set forth below, the proposed provisions for which an informational vote is requested will become effective if stockholders approve the plan of conversion and reorganization, regardless of whether stockholders vote to approve any or all of the informational proposals. The provisions of New Pathfinder’s articles of incorporation and bylaws that are summarized as informational proposals may have the effect of deterring or rendering more difficult attempts by third parties to obtain control of New Pathfinder, if such attempts are not approved by the board of directors, or may make the removal of the board of directors or management, or the appointment of new directors, more difficult.

Informational Proposal 3a. – Approval of a Provision in New Pathfinder’s Articles of Incorporation Requiring a Super-Majority Vote to Amend Certain Provisions of the Articles of Incorporation of New Pathfinder. No amendment of the charter of Pathfinder-Federal may be made unless it is first proposed by the board of directors, then preliminarily approved by the Federal Reserve Board, and thereafter approved by the holders of a majority of the total votes eligible to be cast at a legal meeting. The articles of incorporation of New Pathfinder generally may be amended by the holders of a majority of the shares entitled to vote; provided, however, that any amendment of Section C, D, E or F of Article Fifth (Preferred Stock, Restrictions on Voting Rights of the Corporation’s Equity Securities, Majority Vote and Quorum), Article 7 (Directors), Article 8 (Bylaws), Article 9 (Evaluation of Certain Offers), Article 10 (Indemnification, etc. of Directors and Officers), Article 11 (Limitation of Liability), Article 12 (Choice of Forum) and Article 13 (Amendment of the Articles of Incorporation) must be approved by the affirmative vote of the holders of at least 80% of the outstanding shares entitled to vote, except that the board of directors may amend the articles of incorporation without any action by the stockholders to increase or decrease the aggregate number of shares of capital stock.

These limitations on amendments to specified provisions of New Pathfinder’s articles of incorporation are intended to ensure that the referenced provisions are not limited or changed upon a simple majority vote. While this limits the ability of stockholders to amend those provisions, Pathfinder Bancorp, MHC, as a 60.4% stockholder, currently can effectively block any stockholder proposed change to the charter.

The requirement of a super-majority stockholder vote to amend specified provisions of New Pathfinder’s articles of incorporation could have the effect of discouraging a tender offer or other takeover attempt where the ability to make fundamental changes through amendments to the articles of incorporation is an important element of the takeover strategy of the potential acquiror. The board of directors believes that the provisions limiting certain amendments to the articles of incorporation will put the board of directors in a stronger position to negotiate with third parties with respect to transactions potentially affecting the corporate structure of New Pathfinder and the fundamental rights of its stockholders, and to preserve the ability of all stockholders to have an effective voice in the outcome of such matters.

The board of directors recommends that you vote “FOR” the approval of a provision in New Pathfinder’s articles of incorporation requiring a super-majority vote to approve certain amendments to New Pathfinder’s articles of incorporation.

Informational Proposal 3b. – Approval of a Provision in New Pathfinder’s Articles of Incorporation Requiring a Super-Majority Vote of Stockholders to Approve Stockholder Proposed Amendments to New Pathfinder’s Bylaws. An amendment to Pathfinder-Federal’s bylaws proposed by stockholders must be approved

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by the holders of a majority of the total votes eligible to be cast at a legal meeting subject to applicable approval by the Federal Reserve Board. The articles of incorporation of New Pathfinder provides that stockholders may only amend the bylaws if such proposal is approved by the affirmative vote of the holders of at least 80% of the outstanding shares entitled to vote.

The requirement of a super-majority stockholder vote to amend the bylaws of New Pathfinder is intended to ensure that the bylaws are not limited or changed upon a simple majority vote of stockholders. While this limits the ability of stockholders to amend the bylaws, Pathfinder Bancorp, MHC, as a 60.4% stockholder, currently can effectively block any stockholder proposed change to the bylaws. Also, the board of directors of both Pathfinder-Federal and New Pathfinder may by a majority vote amend either company’s bylaws.

This provision in New Pathfinder’s articles of incorporation could have the effect of discouraging a tender offer or other takeover attempt where the ability to make fundamental changes through amendments to the bylaws is an important element of the takeover strategy of the potential acquiror. The board of directors believes that the provision limiting amendments to the bylaws will put the board of directors in a stronger position to negotiate with third parties with respect to transactions potentially affecting the corporate structure of New Pathfinder and the fundamental rights of its stockholders, and to preserve the ability of all stockholders to have an effective voice in the outcome of such matters.

The board of directors recommends that you vote “FOR” the approval of the provision in New Pathfinder’s articles of incorporation requiring a super-majority vote of stockholders to approve stockholder proposed amendments to New Pathfinder’s bylaws.

Informational Proposal 3c. – Approval of a Provision in New Pathfinder’s Articles of Incorporation to Limit the Voting Rights of Shares Beneficially Owned in Excess of 10% of New Pathfinder’s Outstanding Voting Stock. The articles of incorporation of New Pathfinder provide that in no event shall any person, who directly or indirectly beneficially owns in excess of 10% of the then-outstanding shares of common stock as of the record date for the determination of shareholders entitled or permitted to vote on any matter, be entitled or permitted to vote in respect of the shares held in excess of the 10% limit. Beneficial ownership is determined pursuant to the federal securities laws and includes, but is not limited to, shares as to which any person and his or her affiliates (i) have the right to acquire pursuant to any agreement, arrangement or understanding or upon the exercise of conversion rights, exchange rights, warrants or options and (ii) have or share investment or voting power (but shall not be deemed the beneficial owner of any voting shares solely by reason of a revocable proxy granted for a particular meeting of shareholders, and that are not otherwise beneficially, or deemed by New Pathfinder to be beneficially, owned by such person and his or her affiliates).

The foregoing restriction does not apply to any employee benefit plans of New Pathfinder or any subsidiary or a trustee of a plan.

The provision in New Pathfinder’s articles of incorporation limiting the voting rights of beneficial owners of more than 10% of New Pathfinder’s outstanding voting stock is intended to limit the ability of any person to acquire a significant number of shares of New Pathfinder common stock and thereby gain sufficient voting control so as to cause New Pathfinder to effect a transaction that may not be in the best interests of New Pathfinder and its stockholders generally. This provision will not prevent a stockholder from seeking to acquire a controlling interest in New Pathfinder, but it will prevent a stockholder from voting more than 10% of the outstanding shares of common stock unless that stockholder has first persuaded the board of directors of the merits of the course of action proposed by the stockholder. The board of directors of New Pathfinder believes that fundamental transactions generally should be first considered and approved by the board of directors as it generally believes that it is in the best position to make an initial assessment of the merits of any such transactions and that its ability to make the initial assessment could be impeded if a single stockholder could acquire a sufficiently large voting interest so as to control a stockholder vote on any given proposal. This provision in New Pathfinder’s articles of incorporation makes an acquisition, merger or other similar corporate transaction less likely to occur, even if such transaction is supported by most stockholders, because it can prevent a holder of shares in excess of the 10% limit from voting the excess shares in favor of the transaction. Thus, it may be deemed to have an anti-takeover effect.

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The board of directors recommends that you vote “FOR” the approval of a provision in New Pathfinder’s articles of incorporation to limit the voting rights of shares beneficially owned in excess of 10% of New Pathfinder’s outstanding voting stock.

SELECTED CONSOLIDATED FINANCIAL AND OTHER DATA

[same as prospectus]

FORWARD-LOOKING STATEMENTS

[same as prospectus]

HOW WE INTEND TO USE THE PROCEEDS FROM THE OFFERING

[same as prospectus]

OUR DIVIDEND POLICY

[same as prospectus]

MARKET FOR THE COMMON STOCK

[same as prospectus]

HISTORICAL AND PRO FORMA REGULATORY CAPITAL COMPLIANCE

[same as prospectus]

CAPITALIZATION

[same as prospectus]

IMPACT OF PATHFINDER BANCORP, MHC’S ASSETS ON MINORITY
STOCK OWNERSHIP

[same as prospectus]

PRO FORMA DATA

[same as prospectus]

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS

[same as prospectus]

BUSINESS OF NEW PATHFINDER AND PATHFINDER-FEDERAL

[same as prospectus]

BUSINESS OF PATHFINDER BANK

[same as prospectus]

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SUPERVISION AND REGULATION

[same as prospectus]

TAXATION

[same as prospectus]

MANAGEMENT

[same as prospectus]

BENEFICIAL OWNERSHIP OF COMMON STOCK

[same as prospectus]

SUBSCRIPTIONS BY DIRECTORS AND EXECUTIVE OFFICERS

[same as prospectus]

COMPARISON OF STOCKHOLDERS’ RIGHTS FOR EXISTING
STOCKHOLDERS OF PATHFINDER BANCORP, INC.

[same as prospectus]

RESTRICTIONS ON ACQUISITION OF NEW PATHFINDER

[same as prospectus]

DESCRIPTION OF CAPITAL STOCK OF NEW PATHFINDER
FOLLOWING THE CONVERSION

[same as prospectus]

TRANSFER AGENT

[same as prospectus]

EXPERTS

[same as prospectus]

LEGAL MATTERS

[same as prospectus]

WHERE YOU CAN FIND ADDITIONAL INFORMATION

[same as prospectus]

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STOCKHOLDER PROPOSALS

In order to be eligible for inclusion in our proxy materials for our 2015 Annual Meeting of Stockholders, any stockholder proposal to take action at such meeting must be received at our executive office, [Meeting Location], no later than December 23, 2014. Any such proposals shall be subject to the requirements of the proxy rules adopted under the Exchange Act.

ADVANCE NOTICE OF BUSINESS TO BE CONDUCTED AT AN ANNUAL MEETING

Provisions of Pathfinder-Federal’s Bylaws. Under Pathfinder-Federal’s Bylaws, a stockholder must follow certain procedures to nominate persons for election as directors or to introduce an item of business at a meeting of stockholders. These procedures provide, generally, that stockholders desiring to make nominations for directors, or to bring a proper subject of business before the meeting, must give written notice to the Secretary of Pathfinder-Federal at least five (5) days before the date fixed for such meeting. The notice must include the shareholder's name, record address, and number of shares owned by the shareholder, describe briefly the proposed business, the reasons for bringing the business before the annual meeting, and any material interest of the shareholder in the proposed business. In the case of nominations to the Board, certain information regarding the nominee must be provided.

Provisions of New Pathfinder’s Bylaws. New Pathfinder’s Bylaws provide an advance notice procedure for certain business, or nominations to the Board of Directors, to be brought before an annual meeting of shareholders. In order for a shareholder to properly bring business before an annual meeting, or to propose a nominee to the board of directors, New Pathfinder’s Secretary must receive written notice not less than 80 days nor more than 90 days prior to any such meeting; provided, however, that if less than 90 days’ notice or prior public disclosure of the date of the meeting is given to stockholders, such written notice shall be delivered or mailed to and received by the Secretary of New Pathfinder at the principal executive office of New Pathfinder not later than the tenth day following the day on which notice of the meeting was mailed to stockholders or such public disclosure was made. provided, however, that in the event that less than 90 days’ notice or prior public disclosure of the date of the annual meeting is provided to shareholders, then, to be timely, notice by the shareholder must be so received not later than the tenth day following the day on which public announcement of the date of such meeting is first made.

The notice with respect to shareholder proposals that are not nominations for director must set forth as to each matter such shareholder proposes to bring before the annual meeting: (i) a brief description of the business desired to be brought before the annual meeting and the reasons for conducting such business at the annual meeting; (ii) the name and address of such stockholder as they appear on New Pathfinder’s books and of the beneficial owner, if any, on whose behalf the proposal is made; (iii) the class or series and number of shares of capital stock of New Pathfinder which are owned beneficially or of record by such stockholder and such beneficial owner; (iv) a description of all arrangements or understandings between such stockholder and any other person or persons (including their names) in connection with the proposal of such business by such stockholder and any material interest of such stockholder in such business; and (v) a representation that such stockholder intends to appear in person or by proxy at the annual meeting to bring such business before the meeting.

The notice with respect to director nominations must include (a) as to each person whom the stockholder proposes to nominate for election as a director, (i) all information relating to such person that would indicate such person’s qualification to serve on the Board of Directors of the Corporation; (ii) an affidavit that such person would not be disqualified under the provisions of Article II, Section 12 of these Bylaws; (iii) such information relating to such person that is required to be disclosed in connection with solicitations of proxies for election of directors, or is otherwise required, in each case pursuant to Regulation 14A under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), or any successor rule or regulation and (iv) a written consent of each proposed nominee to be named as a nominee and to serve as a director if elected; and (b) as to the stockholder giving the notice: (i) the name and address of such stockholder as they appear on the Corporation’s books and of the beneficial owner, if any, on whose behalf the nomination is made; (ii) the class or series and number of shares of capital stock of the Corporation which are owned beneficially or of record by such stockholder and such beneficial owner; (iii) a description of all arrangements or understandings between such stockholder and each proposed nominee and any other person or persons (including their names) pursuant to which the nomination(s) are to be made by such stockholder; (iv) a

21

representation that such stockholder intends to appear in person or by proxy at the meeting to nominate the persons named in its notice; and (v) any other information relating to such stockholder that would be required to be disclosed in a proxy statement or other filings required to be made in connection with solicitations of proxies for election of directors pursuant to Regulation 14A under the Exchange Act or any successor rule or regulation.

The 2015 annual meeting of stockholders is expected to be held _________. If the conversion is completed, advance written notice for certain business, or nominations to the Board of Directors, to be brought before the next annual meeting must be given to us no later than ________. If notice is received after ___________, it will be considered untimely, and we will not be required to present the matter at the stockholders meeting. If the conversion is not completed, advance written notice for certain business, or nominations to the Board of Directors, to be brought before the next annual meeting must be given to us by _________. If notice is received after ____________, it will be considered untimely, and we will not be required to present the matter at the stockholders meeting.

Nothing in this proxy statement/prospectus shall be deemed to require us to include in our proxy statement and proxy relating to an annual meeting any stockholder proposal that does not meet all of the requirements for inclusion established by the Securities and Exchange Commission in effect at the time such proposal is received.

IMPORTANT NOTICE REGARDING THE AVAILABILITY OF PROXY MATERIALS FOR THE SPECIAL MEETING

The Notice of Special Meeting of Stockholders, Proxy Statement/Prospectus and Proxy Card are available at _____________.

OTHER MATTERS

As of the date of this document, the board of directors is not aware of any business to come before the special meeting other than the matters described above in the proxy statement/prospectus. However, if any matters should properly come before the special meeting, it is intended that the holders of the proxies will act in accordance with their best judgment.

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PART II: INFORMATION NOT REQUIRED IN PROSPECTUS

Item 13. Other Expenses of Issuance and Distribution

		Amount
*	Registrant’s Legal Fees and Expenses	$	425,000
*	Registrant’s Accounting Fees and Expenses		100,000
*	Marketing Agent Fees and Expenses (1)		380,000
*	Records Management Fees and Expenses		30,000
*	Appraisal Fees and Expenses		72,500
*	Printing, Postage, Mailing and EDGAR Fees		290,000
*	Filing Fees (Nasdaq, FINRA and SEC)		27,134
*	Transfer Agent Fees and Expenses		15,000
*	Business Plan Fees and Expenses		55,000
*	Proxy Solicitor Fees and Expenses		30,000
*	Other		30,366
*	Total	$	1,465,000

* Estimated

(1) Pathfinder Bancorp, Inc. has retained Keefe, Bruyette & Woods, Inc., A Stifel Company, to assist in the sale of common stock on a best efforts basis.

Item 14. Indemnification of Directors and Officers

Articles 10 and 11 of the Articles of Incorporation of Pathfinder Bancorp, Inc. (the “Corporation”) set forth circumstances under which directors, officers, employees and agents of the Corporation may be insured or indemnified against liability which they incur in their capacities as such:

ARTICLE 10. Indemnification, etc. of Directors and Officers.

A.            Indemnification.   The Corporation shall indemnify (1) its current and former directors and officers, whether serving the Corporation or at its request any other entity, to the fullest extent required or permitted by the MGCL now or hereafter in force, and (2) other employees and agents to such extent as shall be authorized by the Board of Directors and permitted by law; provided, however, that, except as provided in Section B of this Article 10 with respect to proceedings to enforce rights to indemnification, the Corporation shall indemnify any such indemnitee in connection with a proceeding (or part thereof) initiated by such indemnitee only if such proceeding (or part thereof) was authorized by the Board of Directors of the Corporation. The right to indemnification conferred herein shall include the right to be paid by the Corporation the expenses incurred in defending any such proceeding in advance of its final disposition, to the fullest extent permitted by law.

B.            Procedure.   If a claim under Section A of this Article 10 is not paid in full by the Corporation within sixty (60) days after a written claim has been received by the Corporation, except in the case of a claim for an advancement of expenses, in which case the applicable period shall be twenty (20) days, the indemnitee may at any time thereafter bring suit against the Corporation to recover the unpaid amount of the claim. If successful in whole or in part in any such suit, or in a suit brought by the Corporation to recover an advancement of expenses pursuant to the terms of an undertaking, the indemnitee shall also be entitled to be reimbursed the expense of prosecuting or defending such suit. It shall be a defense to any action for advancement of expenses that the Corporation has not received both (i) an undertaking as required by law to repay such advances in the event it shall ultimately be determined that the standard of conduct has not been met and (ii) a written affirmation by the indemnitee of his good faith belief that the standard of conduct necessary for indemnification by the Corporation has been met. In (i) any suit brought by the indemnitee to enforce a right to indemnification hereunder (but not in a suit brought by the indemnitee to enforce a right to an advancement of expenses) it shall be a defense that, and (ii) any suit by the Corporation to recover an advancement of expenses pursuant to the terms of an undertaking the Corporation shall be entitled to recover such expenses upon a final adjudication that, the indemnitee has not met the applicable standard for indemnification set forth in the MGCL. Neither the failure of the Corporation (including its Board of Directors,

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independent legal counsel, or its stockholders) to have made a determination prior to the commencement of such suit that indemnification of the indemnitee is proper in the circumstances because the indemnitee has met the applicable standard of conduct set forth in the MGCL, nor an actual determination by the Corporation (including its Board of Directors, independent legal counsel, or its stockholders) that the indemnitee has not met such applicable standard of conduct, shall create a presumption that the indemnitee has not met the applicable standard of conduct or, in the case of such a suit brought by the indemnitee, be a defense to such suit. In any suit brought by the indemnitee to enforce a right to indemnification or to an advancement of expenses hereunder, or by the Corporation to recover an advancement of expenses pursuant to the terms of an undertaking, the burden of proving that the indemnitee is not entitled to be indemnified, or to such advancement of expenses, under this Article 10 or otherwise shall be on the Corporation.

C.            Non-Exclusivity.  The rights to indemnification and to the advancement of expenses conferred in this Article 10 shall not be exclusive of any other right that any Person may have or hereafter acquire under any statute, these Articles, the Corporation’s Bylaws, any agreement, any vote of stockholders or the Board of Directors, or otherwise.

D.            Insurance.   The Corporation may maintain insurance, at its expense, to insure itself and any director, officer, employee or agent of the Corporation or another corporation, partnership, joint venture, trust or other enterprise against any expense, liability or loss, whether or not the Corporation would have the power to indemnify such Person against such expense, liability or loss under the MGCL.

E.            Miscellaneous.   The Corporation shall not be liable for any payment under this Article 10 in connection with a claim made by any indemnitee to the extent such indemnitee has otherwise actually received payment under any insurance policy, agreement, or otherwise, of the amounts otherwise indemnifiable hereunder. The rights to indemnification and to the advancement of expenses conferred in Sections A and B of this Article 10 shall be contract rights and such rights shall continue as to an indemnitee who has ceased to be a director or officer and shall inure to the benefit of the indemnitee’s heirs, executors and administrators.

F.             Limitations Imposed by Federal Law.   Notwithstanding any other provision set forth in this Article 10, in no event shall any payments made by the Corporation pursuant to this Article 10 exceed the amount permissible under applicable federal law, including, without limitation, Section 18(k) of the Federal Deposit Insurance Act and the regulations promulgated thereunder.

Any repeal or modification of this Article 10 shall not in any way diminish any rights to indemnification or advancement of expenses of such director or officer or the obligations of the Corporation arising hereunder with respect to events occurring, or claims made, while this Article 10 is in force.

ARTICLE 11. Limitation of Liability.   An officer or director of the Corporation, as such, shall not be liable to the Corporation or its stockholders for money damages, except (A) to the extent that it is proved that the Person actually received an improper benefit or profit in money, property or services, for the amount of the benefit or profit in money, property or services actually received; or (B) to the extent that a judgment or other final adjudication adverse to the Person is entered in a proceeding based on a finding in the proceeding that the Person’s action, or failure to act, was the result of active and deliberate dishonesty and was material to the cause of action adjudicated in the proceeding; or (C) to the extent otherwise provided by the MGCL. If the MGCL is amended to further eliminate or limit the personal liability of officers and directors, then the liability of officers and directors of the Corporation shall be eliminated or limited to the fullest extent permitted by the MGCL, as so amended.

Any repeal or modification of the foregoing paragraph by the stockholders of the Corporation shall not adversely affect any right or protection of a director or officer of the Corporation existing at the time of such repeal or modification.

Item 15. Recent Sales of Unregistered Securities

Not Applicable.

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Item 16. Exhibits and Financial Statement Schedules:

The exhibits and financial statement schedules filed as part of this registration statement are as follows:

(a)           List of Exhibits

1.1 Engagement Letters between Pathfinder Bancorp, MHC, Pathfinder Bancorp, LLC, Pathfinder Community Bank and Keefe, Bruyette & Woods, Inc., A Stifel Company

1.2 Form of Agency Agreement between Pathfinder Bancorp, MHC, Pathfinder Bancorp, Inc., a Federal corporation, Pathfinder Bank and Pathfinder Bancorp, Inc., a Maryland corporation, and Keefe, Bruyette & Woods, Inc., A Stifel Company*

2 Plan of Conversion and Reorganization

3.1 Articles of Incorporation of Pathfinder Bancorp, Inc.

3.2 Bylaws of Pathfinder Bancorp, Inc.

4 Form of Common Stock Certificate of Pathfinder Bancorp, Inc.

5 Opinion of Luse Gorman Pomerenk & Schick, P.C. regarding legality of securities being registered

8.1 Form of Federal Tax Opinion of Luse Gorman Pomerenk & Schick, P.C.

8.2 Form of State Tax Opinion of Bonadio & Co., LLP

10.1 Oswego City Savings Bank 1997 Stock Option Plan (Incorporated herein by reference to Appendix A to Pathfinder Bancorp, Inc’s Registration Statement on Form S-4, file no. 333-36051, originally filed on September 19, 1997)

10.2 2010 Pathfinder Bancorp, Inc. Stock Option Plan (Incorporated by reference to Appendix A to Pathfinder Bancorp, Inc’s definitive proxy statement on Schedule 14A for Pathfinder Bancorp, Inc.’s Annual Meeting of Shareholders, file no. 000-23601, originally filed on March 26, 2010)

10.3 Amended and Restated Executive Deferred Compensation Plan (Incorporated herein by reference to Exhibit 10.3 to Pathfinder Bancorp, Inc.’s Annual Report on Form 10-K for the year ended December 31, 2008, file no. 000-23601, originally filed on March 27, 2009)

10.4 Amended and Restated Trustee Deferred Fee Plan (Incorporated herein by reference to Exhibit 10.4 to Pathfinder Bancorp, Inc.’s Annual Report on Form 10-K for the year ended December 31, 2008, file no. 000-23601, originally filed on March 27, 2009)

10.5 Employment Agreement between Pathfinder Bank and Thomas W. Schneider, President and Chief Executive Officer (Incorporated by reference to Exhibit 10.5 to Pathfinder Bancorp, Inc.'s Annual Report on Form 10-K for the year ended December 31, 2008, file no. 000-23601, originally filed on March 27, 2009)

10.6 Employment Agreement between Pathfinder Bank and Edward A. Mervine, Vice President, General Counsel and Secretary (Incorporated by reference to Exhibit 10.6 to Pathfinder Bancorp, Inc.'s Annual Report on Form 10-K for the year ended December 31, 2008, file no. 000-23601, originally filed on March 27, 2009)

10.7 Change of Control Agreement between Pathfinder Bank and Ronald Tascarella (Incorporated by reference to Exhibit 10.7 to Pathfinder Bancorp, Inc.’s Annual Report on Form 10-K for the year ended December 31, 2008, file no. 000-23601, originally filed on March 27, 2009)

10.8 Change of Control Agreement between Pathfinder Bank and James A. Dowd (Incorporated by reference to Exhibit 10.8 to Pathfinder Bancorp, Inc.’s Annual Report on Form 10-K for the year ended December 31, 2008, file no. 000-23601, originally filed on March 27, 2009)

10.9 Change of Control Agreement between Pathfinder Bank and Melissa A. Miller (Incorporated by reference to Exhibit 10.9 to Pathfinder Bancorp, Inc.’s Annual Report on Form 10-K for the year ended December 31, 2008, file no. 000-23601, originally filed on March 27, 2009)

10.10 Executive Supplemental Retirement Agreement between Pathfinder Bank and Thomas W. Schneider (Incorporated by reference to Exhibit 10.11 to Pathfinder Bancorp, Inc.’s Annual Report on Form 10-K for the year ended December 31, 2008, file no. 000-23601, originally filed on March 27, 2009)

10.11 Supplemental Executive Retirement Plan adopted February 21, 2014 (Incorporated by reference to Exhibit 10.12 to Pathfinder Bancorp, Inc.’s Current Report Form 8-K, file no. 000-23601, originally filed on February 25, 2014)

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10.12 Executive Supplemental Retirement Plan Agreement between Pathfinder Bank and Thomas W. Schneider effective February 24, 2014 (Incorporated by reference to Exhibit 10.13 to Pathfinder Bancorp, Inc.’s Current Report Form 8-K, file no. 000-23601, originally filed on February 25, 2014)

10.13 Executive Supplemental Retirement Plan Agreement between Pathfinder Bank and Edward A. Mervine effective February 24, 2014 (Incorporated by reference to Exhibit 10.14 to Pathfinder Bancorp, Inc.’s Current Report Form 8-K, file no. 000-23601, originally filed on February 25, 2014)

10.14 Executive Supplemental Retirement Plan Agreement between Pathfinder Bank and James A. Dowd effective February 24, 2014 (Incorporated by reference to Exhibit 10.15 to Pathfinder Bancorp, Inc.’s Current Report Form 8-K, file no. 000-23601, originally filed on February 25, 2014)

21 Subsidiaries of Registrant

23.1 Consent of Luse Gorman Pomerenk & Schick, P.C. (contained in Opinions included as Exhibits 5 and 8.1)

23.2 Consent of RP Financial, LC.

23.3 Consent of Bonadio & Co., LLP

24 Power of Attorney (set forth on signature page)

99.1 Appraisal Agreement between Pathfinder Bancorp, Inc. and RP Financial, LC.

99.2 Letter of RP Financial, LC. with respect to Subscription Rights

99.3 Appraisal Report of RP Financial, LC.**

99.4 Marketing Materials*

99.5 Stock Order and Certification Form*

99.6 Letter of RP Financial, LC. with respect to Liquidation Accounts

99.7 Form of Pathfinder Bancorp, Inc. Stockholder Proxy Card

101 The following financial statements of Pathfinder Bancorp, Inc. at March 31, 2014, December 31, 2013 and 2012 and for the three months ended March 31, 2014 and 2013 and for the years ended December 31, 2013 and 2012 formatted in XBRL: (i) Consolidated Statements of Condition, (ii) Consolidated Statements of Income, (iii) Consolidated Statements of Comprehensive Income, (iv) Consolidated Statements of Changes in Stockholders’ Equity, (v) Consolidated Statements of Cash Flows and (vi) Notes to Consolidated Financial Statements.*

* To be filed by amendment.

** Supporting financial schedules filed in paper format only pursuant to Rule 202 of Regulation S-T. Available for inspection during business hours at the principal offices of the SEC in Washington, D.C.

(b)            Financial Statement Schedules

No financial statement schedules are filed because the required information is not applicable or is included in the consolidated financial statements or related notes.

Item 17. Undertakings

The undersigned Registrant hereby undertakes:

(1)         To file, during any period in which offers or sales are being made, a post-effective amendment to this registration statement:

(i)          To include any prospectus required by Section 10(a)(3) of the Securities Act of 1933;

(ii)         To reflect in the prospectus any facts or events arising after the effective date of the registration statement (or the most recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in the registration statement. Notwithstanding the foregoing, any increase or decrease in volume of securities offered (if the total dollar value of securities offered would not exceed that which was registered) and any deviation from the low or high end of the estimated maximum offering range may be reflected in the form of prospectus filed with the Commission pursuant to Rule 424(b) if, in the aggregate, the changes in

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volume and price represent no more than a 20 percent change in the maximum aggregate offering price set forth in the “Calculation of Registration Fee” table in the effective registration statement;

(iii) To include any material information with respect to the plan of distribution not previously disclosed in the registration statement or any material change to such information in the registration statement.

(2)  That, for the purpose of determining any liability under the Securities Act of 1933, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.

(3)  To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering.

(4)  That, for the purpose of determining liability of the registrant under the Securities Act of 1933 to any purchaser in the initial distribution of the securities:

The undersigned registrant undertakes that in a primary offering of securities of the undersigned registrant pursuant to this registration statement, regardless of the underwriting method used to sell the securities to the purchaser, if the securities are offered or sold to such purchaser by means of any of the following communications, the undersigned registrant will be a seller to the purchaser and will be considered to offer or sell such securities to such purchaser:

(i)  Any preliminary prospectus or prospectus of the undersigned registrant relating to the offering required to be filed pursuant to Rule 424 (§230.424 of this chapter);

(ii)  Any free writing prospectus relating to the offering prepared by or on behalf of the undersigned registrant or used or referred to by the undersigned registrant;

(iii)  The portion of any other free writing prospectus relating to the offering containing material information about the undersigned registrant or its securities provided by or on behalf of the undersigned registrant; and

(iv)  Any other communication that is an offer in the offering made by the undersigned registrant to the purchaser.

(5) That, for purposes of determining any liability under the Securities Act of 1933, the information omitted from the form of prospectus filed as part of this registration statement in reliance upon Rule 430A and contained in a form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be part of this registration statement as of the time it was declared effective.

(6) That, for the purpose of determining any liability under the Securities Act of 1933, each post-effective amendment that contains a form of prospectus shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.

(7)  The undersigned registrant hereby undertakes to provide to the underwriter at the closing specified in the underwriting agreement, certificates in such denominations and registered in such names as required by the underwriter to permit prompt delivery to each purchaser.

(8)   Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the registrant pursuant to the foregoing provisions, or otherwise, the registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act, and is, therefore, unenforceable. In the event that a claim for

II-5

indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue.

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SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, the registrant has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized in the City of Oswego, State of New York on June 10, 2014.

PATHFINDER BANCORP, INC.
By:	/s/ Thomas W. Schneider
	Thomas W. Schneider
	President and Chief Executive Officer
	(Duly Authorized Representative)

POWER OF ATTORNEY

We, the undersigned directors and officers of Pathfinder Bancorp, Inc. (the “Company”) hereby severally constitute and appoint Thomas W. Schneider as our true and lawful attorney and agent, to do any and all things in our names in the capacities indicated below which said Thomas W. Schneider may deem necessary or advisable to enable the Company to comply with the Securities Act of 1933, and any rules, regulations and requirements of the Securities and Exchange Commission, in connection with the registration statement on Form S-1 relating to the offering of the Company’s common stock, including specifically, but not limited to, power and authority to sign for us in our names in the capacities indicated below the registration statement and any and all amendments (including post-effective amendments) thereto; and we hereby approve, ratify and confirm all that said Thomas W. Schneider shall do or cause to be done by virtue thereof.

Pursuant to the requirements of the Securities Act of 1933, this registration statement has been signed by the following persons in the capacities and on the dates indicated.

Signatures	Title	Date
/s/ Thomas W. Schneider	President, Chief Executive Officer and Director	June 10, 2014
Thomas W. Schneider	(Principal Executive Officer)
/s/ James A. Dowd	Senior Vice President and Chief Financial Officer	June 10, 2014
James A. Dowd	(Principal Accounting and Financial Officer)
/s/ Chris R. Burritt	Chairman of the Board	June 10, 2014
Chris R. Burritt
/s/ David A. Ayoub	Director	June 10, 2014
David A. Ayoub
/s/ William A. Barclay	Director	June 10, 2014
William A. Barclay
/s/ John P. Funiciello	Director	June 10, 2014
John P. Funiciello
/s/ Adam C. Gagas	Director	June 10, 2014
Adam C. Gagas
/s/ George P. Joyce	Director	June 10, 2014
George P. Joyce
/s/ Lloyd "Buddy" Stemple	Director	June 10, 2014
Lloyd "Buddy" Stemple
/s/ John F. Sharkey, III	Director	June 10, 2014
John F. Sharkey, III

As filed with the Securities and Exchange Commission on June 11, 2014

Registration No. 333-________

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

EXHIBITS

TO

REGISTRATION STATEMENT

ON

FORM S-1

Pathfinder Bancorp, Inc.

Oswego, New York

EXHIBIT INDEX

1.1	Engagement Letters between Pathfinder Bancorp, MHC, Pathfinder Bancorp, LLC, Pathfinder Community Bank and Keefe, Bruyette & Woods, Inc., A Stifel Company
1.2	Form of Agency Agreement between Pathfinder Bancorp, MHC, Pathfinder Bancorp, Inc., a Federal corporation, Pathfinder Bank and Pathfinder Bancorp, Inc., a Maryland corporation, and Keefe, Bruyette & Woods, Inc., A Stifel Company*
2	Plan of Conversion and Reorganization
3.1	Articles of Incorporation of Pathfinder Bancorp, Inc.
3.2	Bylaws of Pathfinder Bancorp, Inc.
4	Form of Common Stock Certificate of Pathfinder Bancorp, Inc.
5	Opinion of Luse Gorman Pomerenk & Schick, P.C. regarding legality of securities being registered
8.1	Form of Federal Tax Opinion of Luse Gorman Pomerenk & Schick, P.C.
8.2	Form of State Tax Opinion of Bonadio & Co., LLP
10.1	Oswego City Savings Bank 1997 Stock Option Plan (Incorporated herein by reference to Appendix A to Pathfinder Bancorp, Inc’s Registration Statement on Form S-4, file no. 333-36051, originally filed on September 19, 1997)
10.2	2010 Pathfinder Bancorp, Inc. Stock Option Plan (Incorporated by reference to Appendix A to Pathfinder Bancorp, Inc’s definitive proxy statement on Schedule 14A for Pathfinder Bancorp, Inc.’s Annual Meeting of Shareholders, file no. 000-23601, originally filed on March 26, 2010)
10.3	Amended and Restated Executive Deferred Compensation Plan (Incorporated herein by reference to Exhibit 10.3 to Pathfinder Bancorp, Inc.’s Annual Report on Form 10-K for the year ended December 31, 2008, file no. 000-23601, originally filed on March 27, 2009)
10.4	Amended and Restated Trustee Deferred Fee Plan (Incorporated herein by reference to Exhibit 10.4 to Pathfinder Bancorp, Inc.’s Annual Report on Form 10-K for the year ended December 31, 2008, file no. 000-23601, originally filed on March 27, 2009)
10.5	Employment Agreement between Pathfinder Bank and Thomas W. Schneider, President and Chief Executive Officer (Incorporated by reference to Exhibit 10.5 to Pathfinder Bancorp, Inc.'s Annual Report on Form 10-K for the year ended December 31, 2008, file no. 000-23601, originally filed on March 27, 2009)
10.6	Employment Agreement between Pathfinder Bank and Edward A. Mervine, Vice President, General Counsel and Secretary (Incorporated by reference to Exhibit 10.6 to Pathfinder Bancorp, Inc.'s Annual Report on Form 10-K for the year ended December 31, 2008, file no. 000-23601, originally filed on March 27, 2009)
10.7	Change of Control Agreement between Pathfinder Bank and Ronald Tascarella (Incorporated by reference to Exhibit 10.7 to Pathfinder Bancorp, Inc.’s Annual Report on Form 10-K for the year ended December 31, 2008, file no. 000-23601, originally filed on March 27, 2009)
10.8	Change of Control Agreement between Pathfinder Bank and James A. Dowd (Incorporated by reference to Exhibit 10.8 to Pathfinder Bancorp, Inc.’s Annual Report on Form 10-K for the year ended December 31, 2008, file no. 000-23601, originally filed on March 27, 2009)
10.9	Change of Control Agreement between Pathfinder Bank and Melissa A. Miller (Incorporated by reference to Exhibit 10.9 to Pathfinder Bancorp, Inc.’s Annual Report on Form 10-K for the year ended December 31, 2008, file no. 000-23601, originally filed on March 27, 2009)
10.10	Executive Supplemental Retirement Agreement between Pathfinder Bank and Thomas W. Schneider (Incorporated by reference to Exhibit 10.11 to Pathfinder Bancorp, Inc.’s Annual Report on Form 10-K for the year ended December 31, 2008, file no. 000-23601, originally filed on March 27, 2009)
10.11	Supplemental Executive Retirement Plan adopted February 21, 2014 (Incorporated by reference to Exhibit 10.12 to Pathfinder Bancorp, Inc.’s Current Report Form 8-K, file no. 000-23601, originally filed on February 25, 2014)
10.12	Executive Supplemental Retirement Plan Agreement between Pathfinder Bank and Thomas W. Schneider effective February 24, 2014 (Incorporated by reference to Exhibit 10.13 to Pathfinder Bancorp, Inc.’s Current Report Form 8-K, file no. 000-23601, originally filed on February 25, 2014)

10.13	Executive Supplemental Retirement Plan Agreement between Pathfinder Bank and Edward A. Mervine effective February 24, 2014 (Incorporated by reference to Exhibit 10.14 to Pathfinder Bancorp, Inc.’s Current Report Form 8-K, file no. 000-23601, originally filed on February 25, 2014)
10.14	Executive Supplemental Retirement Plan Agreement between Pathfinder Bank and James A. Dowd effective February 24, 2014 (Incorporated by reference to Exhibit 10.15 to Pathfinder Bancorp, Inc.’s Current Report Form 8-K, file no. 000-23601, originally filed on February 25, 2014)
21	Subsidiaries of Registrant
23.1	Consent of Luse Gorman Pomerenk & Schick, P.C. (contained in Opinions included as Exhibits 5 and 8.1)
23.2	Consent of RP Financial, LC.
23.3	Consent of Bonadio & Co., LLP
24	Power of Attorney (set forth on signature page)
99.1	Appraisal Agreement between Pathfinder Bancorp, Inc. and RP Financial, LC.
99.2	Letter of RP Financial, LC. with respect to Subscription Rights
99.3	Appraisal Report of RP Financial, LC.**
99.4	Marketing Materials*
99.5	Stock Order and Certification Form*
99.6	Letter of RP Financial, LC. with respect to Liquidation Accounts
99.7	Form of Pathfinder Bancorp, Inc. Stockholder Proxy Card
101	The following financial statements of Pathfinder Bancorp, Inc. at March 31, 2014, December 31, 2013 and 2012 and for the three months ended March 31, 2014 and 2013 and for the years ended December 31, 2013 and 2012 formatted in XBRL: (i) Consolidated Statements of Condition, (ii) Consolidated Statements of Income, (iii) Consolidated Statements of Comprehensive Income, (iv) Consolidated Statements of Changes in Stockholders’ Equity, (v) Consolidated Statements of Cash Flows and (vi) Notes to Consolidated Financial Statements.*

* To be filed by amendment.

** Supporting financial schedules filed in paper format only pursuant to Rule 202 of Regulation S-T. Available for inspection during business hours at the principal offices of the SEC in Washington, D.C.

EX-1.1

Exhibit 1.1

May 19, 2014

Mr. Thomas W. Schneider

President & Chief Executive Officer

Pathfinder Bancorp, MHC

Pathfinder Bancorp, Inc.

Pathfinder Bank

214 West First Street

Oswego, NY 13126

Dear Mr. Schneider:

This letter confirms the engagement of Keefe, Bruyette & Woods, Inc. (“KBW”) to act as the exclusive financial advisor to Pathfinder Bancorp, Inc. (collectively with any of its successors or any new stock holding company formed to effect the second step stock offering, the “Bank”) in connection with the Bank’s proposed reorganization from the mutual holding company form to full stock form of organization pursuant to the Bank’s Plan of Conversion and Reorganization (the “Conversion”), including the offer and sale of the common stock (the “Common Stock”) of a holding company (the “Holding Company”) to be formed by the Bank to eligible persons in a Subscription Offering, with any remaining shares offered to the general public in a Direct Community Offering and, possibly, a Syndicated Community Offering (the Subscription Offering, Direct Community Offering, and any Syndicated Community Offering are collectively referred to herein as the “Offerings”). In addition, KBW will act as conversion agent in connection with the Offerings pursuant to the terms of a separate agreement between the Bank and KBW. The Bank and the Holding Company are collectively referred to herein as the “Company.” This letter sets forth the terms and conditions of our engagement.

1. Advisory/Offering Services

As the Company's financial advisor, KBW will provide financial and logistical advice to the Company and will assist the Company’s management, legal counsel, accountants and other advisors in connection with the Conversion and related issues. We anticipate our services will include the following, each as may be necessary and as the Company may reasonably request:

1. Provide advice on the financial and securities market implications of the Plan of Conversion and any related corporate documents, including the Company’s Business Plan;

2. Assist in structuring the Offerings, including developing and assisting in implementing a marketing strategy for the Offerings;

Keefe, Bruyette & Woods · 18 Columbia Turnpike, Florham Park, NJ 07932

Pathfinder Bancorp, Inc.

May 19, 2014

Page 2 of 7

3. Review all offering documents, including the Prospectus, stock order forms, letters, brochures and other related offering materials (it being understood that preparation and filing of such documents will be the responsibility of the Company and its counsel);

4. Assist the Company in preparing for and scheduling meetings with potential investors, as necessary;

5. Assist the Company in analyzing proposals from outside vendors retained in connection with the Offerings, including printers, transfer agents and appraisal firms;

6. Assist the Company in the drafting and distribution of press releases as required or appropriate in connection with the Offerings;

7. Meet with the Board of Directors and/or management of the Company to discuss any of the above services; and

8. Such other financial advisory and investment banking services in connection with the Offerings as may be agreed upon by KBW and the Company.

2. Due Diligence Review

The Company acknowledges and agrees that KBW’s obligation to perform the services contemplated by this agreement shall be subject to the satisfactory completion of such investigations and inquiries relating to the Company, and its directors, officers, agents and employees, as KBW and its counsel in their sole discretion may deem appropriate under the circumstances. The Company agrees it will make available to KBW all relevant information, whether or not publicly available, which KBW reasonably requests, and will permit KBW to discuss with the board of directors and management the operations and prospects of the Company. The Company recognizes and confirms that KBW (a) will use and rely on such information in performing the services contemplated by this agreement without having independently verified the same, and (b) does not assume responsibility for the accuracy or completeness of the information or to conduct any independent verification or any appraisal or physical inspection of properties or assets.KBW will assume that all financial forecasts have been reasonably prepared and reflect the best then currently available estimates and judgments of the Company’s management as to the expected future financial performance of the Company.

3. Regulatory Filings

The Company will cause appropriate Offering documents to be filed with all regulatory agencies including the Securities and Exchange Commission ("SEC"), the Financial Industry Regulatory Authority ("FINRA"), and the appropriate federal and/or state bank regulatory agencies. In addition, the Company and KBW agree that the Company’s counsel shall serve as counsel with respect to blue sky matters in connection with the Offerings, and that the Company shall cause such counsel to prepare a Blue Sky Memorandum related to the Offerings including KBW’s participation therein and shall furnish KBW a copy thereof addressed to KBW or upon which counsel shall state KBW may rely.

Pathfinder Bancorp, Inc.

May 19, 2014

Page 3 of 7

4. Fees

For the services hereunder, the Company shall pay the following fees to KBW at closing unless stated otherwise:

(a) Management Fee:   A Management Fee of $25,000 payable as follows: $12,500 upon signing this Agreement and $12,500 upon the filing of the initial Registration Statement. Such fees shall be deemed to have been earned when due. Should the Offerings be terminated for any reason not attributable to the action or inaction of KBW, KBW shall have earned and be entitled to be paid fees accruing through the stage at which point the termination occurred.

(b) Success Fee:   A Success Fee of $225,000 for stock sold in the Subscription and the Direct Community Offering. The Management Fee described in 4(a) will be credited against any Success Fee paid pursuant to this paragraph.

(c) Syndicated Community Offering:  If any shares of the Company’s stock remain available after the Subscription Offering and Direct Community Offering, at the request of the Company, KBW will seek to form a syndicate of registered broker-dealers to assist in the sale of such common stock on a best efforts basis, subject to the terms and conditions set forth in a selected dealers agreement to be entered into between the Company and KBW. KBW will endeavor to distribute the common stock among dealers in a fashion which best meets the distribution objectives of the Company and the Plan. KBW will be paid a fee not to exceed 6.0% of the aggregate Purchase Price of the shares of common stock sold in the Syndicated Community Offering.

Pathfinder Bancorp, Inc.

May 19, 2014

Page 4 of 7

5. Expenses

The Company will bear those expenses of the proposed Offerings customarily borne by issuers, including, without limitation, regulatory filing fees, SEC, "Blue Sky", FINRA filing and registration fees, and DTC eligibility fees; the fees of the Company's accountants, attorneys, appraiser, business plan advisor, transfer agent and registrar, printing, mailing and marketing and syndicate expenses associated with the Offerings; and all costs of operating the Stock Information Center, including hiring temporary personnel, if necessary; the fees set forth in Section 4; and fees for "Blue Sky" legal work. If KBW incurs expenses on behalf of Company, the Company will reimburse KBW for such expenses.

KBW shall be reimbursed for its reasonable out-of-pocket expenses related to the Offerings, including costs of travel, meals and lodging, clerical assistance, listings, forms photocopying, telephone, facsimile, couriers and other similar expenses which will not exceed $30,000. KBW will also be reimbursed for fees and expenses of its legal counsel not to exceed $100,000. These expenses assume no unusual circumstances or delay, or a re-solicitation in connection with the Offerings. Should unusual circumstances, delay or a re-solicitation occur, KBW and the Company acknowledge that such expense cap may be increased by mutual consent in amounts not to exceed $10,000 for additional KBW out-of-pocket expenses and $15,000 for additional fees and expenses of legal counsel. In no event shall out-of-pocket expenses, including fees and expenses of counsel, exceed $155,000. The provisions of this paragraph are not intended to apply to or in any way impair or limit the indemnification provisions contained herein.

6. Limitations

The Company acknowledges that all opinions and advice (written or oral) given by KBW to the Company in connection with KBW’s engagement are intended solely for the benefit and use of the Company for the purposes of its evaluation of the proposed Offerings. Unless otherwise expressly stated in an opinion letter issued by KBW or otherwise expressly agreed, no one other than the Company is authorized to rely upon this engagement of KBW or any statements or conduct by KBW. The Company agrees that no such opinion or advice shall be used, reproduced, disseminated, quoted or referred to at any time, in any manner, or for any purpose, nor shall any public references to KBW be made by the Company or any of its representatives without the prior written consent of KBW.

The Company acknowledges and agrees that KBW has been retained to act solely as financial advisor to the Company and not as an advisor to or agent of any other person, and the Company’s engagement of KBW is not intended to confer rights upon any person not a party to this Agreement (including shareholders, employees or creditors of the Company) as against KBW or its affiliates, or their respective directors, officers, employees or agents. In such capacity, KBW shall act as an independent contractor, and any duties arising out of its engagement shall be owed solely to the Company. It is understood that KBW’s responsibility to the Company is solely contractual in nature and KBW does not owe the Company, or any other party, any fiduciary duty as a result of this Agreement.

Pathfinder Bancorp, Inc.

May 19, 2014

Page 5 of 7

7. Benefit

This letter agreement shall inure to the benefit of the parties hereto and their respective successors, and the obligations and liabilities assumed hereunder by the parties hereto shall be binding upon their respective successors; provided, however, that this letter agreement shall not be assignable by KBW.

8. Confidentiality

KBW acknowledges that a portion of the Information may contain confidential and proprietary business information concerning the Company. KBW agrees that, except as contemplated in connection with the performance of its services under this agreement, as authorized by the Company or as required by law, regulation or legal process, KBW agrees that it will treat as confidential all material, non-public information relating to the Company obtained in connection with its engagement hereunder (the “Confidential Information); provided, however, that KBW may disclose such Confidential Information to its agents and advisors who are assisting or advising KBW in performing its services hereunder and who have agreed to be bound by the terms and conditions of this paragraph. As used in this paragraph, the term “Confidential Information” shall not include information which (a) is or becomes generally available to the public other than as a result of a disclosure by KBW, (b) was available to KBW on a non-confidential basis prior to its disclosure to KBW by the Company, or (c) becomes available to KBW on a non-confidential basis from a person other than the Company who is not otherwise known to KBW to be bound not to disclose such information pursuant to a contractual, legal or fiduciary obligation.

The Company hereby acknowledges and agrees that the presentation materials and financial models used by KBW in performing its services hereunder have been developed by and are proprietary to KBW. The Company agrees that it will not reproduce or distribute all or any portion of such models or presentations without the prior consent from KBW in writing.

9. Indemnification

As KBW will be acting on behalf of the Company in connection with the Offerings, the Company agrees to indemnify and hold harmless KBW and its affiliates, the respective partners, directors, officers, employees and agents of KBW and its affiliates and each other person, if any, controlling KBW or any of its affiliates and each of their successors and assigns (KBW and each such person being an “Indemnified Party”) to the fullest extent permitted by law, from and against any and all losses, claims, damages and liabilities, joint or several, to which such Indemnified Party may become subject under applicable federal or state law, or otherwise related to or arising out of the Offerings or the engagement of KBW pursuant to, or the performance by KBW of the services contemplated by, this letter, and will reimburse any Indemnified Party for all expenses (including legal fees and expenses) as they are incurred, including expenses incurred in connection with the investigation, preparing for or defending any such action or claim whether or not in connection with pending or threatened litigation, or any action or proceeding arising therefrom, whether or not KBW is a party; provided, however, that the Company will not be liable in any such case to the extent that any such loss, claim, damage, liability or expense (a) arises out of or is based upon any untrue statement of a material fact or the omission of a material fact required to be stated therein or

Pathfinder Bancorp, Inc.

May 19, 2014

Page 6 of 7

necessary to make not misleading any statements contained in any final prospectus, or any amendment or supplement thereto, made in reliance on and in conformity with written information furnished to the Company by KBW expressly for use therein or (b) to the extent that any loss, claim, damage, liability or expense is found in a final judgment by a court of competent jurisdiction to have resulted primarily from KBW’s gross negligence, bad faith, or willful misconduct. Notwithstanding the above, KBW and the Company hereby agree that in no event will any payments be made by the Company pursuant to this section that are prohibited by Section 18(k) of the Federal Deposit Insurance Act and its implementing regulations at 12 C.F.R. Part 359.

If the indemnification provided for in the foregoing paragraph is judicially determined to be unavailable (other than in accordance with the terms hereof) to any person otherwise entitled to indemnity in respect of any losses, claims, damages or liabilities referred to herein, then, in lieu of indemnifying such person hereunder, the Company shall contribute to the amount paid or payable by such person as a result of such losses, claims, damages or liabilities (and expenses relating thereto) (i) in such proportion as is appropriate to reflect the relative benefits to the Company, on the one hand, and KBW, on the other hand, of the engagement provided for in this Agreement or (ii) if the allocation provided for in clause (i) above is not available, in such proportion as is appropriate to reflect not only the relative benefits referred to in such clause (i) but also the relative fault of each of the Company and KBW, as well as any other relevant equitable considerations; provided, however, in no event shall KBW's aggregate contribution to the amount paid or payable exceed the aggregate amount of fees actually received by KBW under this Agreement. For the purposes of this Agreement, the relative benefits to the Company and to KBW of the engagement under this Agreement shall be deemed to be in the same proportion as (a) the total value paid or contemplated to be paid or received or contemplated to be received by the Company in the Conversion and the Offerings that are the subject of the engagement hereunder, whether or not consummated, bears to (b) the fees paid or to be paid to KBW under this Agreement.

10. Definitive Agreement

This letter agreement reflects KBW's present intention of proceeding to work with the Company on its proposed Offerings. No legal and binding obligation is created on the part of the Company or KBW with respect to the subject matter hereof, except as to (i) the agreement to maintain the confidentiality of Confidential Information set forth in Section 8, (ii) the payment of certain fees as set forth in Section 4, (iii) the payment of expenses as set forth in Section 5, (iv) the limitations set forth in Section 6, (v) the indemnification and contribution provisions set forth in Section 9 and (iv) those terms set forth in a mutually agreed upon Agency Agreement between KBW and the Company to be executed prior to commencement of the Offerings, all of which shall constitute the binding obligations of the parties hereto and which shall survive the termination of this letter agreement or the completion of the services furnished hereunder and shall remain operative and in full force and effect.

KBW’s execution of such Agency Agreement shall also be subject to (a) KBW’s satisfaction with Due Diligence Review, (b) preparation of offering materials that are satisfactory to KBW, (c) compliance with all relevant legal and regulatory requirements to the reasonable satisfaction of KBW and its counsel, (d) agreement that the price established by the independent

Pathfinder Bancorp, Inc.

May 19, 2014

Page 7 of 7

appraiser is reasonable, and (e) market conditions at the time of the proposed Offerings.

This Agreement constitutes the entire agreement between the parties with respect to the subject matter hereof and can be altered only by written consent signed by the parties. This Agreement shall be construed and enforced in accordance with the laws of the State of New York, without regard to the conflicts of laws principles thereof. Any right to trial by jury with respect to any claim or action arising out of this agreement or conduct in connection with the engagement is hereby waived by the parties hereto.

If the foregoing correctly sets forth our mutual understanding, please so indicate by signing and returning the original copy of this letter to the undersigned.

Very truly yours,
KEEFE, BRUYETTE & WOODS, INC.
By:
	Robin P. Suskind
	Managing Director

Pathfinder Bancorp, Inc.

By:	/s/ Thomas W. Schneider	Date:  5-27-14
	Mr. Thomas W. Schneider
	President & Chief Executive Officer

May 19, 2014

Mr. Thomas W. Schneider

President & Chief Executive Officer

Pathfinder Bancorp, MHC

Pathfinder Bancorp, Inc.

Pathfinder Bank

214 West First Street

Oswego, NY 13126

Re: Records Processing Services

Dear Mr. Schneider:

This letter confirms the engagement of Keefe, Bruyette & Woods, Inc. (“KBW”) to act as the conversion agent to Pathfinder Bancorp, Inc. (collectively with any of its successors or any new stock holding company formed to effect the second step stock offering, the “Bank”) in connection with the Bank’s proposed reorganization from the mutual holding company form to full stock form of organization pursuant to a Plan of Conversion and Reorganization (the “Conversion”), including the offer and sale of the common stock (the “Common Stock”) of a holding company (the “Holding Company”) to be formed by the Bank to eligible persons in a Subscription Offering, with any remaining shares offered to the general public in a Direct Community Offering and, possibly, a Syndicated Community Offering (the Subscription Offering, Direct Community Offering, and any Syndicated Community Offering are collectively referred to herein as the “Offerings”). The Bank and the Holding Company are collectively referred to herein as the “Company.” This letter sets forth the terms and conditions of our engagement.

Conversion Agent Services: As Conversion Agent, and as the Company may reasonably request, KBW will provide the following services:

1. Consolidation of Accounts and Development of a Central File, including, but not limited to the following:

· Consolidate accounts having the same ownership and separate the consolidated file information into necessary groupings to satisfy mailing requirements;

· Create the master file of account holders as of key record dates; and

· Provide software for the operation of the Company’s Stock Information Center, including subscription management and proxy solicitation efforts

2. Preparation of Proxy Forms; Proxy Solicitation and Special Meeting Services, including, but not limited to the following:

· Assist the Company’s financial printer with labeling of proxy materials for voting and subscribing for stock;

Keefe, Bruyette & Woods · 18 Columbia Turnpike, Florham Park, NJ 07932

Pathfinder Bancorp, Inc.

May 19, 2014

Page 2 of 7

· Provide support for any follow-up mailings to members, as needed, including proxy grams and additional solicitation materials;

· Proxy and ballot tabulation; and

· Act as Inspector of Election for the Company’s special meeting of members, if requested, and the election is not contested

3. Subscription Services, including, but not limited to the following:

· Assist the Company in establishing and managing a Stock Information Center;

· Advise on the physical location of the Stock Information Center including logistical and materials requirements;

· Assist in educating Company personnel;

· Establish recordkeeping and reporting procedures;

· Supervise the Stock Information Center during the Offering;

· Assist the Company’s financial printer with labeling of stock offering materials for subscribing for stock;

· Provide support for any follow-up mailings to members, as needed, including additional solicitation materials;

· Stock order form processing and production of daily reports and analysis;

· Provide supporting account information to the Company’s legal counsel for ‘blue sky’ research and applicable registration;

· Assist the Company’s transfer agent with the generation and mailing of stock certificates;

· Perform interest and refund calculations and provide a file to enable the Company or its Transfer Agent to generate interest and refund checks; and

· Create 1099-INT forms for interest reporting, as well as magnetic media reporting to the IRS, for subscribers paid $10 or more in interest for subscriptions paid by check, if this service is not provided by the Company’s Transfer Agent.

4. Records Processing Services: As part of its Conversion Agent services provided hereunder, KBW will serve as the data processing records management agent (the “Records Agent”) to the Company with respect to the Offerings. As the Records Agent, KBW will provide records processing services (the “Records Processing Services”) contemplated hereby and by the Terms (as defined below). Specific terms of such Records Processing Services shall be set forth in the Data Processing Records Management Engagement Terms (the “Terms”), which document is attached as Annex A hereto. The parties hereto expressly acknowledge and agree that: (i) the Terms form an integral part of this letter agreement and are incorporated in their entirety herein, (ii) in the event of any conflict between this letter agreement and the Terms, the Terms shall control and (iii) KBW expects to subcontract certain Records Processing Services, including without limitation certain integral data processing functions, to any one or more of its affiliates or to any other party (including non-affiliate third parties), as contemplated in the Terms.

Fees:  For the conversion agent services outlined above, the Company agrees to pay KBW a fee of $25,000. This fee is based upon the requirements of current banking regulations, the

Pathfinder Bancorp, Inc.

May 19, 2014

Page 3 of 7

Company’s Plan of Conversion and Reorganization as currently contemplated, and the expectation that member data will be processed as of three key record dates. Any material changes in regulations or the Plan of Conversion and Reorganization, or delays requiring duplicate or replacement processing due to changes to record dates, may result in additional fees. All fees under this agreement shall be payable as follows: $5,000 payable upon execution of this agreement, which shall be non-refundable and the balance upon the completion of the Offering.

Costs and Expenses:   The Company will bear all of its expenses in connection with the Conversion and the Offering. The Company shall reimburse Keefe, Bruyette & Woods for its reasonable out-of-pocket expenses incurred in connection with the services contemplated hereunder, regardless of whether the Offering is consummated, provided that such out-of-pocket expenses shall not exceed $5,000. Typical expenses include, but are not limited to additional programming costs, postage, overnight delivery, telephone and travel. Not later than two days before the Offering closing, Keefe, Bruyette & Woods will provide the Company with a detailed accounting of all reimbursable expenses of Keefe, Bruyette & Woods, to be paid at closing. The provisions of this paragraph are not intended to apply to or in any way impair the indemnification provisions of this letter.

Reliance on Information Provided:   The Company agrees to provide KBW with such information as KBW may reasonably require to carry out its services under this agreement. The Company recognizes and confirms that KBW (a) will use and rely on such information in performing the services contemplated by this agreement without having independently verified the same, and (b) does not assume responsibility for the accuracy or completeness of the information or to conduct any independent verification or any appraisal or physical inspection of properties or assets.

Limitations:   KBW, as Conversion Agent hereunder, (a) shall have no duties or obligations other than those specifically set forth herein; (b) will be regarded as making no representations and having no responsibilities as to the validity, sufficiency, value or genuineness of any order form or any stock certificates or the shares represented thereby, and will not be required to and will make no representations as to the validity, value or genuineness of the offer; (c) shall not be obliged to take any legal action hereunder which might in its judgment involve any expense or liability, unless it shall have been furnished with reasonable indemnity satisfactory to it; and (d) may rely on and shall be protected in acting in reliance upon any certificate, instrument, opinion, notice, letter, telex, telegram, or other document or security delivered to it and in good faith believed by it to be genuine and to have been signed by the proper party or parties.

The Company also agrees neither KBW , nor any of its affiliates nor any officer, director, employee or agent of KBW or any of its affiliates, nor any person controlling KBW or any of its affiliates, shall be liable to any person or entity, including the Company, by reason of any error of judgment, or for any act done by it in good faith, or for any mistake of law or fact in connection with this agreement and the performance hereof, unless caused by or arising primarily out of KBW’s gross negligence, bad faith, or willful misconduct. The foregoing agreement shall be in addition to any rights that KBW, the Company or any Indemnified Party (as defined herein) may have at common law or otherwise, including, but not limited to, any right to contribution.

Pathfinder Bancorp, Inc.

May 19, 2014

Page 4 of 7

Anything in this agreement to the contrary notwithstanding, in no event shall KBW be liable for special, indirect or consequential loss or damage of any kind whatsoever (including but not limited to lost profits), even if KBW has been advised of the likelihood of such loss or damage and regardless of the form of action.

Indemnification:   The Company agrees to indemnify and hold harmless KBW and its affiliates, the respective partners, directors, officers, employees, and agents of KBW and its affiliates and each other person, if any, controlling KBW or any of its affiliates and each of their successors and assigns (KBW and each such person being an “Indemnified Party”) to the fullest extent permitted by law, from and against any and all losses, claims, damages and liabilities, joint or several, to which such Indemnified Party may become subject under applicable federal or state law, or otherwise, related to or arising out of the engagement of KBW pursuant to, and the performance by KBW of the services contemplated by, this letter, and will reimburse any Indemnified Party for all expenses (including reasonable counsel fees and expenses) as they are incurred, including expenses incurred in connection with investigation, preparing for or defending any such action or claim whether or not in connection with pending or threatened litigation, or any action or proceeding arising there from, whether or not KBW is a Party. The Company will not be liable under the foregoing indemnification provision to the extent that any loss, claim, damage, liability or expense is found in a final judgment by a court of competent jurisdiction to have resulted primarily from KBW’s gross negligence, bad faith, or willful misconduct. Notwithstanding the above, KBW and the Company hereby agree that in no event will any payments be made by the Company pursuant to this section that are prohibited by Section 18(k) of the Federal Deposit Insurance Act and its implementing regulations at 12 C.F.R. Part 359.

If the indemnification provided for in the foregoing paragraph is judicially determined to be unavailable (other than in accordance with the terms hereof) to any person otherwise entitled to indemnity in respect of any losses, claims, damages or liabilities referred to herein, then, in lieu of indemnifying such person hereunder, the Company shall contribute to the amount paid or payable by such person as a result of such losses, claims, damages or liabilities (and expenses relating thereto) (i) in such proportion as is appropriate to reflect the relative benefits to the Company, on the one hand, and KBW, on the other hand, of the engagement provided for in this Agreement or (ii) if the allocation provided for in clause (i) above is not available, in such proportion as is appropriate to reflect not only the relative benefits referred to in such clause (i) but also the relative fault of each of the Company and KBW, as well as any other relevant equitable considerations; provided, however, in no event shall KBW's aggregate contribution to the amount paid or payable exceed the aggregate amount of fees actually received by KBW under this Agreement. For the purposes of this Agreement, the relative benefits to the Company and to KBW of the engagement under this Agreement shall be deemed to be in the same proportion as (a) the total value paid or contemplated to be paid or received or contemplated to be received by the Company in the Conversion and the Offerings that are the subject of the engagement hereunder, whether or not consummated, bears to (b) the fees paid or to be paid to KBW under this Agreement.

Pathfinder Bancorp, Inc.

May 19, 2014

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This letter constitutes the entire Agreement between the parties with respect to the subject matter hereof and can be altered only by written consent signed by the parties. This Agreement is governed by the laws of the State of New York applicable to contracts executed in and to be performed in that state, without regard to such state’s rules concerning conflicts of laws. Any right to trial by jury with respect to any claim or action arising out of this agreement or conduct in connection with the engagement is hereby waived by the parties hereto.

Pathfinder Bancorp, Inc.

May 19, 2014

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If the foregoing correctly sets forth our mutual understanding, please so indicate by signing and returning the original copy of this letter to the undersigned.

Very truly yours,
KEEFE, BRUYETTE & WOODS, INC.
By:
	Robin P. Suskind
	Managing Director

Pathfinder Bancorp, Inc.
By:	/s/ Thomas W. Schneider	Date:  5-27-14
	Mr. Thomas W. Schneider
	President & Chief Executive Officer

Pathfinder Bancorp, Inc.

May 19, 2014

Page 7 of 7

ANNEX A

Keefe, Bruyette & Woods, Inc.

Data Processing Records Management Engagement Terms

Keefe, Bruyette & Woods

DATA PROCESSING RECORDS MANAGEMENT ENGAGEMENT TERMS

This document, which is integral to the Records Processing Services letter of the same date (together, the or this “Agreement”), applies to all records processing services (the “Services”) performed, unless a specific engagement letter is entered into for certain services. The Services are to be provided by Keefe, Bruyette & Woods (the “Agent”) to Pathfinder Bank and a new stock holding company to be formed (together, the “Company”) in connection with a mutual-to-stock conversion of Pathfinder Bancorp, MHC and related stock offering (the “Stock Offering”) to be conducted pursuant to a Plan of Conversion and Reorganization (the “Plan”).

Section 1 - DUTIES OF KEEFE, BRUYETTE & WOODS

a.)  The Agent hereby agrees to perform the Services set forth in this Agreement in a commercially reasonable manner, to comply with all timely, appropriate and lawful instructions received from duly authorized representatives of the Company. The Agent makes no warranties regarding the rendering of the Services (including, without limitation, warranties of merchantability, security, accuracy, noninfringement, and fitness for a particular purpose), and no additional warranties may be implied from the terms of this Agreement. The Company will: (i) inform all of its authorized representatives, which may include attorneys, agents and advisors, that the Agent shall act as the exclusive data processing records management agent and that they are authorized and directed to communicate with the Agent and to promptly provide the Agent with all information that is reasonably requested; (ii) cause the Agent to have adequate notice of, and permit the Agent to attend, meetings (whether in person or otherwise) where the Agent’s attendance is, in the discretion of the Agent, relevant, advisable or necessary; (iii) cause the Agent to receive, as they become available, copies of the documents relating to the Plan, the mutual-to-stock conversion and the Stock Offering, to the extent the Agent believes that such documents are necessary or appropriate for the Agent to perform the Services and (iv) cause the Agent to have adequate advance notice of any proposed changes to the Plan, the proposed Services or the Stock Offering timetable. Failure by the Company to keep the Agent timely and adequately informed or to provide the Agent with complete and accurate necessary information on a timely basis shall excuse the Agent’s delay in the performance of its Services and may be grounds for the Agent to terminate this Agreement pursuant to Section 2 hereof.

b.)  The actions to be taken by the Agent hereunder are deemed by the parties to be ministerial only and not discretionary. The Agent, in its capacity as such, shall not be called upon at any time to give any advice regarding implementing the Plan. The Company shall have the sole responsibility to make any and all decisions with respect to implementing the Plan, including but not limited to decisions regarding which customer bank accounts are to be included in accountholder records provided to the Agent. The Agent may rely on records and information received and is not responsible for ensuring the completeness and accuracy of the accountholder records provided or processed.

c.)  The Agent may rely upon the instructions and representations (whether oral or in writing) of the Company’s duly authorized representatives, without inquiry or investigation. The Agent shall

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not be responsible for any action taken in reliance upon any signature, endorsement, assignment, certificate, order, request, notice or instruction (whether written or oral), or other instrument or document reasonably believed by it to be valid, genuine and sufficient in carrying out its duties hereunder. The Agent shall not be liable or responsible, and shall be fully authorized and protected for, acting or failing to act in accordance with any oral instructions or requests.

d.) The Agent may consult with legal counsel chosen in good faith as to Agent’s obligations or performance under this Agreement, and the Agent shall not incur any liability in acting in good faith in accordance with any advice from such counsel with respect to Agent’s obligations or performance under this Agreement.

e.) The Agent expects to subcontract certain data processing functions integral to the Services with any one or more of its affiliates or with any other party. The fees and expenses of such subcontractor shall not be billed to the Company, unless otherwise agreed to by the parties hereto in writing. Such subcontractor shall agree to comply with the provisions of this Agreement relating to Confidentiality (Section 3), Consumer Privacy (Section 4) and Process (Section 5).

f.) Neither Keefe, Bruyette & Woods nor any of its directors, managers, officers, employees, affiliates, subsidiaries or agents nor any of their respective controlling persons, heirs, representatives, estates, successors and assigns shall be liable, directly or indirectly, for any losses, claims, judgments, damages or expenses suffered or incurred by the Company, or any person claiming through it, arising out of or relating to the Services provided, other than for, subject to Section 1 g.) below, direct damages or expenses directly related solely to the bad faith, gross negligence or willful misconduct of the Agent as finally and specifically determined by a court of competent jurisdiction. Moreover, Keefe, Bruyette & Woods shall not be responsible nor liable for delays, errors or omissions arising from, relating to or made in connection with circumstances beyond its reasonable control, including but not limited to, acts or omissions of the Company or any of its advisors or agents, acts of governmental authorities, acts of civil commotion or riot, insurrection, acts of military authority, war or acts of war or terrorism, national emergencies, labor difficulties, fire, flood, weather-related problems, acts of God or nature, mechanical or electrical breakdown, computer problems, failure or unavailability of communications or power supply or any change in law or regulation materially affecting the Agent or the Company.

g.) The Agent shall not be liable for any action taken, suffered, or omitted by it or for any error or judgment made by it in the performance of its duties under this Agreement, except for acts or omissions directly relating solely to the Agent’s bad faith, gross negligence or willful misconduct as finally and specifically determined by a court of competent jurisdiction. In no event shall the Agent be liable for: (i) acting in accordance with or relying upon any instruction, request, notice, demand, certificate, order or document from the Company or any authorized representative acting on its behalf or (ii) for any consequential, indirect, incidental, punitive, exemplary or special damages of any kind whatsoever (including but not limited to lost profits) even if the Agent has been advised of the possibility of such damages. Any liability of the Agent shall be limited to the amount of fees paid to the Agent for the Services performed by the Agent pursuant to this Agreement, in accordance with Section 7 hereof.

h.) The duties, responsibilities and obligations of the Agent shall be limited to those expressly set forth herein, and no duties, responsibilities or obligations shall be inferred or implied. The Agent, in its capacity as such, shall not be subject to, nor required to comply with, any other agreement between or among any or all of the parties hereto and/or any other person or entity, even though

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reference thereto may be made herein or therein, or to comply with any direction or instruction (other than those contained herein or delivered in accordance with this Agreement) from any person or entity other than the Company. Except as may otherwise be set forth herein, the Agent shall not be required to, and shall not, expend or risk any of its own funds or otherwise incur any financial liability in the performance of its duties hereunder.

i.) The parties hereto acknowledge that there are no third party beneficiaries to this Agreement, which is for the exclusive benefit of the parties hereto. No other person or entity or their respective heirs, successors and assigns shall be deemed to have any legal or equitable right, remedy or claim hereto.

j.) In the event of any ambiguity or uncertainty hereunder or in any notice, instruction or other communication received by the Agent hereunder, the Agent will provide the Company a reasonable opportunity to resolve such uncertainty or ambiguity and in the event that such uncertainty or ambiguity is unresolved the Agent may, in its sole discretion, take any action it deems appropriate or refrain from taking any action unless and until the Agent receives written instructions from the Company clarifying the ambiguity or uncertainty, and the Agent shall not be liable for acting or the failure to take any action during this period. In the event of any disagreement between the Company and any other person or entity resulting in adverse claims and demands being made herein or affected hereby, the Agent shall be entitled to refuse to comply with any such claims or demands as long as such disagreement may continue, and in so refusing, shall make no delivery or other disposition under this Agreement, and in so doing shall be entitled to continue to refrain from acting until: (i) the right of adverse claimants shall have been finally settled by binding arbitration or finally adjudicated in a court of competent jurisdiction or (ii) all differences shall have been settled by agreement among the adverse claimants and the Company or other persons or entities and the Agent shall have been notified in writing of such agreement signed by the Company and the adverse person(s) or entity(ies). In the event of such disagreement, the Agent may, but need not, tender into the registry or custody of any court of competent jurisdiction all property in the Agent’s possession pursuant to the terms of this Agreement, together with such legal proceedings as the Agent deems appropriate, and thereupon the Agent shall be discharged from all further duties under this Agreement. The filing of any such legal proceeding shall not deprive the Agent of compensation or expenses paid or payable hereunder for Services, and the Agent shall not be liable with respect to any suspension of performance, delay or otherwise as a result of the tendering of such property. The Agent shall have no obligation to take any legal action in connection with this Agreement or towards its enforcement, or to appear in, prosecute or defend any action or legal proceeding which would or might involve the Agent in any cost, expense, loss or liability unless indemnification, satisfactory to the Agent, in its sole discretion, shall be furnished by the Company. The Agent shall be indemnified for all reasonable costs (including employee time at the employee’s hourly rate determined by his annual salary) and reasonable attorneys’ fees and expenses in connection with any such action.

Section 2 - COMMENCEMENT AND TERMINATION OF AGREEMENT

This Agreement shall commence immediately upon execution hereof by all parties and shall continue in force until the consummation or termination of the Stock Offering and mutual-to-stock conversion or the termination of this Agreement. This Agreement may only be terminated by the Company for cause due to action by the Agent constituting a material violation of applicable law or a material breach of this Agreement, which breach remains uncured for ten (10) business days after written notice of such breach is delivered by the Company to the Agent. This Agreement may only be terminated by the Agent in the event of: one or more of the following: (i) termination of the

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separate agreement designating the Agent as conversion advisor and marketing agent related to the mutual-to-stock conversion and related Stock Offering; (ii) circumstances described in Section 1 j.) hereof; (iii) action by the Company constituting a material violation of applicable law or a material breach of this Agreement (including as described in Section 1 a.) hereof) or failure to pay the fees and expenses of the Agent) which breach remains uncured for ten (10) business days after written notice of breach is delivered by Keefe, Bruyette & Woods to the Company or (iv) any proceeding in bankruptcy, reorganization, rehabilitation, guaranty fund action, receivership or insolvency is commenced by or against the Company, the Company shall become insolvent, or cease paying its obligations as they become due.

Section 3 - CONFIDENTIALITY

a.)  The parties hereto will: (a) hold, and will cause their respective employees, officers, directors and authorized representatives (including attorneys, advisors and agents) to hold, in strict confidence, unless compelled to disclose by judicial, regulatory or administrative process and then (i) only with written notice prior to disclosure to the disclosing party and (ii) still maintaining the confidential status of any such documents and information, all documents and information, in any medium (the “Information”), concerning the disclosing party, whether the Information is furnished to the receiving party by the disclosing party or its representatives in connection with this Agreement or the Information is received, transmitted, created, generated or otherwise processed by the receiving party based, in whole or in part, upon the Information of the disclosing party, except to the extent that such Information can be shown to have been (A) previously known by the receiving party other than through a breach of a confidentiality agreement by a third party; (B) in the public domain through no fault of the receiving party or (C) later lawfully acquired by the receiving party from other sources) (the “Confidential Information”), (b) not use such Confidential Information except for the purposes set forth herein and (c) unless prior written consent is obtained, release Confidential Information only to persons described in this Section 3 (a). It is understood by the parties hereto that the receiving party shall be deemed to have satisfied its obligation to hold the Confidential Information confidential if it exercises the same care as it takes to preserve the confidentiality of its own similar information.

b.) The parties hereto agree to the use of facsimile, email and voicemail as means to communicate both sensitive and non-sensitive information related to the Services.

Section 4 - CONSUMER PRIVACY

a.) In connection with this Agreement, the Company will cause the Agent to be provided Information, which will include nonpublic personal data regarding customers and bank account records. Unless required by law or unless prior written consent is obtained from the Company, the Agent will not knowingly disclose any such nonpublic personal data except to persons described in Section 3 a.), in connection with performing the Services.

b.) The Agent (or its agents) has implemented and will maintain physical, electronic and procedural safeguards reasonably designed to protect the security, confidentiality and integrity of, to prevent unauthorized access to or use of, and to ensure the proper disposal, of nonpublic personal data regarding customers and bank accounts records. Notwithstanding the foregoing, given the nature of electronic communications and the Internet, the Agent makes no absolute guarantees regarding the safety and security of any data transmitted over or accessible via the Internet or any other public networks.

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c.) Upon consummation of the Stock Offering or termination of this Agreement, at the written request of the Company, and at its sole expense, the Agent shall use its reasonable efforts to transfer to the Company or destroy all physical or electronic Confidential Information, including nonpublic personal data regarding customers and bank account records (excluding data, software and documentation proprietary to the Agent (or its agents)) and shall not retain copies of such data and documentation; provided however, that the Agent (and its agents) may retain copies to the extent necessary, but only for as long as necessary, to comply with legal, regulatory and archival requirements.

Section 5 - PROCESS

If at any time the Agent is served with any judicial or administrative order, judgment, decree, motion, writ, or other form of judicial or administrative process which in any way affects any property of the Company, the Agent is authorized to comply therewith in any reasonable manner as it or its legal counsel of its own choosing deems appropriate; provided that the Agent shall endeavor to give notice thereof to the Company. If the Agent complies with any such judicial or administrative order, judgment, decree, writ or other form of judicial or administrative process, the Agent shall not be liable to any of the parties, or to any other person or entity, even though such order, judgment, decree, writ or process may be subsequently modified or vacated or otherwise determined to have been without legal force or effect.

Section 6 - INDEMNIFICATION

The Company hereby agrees to indemnify and hold harmless the Agent, its directors, officers, employees, affiliates, subsidiaries, agents, and each of their controlling persons, if any (within the meaning of Section 15 of the Securities Act of 1933, as amended), or Section 20(a) of the Securities Exchange Act of 1934, as amended, and their respective heirs, representatives, successors and assigns (together, the “Agent Group”) against any loss, liability, claim or expense (“Loss”), joint or several, to which the Agent Group may become subject, under any federal or state law or regulation, at common law, in equity or otherwise, insofar as such Loss (or actions in respect thereof) arises out of or is based on or is in connection with or is related to this Agreement and the Services, except to the extent the Agent is finally found, by a court of competent jurisdiction, to have engaged in bad faith, willful misconduct or gross negligence. The Company agrees to advance or reimburse the Agent Group (or any one or more of them) within fifteen (15) business days of a written request therefor in connection with investigating, preparing or defending against any such loss, claim, damage, liability or action by the Agent Group (or any one or more of them). The indemnification obligations of the Company as provided above are in addition to any liabilities that the Company may have under other agreements, under common law or otherwise.

The Agent agrees to indemnify and hold harmless the Company, their directors and officers, agents, servants and employees and each of their controlling persons, if any (within the meaning of Section 15 of the Securities Act of 1933, as amended, or Section 20(a) of the Securities Exchange Act of 1934, as amended), and their respective heirs, representatives, successors and assigns (together, the “Company Group”) against any Loss, joint or several, as to which the Company Group may become subject, under any federal or state law or regulation, at common law, in equity or otherwise, insofar as such Loss (or actions in respect thereof) arises out of or is based on or is in connection with or is related to this Agreement and the Services, except to the extent the Company is finally found, by a court of competent jurisdiction, to have engaged in bad faith, willful misconduct or gross negligence.

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The Agent agrees to advance or reimburse the Company Group (or any one or more of them) within fifteen (15) business days of a written request therefor in connection with investigating, preparing or defending against any such loss, claim, damage, liability or action by the Company Group (or any one or more of them). The indemnification obligations of the Agent as provided above are in addition to any liabilities that the Company may have under other agreements, under common law or otherwise.

Section 7 - LIMIT OF LIABILITY

The Agent will provide the Services with due care, in a timely manner, so the provisions of this section establishing a limit of liability will not apply if, as determined in a judicial proceeding, we performed our services with bad faith, gross negligence or willful misconduct. However, our engagement with you is not intended to shift risks normally borne by you to us. With respect to any services or work product or this engagement for Services in general, the liability of the Agent and its personnel shall not exceed the fees we receive for the portion of the work giving rise to liability nor include any special, consequential, incidental, or exemplary damages or loss nor any lost profits, savings, or business opportunity. A claim by Company for a return of fees paid to the Agent by the Company for the Services performed by the Agent pursuant to this Agreement shall be the sole and exclusive remedy for any damages. This limitation of liability is intended to apply to the full extent allowed by law, regardless of the grounds or nature of any claim asserted.

Section 8 - SURVIVAL OF OBLIGATIONS

The covenants and agreements of the parties hereto, including Sections 6 and 7 above, will remain in full force and effect and will survive the consummation of the Stock Offering and mutual-to-stock conversion or the termination of this Agreement, and the Agent Group shall be entitled to the benefit of the covenants and agreements thereafter.

Section 9 - AGREEMENT

a.) This Agreement contains the entire agreement of the parties with respect to the subject matter hereof. This Agreement supersedes any other agreements, either oral or written, among the parties hereto with respect to the specific subject matter hereof, but not any engagement, underwriting, agency or other agreements among the parties pursuant to which Keefe, Bruyette & Woods is acting as the Company’s financial advisor, underwriter, placement agent, investment banker or in any similar capacity. Except for Section 1 e) of this Agreement, each party hereto acknowledges that no representation, inducement, promise or agreement, written, oral or otherwise, has been made by any party, or anyone acting on behalf of any party, which is not embodied or expressly stated herein, and that no other agreement, statement, or promise not contained in this Agreement shall be valid or binding in relation to the Services. The Company hereby acknowledges and agrees that: (i) Keefe, Bruyette & Woods has made full and complete disclosure to the Company of the possibility or existence of any conflict of interest resulting from Keefe, Bruyette & Woods serving as both data processing records management agent pursuant to this Agreement and as financial advisor, underwriter, placement agent, investment banker or in any similar capacity pursuant to a separate agreement and (ii) having received full disclosure thereof, the Company hereby waives any such conflict of interest and consents to Keefe, Bruyette & Woods serving in such dual capacity.

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b.) This Agreement may be enforced only by the parties hereto and shall be interpreted, construed, enforced and administered in accordance with the internal substantive laws (and not the choice of law rules) of the State of New York. Each of the parties hereto hereby submits to the personal jurisdiction of, and each agrees that all proceedings relating hereto shall be brought in, courts located within the State of New York. Each of the parties waives the right to a trial by a jury. To the extent that in any jurisdiction any party hereto may be entitled to claim, for itself or its assets, immunity from suit, execution, attachment (whether before or after judgment) or other legal process, each hereby irrevocably agrees not to claim, and hereby waives, such immunity. Each party hereto waives personal service of process and consents to service of process by certified or registered mail, return receipt requested, directed to it at the address last specified for notices hereunder.

c.) This Agreement may be executed in several counterparts, which taken together, shall constitute one and the same document. All section headings used herein are for convenience and ease of reference only and do not constitute part of this Agreement and shall not be referred to for the purpose of defining, interpreting, construing or enforcing any of the provisions of this Agreement. All pronouns and variations thereof shall be deemed to refer to the masculine, feminine, neuter, singular or plural, as the identity of the party or parties to this Agreement may require.

d.) This Agreement may not be assigned by any party without the prior written consent of the other parties hereto and any purported assignment made in violation of the foregoing shall be void and have no legal effect; except that consent is not required for an assignment to a Keefe, Bruyette & Woods affiliate or successor in interest. This Agreement may be modified only by a written amendment signed by all of the parties hereto and no waiver of any provision hereof shall be effective unless expressed in a writing signed by the party to be charged. No waiver of the breach of any provision or term of this Agreement shall be deemed or construed to be a waiver of any other or subsequent breach.

e.) No implied duties or obligations shall be read into this Agreement against the Agent, and the Agent, in its capacity as such, shall not be bound by any provision of any agreement between the Company and any other person or entity other than this Agreement, and the Agent shall have no duty to inquire into, or to take into account its knowledge of, the terms and conditions of any agreement made or entered into in connection with this Agreement.

f.) Should any term or provision, or portion of such provision, of this Agreement be invalid or unenforceable, the scope thereof or the period covered thereby or otherwise, such term, provision, or portion of such provision, shall be deemed to be reduced and limited to enable Keefe, Bruyette & Woods or the Company, as applicable, to enforce it to the maximum extent permissible under the laws and public policies applied under the jurisdiction in which enforcement is sought. If any term or provision of this Agreement is held or deemed to be invalid or unenforceable, in whole or in part, by a court of competent jurisdiction, such term or provision shall be ineffective to the extent of such invalidity or unenforceability without rendering invalid or unenforceable the remaining terms and provisions of this Agreement which shall be construed to preserve, to the maximum extent permissible, the intent and purposes of this Agreement. Any such invalidity or unenforceability in any jurisdiction shall not invalidate or render unenforceable such terms or provisions in any other jurisdiction.

g.) The Agent, in furnishing services to the Company under this Agreement, is acting only as an independent contractor and is not a fiduciary of, nor will its entering into this Agreement give rise to fiduciary duties to, the Company. The Agent does not undertake by this Agreement or otherwise

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to perform any obligation of the Company, whether regulatory, contractual, or otherwise. The Agent has the sole right and obligation to supervise, manage, contract, direct, procure, perform or cause to be performed, all work to be performed by the Agent under this Agreement unless otherwise provided in this Agreement. The Company understands and agrees that the Agent may perform services substantially similar to those to be performed hereunder for others, and nothing herein is intended to restrict or prohibit the Agent from performing such services for others.

h.) All media releases, public announcements and public disclosures by either party or its agents relating to this Agreement or the subject matter of this Agreement, but not including any announcement intended solely for internal distribution at such party or any disclosure required by legal, accounting or regulatory requirements beyond the reasonable control of such party, shall be coordinated with and approved by the other party prior to the release thereof, which approval shall not be unreasonably withheld.

Section 10 - NOTICES

Except as otherwise contemplated by this Agreement, all notices, demands, requests or other communications which may be or are required to be given, served or sent by any party to any other party pursuant to this Agreement, other than in the normal course of conducting the Services, can be by certified or registered mail, personal delivery or transmitted by any standard form of telecommunication with proof of delivery addressed as follows:

(a)          If to the Agent:

Keefe, Bruyette & Woods

18 Columbia Turnpike

Florham Park, NJ 07932

Attn: Robin P. Suskind

Telephone: (973) 549-4036

Fax: (973) 549-4034

If to the Company:

Pathfinder Bank

214 West First Street

Oswego, NY 13126

Attn: Thomas W. Schneider

Telephone: (315) 343-0057

Each party may designate by notice in writing a new address/addressee to which any notice, demand, request or communication may thereafter be provided.

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EX-2

Exhibit 2

PLAN OF CONVERSION AND REORGANIZATION

OF

PATHFINDER BANCORP, MHC

PATHFINDER BANCORP, INC.

PATHFINDER BANk

TABLE OF CONTENTS

1.	Introduction	1
2.	Definitions	1
3.	Procedures for conversion	8
4.	Holding company applications and approvals	11
5.	Sale of subscription shares	11
6.	Purchase price and number of subscription shares	12
7.	Retention of conversion proceeds by the holding  company	13
8.	Subscription rights of eligible account holders (first priority)	13
9.	Subscription rights of employee plans (second priority)	14
10.	Subscription rights of supplemental eligible account holders (third priority)	14
11.	Subscription rights of other Depositors (fourth priority)	15
12.	Community offering	15
13.	Syndicated community offering and/or firm commitment underwritten offering	16
14.	Limitations on purchases	17
15.	Payment for subscription shares	18
16.	Manner of exercising subscription rights through order forms	19
17.	Undelivered, defective or late order form; insufficient payment	20
18.	Residents of foreign countries and certain states	21
19.	Establishment of liquidation accounts	21
20.	Voting rights of stockholders	23
21.	Restrictions on resale or subsequent disposition	23
22.	Requirements for stock purchases by directors and officers following the conversion	24
23.	Transfer of deposit accounts	24
24.	Registration and marketing	25
25.	Tax rulings or opinions	25
26.	Stock benefit plans and employment agreements	25
27.	Restrictions on acquisition of bank and holding company	26
28.	Payment of dividends and repurchase of stock	27
29.	Articles of incorporation and bylaws	27
30.	Consummation of conversion and effective date	28
31.	Expenses of conversion	28
32.	Amendment or termination of plan	28
33.	Conditions to conversion	28
34.	Interpretation	29

Exhibit A Form of Agreement of Merger between Pathfinder Bancorp, MHC and Pathfinder Bancorp, Inc.

Exhibit B Form of Agreement of Merger between Pathfinder Bancorp, Inc., a Federal corporation, and Pathfinder Bancorp, Inc., a Maryland corporation

(i)

PLAN OF CONVERSION AND REORGANIZATION OF

PATHFINDER BANCORP, MHC

1. INTRODUCTION

This Plan of Conversion and Reorganization (the “Plan”) provides for the conversion of Pathfinder Bancorp, MHC, a federal mutual holding company (the “Mutual Holding Company”), from the mutual to the capital stock form of organization. The Mutual Holding Company currently owns a majority of the common stock of Pathfinder Bancorp, Inc., a federal stock corporation (the “Mid-Tier Holding Company”), which owns 100% of the common stock of Pathfinder Bank (the “Bank”), a New York-chartered stock savings bank. A new stock holding company (the “Holding Company”) will be established as part of the Conversion, will succeed to all the rights and obligations of the Mutual Holding Company and the Mid-Tier Holding Company, and will issue Holding Company Common Stock in the Conversion. The purpose of the Conversion is to convert the Mutual Holding Company to the capital stock form of organization, which will provide the Bank and the Holding Company with additional capital to grow and to respond to changing regulatory and market conditions. The Conversion will also provide the Bank and the Holding Company greater flexibility to effect corporate transactions, including mergers, acquisitions and branch expansions. The Holding Company Common Stock will be offered for sale in the Offering upon the terms and conditions set forth herein. The subscription rights granted to Participants in the Subscription Offering are set forth in Sections 8 through 11 hereof. All sales of Holding Company Common Stock in the Community Offering, in the Syndicated Community Offering or the Firm Commitment Underwritten Offering, or in any other manner permitted by the Bank Regulators, will be at the sole discretion of the Board of Directors of the Bank and the Holding Company. As part of the Conversion, each Minority Stockholder will receive Holding Company Common Stock in exchange for Minority Shares. The Conversion will have no impact on depositors, borrowers or other customers of the Bank. After the Conversion, the Bank’s insured deposits will continue to be insured by the FDIC to the extent provided by applicable law.

This Plan has been adopted by the Boards of Directors of the Mutual Holding Company, the Mid-Tier Holding Company and the Bank. This Plan also must be approved by at least (i) a majority of the total votes eligible to be cast by Voting Depositors at the Special Meeting of Depositors, (ii) two-thirds of the total votes eligible to be cast by Stockholders at the Meeting of Stockholders, and (iii) a majority of the total votes eligible to be cast by Minority Stockholders at the Meeting of Stockholders. Approval of the Plan by the Voting Depositors shall constitute approval of each of the transactions necessary to implement this Plan, including the MHC Merger and the Mid-Tier Merger. The Federal Reserve must approve this Plan before it is presented to Voting Depositors and Stockholders of the Mid-Tier Holding Company for their approval.

2. DEFINITIONS

For the purposes of this Plan, the following terms have the following meanings:

Account Holder – Any Person holding a Deposit Account in the Bank.

Acting in Concert – The term Acting in Concert means: (i) knowing participation in a joint activity or interdependent conscious parallel action towards a common goal whether or not pursuant to an express agreement; or (ii) a combination or pooling of voting or other interests in the securities of an issuer for a common purpose pursuant to any contract, understanding, relationship, agreement or other arrangement, whether written or otherwise. A person or company which acts in concert with another person or company (“other party”) shall also be deemed to be acting in concert with any person or company who is also acting in concert with that other party, except that any Tax-Qualified Employee Stock Benefit Plan will not be deemed to be acting in concert with its trustee or a person who serves in a similar capacity solely for the purpose of determining whether stock held by the trustee and stock held by the plan will be aggregated.

Affiliate – Any Person that directly or indirectly, through one or more intermediaries, controls, is controlled by, or is under common control with another Person.

Appraised Value Range – The range of the estimated consolidated pro forma market value of the Holding Company, which shall also be equal to the estimated pro forma market value of the total number of shares of Conversion Stock to be issued in the Conversion, as determined by the Independent Appraiser prior to the Subscription Offering and as it may be amended from time to time thereafter. The maximum and minimum of the Appraised Value Range may vary as much as 15% above and 15% below, respectively, the midpoint of the Appraised Value Range.

Articles of Combination – The Articles of Combination filed with the Federal Reserve and any similar documents filed with the Bank Regulators in connection with the consummation of any merger relating to the Conversion.

Articles of Merger – The Articles of Merger filed with the Maryland Department and any similar documents in connection with the consummation of any merger relating to the Conversion.

Associate – The term Associate when used to indicate a relationship with any Person, means (i) any corporation or organization (other than the Mutual Holding Company, the Mid-Tier Holding Company, the Bank or a majority-owned subsidiary of the Mutual Holding Company, the Mid-Tier Holding Company or the Bank) if the person is a senior officer or partner or beneficially owns, directly or indirectly, 10% or more of any class of equity securities of the corporation or organization, (ii) any trust or other estate, if the person has a substantial beneficial interest in the trust or estate or is a trustee or fiduciary of the trust or estate except that for the purposes of this Plan relating to subscriptions in the Offering and the sale of Subscription Shares following the Conversion, a person who has a substantial beneficial interest in any Non-Tax-Qualified Employee Stock Benefit Plan or any Tax-Qualified Employee Stock Benefit Plan, or who is a trustee or fiduciary of such plan, is not an Associate of such plan, and except that, for purposes of aggregating total shares that may be held by Officers and Directors the term “Associate” does not include any Tax-Qualified Employee Stock Benefit Plan, and (iii) any person who is related by blood or marriage to such person and (A) who lives in the same home as such person or (B) who is a Director or Officer of the Mutual Holding Company, the Mid-Tier Holding Company, the Bank or the Holding Company, or any of their parents or subsidiaries.

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Bank – Pathfinder Bank, Oswego, New York, a New York-chartered stock savings bank.

Bank Liquidation Account – The account established by the Bank representing the liquidation interests received by Eligible Account Holders and Supplemental Eligible Account Holders in connection with the Conversion.

Bank Regulators – The Federal Reserve and other bank regulatory agencies, if any, responsible for reviewing and approving the Conversion, including the ownership of the Bank by the Holding Company and the mergers required to effect the Conversion.

Code – The Internal Revenue Code of 1986, as amended.

Community – The New York counties of Oswego, Onondaga, Madison, Oneida, Cortland, Lewis, Jefferson, Cayuga and Wayne.

Community Offering – The offering of Subscription Shares not subscribed for in the Subscription Offering for sale to certain members of the general public directly by the Holding Company. The Community Offering may occur concurrently with the Subscription Offering, any Syndicated Community Offering or both, or upon conclusion of the Subscription Offering.

Control – (including the terms “controlling,” “controlled by,” and “under common control with”) means the direct or indirect power to direct or exercise a controlling influence over the management or policies of a Person, whether through the ownership of voting securities, by contract or otherwise as described in 12 C.F.R. Part 225.238.

Conversion – The conversion and reorganization of the Mutual Holding Company to stock form pursuant to this Plan, and all steps incident or necessary thereto, including the Offering and the Exchange Offering.

Conversion Stock – The Subscription Shares and the Exchange Shares.

Depositor – Any Person holding a Deposit Account in the Bank.

Deposit Account – Any withdrawable account, including, without limitation, savings, time, demand, NOW accounts, money market, certificate and passbook accounts.

Director – A member of the Board of Directors of the Bank, the Mid-Tier Holding Company, the Mutual Holding Company or the Holding Company, as appropriate in the context.

Eligible Account Holder – Any Person holding a Qualifying Deposit on the Eligibility Record Date for purposes of determining subscription rights and establishing subaccount balances in the Liquidation Account.

Eligibility Record Date – The date for determining Eligible Account Holders of the Bank, which is March 31, 2013.

Employees – All Persons who are employed by the Bank, the Mid-Tier Holding Company, the Holding Company or the Mutual Holding Company.

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Employee Plans – Any one or more Tax-Qualified Employee Stock Benefit Plans of the Bank or the Holding Company, including any ESOP and 401(k) Plan.

ESOP – The Bank’s Employee Stock Ownership Plan and related trust.

Exchange Offering – The offering of Holding Company Common Stock to Minority Stockholders in exchange for Minority Shares.

Exchange Ratio – The rate at which shares of Holding Company Common Stock are exchanged for Minority Shares upon consummation of the Conversion. The Exchange Ratio shall be determined by the Mutual Holding Company, the Holding Company and the Bank and is intended to ensure that upon consummation of the Conversion, Minority Stockholders own in the aggregate the same percentage (after giving effect to any reduction in the Minority Ownership Interest determined immediately prior to the completion of the Conversion to reflect the market value of assets of the Mutual Holding Company following the date in which the Federal Reserve became the primary federal regulator of the Mutual Holding Company other than Mid-Tier Holding Company Common Stock) of Holding Company Common Stock to be outstanding upon completion of the Conversion as the percentage of Mid-Tier Holding Company common stock owned by them in the aggregate immediately prior to the completion of the Conversion, before giving effect to: (a) cash paid in lieu of any fractional interests of Mid-Tier Holding Company common stock; and (b) any shares of Conversion Stock purchased by the Minority Stockholders in the Offering.

Exchange Shares – The shares of Holding Company Common Stock issued to Minority Stockholders in the Exchange Offering.

FDIC – The Federal Deposit Insurance Corporation.

Federal Reserve – The Board of Governors of the Federal Reserve System.

Firm Commitment Underwritten Offering – The offering, at the sole discretion of the Holding Company, of Subscription Shares not subscribed for in the Subscription Offering and any Community Offering, to members of the general public through one or more underwriters. A Firm Commitment Underwritten Offering may occur following the Subscription Offering and any Community Offering.

Holding Company – The Maryland corporation formed for the purpose of acquiring all of the shares of capital stock of the Bank in connection with the Conversion. Shares of Holding Company Common Stock will be issued in the Conversion to Participants, Minority Stockholders and others in the Conversion.

Holding Company Common Stock – The common stock, par value $0.01 per share, of the Holding Company.

Independent Appraiser – The appraiser retained by the Mutual Holding Company, Mid-Tier Holding Company and the Bank to prepare an appraisal of the pro forma market value of the Holding Company.

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Liquidation Account – The account established by the Holding Company representing the liquidation interests received by Eligible Account Holders and Supplemental Eligible Account Holders in connection with the Conversion in exchange for their interests in the Mutual Holding Company immediately prior to the Conversion.

Majority Ownership Interest – A fraction, the numerator of which is equal to the number of shares of Mid–Tier Holding Company common stock owned by the Mutual Holding Company immediately prior to the completion of the Conversion, and the denominator of which is equal to the total number of shares of Mid-Tier Holding Company common stock issued and outstanding immediately prior to the completion of the Conversion. If required by federal regulation or policy, the Majority Ownership Interest shall be increased prior to the completion of the Conversion for purposes of determining the number of shares of Common Stock to be issued and sold in the Offering to reflect the market value of assets of the Mutual Holding Company following the date in which the Federal Reserve became the primary federal regulator of the Mutual Holding Company (other than common Stock of the Mid-Tier Holding Company). The increase in the Majority Ownership Interest shall be equal to any decrease in the Minority Ownership Interest as determined in accordance with this Plan.

Maryland Department – The Maryland State Department of Assessments and Taxation.

Meeting of Stockholders – The special or annual meeting of stockholders of the Mid-Tier Holding Company and any adjournments thereof held to consider and vote upon this Plan.

MHC Merger – The merger of the Mutual Holding Company with and into the Mid-Tier Holding Company, with the Mid-Tier Holding Company as the surviving entity, which merger shall occur immediately prior to completion of the Conversion, as set forth in this Plan.

Mid-Tier Holding Company – Pathfinder Bancorp, Inc., the federal corporation that owns 100% of the Bank’s common stock and any successor thereto.

Mid-Tier Merger – The merger of the Mid-Tier Holding Company with the Holding Company, with the Holding Company as the resulting entity, which merger shall occur immediately following the MHC Merger and prior to the completion of the Conversion, as set forth in this Plan.

Minority Ownership Interest – A fraction, the numerator of which is equal to the number of shares of Mid-Tier Holding Company common stock owned by Minority Stockholders immediately prior to the completion of the Conversion, and the denominator of which is equal to the total number of shares of Mid-Tier Holding Company common stock issued and outstanding immediately prior to the completion of the Conversion. If required by federal regulation or policy, the Minority Ownership Interest shall be reduced prior to the completion of the Conversion for purposes of determining the number of shares of Common Stock to be issued and sold in the Offering, to reflect the market value of assets of the Mutual Holding Company following the date in which the Federal Reserve became the primary federal regulator of the Mutual Holding Company (other than common stock of the Mid-Tier Holding Company). The adjustment to the Minority Ownership Interest shall be made by multiplying the Minority Ownership Interest by a fraction, (i) the numerator of which is equal to the pro forma market

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value of the Mid-Tier Holding Company less the market value of the Mutual Holding Company’s assets following the date in which the Federal Reserve became the primary federal regulator of the Mutual Holding Company (other than Mid-Tier Holding Company common stock), and (ii) the denominator of which is equal to the pro forma market value of the Mid-Tier Holding Company.

Minority Shares – Any outstanding common stock of the Mid-Tier Holding Company, or shares of common stock of the Mid-Tier Holding Company issuable upon the exercise of options or grant of stock awards, owned by persons other than the Mutual Holding Company.

Minority Stockholder – Any owner of Minority Shares.

Mutual Holding Company – Pathfinder Bancorp, MHC, the mutual holding company of the Mid-Tier Holding Company.

New York Department – The New York Department of Financial Services.

Offering – The offering and issuance, pursuant to this Plan, of Holding Company Common Stock in a Subscription Offering, Community Offering and/or Syndicated Community Offering or Firm Commitment Underwritten Offering, as the case may be. The term “Offering” does not include Holding Company Common Stock issued in the Exchange Offering.

Offering Range – The range of the number of shares of Holding Company Common Stock offered for sale in the Offering multiplied by the Subscription Price. The Offering Range shall be equal to the Appraised Value Range multiplied by the Majority Ownership Interest. The maximum and minimum of the Offering Range may vary as much as 15% above and 15% below, respectively, the midpoint of the Offering Range.

Officer – The term Officer means the president, any vice-president (but not an assistant vice-president, second vice-president, or other vice president having authority similar to an assistant or second vice-president), the secretary, the treasurer, the comptroller, and any other person performing similar functions with respect to any organization whether incorporated or unincorporated. The term Officer also includes the chairman of the Board of Directors if the chairman is authorized by the charter or bylaws of the organization to participate in its operating management or if the chairman in fact participates in such management

Order Form – Any form (together with any cover letter and acknowledgments) sent to any Participant or Person containing among other things a description of the alternatives available to such Person under the Plan and by which any such Person may make elections regarding subscriptions for Subscription Shares.

Other Depositor – Any Person holding a Deposit Account with a positive balance on the Voting Record Date who is not an Eligible Account Holder or Supplemental Eligible Account Holder.

Participant – Any Eligible Account Holder, Employee Plan, Supplemental Eligible Account Holder or Other Depositor.

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Person – An individual, a corporation, a partnership, an association, a joint-stock company, a limited liability company, a trust, an unincorporated organization, or a government or political subdivision of a government.

Plan – This Plan of Conversion and Reorganization of the Mutual Holding Company as it exists on the date hereof and as it may hereafter be amended in accordance with its terms.

Prospectus – The one or more documents used in offering the Conversion Stock.

Qualifying Deposit – The aggregate balance of all Deposit Accounts in the Bank of (i) an Eligible Account Holder at the close of business on the Eligibility Record Date, provided such aggregate balance is not less than $50, or (ii) a Supplemental Eligible Account Holder at the close of business on the Supplemental Eligibility Record Date, provided such aggregate balance is not less than $50.

Qualifying Depositor – Any Person holding a Qualifying Deposit in the Bank.

Resident – Any Person who occupies a dwelling within the Community, has a present intent to remain within the Community for a period of time, and manifests the genuineness of that intent by establishing an ongoing physical presence within the Community together with an indication that such presence within the Community is something other than merely transitory in nature. To the extent the Person is a corporation or other business entity, to be a Resident the principal place of business or headquarters of the corporation or business entity must be in the Community. To the extent a Person is a personal benefit plan, the circumstances of the beneficiary shall apply with respect to this definition. In the case of all other benefit plans, circumstances of the trustee shall be examined for purposes of this definition. The Mutual Holding Company and the Bank may utilize deposit or loan records or such other evidence provided to it to make a determination as to whether a Person is a resident. In all cases, however, such a determination shall be in the sole discretion of the Mutual Holding Company and the Bank. A Person must be a “Resident” for purposes of determining whether such person “resides” in the Community as such term is used in this Plan.

SEC – The United States Securities and Exchange Commission.

Special Meeting of Depositors – The special or annual meeting of Voting Depositors and any adjournments thereof held to consider and vote upon this Plan.

Stockholder – Any owner of outstanding common stock of the Mid-Tier Holding Company, including the Mutual Holding Company.

Subscription Offering – The offering of Subscription Shares to Participants.

Subscription Price – The price per Subscription Share to be paid by Participants and others in the Offering. The Subscription Price will be $10 unless otherwise determined by the Board of Directors of the Holding Company and fixed prior to the commencement of the Subscription Offering.

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Subscription Shares – Shares of Holding Company Common Stock offered for sale in the Offering. Subscription Shares do not include Exchange Shares.

Supplemental Eligible Account Holder – Any Person, other than Directors and Officers of the Mutual Holding Company, the Bank and the Mid-Tier Holding Company and their Associates, holding a Qualifying Deposit on the Supplemental Eligibility Record Date, who is not an Eligible Account Holder.

Supplemental Eligibility Record Date – The date for determining Supplemental Eligible Account Holders, which shall be the last day of the calendar quarter preceding Federal Reserve approval of the application for conversion. The Supplemental Eligibility Record Date will only occur if the Federal Reserve has not approved the Conversion within 15 months after the Eligibility Record Date.

Syndicated Community Offering – The offering, at the sole discretion of the Holding Company, of Subscription Shares not subscribed for in the Subscription Offering and the Community Offering, to members of the general public through a syndicate of broker-dealers. The Syndicated Community Offering may occur concurrently with the Subscription Offering and any Community Offering.

Tax-Qualified Employee Stock Benefit Plan – Any defined benefit plan or defined contribution plan, such as an employee stock ownership plan, stock bonus plan, profit-sharing plan or other plan, which, with its related trust, meets the requirements to be “qualified” under Section 401 of the Code. A “Non-Tax-Qualified Employee Stock Benefit Plan” is any defined benefit plan or defined contribution plan which is not so qualified.

Voting Depositor – Any Person who at the close of business on the Voting Record Date is entitled to vote at a meeting of depositors.

Voting Record Date – The date fixed by the Directors for determining eligibility to vote at the Special Meeting of Depositors and/or the Meeting of Stockholders.

3. PROCEDURES FOR CONVERSION

A.        After approval of this Plan by the Boards of Directors of the Bank, the Mid-Tier Holding Company and the Mutual Holding Company, this Plan together with all other requisite material shall be submitted to the Bank Regulators for approval. Notice of the adoption of this Plan by the Boards of Directors of the Bank, the Mutual Holding Company and the Mid-Tier Holding Company will be published in a newspaper having general circulation in each community in which an office of the Bank is located, and copies of this Plan will be made available at each office of the Bank for inspection by Depositors. The Mutual Holding Company will publish a notice of the filing with the Bank Regulators of an application to convert in accordance with the provisions of this Plan as well as notices required in connection with any holding company, merger or other applications required to complete the Conversion.

B.        Promptly following approval by the Bank Regulators, this Plan will be submitted to a vote of the Voting Depositors at the Special Meeting of Depositors and of the Stockholders of the Mid-Tier Holding Company at the Meeting of Stockholders. The Mutual Holding

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Company will mail to all Voting Depositors, at their last known address appearing on the records of the Bank as of the Voting Record Date, a proxy statement in either long or summary form describing this Plan, which will be submitted to a vote of Voting Depositors at the Special Meeting of Depositors. The Mid-Tier Holding Company will mail to all Minority Stockholders a proxy statement describing this Plan, which will be submitted to a vote of Stockholders at the Meeting of Stockholders. The Holding Company also will mail to all Participants a Prospectus and Order Form for the purchase of Subscription Shares. In addition, all Participants will receive, or will be given the opportunity to request by either telephone or by letter addressed to the Bank’s Secretary, a copy of this Plan as well as the articles of incorporation and bylaws of the Holding Company. This Plan must be approved by at least (i) a majority of the total votes eligible to be cast by Voting Depositors at the Special Meeting of Depositors, (ii) two-thirds of the total votes eligible to be cast by Stockholders at the Meeting of Stockholders, and (iii) a majority of the total votes eligible to be cast by Minority Stockholders at the Meeting of Stockholders. Upon such approval of this Plan, the Mutual Holding Company, the Mid-Tier Holding Company, the Holding Company and the Bank will take all other necessary steps pursuant to applicable laws and regulations to consummate the Conversion. The Conversion must be completed within 24 months of the approval of this Plan by Voting Depositors, unless a longer time period is permitted by governing laws and regulations.

C.        The period for the Subscription Offering will be not less than 20 days nor more than 45 days from the date Participants are first mailed a Prospectus and Order Form, unless extended. Any shares of Holding Company Common Stock for which subscriptions have not been received in the Subscription Offering may be issued in a Community Offering, and/or a Syndicated Community Offering or a Firm Commitment Underwritten Offering, or in any other manner permitted by the Bank Regulators. All sales of shares of Holding Company Common Stock must be completed within 45 days after the last day of the Subscription Offering, unless the offering period is extended by the Mutual Holding Company and the Holding Company with the approval of the Bank Regulators.

D.        The Conversion will be effected as follows, or in any other manner that is consistent with the purposes of this Plan and applicable laws and regulations. The choice of which method to use to effect the Conversion will be made by the Boards of Directors of the Mutual Holding Company, the Mid-Tier Holding Company and the Bank immediately prior to the closing of the Conversion. Each of the steps set forth below shall be deemed to occur in such order as is necessary to consummate the Conversion pursuant to this Plan, the intent of the Boards of Directors of the Mutual Holding Company, the Mid-Tier Holding Company and the Bank, and applicable federal and state regulations and policy. Approval of this Plan by Voting Depositors and Stockholders of the Mid-Tier Holding Company also shall constitute approval of each of the transactions necessary to implement this Plan.

(1) The Holding Company will be organized as a first-tier stock subsidiary of the Mid-Tier Holding Company.

(2) The Mutual Holding Company will merge with the Mid-Tier Holding Company with the Mid-Tier Holding Company as the surviving entity pursuant to the Agreement of Merger attached hereto as Exhibit A, whereby the shares of Mid-Tier Holding Company common stock held by the Mutual Holding Company will

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be canceled and Qualifying Depositors will constructively receive liquidation interests in the Mid-Tier Holding Company in exchange for their ownership interests in the Mutual Holding Company.

(3) Immediately after the MHC Merger, the Mid-Tier Holding Company will merge with the Holding Company with the Holding Company as the surviving entity pursuant to the Agreement of Merger attached hereto as Exhibit B, whereby the Bank will become the wholly-owned subsidiary of the Holding Company. As part of the Mid-Tier Merger, the liquidation interests in the Mid-Tier Holding Company constructively received by Qualifying Depositors as part of the MHC Merger will automatically, without further action on the part of the holders thereof, be exchanged for interests in the Liquidation Account, and each of the Minority Shares shall automatically, without further action on the part of the holders thereof, be converted into and become the right to receive Holding Company Common Stock based upon the Exchange Ratio.

(4) Immediately after the Mid-Tier Merger, the Holding Company will offer for sale the Holding Company Common Stock in the Offering.

(5) The Holding Company will contribute at least 50% of the net proceeds of the Offering to the Bank in constructive exchange for additional shares of common stock of the Bank and in exchange for the Bank Liquidation Account.

E.        As part of the Conversion, each of the Minority Shares outstanding immediately prior to consummation of the Conversion shall automatically, without further action on the part of the holders thereof, be converted into and become the right to receive Holding Company Common Stock based upon the Exchange Ratio. The basis for exchange of Minority Shares for Holding Company Common Stock shall be fair and reasonable. Options to purchase shares of Mid-Tier Holding Company common stock which are outstanding immediately prior to the consummation of the Conversion shall be converted into options to purchase shares of Holding Company Common Stock, with the number of shares subject to the option and the exercise price per share to be adjusted based upon the Exchange Ratio so that the aggregate exercise price remains unchanged, and with the duration of the option remaining unchanged.

F.        The Holding Company shall register the Conversion Stock with the SEC and any appropriate state securities authorities. In addition, the Mid-Tier Holding Company shall prepare preliminary proxy materials as well as other applications and information for review by the SEC in connection with the solicitation of Stockholder approval of this Plan.

G.        All assets, rights, interests, privileges, powers, franchises and property (real, personal and mixed) of the Mid-Tier Holding Company and the Mutual Holding Company shall be automatically transferred to and vested in the Holding Company by virtue of the Conversion without any deed or other document of transfer. The Holding Company, without any order or action on the part of any court or otherwise and without any documents of assumption or assignment, shall hold and enjoy all of the properties, franchises and interests, including appointments, powers, designations, nominations and all other rights and interests as the agent or other fiduciary in the same manner and to the same extent as such rights, franchises, and interests

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and powers were held or enjoyed by the Mid-Tier Holding Company and the Mutual Holding Company. The Holding Company shall be responsible for all of the liabilities, restrictions and duties of every kind and description of the Mid-Tier Holding Company and the Mutual Holding Company immediately prior to the Conversion, including liabilities for all debts, obligations and contracts of the Mid-Tier Holding Company and the Mutual Holding Company, matured or unmatured, whether accrued, absolute, contingent or otherwise and whether or not reflected or reserved against on balance sheets, books of accounts or records of the Mid-Tier Holding Company and the Mutual Holding Company.

H.        The home office and branch offices of the Bank shall be unaffected by the Conversion. The executive offices of the Holding Company shall be located at the current offices of the Mutual Holding Company and Mid-Tier Holding Company.

4. HOLDING COMPANY APPLICATIONS AND APPROVALS

The Boards of Directors of the Mutual Holding Company, the Mid-Tier Holding Company, the Holding Company and the Bank will take all necessary steps to convert the Mutual Holding Company to stock form, form the Holding Company and complete the Offering. The Mutual Holding Company, Mid-Tier Holding Company, Bank and Holding Company shall make timely applications to the Bank Regulators and filings with the SEC for any requisite regulatory approvals to complete the Conversion.

5. SALE OF SUBSCRIPTION SHARES

The Subscription Shares will be offered simultaneously in the Subscription Offering to the Participants in the respective priorities set forth in this Plan. The Subscription Offering may begin as early as the mailing of the proxy statement for the Special Meeting of Depositors. The Holding Company Common Stock will not be insured by the FDIC. The Bank will not extend credit to any Person to purchase shares of Holding Company Common Stock.

Any shares of Holding Company Common Stock for which subscriptions have not been received in the Subscription Offering may be issued in the Community Offering, subject to the terms and conditions of this Plan. The Community Offering, if any, will involve an offering of unsubscribed shares directly to the general public with a first preference given to those natural persons and trusts of natural persons residing in the Community and the next preference given to Minority Stockholders as of the Voting Record Date. The Community Offering may begin simultaneously with or later than the Subscription Offering. The offer and sale of Holding Company Common Stock prior to the Special Meeting of Depositors, however, is subject to the approval of this Plan by the Voting Depositors and the Stockholders of the Mid-Tier Holding Company, including Minority Stockholders.

If feasible, any shares of Holding Company Common Stock remaining unsold after the Subscription Offering and any Community Offering may be offered for sale in a Syndicated Community Offering or a Firm Commitment Underwritten Offering, or in any manner approved by the Bank Regulators that will achieve a widespread distribution of the Holding Company Common Stock. The issuance of Holding Company Common Stock in the Subscription Offering and any Community Offering will be consummated simultaneously on the date the sale of

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Holding Company Common Stock is consummated in any Syndicated Community Offering or Firm Commitment Underwritten Offering, and only if the required minimum number of shares of Holding Company Common Stock has been issued.

6. PURCHASE PRICE AND NUMBER OF SUBSCRIPTION SHARES

The total number of shares of Conversion Stock to be offered in the Conversion will be determined jointly by the Boards of Directors of the Mutual Holding Company, the Mid-Tier Holding Company and the Holding Company immediately prior to the commencement of the Subscription Offering, and will be based on the Appraised Value Range and the Subscription Price. The Offering Range will be equal to the Appraised Value Range multiplied by the Majority Ownership Interest. The estimated pro forma consolidated market value of the Holding Company will be subject to adjustment within the Appraised Value Range if necessitated by market or financial conditions, with the receipt of any required approvals of the Bank Regulators, and the maximum of the Appraised Value Range may be increased by up to 15% subsequent to the commencement of the Subscription Offering to reflect changes in market and financial conditions or demand for the shares. The number of shares of Conversion Stock issued in the Conversion will be equal to the estimated pro forma consolidated market value of the Holding Company, as may be amended, divided by the Subscription Price, and the number of Subscription Shares issued in the Offering will be equal to the product of (i) the estimated pro forma consolidated market value of the Holding Company, as may be amended, divided by the Subscription Price, and (ii) the Majority Ownership Interest.

In the event that the Subscription Price multiplied by the number of shares of Conversion Stock to be issued in the Conversion is below the minimum of the Appraised Value Range, or materially above the maximum of the Appraised Value Range, a resolicitation of purchasers may be required, provided that up to a 15% increase above the maximum of the Appraised Value Range will not be deemed material so as to require a resolicitation. Any such resolicitation shall be effected in such manner and within such time as the Mutual Holding Company, Mid-Tier Holding Company and the Holding Company shall establish, if all required regulatory approvals are obtained.

Notwithstanding the foregoing, shares of Conversion Stock will not be issued unless, prior to the consummation of the Conversion, the Independent Appraiser confirms to the Bank, the Mutual Holding Company, the Holding Company, and the Bank Regulators, that, to the best knowledge of the Independent Appraiser, nothing of a material nature has occurred which, taking into account all relevant factors, would cause the Independent Appraiser to conclude that the number of shares of Conversion Stock issued in the Conversion multiplied by the Subscription Price is incompatible with its estimate of the aggregate consolidated pro forma market value of the Holding Company. If such confirmation is not received, the Holding Company may cancel the Offering and the Exchange Offering, extend the Offering and establish a new Subscription Price and/or Appraised Value Range, hold a new Offering and Exchange Offering after canceling the Offering and the Exchange Offering, or take such other action as the Bank Regulators may permit.

The Holding Company Common Stock to be issued in the Conversion shall be fully paid and nonassessable.

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7. RETENTION OF CONVERSION PROCEEDS BY THE HOLDING COMPANY

The Holding Company may retain up to 50% of the net proceeds of the Offering. The Holding Company believes that the Offering proceeds will provide economic strength to the Holding Company and the Bank for the future in a highly competitive and regulated financial services environment, and would support the growth in the operations of the Holding Company and the Bank through increased lending, acquisitions of financial service organizations, continued diversification into other related businesses and other business and investment activities, including the possible payment of dividends and possible future repurchases of the Holding Company Common Stock as permitted by applicable federal and state regulations and policy.

8. SUBSCRIPTION RIGHTS OF ELIGIBLE ACCOUNT HOLDERS (FIRST PRIORITY)

A.        Each Eligible Account Holder shall have nontransferable subscription rights to subscribe for in the Subscription Offering up to the greater of $250,000 of Holding Company Common Stock, 0.10% of the total number of shares of Holding Company Common Stock issued in the Offering, or fifteen times the product (rounded down to the next whole number) obtained by multiplying the number of Subscription Shares offered in the Offering by a fraction of which the numerator is the amount of the Eligible Account Holder’s Qualifying Deposit and the denominator is the total amount of Qualifying Deposits of all Eligible Account Holders, in each case on the Eligibility Record Date, subject to the purchase limitations specified in Section 14.

B.        In the event that Eligible Account Holders exercise subscription rights for a number of Subscription Shares in excess of the total number of such shares eligible for subscription, the Subscription Shares shall be allocated among the subscribing Eligible Account Holders so as to permit each subscribing Eligible Account Holder to purchase a number of shares sufficient to make his or her total allocation of Subscription Shares equal to the lesser of 100 shares or the number of shares for which such Eligible Account Holder has subscribed. Any remaining shares will be allocated among the subscribing Eligible Account Holders whose subscriptions remain unsatisfied in the proportion that the amount of the Qualifying Deposit of each Eligible Account Holder whose subscription remains unsatisfied bears to the total amount of the Qualifying Deposits of all Eligible Account Holders whose subscriptions remain unsatisfied. If the amount so allocated exceeds the amount subscribed for by any one or more Eligible Account Holders, the excess shall be reallocated (one or more times as necessary) among those Eligible Account Holders whose subscriptions are still not fully satisfied on the same principle until all available shares have been allocated.

C.        Subscription rights as Eligible Account Holders received by Directors and Officers and their Associates that are based on deposits made by such persons during the 12 months preceding the Eligibility Record Date shall be subordinated to the subscription rights of all other Eligible Account Holders, except as permitted by the Bank Regulators.

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9. SUBSCRIPTION RIGHTS OF EMPLOYEE PLANS (SECOND PRIORITY)

The Employee Plans of the Holding Company and the Bank shall have subscription rights to purchase in the aggregate up to 10% of the Subscription Shares issued in the Offering, including any Subscription Shares to be issued as a result of an increase in the maximum of the Offering Range after commencement of the Subscription Offering and prior to completion of the Conversion. Consistent with applicable laws and regulations and practices and policies, the Employee Plans may use funds contributed by the Holding Company or the Bank and/or borrowed from an independent financial institution to exercise such subscription rights, and the Holding Company and the Bank may make scheduled discretionary contributions thereto, provided that such contributions do not cause the Holding Company or the Bank to fail to meet any applicable regulatory capital requirements. The Employee Plans shall not be deemed to be Associates or Affiliates of or Persons Acting in Concert with any Director or Officer of the Holding Company or the Bank. Alternatively, if permitted by the Bank Regulators, the Employee Plans may purchase all or a portion of such shares in the open market after the completion of the Conversion.

10. SUBSCRIPTION RIGHTS OF SUPPLEMENTAL ELIGIBLE ACCOUNT HOLDERS (THIRDPRIORITY)

A.        Each Supplemental Eligible Account Holder shall have nontransferable subscription rights to subscribe for in the Subscription Offering up to the greater of $250,000 of Holding Company Common Stock, 0.10% of the total number of shares of Holding Company Common Stock issued in the Offering, or fifteen times the product (rounded down to the next whole number) obtained by multiplying the number of Subscription Shares offered in the Offering by a fraction of which the numerator is the amount of the Supplemental Eligible Account Holder’s Qualifying Deposit and the denominator is the total amount of Qualifying Deposits of all Supplemental Eligible Account Holders, in each case on the Supplemental Eligibility Record Date, subject to the availability of sufficient shares after filling in full all subscription orders of Eligible Account Holders and Employee Plans and subject to the purchase limitations specified in Section 14.

B.        In the event that Supplemental Eligible Account Holders exercise subscription rights for a number of Subscription Shares in excess of the total number of such shares eligible for subscription, the Subscription Shares shall be allocated among the subscribing Supplemental Eligible Account Holders so as to permit each subscribing Supplemental Eligible Account Holder, to the extent possible, to purchase a number of shares sufficient to make his or her total allocation of Subscription Shares equal to the lesser of 100 shares or the number of shares for which such Supplemental Eligible Account Holder has subscribed. Any remaining shares will be allocated among the subscribing Supplemental Eligible Account Holders whose subscriptions remain unsatisfied in the proportion that the amount of the Qualifying Deposit of such Supplemental Eligible Account Holder whose subscription remains unsatisfied bears to the total amount of the Qualifying Deposits of all Supplemental Eligible Account Holders whose subscriptions remain unsatisfied. If the amount so allocated exceeds the amount subscribed for by any one or more Supplemental Eligible Account Holders, the excess shall be reallocated (one or more times as necessary) among those Supplemental Eligible Account Holders whose

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subscriptions are still not fully satisfied on the same principle until all available shares have been allocated.

11. SUBSCRIPTION RIGHTS OF OTHER DEPOSITORS (FOURTH PRIORITY)

A.        Each Other Depositor shall have nontransferable subscription rights to subscribe for in the Subscription Offering up to the greater of $250,000 of Holding Company Common Stock or 0.10% of the total number of shares of Holding Company Common Stock issued in the Offering, subject to the availability of sufficient shares after filling in full all subscription orders of Eligible Account Holders, Employee Plans and Supplemental Eligible Account Holders and subject to the purchase limitations specified in Section 14.

B.        In the event that such Other Depositors subscribe for a number of Subscription Shares which, when added to the Subscription Shares subscribed for by the Eligible Account Holders, Employee Plans and Supplemental Eligible Account Holders, is in excess of the total number of Subscription Shares to be issued, the available shares will be allocated among Other Depositors so as to permit each such subscribing Other Depositor, to the extent possible, to purchase a number of shares sufficient to make his or her total allocation of Subscription Shares equal to the lesser of 100 shares or the number of shares for which each such Other Depositor has subscribed. Any remaining shares will be allocated among the subscribing Other Depositors whose subscriptions remain unsatisfied in the proportion that the amount of the subscription of each such Other Depositor bears to the total amount of the subscriptions of all Other Depositors whose subscriptions remain unsatisfied.

12. COMMUNITY OFFERING

If subscriptions are not received for all Subscription Shares offered for sale in the Subscription Offering, shares for which subscriptions have not been received may be offered for sale in the Community Offering through a direct community marketing program which may use a broker, dealer, consultant or investment banking firm experienced and expert in the sale of savings institutions securities. Such entities may be compensated on a fixed fee basis or on a commission basis, or a combination thereof. In the event orders for Holding Company Common Stock in the Community Offering exceed the number of shares available for sale, shares may be allocated (to the extent shares remain available) first to cover orders of natural persons (including trusts of natural persons) residing in the Community, next to cover orders of Minority Stockholders as of the Voting Record Date, and thereafter to cover orders of other members of the general public. In the event orders for Holding Company Common Stock exceed the number of shares available for sale in a category pursuant to the purchase priorities described in the preceding sentence, shares will be allocated within the category so that each member of that category will receive the lesser of 100 shares or the amount ordered and thereafter remaining shares will be allocated on an equal number of shares basis per order. In connection with the allocation, orders received for Holding Company Common Stock in the Community Offering will first be filled up to a maximum of two percent (2%) of the shares sold in the Offering, and thereafter any remaining shares will be allocated on an equal number of shares basis per order. The Mutual Holding Company and the Holding Company shall use their best efforts consistent with this Plan to distribute Holding Company Common Stock sold in the Community Offering in

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such a manner as to promote the widest distribution practicable of such stock. The Holding Company reserves the right to reject any or all orders, in whole or in part, that are received in the Community Offering. Any Person may purchase up to $250,000 of Holding Company Common Stock in the Community Offering, subject to the purchase limitations specified in Section 14.

13. SYNDICATED COMMUNITY OFFERING OR FIRM COMMITMENT UNDERWRITTEN OFFERING

If feasible, the Board of Directors may determine to offer Subscription Shares not sold in the Subscription Offering or the Community Offering, if any, for sale in a Syndicated Community Offering, subject to such terms, conditions and procedures as may be determined by the Mutual Holding Company and the Holding Company, in a manner that will achieve the widest distribution of Holding Company Common Stock, subject to the right of the Holding Company to accept or reject in whole or in part any orders in the Syndicated Community Offering. In the Syndicated Community Offering, any Person may purchase up to $250,000 of Holding Company Common Stock, subject to the purchase limitations specified in Section 14. In addition, unless otherwise approved by the Federal Reserve, orders received for Holding Company Common Stock in the Syndicated Community Offering will first be filled up to a maximum of two percent (2%) of the shares sold in the Offering, and thereafter any remaining shares will be allocated on an equal number of shares basis per order. Provided that the Subscription Offering has begun, the Holding Company may begin the Syndicated Community Offering at any time. The Holding Company reserves the right to reject any or all orders, in whole or in part, that are received in the Syndicated Community Offering.

Alternatively, if feasible, the Board of Directors may determine to offer Subscription Shares not sold in the Subscription Offering or any Community Offering for sale in a Firm Commitment Underwritten Offering subject to such terms, conditions and procedures as may be determined by the Mutual Holding Company and the Holding Company, subject to the right of the Holding Company to accept or reject in whole or in part any orders in the Firm Commitment Underwritten Offering. Provided the Subscription Offering has begun, the Holding Company may begin the Firm Commitment Underwritten Offering at any time.

If for any reason a Syndicated Community Offering or Firm Commitment Underwritten Offering of shares of Holding Company Common Stock not sold in the Subscription Offering or any Community Offering cannot be effected, or in the event that any insignificant residue of shares of Holding Company Common Stock is not sold in the Subscription Offering, Community Offering, or any Syndicated Community Offering or Firm Commitment Underwritten Offering, the Holding Company will use its best efforts to make other arrangements for the disposition of unsubscribed shares aggregating at least the minimum of the Offering Range. Such other purchase arrangements will be subject to receipt of any required approval of the Bank Regulators.

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14. LIMITATIONS ON PURCHASES

The following limitations shall apply to all purchases and issuances of shares of Conversion Stock:

A.        The maximum number of shares of Holding Company Common Stock that may be subscribed for or purchased in all categories in the Offering by any Person or Participant, together with any Associate or group of Persons Acting in Concert, shall not exceed $500,000 of Holding Company Common Stock, except that the Employee Plans may subscribe for up to 10% of the Holding Company Common Stock issued in the Offering (including shares issued in the event of an increase in the maximum of the Offering Range of 15%).

B.        The maximum number of shares of Holding Company Common Stock that may be issued to or purchased in all categories of the Offering by Officers and Directors and their Associates in the aggregate, shall not exceed 25% of the shares of Conversion Stock.

C.        The maximum number of shares of Holding Company Common Stock that may be subscribed for or purchased in all categories of the Offering by any Person or Participant together with purchases by any Associate or group of Persons Acting in Concert, combined with Exchange Shares received by any such Person or Participant together with any Associate or group of Persons Acting in Concert, shall not exceed 9.9% of the shares of Conversion Stock, except that this ownership limitation shall not apply to Employee Plans.

D.        A minimum of 25 shares of Holding Company Common Stock must be purchased by each Person or Participant purchasing shares in the Offering to the extent those shares are available; provided, however, that in the event the minimum number of shares of Holding Company Common Stock purchased times the Subscription Price exceeds $500, then such minimum purchase requirement shall be reduced to such number of shares which when multiplied by the price per share shall not exceed $500, as determined by the Board.

E.        If the number of shares of Holding Company Common Stock otherwise allocable pursuant to Sections 8 through 13, inclusive, to any Person or that Person’s Associates would be in excess of the maximum number of shares permitted as set forth above, the number of shares of Holding Company Common Stock allocated to each such person shall be reduced to the lowest limitation applicable to that Person, and then the number of shares allocated to each group consisting of a Person and that Person’s Associates shall be reduced so that the aggregate allocation to that Person and his or her Associates complies with the above limits.

Depending upon market or financial conditions, the Boards of Directors of the Holding Company and the Mutual Holding Company, with the receipt of any required approvals of the Bank Regulators and without further approval of Voting Depositors or Stockholders, may decrease or increase the purchase limitations in this Plan, provided that the maximum purchase limitations may not be increased to a percentage in excess of 5% of the shares issued in the Offering except as provided below. If the Mutual Holding Company and the Holding Company increase the maximum purchase limitations, the Mutual Holding Company and the Holding Company are only required to resolicit Participants who subscribed for the maximum purchase amount in the Subscription Offering and may, in the sole discretion of the Mutual Holding

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Company and the Holding Company, resolicit certain other large purchasers. In the event of such a resolicitation, the Mutual Holding Company and the Holding Company shall have the right, in their sole discretion, to require such persons to supply immediately available funds for the purchase of additional shares of Holding Company Common Stock. Such persons will be prohibited from paying with a personal check, but the Mutual Holding Company and the Holding Company may allow payment by wire transfer. In the event that the maximum purchase limitation is increased to 5% of the shares issued in the Offering, such limitation may be further increased to 9.99%, provided that orders for Holding Company Common Stock exceeding 5% of the shares of Holding Company Common Stock issued in the Offering shall not exceed in the aggregate 10% of the total shares of Holding Company Common Stock issued in the Offering. Requests to purchase additional shares of the Holding Company Common Stock in the event that the purchase limitation is so increased will be determined by the Board of Directors of the Holding Company in its sole discretion.

In the event of an increase in the total number of shares offered in the Offering due to an increase in the maximum of the Offering Range of up to 15% (the “Adjusted Maximum”), the additional shares may be used to fill the Employee Plans’ orders before all other orders and then will be allocated in accordance with the priorities set forth in this Plan.

For purposes of this Section 14, (i) Directors, Officers and Employees of the Bank, the Mid-Tier Holding Company, the Mutual Holding Company and the Holding Company or any of their subsidiaries shall not be deemed to be Associates or a group affiliated with each other or otherwise Acting in Concert solely as a result of their capacities as such, (ii) shares purchased by Tax-Qualified Employee Stock Benefit Plans shall not be attributable to the individual trustees or beneficiaries of any such plan for purposes of determining compliance with the limitations set forth in paragraphs A. and B. of this Section 14, and (iii) shares purchased by a Tax-Qualified Employee Stock Benefit Plan pursuant to instructions of an individual in an account in such plan in which the individual has the right to direct the investment, including any plan of the Bank qualified under Section 401(k) of the Internal Revenue Code of 1986, as amended, shall be aggregated and included in that individual’s purchases and not attributed to the Tax-Qualified Employee Stock Benefit Plan.

Each Person purchasing Holding Company Common Stock in the Offering shall be deemed to confirm that such purchase does not conflict with the above purchase limitations contained in this Plan.

15. PAYMENT FOR SUBSCRIPTION SHARES

All payments for Holding Company Common Stock subscribed for in the Subscription Offering and Community Offering must be delivered in full to the Bank or Holding Company, together with a properly completed and executed Order Form, on or prior to the expiration date of the Offering; provided, however, that if the Employee Plans subscribe for shares in the Subscription Offering, such plans will not be required to pay for the shares at the time they subscribe but rather may pay for such shares of Holding Company Common Stock subscribed for by such plans at the Subscription Price upon consummation of the Conversion. Subscription funds will be held in a segregated account at the Bank.

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Except as set forth in Section 14.E. above, payment for Holding Company Common Stock subscribed for shall be made by personal check, money order or bank draft. Alternatively, subscribers in the Subscription and Community Offerings may pay for the shares for which they have subscribed by authorizing the Bank on the Order Form to make a withdrawal from the designated types of Deposit Accounts at the Bank in an amount equal to the aggregate Subscription Price of such shares. Such authorized withdrawal shall be without penalty as to premature withdrawal. If the authorized withdrawal is from a certificate account, and the remaining balance does not meet the applicable minimum balance requirement, the certificate shall be canceled at the time of withdrawal, without penalty, and the remaining balance will earn interest at the passbook rate. Funds for which a withdrawal is authorized will remain in the subscriber’s Deposit Account but may not be used by the subscriber during the Subscription and Community Offerings. Thereafter, the withdrawal will be given effect only to the extent necessary to satisfy the subscription (to the extent it can be filled) at the Subscription Price per share. Interest will continue to be earned on any amounts authorized for withdrawal until such withdrawal is given effect. Interest on funds received by check, draft or money order will be paid by the Bank at not less than the passbook rate. Such interest will be paid from the date payment is processed by the Bank until consummation or termination of the Offering. If for any reason the Offering is not consummated, all payments made by subscribers in the Subscription and Community Offerings will be refunded to them, with interest. In case of amounts authorized for withdrawal from Deposit Accounts, refunds will be made by canceling the authorization for withdrawal. The Bank is prohibited by regulation from knowingly making any loans or granting any lines of credit for the purchase of stock in the Offering, and therefore, will not do so.

16. MANNER OF EXERCISING SUBSCRIPTION RIGHTS THROUGH ORDER FORMS

As soon as practicable after the registration statements prepared by the Holding Company have been declared effective by the SEC and the stock offering materials have been approved by the Bank Regulators, Order Forms will be distributed to the Eligible Account Holders, Employee Plans, Supplemental Eligible Account Holders and Other Depositors at their last known addresses appearing on the records of the Bank for the purpose of subscribing for shares of Holding Company Common Stock in the Subscription Offering and will be made available for use by those Persons to whom a Prospectus is delivered. Each Order Form will be preceded or accompanied by a Prospectus describing the Mutual Holding Company, the Mid-Tier Holding Company, the Holding Company, the Bank, the Holding Company Common Stock and the Offering. Each Order Form will contain, among other things, the following:

A.        A specified date by which all Order Forms must be received by the Mutual Holding Company or the Holding Company, which date shall be not less than 20 days, nor more than 45 days, following the date on which the Order Forms are first mailed to Participants by the Mutual Holding Company or the Holding Company, and which date will constitute the termination of the Subscription Offering unless extended;

B.        The Subscription Price per share for shares of Holding Company Common Stock to be sold in the Offering;

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C.        A description of the minimum and maximum number of Subscription Shares which may be subscribed for pursuant to the exercise of subscription rights or otherwise purchased in the Subscription and Community Offering;

D.        Instructions as to how the recipient of the Order Form is to indicate thereon the number of Subscription Shares for which such Person elects to subscribe and the available alternative methods of payment therefor;

E.        An acknowledgment that the recipient of the Order Form has received a final copy of the Prospectus prior to execution of the Order Form;

F.        A statement to the effect that all subscription rights are nontransferable, will be void at the end of the Subscription Offering, and can only be exercised by delivering to the Mutual Holding Company or the Holding Company or their agent within the subscription period such properly completed and executed Order Form, together with payment in the full amount of the aggregate purchase price as specified in the Order Form for the shares of Holding Company Common Stock for which the recipient elects to subscribe in the Subscription Offering (or by authorizing on the Order Form that the Bank withdraw said amount from the subscriber’s Deposit Account(s) at the Bank); and

G.        A statement to the effect that the executed Order Form, once received by the Mutual Holding Company or the Holding Company, may not be modified or amended by the subscriber without the consent of the Holding Company.

Notwithstanding the above, the Mutual Holding Company and the Holding Company reserve the right in their sole discretion to accept or reject orders received on photocopied or facsimiled order forms.

17. UNDELIVERED, DEFECTIVE OR LATE ORDER FORM; INSUFFICIENT PAYMENT

In the event Order Forms (a) are not delivered or are not timely delivered by the United States Postal Service, (b) are not received back by the Mutual Holding Company or Holding Company or are received by the Mutual Holding Company or Holding Company or their agent after the expiration date specified thereon, (c) are defectively filled out or executed, (d) are not accompanied by the full required payment for the shares of Holding Company Common Stock subscribed for (including cases in which deposit accounts from which withdrawals are authorized are insufficient to cover the amount of the required payment), or (e) are not mailed pursuant to a “no mail” order placed in effect by the account holder, the subscription rights of the Participant to whom such rights have been granted will lapse as though such Participant failed to return the completed Order Form within the time period specified thereon; provided, however, that the Holding Company may, but will not be required to, waive any immaterial irregularity on any Order Form or require the submission of corrected Order Forms or the remittance of full payment for subscribed shares by such date as the Holding Company may specify. The interpretation by the Holding Company of terms and conditions of this Plan and of the Order Forms will be final, subject to the authority of the Bank Regulators.

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18. RESIDENTS OF FOREIGN COUNTRIES AND CERTAIN STATES

The Holding Company will make reasonable efforts to comply with the securities laws of all states in the United States in which Persons entitled to subscribe for shares of Holding Company Common Stock pursuant to this Plan reside. However, no such Person will be issued subscription rights or be permitted to purchase shares of Holding Company Common Stock in the Subscription Offering if such Person resides in a foreign country; or in a state of the United States with respect to which any of the following apply: (a) a small number of Persons otherwise eligible to subscribe for shares under this Plan reside in such state; (b) the issuance of subscription rights or the offer or sale of shares of Holding Company Common Stock to such Persons would require the Holding Company under the securities laws of such state, to register as a broker, dealer, salesman or agent or to register or otherwise qualify its securities for sale in such state; or (c) such registration or qualification would be impracticable for reasons of cost or otherwise.

19. ESTABLISHMENT OF LIQUIDATION ACCOUNTS

A Liquidation Account shall be established by the Holding Company at the time of the Conversion in an amount equal to the product of (i) the Majority Ownership Interest and (ii) the Mid-Tier Holding Company’s total stockholders’ equity as reflected in the latest statement of financial condition contained in the final Prospectus used in the Conversion, plus the value of the net assets of the Mutual Holding Company as reflected in the latest statement of financial condition of the Mutual Holding Company prior to the effective date of the Conversion (excluding its ownership of Mid-Tier Holding Company common stock). Following the Conversion, the Liquidation Account will be maintained for the benefit of the Eligible Account Holders and Supplemental Eligible Account Holders who continue to maintain their Deposit Accounts at the Bank. Each Eligible Account Holder and Supplemental Eligible Account Holder shall, with respect to his Deposit Account, hold a related inchoate interest in a portion of the Liquidation Account balance in relation to his Deposit Account balance at the Eligibility Record Date or Supplemental Eligibility Record Date, respectively, or to such balance as it may be subsequently reduced, as hereinafter provided. The Holding Company also shall cause the Bank to establish and maintain the Bank Liquidation Account for the benefit of Eligible Account Holders and Supplemental Eligible Account Holders who continue to maintain their Deposit Accounts at the Bank.

In the unlikely event of a complete liquidation of (i) the Bank or (ii) the Bank and the Holding Company (and only in such event) following all liquidation payments to creditors (including those to Account Holders to the extent of their Deposit Accounts), each Eligible Account Holder and Supplemental Eligible Account Holder shall be entitled to receive a liquidating distribution from the Liquidation Account, in the amount of the then adjusted subaccount balance for such Account Holder’s Deposit Account, before any liquidation distribution may be made to any holders of the Holding Company’s capital stock. A merger, consolidation or similar combination with another depository institution or holding company thereof, in which the Holding Company and/or the Bank is not the surviving entity, shall not be deemed to be a complete liquidation for this purpose. In such transactions, the Liquidation Account shall be assumed by the surviving holding company or institution.

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In the unlikely event of a complete liquidation of either (i) the Bank or (ii) the Bank and the Holding Company (and only in such event) following all liquidation payments to creditors of the Bank (including those to Account Holders to the extent of their Deposit Accounts), at a time when the Bank has a positive net worth and the Holding Company does not have sufficient assets (other than the stock of the Bank) at the time of liquidation to fund its obligations under the Liquidation Account, the Bank, with respect to the Bank Liquidation Account shall immediately pay directly to each Eligible Account Holder and Supplemental Eligible Account Holder an amount necessary to fund the Holding Company’s remaining obligations under the Liquidation Account before any liquidating distribution may be made to any holders of the Bank’s capital stock and without making such amount subject to the Holding Company’s creditors. Each Eligible Account Holder and Supplemental Eligible Account Holder shall be entitled to receive a distribution from the Liquidation Account with respect to the Holding Company, in the amount of the then adjusted subaccount balance for his Deposit Account then held, before any distribution may be made to any holders of the Holding Company’s capital stock.

In the event of a complete liquidation of the Holding Company where the Bank is not also completely liquidating, or in the event of a sale or other disposition of the Holding Company apart from the Bank, each Eligible Account Holder and Supplemental Eligible Account Holder shall be treated as surrendering such Person’s rights to the Liquidation Account and receiving from the Holding Company an equivalent interest in the Bank Liquidation Account. Each such holder’s interest in the Bank Liquidation Account shall be subject to the same rights and terms as if the Bank Liquidation Account were the Liquidation Account (except that the Holding Company shall cease to exist).

The initial subaccount balance for a Deposit Account held by an Eligible Account Holder and Supplemental Eligible Account Holder shall be determined by multiplying the opening balance in the Liquidation Account by a fraction, the numerator of which is the amount of the Qualifying Deposits of such Account Holder and the denominator of which is the total amount of all Qualifying Deposits of all Eligible Account Holders and Supplemental Eligible Account Holders. For Deposit Accounts in existence at both the Eligibility Record Date and the Supplemental Eligibility Record Date, separate initial subaccount balances shall be determined on the basis of the Qualifying Deposits in such Deposit Account on each such record date. Such initial subaccount balance shall not be increased, but shall be subject to downward adjustment as described below.

If, at the close of business on any annual closing date, commencing on or after the effective date of the Conversion, the deposit balance in the Deposit Account of an Eligible Account Holder or Supplemental Eligible Account Holder is less than the lesser of (i) the balance in the Deposit Account at the close of business on any other annual closing date subsequent to the Eligibility Record Date or Supplemental Eligibility Record Date, or (ii) the amount of the Qualifying Deposit in such Deposit Account as of the Eligibility Record Date or Supplemental Eligibility Record Date, the subaccount balance for such Deposit Account shall be adjusted by reducing such subaccount balance in an amount proportionate to the reduction in such deposit balance. In the event of such downward adjustment, the subaccount balance shall not be subsequently increased, notwithstanding any subsequent increase in the deposit balance of the related Deposit Account. If any such Deposit Account is closed, the related subaccount shall be reduced to zero.

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The creation and maintenance of the Liquidation Account and the Bank Liquidation Account shall not operate to restrict the use or application of any capital of the Holding Company or the Bank, except that neither the Holding Company nor the Bank shall declare or pay a cash dividend on, or repurchase any of, its capital stock if the effect thereof would cause its equity to be reduced below: (i) the amount required for the Liquidation Account or the Bank Liquidation Account, as applicable; or (ii) the regulatory capital requirements of the Holding Company (to the extent applicable) or the Bank. Neither the Holding Company nor the Bank shall be required to set aside funds in connection with its obligations hereunder relating to the Liquidation Account and the Bank Liquidation Account, respectively. Eligible Account Holders and Supplemental Eligible Account Holders do not retain any voting rights in either the Holding Company or the Bank based on their liquidation subaccounts.

The amount of the Bank Liquidation Account shall equal at all times the amount of the Liquidation Account, and the Bank Liquidation Account shall be reduced by the same amount and upon the same terms as any reduction in the Liquidation Account. In no event will any Eligible Account Holder or Supplemental Eligible Account Holder be entitled to a distribution that exceeds such holder’s subaccount balance in the Liquidation Account.

For the three-year period following the completion of the Conversion, the Holding Company will not without prior Federal Reserve approval (i) sell or liquidate the Holding Company, or (ii) cause the Bank to be sold or liquidated. Upon the written request of the Federal Reserve, the Holding Company shall, or upon the prior written approval of the Federal Reserve, the Holding Company may, at any time after two years from the completion of the Conversion eliminate or transfer the Liquidation Account to the Bank and the Liquidation Account shall be assumed by the Bank, at which time the interests of Eligible Account Holders and Supplemental Eligible Account Holders will be solely and exclusively established in such liquidation account at the Bank. In the event such transfer occurs, the Holding Company shall be deemed to have transferred the Liquidation Account to the Bank and such Liquidation Account shall be subsumed into the Bank Liquidation Account and shall not be subject in any manner or amount to the claims of the Holding Company’s creditors. Approval of this Plan by the Voting Depositors shall constitute approval of the transactions described herein.

20. VOTING RIGHTS OF STOCKHOLDERS

Following consummation of the Conversion, the holders of the voting capital stock of the Holding Company shall have the exclusive voting rights with respect to the Holding Company.

21. RESTRICTIONS ON RESALE OR SUBSEQUENT DISPOSITION

A.        All Subscription Shares purchased by Directors or Officers of the Mutual Holding Company, the Mid-Tier Holding Company, the Holding Company or the Bank in the Offering shall be subject to the restriction that, except as provided in this Section or as may be approved by the Bank Regulators, no interest in such shares may be sold or otherwise disposed of for value for a period of one year following the date of purchase in the Offering.

B.        The restriction on disposition of Subscription Shares set forth above in this Section shall not apply to the following:

23

1. Any exchange of such shares in connection with a merger or acquisition involving the Bank or the Holding Company, as the case may be, which has been approved by the appropriate state and federal regulatory agencies; and

2. Any disposition of such shares following the death of the person to whom such shares were initially sold under the terms of this Plan.

C.        With respect to all Subscription Shares subject to restrictions on resale or subsequent disposition, each of the following provisions shall apply:

1. Each certificate representing shares restricted by this section shall bear a legend giving notice of the restriction;

2. Instructions shall be issued to the stock transfer agent for the Holding Company not to recognize or effect any transfer of any certificate or record of ownership of any such shares in violation of the restriction on transfer; and

3. Any shares of capital stock of the Holding Company issued with respect to a stock dividend, stock split, or otherwise with respect to ownership of outstanding Subscription Shares subject to the restriction on transfer hereunder shall be subject to the same restriction as is applicable to such Subscription Shares.

22. REQUIREMENTS FOR STOCK PURCHASES BY DIRECTORS AND OFFICERS FOLLOWINGTHE CONVERSION

For a period of three years following the Conversion, no Officer, Director or their Associates shall purchase, without the prior written approval of the Bank Regulators, any outstanding shares of Holding Company Common Stock except from a broker-dealer registered with the SEC. This provision shall not apply to negotiated transactions involving more than 1% of the outstanding shares of Holding Company Common Stock, the exercise of any options pursuant to a stock option plan or purchases of Holding Company Common Stock made by or held by any Tax-Qualified Employee Stock Benefit Plan or Non-Tax-Qualified Employee Stock Benefit Plan of the Bank or the Holding Company (including the Employee Plans) which may be attributable to any Officer or Director. As used herein, the term “negotiated transaction” means a transaction in which the securities are offered and the terms and arrangements relating to any sale are arrived at through direct communications between the seller or any person acting on its behalf and the purchaser or his investment representative. The term “investment representative” shall mean a professional investment advisor acting as agent for the purchaser and independent of the seller and not acting on behalf of the seller in connection with the transaction.

23. TRANSFER OF DEPOSIT ACCOUNTS

Each person holding a Deposit Account at the Bank at the time of Conversion shall retain an identical Deposit Account at the Bank following Conversion in the same amount and subject

24

to the same terms and conditions (except as to voting and liquidation rights) applicable to such Deposit Account in the Bank immediately prior to completion of the Conversion.

24. REGISTRATION AND MARKETING

Within the time period required by applicable laws and regulations, the Holding Company will register the securities issued in connection with the Conversion pursuant to the Securities Exchange Act of 1934 and will not deregister such securities for a period of at least three years thereafter, except that the requirement to maintain the registration of such securities for three years may be fulfilled by any successor to the Holding Company. In addition, the Holding Company will use its best efforts to encourage and assist a market-maker to establish and maintain a market for the Conversion Stock and to list those securities on a national or regional securities exchange such as the Nasdaq Stock Market.

25. TAX RULINGS OR OPINIONS

Consummation of the Conversion is expressly conditioned upon prior receipt by the Mutual Holding Company, the Mid-Tier Holding Company, the Holding Company and the Bank of either a ruling, an opinion of counsel or a letter of advice from their tax advisor regarding the federal and state income tax consequences of the Conversion to the Mutual Holding Company, the Mid-Tier Holding Company, the Holding Company, the Bank and the Account Holders and Voting Depositors receiving subscription rights in the Conversion.

26. STOCK BENEFIT PLANS AND EMPLOYMENT AGREEMENTS

A.        The Holding Company and the Bank are authorized to adopt Tax-Qualified Employee Stock Benefit Plans in connection with the Conversion, including without limitation, an ESOP. Existing as well as any newly created Tax-Qualified Employee Stock Benefit Plans may purchase shares of Holding Company Common Stock in the Offering, to the extent permitted by the terms of such benefit plans and this Plan.

B.        As a result of the Conversion, the Holding Company shall be deemed to have ratified and approved all employee stock benefit plans maintained by the Bank and the Mid-Tier Holding Company and shall have agreed to issue (and reserve for issuance) Holding Company Common Stock in lieu of common stock of the Mid-Tier Holding Company pursuant to the terms of such benefit plans. Upon consummation of the Conversion, the Mid-Tier Holding Company common stock held by such benefit plans shall be converted into Holding Company Common Stock based upon the Exchange Ratio. Also upon consummation of the Conversion, (i) all rights to purchase, sell or receive Mid-Tier Holding Company common stock and all rights to elect to make payment in Mid-Tier Holding Company common stock under any agreement between the Bank or the Mid-Tier Holding Company and any Director, Officer or Employee thereof or under any plan or program of the Bank or the Mid-Tier Holding Company, shall automatically, by operation of law, be converted into and shall become an identical right to purchase, sell or receive Holding Company Common Stock and an identical right to make payment in Holding Company Common Stock under any such agreement between the Bank or the Mid-Tier Holding Company and any Director, Officer or Employee thereof or under such plan or program of the Bank, and (ii) rights outstanding under all stock option plans shall be

25

assumed by the Holding Company and thereafter shall be rights only for shares of Holding Company Common Stock, with each such right being for a number of shares of Holding Company Common Stock based upon the Exchange Ratio and the number of shares of Mid-Tier Holding Company common stock that were available thereunder immediately prior to consummation of the Conversion, with the price adjusted to reflect the Exchange Ratio but with no change in any other term or condition of such right.

C.        The Holding Company and the Bank are authorized to adopt stock option plans, restricted stock award plans and other Non-Tax-Qualified Employee Stock Benefit Plans, provided that such plans conform to any applicable regulations. The Holding Company and the Bank intend to implement a stock option plan and a restricted stock award plan no earlier than six months after completion of the Conversion. Stockholder approval of these plans will be required. If adopted within 12 months following the completion of the Conversion, the stock option plan will reserve a number of shares equal to up to 10% of the shares sold in the Offering and the stock award plan will reserve a number of shares equal to up to 4% of the shares sold in the Offering for awards to employees and directors at no cost to the recipients (unless the Bank’s tangible capital is less than 10% upon completion of the Offering in which case the stock award plan will reserve a number of shares equal to up to 3% of the shares sold in the Offering). Non-Tax-Qualified Employee Stock Benefit Plans implemented more than one year following the completion of the Conversion are not subject to the restrictions set forth in the preceding sentence. Shares for such plans may be issued from authorized but unissued shares, treasury shares or repurchased shares.

D.        The Holding Company and the Bank are authorized to enter into employment agreements and/or change in control agreements with their executive officers.

27. RESTRICTIONS ON ACQUISITION OF BANK AND HOLDING COMPANY

A. (1) The charter of the Bank may contain a provision stipulating that no person, except the Holding Company, for a period of three years following the closing date of the Conversion, may directly or indirectly acquire or offer to acquire the beneficial ownership of more than 10% of any class of equity security of the Bank, without the prior written approval of the New York Department. In addition, such charter may also provide that for a period of three years following the closing date of the Conversion, shares beneficially owned in violation of the above-described charter provision shall not be entitled to vote and shall not be voted by any person or counted as voting stock in connection with any matter submitted to stockholders for a vote. In addition, special meetings of the stockholders relating to changes in control or amendment of the charter may only be called by the Board of Directors, and shareholders shall not be permitted to cumulate their votes for the election of Directors.

(2) For a period of three years from the date of consummation of the Conversion, no person, other than the Holding Company, shall directly or indirectly offer to acquire or acquire the beneficial ownership of more than

26

10% of any class of equity security of the Bank without the prior written consent of the Federal Reserve and the New York Department. Nothing in this Plan shall prohibit the Holding Company from taking actions permitted under 12 C.F.R. 239.63(f).

B.       The Articles of Incorporation of the Holding Company may contain a provision stipulating that in no event shall any record owner of any outstanding shares of Holding Company Common Stock who beneficially owns in excess of 10% of such outstanding shares be entitled or permitted to any vote with respect to any shares held in excess of 10%. In addition, the Articles of Incorporation or Bylaws of the Holding Company may contain provisions which provide for, or prohibit, as the case may be, staggered terms of the directors, noncumulative voting for directors, limitations on the calling of special meetings, a fair price provision for certain business combinations and certain notice requirements.

C.       For the purposes of this section:

(1) The term “person” includes an individual, a firm, a corporation or other entity;

(2) The term “offer” includes every offer to buy or acquire, solicitation of an offer to sell, tender offer for, or request or invitation for tenders of, a security or interest in a security for value;

(3) The term “acquire” includes every type of acquisition, whether effected by purchase, exchange, operation of law or otherwise; and

(4) The term “security” includes non-transferable subscription rights issued pursuant to a plan of conversion as well as a “security” as defined in 15 U.S.C. § 77b(a)(1).

28. PAYMENT OF DIVIDENDS AND THE REPURCHASE OF STOCK

A.       The Holding Company shall comply with applicable regulations in the repurchase of any shares of its capital stock following consummation of the Conversion. The Holding Company shall not declare or pay a cash dividend on, or repurchase any of, its capital stock, if such dividend or repurchase would reduce its capital below the amount then required for the Liquidation Account.

B.       The Bank shall not declare or pay a cash dividend on, or repurchase any of, its capital stock if the effect thereof would cause its regulatory capital to be reduced below its applicable regulatory capital requirements.

29. ARTICLES OF INCORPORATION AND BYLAWS

By voting to approve this Plan, Voting Depositors will be voting to adopt the Articles of Incorporation and Bylaws for the Holding Company.

27

30. CONSUMMATION OF CONVERSION AND EFFECTIVE DATE

The Effective Date of the Conversion shall be the date upon which the Articles of Combination shall be filed with the Federal Reserve and the Articles of Merger shall be filed with the Maryland Department. The Articles of Combination and the Articles of Merger shall be filed after all requisite regulatory, depositor and stockholder approvals have been obtained, all applicable waiting periods have expired, and sufficient subscriptions and orders for Subscription Shares have been received. The closing of the sale of all shares of Holding Company Common Stock sold in the Offering and the Exchange Offering shall occur simultaneously on the effective date of the closing.

31. EXPENSES OF CONVERSION

The Mutual Holding Company, the Mid-Tier Holding Company, the Bank and the Holding Company may retain and pay for the services of legal, financial and other advisors to assist in connection with any or all aspects of the Conversion, including the Offering, and such parties shall use their best efforts to assure that such expenses shall be reasonable.

32. AMENDMENT OR TERMINATION OF PLAN

If deemed necessary or desirable, this Plan may be substantively amended as a result of comments from the Bank Regulators or otherwise at any time prior to the meetings of Voting Depositors and Mid-Tier Holding Company stockholders to vote on this Plan by the Board of Directors of the Mutual Holding Company, and at any time thereafter by the Board of Directors of the Mutual Holding Company with the concurrence of the Bank Regulators. Any amendment to this Plan made after approval by Voting Depositors and Mid-Tier Holding Company stockholders with the approval of the Bank Regulators shall not necessitate further approval by Voting Depositors unless otherwise required by the Bank Regulators. The Board of Directors of the Mutual Holding Company may terminate this Plan at any time prior to the Special Meeting of Depositors and the meeting of Mid-Tier Holding Company stockholders to vote on this Plan, and at any time thereafter with the concurrence of the Bank Regulators.

By adoption of the Plan, Voting Depositors of the Mutual Holding Company authorize the Board of Directors of the Mutual Holding Company to amend or terminate the Plan under the circumstances set forth in this Section.

33. CONDITIONS TO CONVERSION

Consummation of the Conversion pursuant to this Plan is expressly conditioned upon the following:

A.         Prior receipt by the Mutual Holding Company, the Mid-Tier Holding Company, the Holding Company and the Bank of rulings of the United States Internal Revenue Service and the state taxing authorities, or opinions of counsel or tax advisers as described in Section 25 hereof;

B.         The issuance of the Subscription Shares offered in the Conversion;

28

C.         The issuance of Exchange Shares; and

D.         The completion of the Conversion within the time period specified in Section 3 of this Plan.

34. INTERPRETATION

All interpretations of this Plan and application of its provisions to particular circumstances by a majority of the Board of Directors of the Mutual Holding Company shall be final, subject to the authority of the Bank Regulators.

Dated: April 8, 2014

29

EXHIBIT A

FORM OF AGREEMENT OF MERGER BETWEEN

PATHFINDER BANCORP, MHC AND

PATHFINDER BANCORP, INC.

AGREEMENT OF MERGER BETWEEN

PATHFINDER BANCORP, MHC AND

PATHFINDER BANCORP, INC.

THIS AGREEMENT OF MERGER (the “MHC Merger Agreement”) dated as of ______________, is made by and between Pathfinder Bancorp, MHC, a federal mutual holding company (the “Mutual Holding Company”) and Pathfinder Bancorp, Inc., a federal corporation (the “Mid-Tier Holding Company”). Capitalized terms have the respective meanings given them in the Plan of Conversion and Reorganization (the “Plan”) of the Mutual Holding Company, unless otherwise defined herein.

R E C I T A L S:

1.         The Mid-Tier Holding Company is a federal corporation that owns 100% of the common stock of the Bank.

2.         The Mutual Holding Company is a federal mutual holding company that owns ___% of the common stock of the Mid-Tier Holding Company.

3.         At least two-thirds of the members of the boards of directors of the Mutual Holding Company and the Mid-Tier Holding Company have approved this MHC Merger Agreement whereby the Mutual Holding Company shall merge with the Mid-Tier Holding Company with the Mid-Tier Holding Company as the surviving or resulting corporation (the “MHC Merger”), and have authorized the execution and delivery thereof.

NOW, THEREFORE, in consideration of the premises and mutual agreements contained herein, the parties hereto have agreed as follows:

1.         Merger. At and on the Effective Date of the MHC Merger, the Mutual Holding Company will merge with the Mid-Tier Holding Company with the Mid-Tier Holding Company as the resulting entity (“Resulting Corporation”) whereby the shares of Mid-Tier Holding Company common stock held by the Mutual Holding Company will be canceled and Qualifying Depositors of the Mutual Holding Company will constructively receive liquidation interests in the Mid-Tier Holding Company in exchange for their ownership interests in the Mutual Holding Company.

2.         Effective Date. The MHC Merger shall not be effective until and unless the Plan is approved by the Board of Governors of the Federal Reserve System (the “Federal Reserve”) after approval of this MHC Merger Agreement by at least (i) two-thirds of the votes eligible to be cast by the Stockholders of the Mid-Tier Holding Company, (ii) a majority of the votes eligible to be cast by Minority Stockholders, and (iii) a majority of the votes eligible to be cast by Voting Depositors, and the Articles of Combination shall have been filed with the Federal Reserve with respect to the MHC Merger. Approval of the Plan by the Voting Depositors shall constitute approval of the MHC Merger Agreement by the Voting Depositors. Approval of the Plan by Stockholders of the Mid-Tier Holding Company, including the Minority Stockholders, shall constitute approval of the MHC Merger Agreement by such stockholders.

3.         Name. The name of the Resulting Corporation shall be Pathfinder Bancorp, Inc.

4.         Offices. The main office of the Resulting Corporation shall be 14 West First Street, Oswego, New York.

5.         Directors and Officers. The directors and officers of the Mid-Tier Holding Company immediately prior to the Effective Date shall be the directors and officers of the Resulting Corporation after the Effective Date.

6.         Rights and Duties of the Resulting Corporation. At the Effective Date, the Mutual Holding Company shall be merged with and into the Mid-Tier Holding Company with the Mid-Tier Holding Company as the Resulting Corporation. The business of the Resulting Corporation shall be that of a federally-chartered corporation as provided in its Charter. All assets, rights, interests, privileges, powers, franchises and property (real, personal and mixed) of the Mid-Tier Holding Company and the Mutual Holding Company shall be transferred automatically to and vested in the Resulting Corporation by virtue of the MHC Merger without any deed or other document of transfer. The Resulting Corporation, without any order or action on the part of any court or otherwise and without any documents of assumption or assignment, shall hold and enjoy all of the properties, franchises and interests, including appointments, powers, designations, nominations and all other rights and interests as the agent or other fiduciary in the same manner and to the same extent as such rights, franchises, and interests and powers were held or enjoyed by the Mid-Tier Holding Company and the Mutual Holding Company. The Resulting Corporation shall be responsible for all of the liabilities, restrictions and duties of every kind and description of the Mid-Tier Holding Company and the Mutual Holding Company immediately prior to the MHC Merger, including liabilities for all debts, obligations and contracts of the Mid-Tier Holding Company and the Mutual Holding Company, matured or unmatured, whether accrued, absolute, contingent or otherwise and whether or not reflected or reserved against on balance sheets, books of accounts or records of the Mid-Tier Holding Company or the Mutual Holding Company. The stockholders of the Mid-Tier Holding Company shall possess all voting rights with respect to the shares of stock of the Resulting Corporation. All rights of creditors and other obligees and all liens on property of the Mid-Tier Holding Company and the Mutual Holding Company shall be preserved and shall not be released or impaired.

7.         Rights of Stockholders. At the Effective Date, the shares of Mid-Tier Holding Company common stock held by the Mutual Holding Company will be canceled and Qualifying Depositors of the Bank will constructively receive liquidation interests in the Mid-Tier Holding Company in exchange for their ownership interests in the Mutual Holding Company. Minority Stockholders’ rights will remain unchanged.

8.         Other Terms. All terms used in this MHC Merger Agreement shall, unless defined herein, have the meanings set forth in the Plan. The Plan is incorporated herein by this reference and made a part hereof to the extent necessary or appropriate to effect and consummate the terms of this MHC Merger Agreement and the Conversion.

A-2

IN WITNESS WHEREOF, the Mutual Holding Company and the Mid-Tier Holding Company have caused this MHC Merger Agreement to be executed as of the date first above written.

		Pathfinder Bancorp, MHC
		(a federal mutual holding company)
ATTEST:
	By:
		Thomas W. Schneider
Secretary		President and Chief Executive Officer
		Pathfinder Bancorp, Inc.
		(a federal corporation)
ATTEST:
	By:
		Thomas W. Schneider
Secretary		President and Chief Executive Officer

A-3

EXHIBIT B

FORM OF AGREEMENT OF MERGER BETWEEN

PATHFINDER BANCORP, INC.,

A FEDERAL CORPORATION AND

PATHFINDER BANCORP, INC.,

A MARYLAND CORPORATION

AGREEMENT OF MERGER BETWEEN

PATHFINDER BANCORP, INC.,

a federal corporation and

PATHFINDER BANCORP, INC.,

a MARYLAND corporation

THIS AGREEMENT OF MERGER (the “Mid-Tier Merger Agreement”), dated as of ______________, is made by and between Pathfinder Bancorp, Inc., a federal corporation (the “Mid-Tier Holding Company”) and Pathfinder Bancorp, Inc., a Maryland corporation (the “Holding Company”). Capitalized terms have the respective meanings given them in the Plan of Conversion and Reorganization of Pathfinder Bancorp, MHC (the “Plan”) unless otherwise defined herein.

R E C I T A L S:

1.         The Mid-Tier Holding Company is a federal corporation that owns 100% of the common stock of the Bank.

2.         The Holding Company has been organized to succeed to the operations of the Mid-Tier Holding Company.

3.         At least two-thirds of the members of the boards of directors of the Mid-Tier Holding Company and the Holding Company have approved this Mid-Tier Merger Agreement whereby the Mid-Tier Holding Company will be merged with the Holding Company with the Holding Company as the resulting corporation (the “Mid-Tier Merger”), and authorized the execution and delivery thereof.

NOW, THEREFORE, in consideration of the premises and mutual agreements contained herein, the parties hereto have agreed as follows:

1.         Merger. At and on the Effective Date of the Mid-Tier Merger, the Mid-Tier Holding Company will merge with the Holding Company with the Holding Company as the resulting corporation (the “Resulting Corporation”), whereby the Bank will become the wholly-owned subsidiary of the Holding Company. As part of the Mid-Tier Merger, the Qualifying Depositors of the Bank who constructively received liquidation interests in Mid-Tier Holding Company will exchange the liquidation interests in the Mid-Tier Holding Company that they constructively received in the MHC Merger for an interest in the Liquidation Account and Minority Stockholders immediately prior to the Conversion will exchange their shares of Mid-Tier Holding Company Common Stock for Holding Company Common Stock in the Exchange Offering pursuant to the Exchange Ratio.

2.         Effective Date. The Mid-Tier Merger shall not be effective until and unless the Plan is approved by the Board of Governors of the Federal Reserve System (the “Federal Reserve”) after approval by at least (i) two-thirds of the votes eligible to be cast by Stockholders of the Mid-Tier Holding Company, (ii) a majority of the votes eligible to be cast by Minority Stockholders, and (iii) a majority of the votes eligible to be cast by Voting Depositors, and the Articles of Combination shall have been filed with the Federal Reserve and Articles of Merger have been filed with the Maryland Department with respect to the Mid-Tier Merger. Approval

of the Plan by the Voting Depositors shall constitute approval of the Mid-Tier Merger Agreement. Approval of the Plan by the stockholders of the Mid-Tier Holding Company, including the Minority Stockholders, shall constitute approval of the Mid-Tier Merger Agreement by such stockholders.

3.         Name. The name of the Resulting Corporation shall be Pathfinder Bancorp, Inc.

4.         Offices. The main office of the Resulting Corporation shall be 14 West First Street, Oswego, New York.

5.         Directors and Officers. The directors and officers of the Mid-Tier Holding Company immediately prior to the Effective Date shall be the directors and officers of the Resulting Corporation after the Effective Date.

6.         Rights and Duties of the Resulting Corporation. At the Effective Date, the Mid-Tier Holding Company shall merge with the Holding Company, with the Holding Company as the Resulting Corporation. The business of the Resulting Corporation shall be that of a Maryland corporation as provided in its Articles of Incorporation. All assets, rights, interests, privileges, powers, franchises and property (real, personal and mixed) of the Mid-Tier Holding Company and the Holding Company shall be transferred automatically to and vested in the Resulting Corporation by virtue of the Mid-Tier Merger without any deed or other document of transfer. The Resulting Corporation, without any order or action on the part of any court or otherwise and without any documents of assumption or assignment, shall hold and enjoy all of the properties, franchises and interests, including appointments, powers, designations, nominations and all other rights and interests as the agent or other fiduciary in the same manner and to the same extent as such rights, franchises, and interests and powers were held or enjoyed by the Mid-Tier Holding Company and the Holding Company. The Resulting Corporation shall be responsible for all of the liabilities, restrictions and duties of every kind and description of the Mid-Tier Holding Company and the Holding Company immediately prior to the Mid-Tier Merger, including liabilities for all debts, obligations and contracts of the Mid-Tier Holding Company and the Holding Company, matured or unmatured, whether accrued, absolute, contingent or otherwise and whether or not reflected or reserved against on balance sheets, books of accounts or records of the Mid-Tier Holding Company or the Holding Company. The stockholders of the Holding Company shall possess all voting rights with respect to the shares of stock of the Resulting Corporation. All rights of creditors and other obligees and all liens on property of the Mid-Tier Holding Company and the Holding Company shall be preserved and shall not be released or impaired.

7.         Rights of Stockholders. At the Effective Date, the Qualifying Depositors of the Bank immediately prior to the Conversion will exchange the liquidation rights in the Mid-Tier Holding Company that they constructively received in the MHC Merger for interests in the Liquidation Account and the Minority Stockholders immediately prior to the Conversion will exchange their shares of Mid-Tier Holding Company Common Stock for Holding Company Common Stock in the Exchange Offering pursuant to the Exchange Ratio.

B-2

8.         Other Terms. All terms used in this Mid-Tier Merger Agreement shall, unless defined herein, have the meanings set forth in the Plan. The Plan is incorporated herein by this reference and made a part hereof to the extent necessary or appropriate to effect and consummate the terms of this Mid-Tier Merger Agreement and the Conversion.

B-3

IN WITNESS WHEREOF, the Mid-Tier Holding Company and the Holding Company have caused this Mid-Tier Merger Agreement to be executed as of the date first above written.

		Pathfinder Bancorp, Inc.
		(a federal corporation)
ATTEST:
	By:
		Thomas W. Schneider
Secretary		President and Chief Executive Officer
		Pathfinder Bancorp, Inc.
		(a Maryland corporation)
ATTEST:
	By:
		Thomas W. Schneider
Secretary		President and Chief Executive Officer

B-4

EX-3.1

Exhibit 3.1

ARTICLES OF INCORPORATION

PATHFINDER BANCORP, INC.

The undersigned, Benjamin M. Azoff, whose address is 5335 Wisconsin Avenue, N.W., Suite 780, Washington, DC 20015, being at least eighteen years of age, acting as incorporator, does hereby form a corporation under the general laws of the State of Maryland, having the following Articles of Incorporation (the “Articles”):

ARTICLE 1.  Name.  The name of the corporation is Pathfinder Bancorp, Inc. (herein the “Corporation”).

ARTICLE 2.  Principal Office.  The address of the principal office of the Corporation in the State of Maryland is c/o CSC-Lawyers Incorporating Service Company, 7 St. Paul Street, Suite 1660, Baltimore, Maryland 21202.

ARTICLE 3.  Purpose.  The purpose for which the Corporation is formed is to engage in any lawful act or activity for which corporations may be organized under the general laws of the State of Maryland as now or hereafter in force.

ARTICLE 4.  Resident Agent.  The name and address of the registered agent of the Corporation in the State of Maryland is CSC-Lawyers Incorporating Service Company, 7 St. Paul Street, Suite 1660, Baltimore, Maryland 21202. Said resident agent is a Maryland corporation.

ARTICLE 5.  Capital Stock

A.           Authorized Stock. The total number of shares of capital stock of all classes that the Corporation has authority to issue is thirty five million (35,000,000) shares, consisting of:

1.   ten million (10,000,000) shares of preferred stock, par value one cent ($0.01) per share (the “Preferred Stock”); and

2.   twenty five million (25,000,000) shares of common stock, par value one cent ($0.01) per share (the “Common Stock”).

The aggregate par value of all the authorized shares of capital stock is three hundred and fifty thousand dollars ($350,000). Except to the extent required by governing law, rule or regulation, the shares of capital stock may be issued from time to time by the Board of Directors without further approval of the stockholders of the Corporation. The Corporation shall have the authority to purchase its capital stock out of funds lawfully available therefor, which funds shall include, without limitation, the Corporation’s unreserved and unrestricted capital surplus. The Board of Directors, pursuant to a resolution approved by a majority of the Whole Board (rounded up to the nearest whole number), and without action by the stockholders, may amend these Articles to increase or decrease the aggregate number of shares of stock or the number of shares of stock of any class or series that the Corporation has authority to issue. For the purposes of these Articles, the term “Whole Board” shall mean the total number of directors that the

Corporation would have if there were no vacancies on the Board of Directors at the time any such resolution is presented to the Board of Directors for adoption.

B.           Common Stock.  Except as provided under the terms of any series of Preferred Stock and as limited by Section D of this Article 5, the exclusive voting power shall be vested in the Common Stock. Except as otherwise provided in these Articles, each holder of the Common Stock shall be entitled to one vote for each share of Common Stock standing in the holder’s name on the books of the Corporation. Subject to any rights and preferences of any series of Preferred Stock, holders of Common Stock shall be entitled to such dividends as may be declared by the Board of Directors out of funds lawfully available therefor. Upon the liquidation, dissolution or winding up of the affairs of the Corporation, whether voluntary or involuntary, the holders of the Common Stock shall be entitled to receive all the remaining assets of the Corporation available for distribution to its stockholders ratably in proportion to the number of shares held by them, respectively, after: (i) payment or provision for payment of the Corporation’s debts and liabilities; (ii) distributions or provision for distributions in settlement of the Liquidation Account established by the Corporation as described in Section G of this Article 5; and (iii) distributions or provisions for distributions to holders of any class or series of stock having a preference over the Common Stock in the liquidation, dissolution or winding up of the Corporation.

C.           Preferred Stock.  The Board of Directors is hereby expressly authorized, subject to any limitations prescribed by law, to provide for the issuance of the shares of Preferred Stock in series, to establish from time to time the number of shares to be included in each such series, and to fix the preferences, conversion and other rights, voting powers, restrictions, limitations as to dividends, qualifications and terms and conditions of redemption of the shares of each such series. The number of authorized shares of the Preferred Stock may be increased or decreased (but not below the number of shares thereof then outstanding) by the affirmative vote of the holders of a majority of the Common Stock, without a vote of the holders of the Preferred Stock, or of any series thereof, unless a vote of any such holders is required by law or pursuant to the terms of such Preferred Stock. The power of the stockholders to increase or decrease the authorized shares of the Preferred Stock shall not limit any of the powers of the Board of Directors provided under these Articles.

D.           Restrictions on Voting Rights of the Corporation’s Equity Securities.

1.   Notwithstanding any other provision of these Articles, in no event shall the record owner (or if more than one record owner, all such record owners taken as a group) of any outstanding Common Stock that is beneficially owned, directly or indirectly, by a Person who, as of any record date for the determination of stockholders entitled to vote on any matter, beneficially owns in excess of 10% of the then-outstanding shares of Common Stock (the “Limit”), be entitled, or permitted to any vote in respect of the shares held in excess of the Limit. The number of votes that may be cast by any particular record owner by virtue of the provisions hereof in respect of Common Stock beneficially owned by such Person owning shares in excess of the Limit (a “Holder in Excess”) shall be a number equal to the total number of votes that a single record owner of all Common Stock owned by such Holder in Excess would be entitled to cast after giving effect to the provisions hereof, multiplied by a fraction, the numerator of which is the number of shares of such class or series that are both (i) beneficially owned by such Holder

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in Excess and (ii) owned of record by such particular record owner and the denominator of which is the total number of shares of Common Stock beneficially owned by such Holder in Excess. The provisions of this Section D of this Article 5 shall not be applicable if, before the Holder in Excess acquired beneficial ownership of such shares in excess of the Limit, such acquisition was approved by a majority of the “Unaffiliated Directors.” For this purpose, the term “Unaffiliated Director” means any member of the Board of Directors who is unaffiliated with the Holder in Excess and was a member of the Board of Directors prior to the time that the Holder in Excess became such, and any director who is thereafter chosen to fill any vacancy on the Board of Directors and who is elected and who, in either event, is unaffiliated with the Holder in Excess and in connection with his or her initial assumption of office is recommended for appointment or election by a majority of the Unaffiliated Directors then serving on the Board of Directors.

2.   The following definitions shall apply to this Section D of this Article 5.

(a) An “affiliate” of a specified Person shall mean a Person that directly, or indirectly through one or more intermediaries, controls, or is controlled by, or is under common control with, the Person specified.

(b) “Beneficial ownership” shall be determined pursuant to Rule 13d-3 of the General Rules and Regulations under the Securities Exchange Act of 1934 (or any successor rule or statutory provision), or, if said Rule 13d-3 shall be rescinded and there shall be no successor rule or statutory provision thereto, pursuant to said Rule 13d-3 as in effect on December 31, 2013; provided, however, that a Person shall, in any event, also be deemed the “beneficial owner” of any Common Stock:

(1) that such Person or any of its affiliates beneficially owns, directly or indirectly; or

(2) that such Person or any of its affiliates has (i) the right to acquire (whether such right is exercisable immediately or only after the passage of time), pursuant to any agreement, arrangement or understanding (but shall not be deemed to be the beneficial owner of any voting shares solely by reason of an agreement, contract, or other arrangement with the Corporation to effect any transaction of the type described in clause (i) or (ii) of the first sentence of Article 9 hereof) or upon the exercise of conversion rights, exchange rights, warrants, or options or otherwise, or (ii) sole or shared voting or investment power with respect thereto pursuant to any agreement, arrangement, understanding, relationship or otherwise (but shall not be deemed to be the beneficial owner of any voting shares solely by reason of a revocable proxy granted for a particular meeting of stockholders, pursuant to a public solicitation of proxies for such meeting, with respect to shares of which neither such Person nor any such affiliate is otherwise deemed the beneficial owner); or

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(3) that are beneficially owned, directly or indirectly, by any other Person with which such first mentioned Person or any of its affiliates acts as a partnership, limited partnership, syndicate or other group pursuant to any agreement, arrangement or understanding for the purpose of acquiring, holding, voting or disposing of any shares of capital stock of the Corporation; and provided further, however, that (i) no director or officer of the Corporation (or any affiliate of any such director or officer) shall, solely by reason of any or all of such directors or officers acting in their capacities as such, be deemed, for any purposes hereof, to beneficially own any Common Stock beneficially owned by any other such director or officer (or any affiliate thereof), and (ii) neither any employee stock ownership or similar plan of the Corporation or any subsidiary of the Corporation nor any trustee with respect thereto (or any affiliate of such trustee) shall, solely by reason of such capacity of such trustee, be deemed, for any purposes hereof, to beneficially own any Common Stock held under any such plan. For purposes of computing the percentage of beneficial ownership of Common Stock of a Person, the outstanding Common Stock shall include shares deemed owned by such Person through application of this subsection but shall not include any other shares of Common Stock that may be issuable by the Corporation pursuant to any agreement, or upon exercise of conversion rights, warrants or options, or otherwise. For all other purposes, the outstanding Common Stock shall include only Common Stock then outstanding and shall not include any Common Stock that may be issuable by the Corporation pursuant to any agreement, or upon the exercise of conversion rights, warrants or options, or otherwise.

(c) A “Person” shall mean any individual, firm, corporation, or other entity.

(d) The Board of Directors shall have the power to construe and apply the provisions of this Section D and to make all determinations necessary or desirable to implement such provisions including, but not limited to, matters with respect to (i) the number of shares of Common Stock beneficially owned by any Person, (ii) whether a Person is an affiliate of another, (iii) whether a Person has an agreement, arrangement, or understanding with another as to the matters referred to in the definition of beneficial ownership, (iv) the application of any other definition or operative provision of this Section D to the given facts, or (v) any other matter relating to the applicability or effect of this Section D.

3.   The Board of Directors shall have the right to demand that any Person reasonably believed by the Board of Directors to be a Holder in Excess (or holder of record of Common Stock beneficially owned by any Holder in Excess) supply the Corporation with complete information as to (i) the record owner(s) of all shares beneficially owned by such Holder in Excess, and (ii) any other factual matter relating to the applicability or effect of this section as may reasonably be requested of such Holder in Excess. The Board of Directors shall further

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have the right to receive from any Holder in Excess reimbursement for all expenses incurred by the Board in connection with its investigation of any matters relating to the applicability or effect of this section on such Holder in Excess, to the extent such investigation is deemed appropriate by the Board of Directors as a result of the Holder in Excess refusing to supply the Corporation with the information described in the previous sentence.

4.   Any constructions, applications, or determinations made by the Board of Directors pursuant to this Section D in good faith and on the basis of such information and assistance as was then reasonably available for such purpose, shall be conclusive and binding upon the Corporation and its stockholders.

5.   In the event any provision (or portion thereof) of this Section D shall be found to be invalid, prohibited or unenforceable for any reason, the remaining provisions (or portions thereof) of this Section D shall remain in full force and effect, and shall be construed as if such invalid, prohibited or unenforceable provision had been stricken herefrom or otherwise rendered inapplicable, it being the intent of the Corporation and its stockholders that each such remaining provision (or portion thereof) of this Section D remain, to the fullest extent permitted by law, applicable and enforceable as to all stockholders, including Holders in Excess, notwithstanding any such finding.

E.           Majority Vote.  Pursuant to Section 2-104(b)(5) of the Maryland General Corporation Law (“MGCL”), notwithstanding any provision of the MGCL requiring stockholder authorization of an action by a greater proportion than a majority of the total number of shares of all classes of capital stock or of the total number of shares of any class of capital stock, such action shall be valid and effective if authorized by the affirmative vote of the holders of a majority of the total number of shares of all classes outstanding and entitled to vote thereon, except as otherwise specified in these Articles.

F.           Quorum.  Except as otherwise provided by law or expressly provided in these Articles, the presence, in person or by proxy, of the holders of record of shares of capital stock of the Corporation entitling the holders thereof to cast a majority of the votes (after giving effect, if required, to the provisions of Article 5, Section D) entitled to be cast by the holders of shares of capital stock of the Corporation entitled to vote shall constitute a quorum at all meetings of the stockholders, and every reference in these Articles to a majority or other proportion of capital stock (or the holders thereof) for purposes of determining any quorum requirement or any requirement for stockholder consent or approval shall be deemed to refer to such majority or other proportion of the votes (or the holders thereof) then entitled to be cast in respect of such capital stock.

G.           Liquidation Account.  Under regulations of the Board of Governors of the Federal Reserve System, the Corporation must establish and maintain a liquidation account (the “Liquidation Account”) for the benefit of certain Eligible Account Holders and Supplemental Eligible Account Holders as defined in the Plan of Conversion and Reorganization of Pathfinder Bancorp, MHC, as may be amended from time to time (the “Plan of Conversion”). In the event of a complete liquidation involving (i) the Corporation or (ii) Pathfinder Bank, a New York-chartered savings bank that will be a wholly-owned subsidiary of the Corporation, the Corporation must comply with the regulations of the Board of Governors of the Federal Reserve

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System and the provisions of the Plan of Conversion with respect to the amount and priorities of each Eligible Account Holder’s and Supplemental Eligible Account Holder’s interests in the Liquidation Account. The interest of an Eligible Account Holder or Supplemental Eligible Account Holder in the Liquidation Account does not entitle such account holders to voting rights.

ARTICLE 6. Preemptive Rights and Appraisal Rights.

A.           Preemptive Rights.  Except for preemptive rights approved by the Board of Directors pursuant to a resolution approved by a majority of the directors then in office, no holder of the capital stock of the Corporation or series of stock or of options, warrants or other rights to purchase shares of any class or series of stock or of other securities of the Corporation shall have any preemptive right to purchase or subscribe for any unissued capital stock of any class or series, or any unissued bonds, certificates of indebtedness, debentures or other securities convertible into or exchangeable for capital stock of any class or series or carrying any right to purchase stock of any class or series.

B.           Appraisal Rights.  Holders of shares of stock shall not be entitled to exercise any rights of an objecting stockholder provided for under Title 3, Subtitle 2 of the MGCL or any successor statute unless the Board of Directors, pursuant to a resolution approved by a majority of the directors then in office, shall determine that such rights apply with respect to all or any classes or series of stock, to one or more transactions occurring after the date of such determination in connection with which holders of such shares would otherwise be entitled to exercise such rights.

ARTICLE 7.  Directors.  The following provisions are made a part of these Articles for the management of the business and the conduct of the affairs of the Corporation, and for further definition, limitation and regulation of the powers of the Corporation and of its directors and stockholders:

A.           Management of the Corporation.  The business and affairs of the Corporation shall be managed under the direction of the Board of Directors. All powers of the Corporation may be exercised by or under the authority of the Board of Directors, except as conferred on or as reserved to the stockholders by law or by these Articles or the Bylaws of the Corporation; provided, however, that any limitations on the Board of Director’s management or direction of the affairs of the Corporation shall reserve the directors’ full power to discharge their fiduciary duties.

B.           Number, Class and Terms of Directors; No Cumulative Voting.  The number of directors constituting the Board of Directors of the Corporation shall initially be nine (9), which number may be increased or decreased in the manner provided in the Bylaws of the Corporation; provided, however, that such number shall never be less than the minimum number of directors required by the MGCL now or hereafter in force. The directors, other than those who may be elected by the holders of any series of Preferred Stock, shall be divided into three classes, with the term of office of the first class (“Class I”) to expire at the conclusion of the first annual meeting of stockholders, the term of office of the second class (“Class II”) to expire at the conclusion of the annual meeting of stockholders one year thereafter and the term of office of the

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third class (“Class III”) to expire at the conclusion of the annual meeting of stockholders two years thereafter, with each director to hold office until his or her successor shall have been duly elected and qualified. At each annual meeting of stockholders, directors elected to succeed those directors whose terms expire shall be elected for a term of office to expire at the third succeeding annual meeting of stockholders after their election or for such shorter period of time as the Board of Directors may determine, with each director to hold office until his or her successor shall have been duly elected and qualified.

The names of the individuals who will serve as directors of the Corporation until their successors are elected and qualify are as follows:

Class I Directors:	Term to Expire in
Thomas W. Schneider	2015
John P. Funiciello	2015
Lloyd “Buddy” Stemple	2015
Class II Directors:	Term to Expire in
David A. Ayoub	2016
Adam C. Gagas	2016
John F. Sharkey, III	2016
Class III Directors:	Term to Expire in
William A. Barclay	2017
Chris R. Burritt	2017
George P. Joyce	2017

Stockholders shall not be permitted to cumulate their votes in the election of directors.

C.           Vacancies.  Any vacancies in the Board of Directors may be filled in the manner provided in the Bylaws of the Corporation.

D.           Removal.  Subject to the rights of the holders of any series of Preferred Stock then outstanding, any director, or the entire Board of Directors, may be removed from office at any time, but only for cause and only by the affirmative vote of the holders of a majority of the voting power of all of the then-outstanding shares of capital stock of the Corporation entitled to vote generally in the election of directors (after giving effect to the provisions of Article 5 hereof) voting together as a single class.

E.           Stockholder Proposals and Nominations of Directors.  Advance notice of stockholder nominations for the election of directors and of business to be brought by stockholders before any meeting of the stockholders of the Corporation shall be given in the manner provided in the Bylaws of the Corporation. Stockholder proposals to be presented in

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connection with a special meeting of stockholders shall be presented by the Corporation only to the extent required by Section 2-502 of the MGCL and the Bylaws of the Corporation.

ARTICLE 8.  Bylaws.  The Board of Directors is expressly empowered to adopt, amend or repeal the Bylaws of the Corporation. Any adoption, amendment or repeal of the Bylaws of the Corporation by the Board of Directors shall require the approval of a majority of the Whole Board. The stockholders shall also have power to adopt, amend or repeal the Bylaws of the Corporation. In addition to any vote of the holders of any class or series of stock of the Corporation required by law or by these Articles, the affirmative vote of the holders of at least 80% of the voting power of all of the then-outstanding shares of the capital stock of the Corporation entitled to vote generally in the election of directors (after giving effect to the provisions of Article 5 hereof), voting together as a single class, shall be required for the adoption, amendment or repeal of any provisions of the Bylaws of the Corporation by the stockholders.

ARTICLE 9.  Evaluation of Certain Offers.  The Board of Directors, when evaluating (i) any offer of another Person (as defined below) to (A) make a tender or exchange offer for any equity security of the Corporation, (B) merge or consolidate the Corporation with another corporation or entity, or (C) purchase or otherwise acquire all or substantially all of the properties and assets of the Corporation or (ii) any other actual or proposed transaction that would or may involve a change in control of the Corporation (whether by purchases of shares of stock or any other securities of the Corporation in the open market or otherwise, tender offer, merger, consolidation, share exchange, dissolution, liquidation, sale of all or substantially all of the assets of the Corporation, proxy solicitation or otherwise), may, in connection with the exercise of its business judgment in determining what is in the best interests of the Corporation and its stockholders and in making any recommendation to the Corporation’s stockholders, give due consideration to all relevant factors, including, but not limited to: (A) the economic effect, both immediate and long-term, upon the Corporation’s stockholders, including stockholders, if any, who do not participate in the transaction; (B) the social and economic effect on the present and future employees, creditors and customers of, and others dealing with, the Corporation and its subsidiaries and on the communities in which the Corporation and its subsidiaries operate or are located; (C) whether the proposal is acceptable based on the historical, current or projected future operating results or financial condition of the Corporation; (D) whether a more favorable price could be obtained for the Corporation’s stock or other securities in the future; (E) the reputation and business practices of the other entity to be involved in the transaction and its management and affiliates as they would affect the employees of the Corporation and its subsidiaries; (F) the future value of the stock or any other securities of the Corporation or the other entity to be involved in the proposed transaction; (G) any antitrust or other legal and regulatory issues that are raised by the proposal; (H) the business and historical, current or expected future financial condition or operating results of the other entity to be involved in the transaction, including, but not limited to, debt service and other existing financial obligations, financial obligations to be incurred in connection with the proposed transaction, and other likely financial obligations of the other entity to be involved in the proposed transaction; and (I) the ability of the Corporation to fulfill its objectives as a financial institution holding company and on the ability of its subsidiary financial institution(s) to fulfill the objectives of a federally insured financial institution under applicable statutes and regulations. If the Board of Directors determines that any proposed transaction of the type described in clause (i) or (ii) of the

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immediately preceding sentence should be rejected, it may take any lawful action to defeat such transaction, including, but not limited to, any or all of the following: advising stockholders not to accept the proposal; instituting litigation against the party making the proposal; filing complaints with governmental and regulatory authorities; acquiring the stock or any of the securities of the Corporation; selling or otherwise issuing authorized but unissued stock or other securities or granting options or rights with respect thereto; and obtaining a more favorable offer from another individual or entity. This Article 9 sets forth certain factors that may be considered by the Board of Directors, but does not create any implication concerning the factors that must be considered, or any other factors that may or may not be considered, by the Board of Directors regarding any proposed transaction of the type described in clause (i) or (ii) of the first sentence of this Article 9.

For purposes of this Article 9, a “Person” shall include an individual, a group acting in concert, a corporation, a partnership, an association, a joint venture, a pool, a joint stock company, a trust, an unincorporated organization or similar company, a syndicate or any other group or entity formed for the purpose of acquiring, holding or disposing of securities.

ARTICLE 10.  Indemnification, etc. of Directors and Officers.

A.           Indemnification.  The Corporation shall indemnify (1) its current and former directors and officers, whether serving the Corporation or at its request any other entity, to the fullest extent required or permitted by the MGCL now or hereafter in force, and (2) other employees and agents to such extent as shall be authorized by the Board of Directors and permitted by law; provided, however, that, except as provided in Section B of this Article 10 with respect to proceedings to enforce rights to indemnification, the Corporation shall indemnify any such indemnitee in connection with a proceeding (or part thereof) initiated by such indemnitee only if such proceeding (or part thereof) was authorized by the Board of Directors of the Corporation. The right to indemnification conferred herein shall include the right to be paid by the Corporation the expenses incurred in defending any such proceeding in advance of its final disposition, to the fullest extent permitted by law.

B.           Procedure.  If a claim under Section A of this Article 10 is not paid in full by the Corporation within sixty (60) days after a written claim has been received by the Corporation, except in the case of a claim for an advancement of expenses, in which case the applicable period shall be twenty (20) days, the indemnitee may at any time thereafter bring suit against the Corporation to recover the unpaid amount of the claim. If successful in whole or in part in any such suit, or in a suit brought by the Corporation to recover an advancement of expenses pursuant to the terms of an undertaking, the indemnitee shall also be entitled to be reimbursed the expense of prosecuting or defending such suit. It shall be a defense to any action for advancement of expenses that the Corporation has not received both (i) an undertaking as required by law to repay such advances in the event it shall ultimately be determined that the standard of conduct has not been met and (ii) a written affirmation by the indemnitee of his good faith belief that the standard of conduct necessary for indemnification by the Corporation has been met. In (i) any suit brought by the indemnitee to enforce a right to indemnification hereunder (but not in a suit brought by the indemnitee to enforce a right to an advancement of expenses) it shall be a defense that, and (ii) any suit by the Corporation to recover an advancement of expenses pursuant to the terms of an undertaking the Corporation shall be

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entitled to recover such expenses upon a final adjudication that, the indemnitee has not met the applicable standard for indemnification set forth in the MGCL. Neither the failure of the Corporation (including its Board of Directors, independent legal counsel, or its stockholders) to have made a determination prior to the commencement of such suit that indemnification of the indemnitee is proper in the circumstances because the indemnitee has met the applicable standard of conduct set forth in the MGCL, nor an actual determination by the Corporation (including its Board of Directors, independent legal counsel, or its stockholders) that the indemnitee has not met such applicable standard of conduct, shall create a presumption that the indemnitee has not met the applicable standard of conduct or, in the case of such a suit brought by the indemnitee, be a defense to such suit. In any suit brought by the indemnitee to enforce a right to indemnification or to an advancement of expenses hereunder, or by the Corporation to recover an advancement of expenses pursuant to the terms of an undertaking, the burden of proving that the indemnitee is not entitled to be indemnified, or to such advancement of expenses, under this Article 10 or otherwise shall be on the Corporation.

C.           Non-Exclusivity.  The rights to indemnification and to the advancement of expenses conferred in this Article 10 shall not be exclusive of any other right that any Person may have or hereafter acquire under any statute, these Articles, the Corporation’s Bylaws, any agreement, any vote of stockholders or the Board of Directors, or otherwise.

D.           Insurance.  The Corporation may maintain insurance, at its expense, to insure itself and any director, officer, employee or agent of the Corporation or another corporation, partnership, joint venture, trust or other enterprise against any expense, liability or loss, whether or not the Corporation would have the power to indemnify such Person against such expense, liability or loss under the MGCL.

E.           Miscellaneous.  The Corporation shall not be liable for any payment under this Article 10 in connection with a claim made by any indemnitee to the extent such indemnitee has otherwise actually received payment under any insurance policy, agreement, or otherwise, of the amounts otherwise indemnifiable hereunder. The rights to indemnification and to the advancement of expenses conferred in Sections A and B of this Article 10 shall be contract rights and such rights shall continue as to an indemnitee who has ceased to be a director or officer and shall inure to the benefit of the indemnitee’s heirs, executors and administrators.

F.           Limitations Imposed by Federal Law.  Notwithstanding any other provision set forth in this Article 10, in no event shall any payments made by the Corporation pursuant to this Article 10 exceed the amount permissible under applicable federal law, including, without limitation, Section 18(k) of the Federal Deposit Insurance Act and the regulations promulgated thereunder.

Any repeal or modification of this Article 10 shall not in any way diminish any rights to indemnification or advancement of expenses of such director or officer or the obligations of the Corporation arising hereunder with respect to events occurring, or claims made, while this Article 10 is in force.

ARTICLE 11.  Limitation of Liability.  An officer or director of the Corporation, as such, shall not be liable to the Corporation or its stockholders for money damages, except (A) to

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the extent that it is proved that the Person actually received an improper benefit or profit in money, property or services, for the amount of the benefit or profit in money, property or services actually received; or (B) to the extent that a judgment or other final adjudication adverse to the Person is entered in a proceeding based on a finding in the proceeding that the Person’s action, or failure to act, was the result of active and deliberate dishonesty and was material to the cause of action adjudicated in the proceeding; or (C) to the extent otherwise provided by the MGCL. If the MGCL is amended to further eliminate or limit the personal liability of officers and directors, then the liability of officers and directors of the Corporation shall be eliminated or limited to the fullest extent permitted by the MGCL, as so amended.

Any repeal or modification of the foregoing paragraph by the stockholders of the Corporation shall not adversely affect any right or protection of a director or officer of the Corporation existing at the time of such repeal or modification.

ARTICLE 12:  Selection of Forum.  Unless the Corporation consents in writing to the selection of an alternative forum, the sole and exclusive forum for (i) any derivative action or proceeding brought on behalf of the Corporation, (ii) any action asserting a claim of breach of a fiduciary duty owed by any director, officer or other employee of the Corporation to the Corporation or the Corporation’s stockholders, (iii) any action asserting a claim arising pursuant to any provision of the MGCL, or (iv) any action asserting a claim governed by the internal affairs doctrine shall be a state or federal court located within the state of Maryland, in all cases subject to the court’s having personal jurisdiction over the indispensible parties named as defendants. Any person or entity purchasing or otherwise acquiring any interest in shares of capital stock of the Corporation shall be deemed to have notice of and consented to the provisions of this Article 12.

ARTICLE 13.   Amendment of the Articles of Incorporation.   The Corporation reserves the right to amend or repeal any provision contained in these Articles in the manner prescribed by the MGCL, including any amendment altering the terms or contract rights, as expressly set forth in these Articles, of any of the Corporation’s outstanding stock by classification, reclassification or otherwise, and no stockholder approval shall be required if the approval of stockholders is not required for the proposed amendment or repeal by the MGCL, and all rights conferred upon stockholders are granted subject to this reservation.

The Board of Directors, pursuant to a resolution approved by a majority of the Whole Board (rounded up to the nearest whole number), and without action by the stockholders, may amend these Articles to increase or decrease the aggregate number of shares of stock or the number of shares of stock of any class or series that the Corporation has authority to issue.

No proposed amendment or repeal of any provision of these Articles shall be submitted to a stockholder vote unless the Board of Directors shall have (1) approved the proposed amendment or repeal, (2) determined that it is advisable, and (3) directed that it be submitted for consideration at either an annual or special meeting of the stockholders pursuant to a resolution approved by the Board of Directors. Any proposed amendment or repeal of any provision of these Articles may be abandoned by the Board of Directors at any time before its effective time upon the adoption of a resolution approved by a majority of the Whole Board (rounded up to the nearest whole number).

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The amendment or repeal of any provision of these Articles shall be approved by at least two-thirds of all votes entitled to be cast by the holders of shares of capital stock of the Corporation entitled to vote on the matter (after giving due effect to the provisions of Article 5 of these Articles), except that the proposed amendment or repeal of any provision of these Articles need only be approved by the vote of a majority of all the votes entitled to be cast by the holders of shares of capital stock of the Corporation entitled to vote on the matter (after giving due effect to the provisions of Article 5 of these Articles) if the amendment or repeal of such provision is approved by the Board of Directors pursuant to a resolution approved by at least two-thirds of the Whole Board (rounded up to the nearest whole number).

Notwithstanding any other provision of these Articles or any provision of law that might otherwise permit a lesser vote or no vote, but in addition to any vote of the holders of any class or series of the stock of the Corporation required by law or by these Articles, the affirmative vote of the holders of at least 80% of the voting power of all of the then-outstanding shares of the capital stock of the Corporation entitled to vote generally in the election of directors (after giving effect to the provisions of Article 5), voting together as a single class, shall be required to amend or repeal this Article 13, Section C, D, E or F of Article 5, Article 7 (other than the removal of the list of the original directors), Article 8, Article 9, Article 10, Article 11 or Article 12.

ARTICLE 14.  Name and Address of Incorporator. The name and mailing address of the sole incorporator are as follows:

Benjamin M. Azoff

5335 Wisconsin Ave., N.W., Suite 780

Washington, D.C. 20015

[Remainder of Page Intentionally Left Blank]

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I, THE UNDERSIGNED, being the incorporator, for the purpose of forming a corporation under the laws of the State of Maryland, do make, file and record these Articles of Incorporation, do certify that the facts herein stated are true, and, accordingly, have hereto set my hand this 4^th day of June, 2014.

/s/ Benjamin M. Azoff

Benjamin M. Azoff, Incorporator

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EX-3.2

Exhibit 3.2

PATHFINDER BANCORP, INC.

BYLAWS

ARTICLE I
STOCKHOLDERS

Section 1. Annual Meeting.

The Corporation shall hold an annual meeting of its stockholders to elect directors and to transact any other business within its powers, at such place, on such date and at such time as the Board of Directors shall fix. Failure to hold an annual meeting does not invalidate the Corporation’s existence or affect any otherwise valid corporate act.

Section 2. Special Meetings.

Special meetings of stockholders of the Corporation may be called by the Chairman of the Board, the Chief Executive Officer of the Corporation or by the Board of Directors pursuant to a resolution adopted by a majority of the total number of directors that the Corporation would have if there were no vacancies on the Board of Directors (hereinafter the “Whole Board”). Special meetings of the stockholders shall be called by the Secretary at the request of stockholders only on the written request of stockholders entitled to cast at least a majority of all the votes entitled to be cast at the meeting. Such written request shall state the purpose or purposes of the meeting and the matters proposed to be acted upon at the meeting, and shall be delivered at the principal office of the Corporation addressed to the President or the Secretary. The Secretary shall inform the stockholders who make the request of the reasonably estimated cost of preparing and mailing a notice of the meeting and, upon payment of these costs to the Corporation, notify each stockholder entitled to notice of the meeting. The Board of Directors shall have the sole power to fix (i) the record date for determining stockholders entitled to request a special meeting of stockholders and the record date for determining stockholders entitled to notice of and to vote at the special meeting and (ii) the date, time and place of the special meeting and the means of remote communication, if any, by which stockholders and proxy holders may be considered present in person and may vote at the special meeting.

Section 3. Notice of Meetings; Adjournment or Postponement.

Not less than 10 nor more than 90 days before each stockholders’ meeting, the Secretary shall give notice of the meeting in writing or by electronic transmission to each stockholder entitled to vote at the meeting and to each other stockholder entitled to notice of the meeting. The notice shall state the time and place of the meeting, the means of remote communication, if any, by which stockholders and proxy holders may be deemed to be present in person and may vote at the meeting, and, if the meeting is a special meeting, or notice of the purpose is required by statute, the purpose of the meeting. Notice is given to a stockholder when it is personally delivered to the stockholder, left at the stockholder’s residence or usual place of business, mailed to the stockholder at his or her address as it appears on the records of the Corporation, or transmitted to the stockholder by an electronic transmission to any address or number of the stockholder at which the stockholder receives electronic transmissions. If the Corporation has

received a request from a stockholder that notice not be sent by electronic transmission, the Corporation may not provide notice to the stockholder by electronic transmission. Notwithstanding the foregoing provisions, each person who is entitled to notice waives notice if such person, before or after the meeting, delivers a written waiver or waiver by electronic transmission which is filed with the records of the stockholders’ meetings, or if such person is present at the meeting in person or by proxy.

A meeting of stockholders convened on the date for which it was called may be adjourned from time to time without further notice to a date not more than 120 days after the original record date. A meeting may be adjourned by a resolution adopted by a majority of the Whole Board or by the vote of a majority of the stockholders present at the meeting, whether or not a quorum is present at such meeting. At any adjourned meeting, any business may be transacted that might have been transacted at the original meeting.

A meeting of stockholders may be postponed to a date not more than 120 days after the original record date. A meeting may be postponed by a resolution adopted by a majority of the Whole Board. Notice of the date, time and place to which the meeting is postponed shall be given not less than ten days prior to such date and otherwise in the manner set forth in this Section 3. At any postponed meeting, any business may be transacted that might have been transacted at the meeting as originally scheduled.

If a meeting shall be adjourned or postponed to a date not more than 120 days after the original record date, a new record date need not be established, and the original record date may be used for the purpose of determining which stockholders are entitled to notice of, and to vote at, the adjourned or postponed meeting. Any writing authorizing another person to act as proxy at a meeting of stockholders shall remain valid for use at any adjournment or postponement of such meeting unless such proxy is revoked or a later dated proxy is provided by such stockholder. If a meeting shall be adjourned or postponed to a date not more than 120 days after the original record date, a new record date need not be established, and the original record date may be used for the purpose of determining which stockholders are entitled to notice of, and to vote at, the adjourned or postponed meeting.

As used in these Bylaws, the term “electronic transmission” shall have the meaning given to such term by Section 1-101 of the Maryland General Corporation Law (the “MGCL”) or any successor provision.

Section 4. Quorum.

Unless the Articles of the Corporation provide otherwise, where a separate vote by a class or classes is required, a majority of the shares of such class or classes, present in person or represented by proxy, shall constitute a quorum entitled to take action with respect to that vote on that matter.

If a quorum shall fail to attend any meeting, the Chairman of the meeting or the holders of a majority of the shares of stock who are present at the meeting, in person or by proxy, may, in accordance with Section 3 of this Article I, adjourn the meeting to another place, date or time.

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Section 5. Organization and Conduct of Business.

The Chairman of the Board of the Corporation, or in his or her absence, the Chief Executive Officer, or in his or her absence, such other person as may be designated by a majority of the Whole Board, shall call to order any meeting of the stockholders and act as Chairman of the meeting. In the absence of the Secretary, the secretary of the meeting shall be such person as the Chairman appoints. The Chairman of any meeting of stockholders shall determine the order of business and the procedure at the meeting, including such regulation of the manner of voting and the conduct of discussion as seem to him or her to be in order.

Section 6. Advance Notice Provisions for Business to be Transacted at Annual Meetings and Elections of Directors.

(a)        At any annual meeting of the stockholders, only such business shall be conducted as shall have been brought before the meeting (i) as specified in the Corporation’s notice of the meeting, (ii) by or at the direction of the Board of Directors or (iii) by any stockholder of the Corporation who: (1) is a stockholder of record on the date such stockholder gives the notice provided for in this Section 6(a) and on the record date for the determination of stockholders entitled to vote at such annual meeting; and (2) complies with the notice procedures set forth in this Section 6(a). For business to be properly brought before an annual meeting by a stockholder pursuant to clause (iii) of the immediately preceding sentence, the stockholder must have given timely notice thereof in writing to the Secretary of the Corporation and such business must otherwise be a proper matter for action by stockholders. To be timely, a stockholder’s notice must be delivered or mailed to and received by the Secretary of the Corporation at the principal executive office of the Corporation not less than 80 days nor more than 90 days prior to any such meeting; provided, however, that if less than 90 days’ notice or prior public disclosure of the date of the meeting is given to stockholders, such written notice shall be delivered or mailed to and received by the Secretary of the Corporation at the principal executive office of the Corporation not later than the tenth day following the day on which notice of the meeting was mailed to stockholders or such public disclosure was made. The advance notice periods provided in this paragraph, once established by the initial notice or public disclosure of a date for the annual meeting of stockholders, shall remain in effect regardless of whether a subsequent notice or public disclosure shall provide that the meeting shall have been adjourned or that the date of the meeting shall have been postponed or otherwise changed from the date provided in the initial notice or public disclosure.

A stockholder’s notice to the Secretary must set forth as to each matter such stockholder proposes to bring before the annual meeting: (i) a brief description of the business desired to be brought before the annual meeting and the reasons for conducting such business at the annual meeting; (ii) the name and address of such stockholder as they appear on the Corporation’s books and of the beneficial owner, if any, on whose behalf the proposal is made; (iii) the class or series and number of shares of capital stock of the Corporation which are owned beneficially or of record by such stockholder and such beneficial owner; (iv) a description of all arrangements or understandings between such stockholder and any other person or persons (including their names) in connection with the proposal of such business by such stockholder and any material interest of such stockholder in such business; and (v) a representation that such stockholder

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intends to appear in person or by proxy at the annual meeting to bring such business before the meeting.

Notwithstanding anything in these Bylaws to the contrary, no business shall be brought before or conducted at an annual meeting except in accordance with the provisions of this Section 6(a). The officer of the Corporation or other person presiding over the annual meeting shall, if the facts so warrant, determine and declare to the meeting that business was not properly brought before the meeting in accordance with the provisions of this Section 6(a) and, if he or she should so determine, he or she shall so declare to the meeting and any such business so determined to be not properly brought before the meeting shall not be transacted.

At any special meeting of the stockholders, only such business shall be conducted as shall have been brought before the meeting pursuant to the Corporation’s notice of the meeting.

(b)        Only persons who are nominated in accordance with the following procedures shall be eligible for election as directors of the Corporation. Nominations of persons for election to the Board of Directors of the Corporation may be made at a meeting of stockholders at which directors are to be elected only (i) by or at the direction of the Board of Directors or (ii) by any stockholder of the Corporation who (1) is a stockholder of record on the date such stockholder gives the notice provided for in this Section 6(b) and on the record date for the determination of stockholders entitled to vote at such meeting, and (2) complies with the notice procedures set forth in this Section 6(b). Such nominations, other than those made by or at the direction of the Board of Directors, shall be made by timely notice in writing to the Secretary of the Corporation. To be timely, a stockholder’s notice shall be delivered or mailed to and received by the Secretary of the Corporation at the principal executive office of the Corporation not less than 80 days nor more than 90 days prior to any such meeting; provided, however, that if less than 90 days’ notice or prior public disclosure of the date of the meeting is given to stockholders, such written notice shall be delivered or mailed, as prescribed, to the Secretary of the Corporation not later than the tenth day following the day on which notice of the meeting was mailed to stockholders or such public disclosure was made. The advance notice periods provided in this paragraph, once established by the initial notice or public disclosure of a date for the annual meeting of stockholders, shall remain in effect regardless of whether a subsequent notice or public disclosure shall provide that the meeting shall have been adjourned or that the date of the meeting shall have been postponed or otherwise changed from the date provided in the initial notice or public disclosure.

A stockholder’s notice must be in writing and set forth (a) as to each person whom the stockholder proposes to nominate for election as a director, (i) all information relating to such person that would indicate such person’s qualification to serve on the Board of Directors of the Corporation; (ii) an affidavit that such person would not be disqualified under the provisions of Article II, Section 12 of these Bylaws; (iii) such information relating to such person that is required to be disclosed in connection with solicitations of proxies for election of directors, or is otherwise required, in each case pursuant to Regulation 14A under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), or any successor rule or regulation and (iv) a written consent of each proposed nominee to be named as a nominee and to serve as a director if elected; and (b) as to the stockholder giving the notice: (i) the name and address of such stockholder as they appear on the Corporation’s books and of the beneficial owner, if any, on whose behalf the

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nomination is made; (ii) the class or series and number of shares of capital stock of the Corporation which are owned beneficially or of record by such stockholder and such beneficial owner; (iii) a description of all arrangements or understandings between such stockholder and each proposed nominee and any other person or persons (including their names) pursuant to which the nomination(s) are to be made by such stockholder; (iv) a representation that such stockholder intends to appear in person or by proxy at the meeting to nominate the persons named in its notice; and (v) any other information relating to such stockholder that would be required to be disclosed in a proxy statement or other filings required to be made in connection with solicitations of proxies for election of directors pursuant to Regulation 14A under the Exchange Act or any successor rule or regulation. No person shall be eligible for election as a director of the Corporation unless nominated in accordance with the provisions of this Section 6(b). The Chairman of the meeting shall, if the facts so warrant, determine that a nomination was not made in accordance with such provisions and, if he or she should so determine, he or she shall so declare to the meeting and the defective nomination shall be disregarded.

(c)        For purposes of subsections (a) and (b) of this Section 6, the term “public disclosure” shall mean disclosure (i) in a press release reported by a nationally recognized news service, (ii) in a document publicly filed or furnished by the Corporation with the U.S. Securities and Exchange Commission or (iii) on a website maintained by the Corporation. The timely notice requirements provided in subsections (a) and (b) of this Section 6 shall apply to all stockholder nominations for election as a director and all stockholder proposals for business to be conducted at an annual meeting regardless of whether such proposal is submitted for inclusion in the Corporation’s proxy materials pursuant to Rule 14a-8 of Regulation 14A under the Exchange Act.

Section 7. Proxies and Voting.

Unless the Articles of the Corporation provide for a greater or lesser number of votes per share or limits or denies voting rights, each outstanding share of stock, regardless of class, is entitled to one vote on each matter submitted to a vote at a meeting of stockholders; however, a share is not entitled to be voted if any installment payable on it is overdue and unpaid. In all elections for directors, directors shall be determined by a plurality of the votes cast, and except as otherwise required by law or as provided in the Articles of the Corporation, all other matters voted on by stockholders shall be determined by a majority of the votes cast on the matter.

A stockholder may vote the stock the stockholder owns of record either in person or by proxy. A stockholder may sign a writing authorizing another person to act as proxy. Signing may be accomplished by the stockholder or the stockholder’s authorized agent signing the writing or causing the stockholder’s signature to be affixed to the writing by any reasonable means, including facsimile signature. A stockholder may authorize another person to act as proxy by transmitting, or authorizing the transmission of, an authorization for the person to act as the proxy to the person authorized to act as proxy or to any other person authorized to receive the proxy authorization on behalf of the person authorized to act as the proxy, including a proxy solicitation firm or proxy support service organization. The authorization may be transmitted by a telegram, cablegram, datagram, electronic mail or any other electronic or telephonic means. Unless a proxy provides otherwise, it is not valid more than 11 months after its date. A proxy is

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revocable by a stockholder at any time without condition or qualification unless the proxy states that it is irrevocable and the proxy is coupled with an interest. A proxy may be made irrevocable for as long as it is coupled with an interest. The interest with which a proxy may be coupled includes an interest in the stock to be voted under the proxy or another general interest in the Corporation or its assets or liabilities.

Section 8. Conduct of Voting

The Board of Directors shall, in advance of any meeting of stockholders, appoint one or more persons as inspectors of election, to act at the meeting or any adjournment thereof and make a written report thereof, in accordance with applicable law. If one or more inspectors are not so elected, the Chairman of the Board shall make such appointment at the meeting of stockholders. At all meetings of stockholders, the proxies and ballots shall be received, and all questions relating to the qualification of voters and the validity of proxies and the acceptance or rejection of votes shall be decided or determined by the inspector of election. All voting, including on the election of directors but excepting where otherwise required by law, may be by a voice vote; provided, however, that upon demand therefor by a stockholder entitled to vote or his or her proxy or the Chairman of the meeting, a written vote shall be taken. Every written vote shall be taken by ballot, each of which shall state the name of the stockholder or proxy voting and such other information as may be required under the procedure established for the meeting. No candidate for election as a director at a meeting shall serve as an inspector at such meeting.

Section 9. Control Share Acquisition Act.

Notwithstanding any other provision of the Articles of the Corporation or these Bylaws, Title 3, Subtitle 7 of the MGCL (or any successor statute) shall not apply to any acquisition by any person of shares of stock of the Corporation. This Section 9 may be repealed by a majority of the Whole Board, in whole or in part, at any time, whether before or after an acquisition of Control Shares (as defined in Section 3-701(d) of the MGCL, or any successor provision) and, upon such repeal, may, to the extent provided by any successor bylaw, apply to any prior or subsequent Control Share Acquisition (as defined in Section 3-701(e) of the MGCL, or any successor provision).

ARTICLE II

BOARD OF DIRECTORS

Section 1. General Powers, Number and Term of Office.

The business and affairs of the Corporation shall be managed under the direction of the Board of Directors. The number of directors of the Corporation shall, by virtue of the Corporation’s election made hereby to be governed by Section 3-804(b) of the MGCL, be fixed from time to time exclusively by vote of the Board of Directors; provided, however, that such number shall never be less than the minimum number of directors required by the MGCL now or hereafter in force. The Board of Directors shall annually elect a Chairman of the Board from among its members and shall designate the Chairman of the Board or his designee to preside at its meetings. The Board of Directors may also annually elect a Vice Chairman. In the absence

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of the Chairman of the Board, the Vice Chairman of the Board shall preside at the meetings of the Board of Directors.

The directors, other than those who may be elected by the holders of any series of preferred stock, shall be divided into three classes, as nearly equal in number as reasonably possible, with the term of office of the first class to expire at the first annual meeting of stockholders, the term of office of the second class to expire at the annual meeting of stockholders one year thereafter and the term of office of the third class to expire at the annual meeting of stockholders two years thereafter, with each director to hold office until his or her successor shall have been duly elected and qualified. At each annual meeting of stockholders, commencing with the first annual meeting, directors elected to succeed those directors whose terms expire shall be elected for a term of office to expire at the third succeeding annual meeting of stockholders after their election or for such shorter period of time as the Board of Directors may determine, with each director to hold office until his or her successor shall have been duly elected and qualified.

Section 2. Vacancies and Newly Created Directorships.

By virtue of the Corporation’s election made hereby to be subject to Section 3-804(c) of the MGCL, any vacancies in the Board of Directors resulting from an increase in the size of the Board of Directors or the death, resignation or removal of a director may be filled only by the affirmative vote of two-thirds of the remaining directors in office, even if the remaining directors do not constitute a quorum, and any director elected to fill a vacancy shall hold office for the remainder of the full term of the class of directors in which the vacancy occurred and until a successor is elected and qualifies. No decrease in the number of directors constituting the Board of Directors shall shorten the term of any incumbent director.

Section 3. Regular Meetings.

Regular meetings of the Board of Directors shall be held at such place or places or by means of remote communication, on such date or dates, and at such time or times as shall have been established by the Board of Directors and publicized among all directors. A notice of each regular meeting shall not be required. Any regular meeting of the Board of Directors may adjourn from time to time to reconvene at the same or some other place, and no notice need be given of any such adjourned meeting other than by announcement.

Section 4. Special Meetings.

Special meetings of the Board of Directors may be called by one-third (1/3) of the directors then in office (rounded up to the nearest whole number), the Chairman of the Board, the Vice Chairman of the Board or by the Chief Executive Officer, and shall be held at such place or by means of remote communication, on such date, and at such time as they or he or she shall fix. Notice of the place, date, and time of each such special meeting shall be given to each director who has not waived notice by mailing and post-marking written notice not less than five days before the meeting, or by facsimile or other electronic transmission of the same not less than 24 hours before the meeting. Any director may waive notice of any special meeting, either before or after such meeting, by delivering a written waiver or a waiver by electronic transmission that

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is filed with the records of the meeting. Attendance of a director at a special meeting shall constitute a waiver of notice of such meeting, except where the director attends the meeting for the express purpose of objecting, at the beginning of the meeting, to the transaction of any business because the meeting is not lawfully called or convened. Neither the business to be transacted nor the purpose of any special meeting of the Board of Directors need be specified in the notice of such meeting. Any special meeting of the Board of Directors may adjourn from time to time to reconvene at the same or some other place, and no notice need be given of any such adjourned meeting other than by announcement.

Section 5. Quorum.

At any meeting of the Board of Directors, a majority of the Whole Board shall constitute a quorum for all purposes. If a quorum shall fail to attend any meeting, a majority of those present may adjourn the meeting to another place, date, or time, without further notice or waiver thereof.

Section 6. Participation in Meetings By Conference Telephone.

Members of the Board of Directors, or of any committee thereof, may participate in a meeting of such Board or committee by means of a conference telephone or other communications equipment if all persons participating in the meeting can hear each other at the same time. Such participation shall constitute presence in person at such meeting.

Section 7. Conduct of Business.

At any meeting of the Board of Directors, business shall be transacted in such order and manner as the Board may from time to time determine, and all matters shall be determined by the vote of a majority of the directors present, except as otherwise provided in these Bylaws or the Corporation’s Articles or required by law. Action may be taken by the Board of Directors without a meeting if a unanimous consent which sets forth the action is given in writing or by electronic transmission by each member of the Board of Directors and filed in paper or electronic form with the minutes of proceedings of the Board of Directors.

Section 8. Powers.

All powers of the Corporation may be exercised by or under the authority of the Board of Directors except as provided by the Corporation’s Articles. Consistent with the foregoing, the Board of Directors shall have, among other powers, the unqualified power:

(i) To declare dividends from time to time in accordance with law;

(ii) To purchase or otherwise acquire any property, rights or privileges on such terms as it shall determine;

(iii) To authorize the creation, making and issuance, in such form as it may determine, of written obligations of every kind, negotiable or non-negotiable, secured or unsecured, and to do all things necessary in connection therewith;

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(iv) To remove any officer of the Corporation with or without cause, and from time to time to devolve the powers and duties of any officer upon any other person for the time being;

(v) To confer upon any officer of the Corporation the power to appoint, remove and suspend subordinate officers, employees and agents;

(vi) To adopt from time to time such stock, option, stock purchase, bonus or other compensation plans for directors, officers, employees and agents of the Corporation and its subsidiaries as it may determine;

(vii) To adopt from time to time such insurance, retirement, and other benefit plans for directors, officers, employees and agents of the Corporation and its subsidiaries as it may determine; and

(viii) To adopt from time to time regulations, not inconsistent with these Bylaws, for the management of the Corporation’s business and affairs.

Section 9. Compensation of Directors.

Directors, as such, may receive, pursuant to resolution of the Board of Directors, fixed fees and other compensation for their services as directors, including, without limitation, their services as members of committees of the Board of Directors.

Section 10. Resignation.

Any director may resign at any time by giving written notice of such resignation to the President or the Secretary at the principal office of the Corporation. Unless otherwise specified therein, such resignation shall take effect upon receipt thereof.

Section 11. Presumption of Assent.

A director of the Corporation who is present at a meeting of the Board of Directors at which action on any corporate matter is taken shall be presumed to have assented to such action unless such director announces his dissent at the meeting and (a) such director’s dissent is entered in the minutes of the meeting, (b) such director files his written dissent to such action with the secretary of the meeting before the adjournment thereof, or (c) such director forwards his written dissent within 24 hours after the meeting is adjourned, by certified mail, return receipt requested, bearing a postmark from the United States Postal Service, to the secretary of the meeting or the Secretary of the Corporation. Such right to dissent shall not apply to a director who voted in favor of such action or failed to make his dissent known at the meeting.

Section 12. Director Qualifications

(a)        No person shall be eligible for election or appointment to the Board of Directors: (i) if such person has been the subject of a supervisory or enforcement action by a financial or securities regulatory agency that resulted in a cease and desist order, consent order, or other formal order which is subject to public disclosure by such agency; (ii) if such person has been

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convicted of a crime involving dishonesty or breach of trust which is punishable by imprisonment for a term exceeding one year under state or federal law; (iii) if such person is currently charged in any information, indictment, or other complaint with the commission of or participation in such a crime; or (iv) other than the persons appointed as directors in connection with the formation of the Corporation and other than persons who are also executive officers of the Corporation or of the Corporation’s savings bank subsidiary, Pathfinder Bank, if such person did not, at the time of his first election or appointment to the Board of Directors, maintain his principal residence (as determined by reference to such person’s most recent tax returns filed with the State of New York, copies of which shall be provided to the Corporation for the sole purpose of determining compliance with this clause (iv)) within Oswego County or within the contiguous counties of Jefferson, Lewis, Oneida, Onondaga or Cayuga on a continuous basis for two (2) years immediately prior to such person’s nomination; provided however, that the Board of Directors may waive this clause (iv) if the Board of Directors determines, by 2/3 vote, that such waiver is in the best interest of the Corporation. No person may serve on the Board of Directors if such person (i) is at the same time, a director, officer, employee or 10% or more stockholder of a bank, savings institution, credit union, mortgage banking company, consumer loan company or similar organization, other than a subsidiary of the Corporation, that engages in business activities or solicits customers, whether through a physical presence or electronically, in the same market area as the Corporation or any of its subsidiaries; (ii) does not agree in writing to comply with all of the Corporation’s policies applicable to directors including but not limited to its confidentiality policy, and confirm in writing his qualifications hereunder; (iii) does not confirm in writing that he or she is not a party to any agreement, understanding or commitment with respect to how he or she would act or vote on any issue or question before the Board of Directors or that would otherwise impact his or her ability to discharge his or her fiduciary duties as a director; (iv) is the representative or agent of, or a member of a group acting in concert that includes, a person who is ineligible for election or appointment to the Board of Directors under this Section 12; or (v) is the nominee or representative, as that term is defined in the regulations of the Board of Governors of the Federal Reserve System, 12 C.F.R §212.2(n) or any successor provision, of a company of which any of the directors, partners, trustees or 10% stockholders would not be eligible for election or appointment to the Board of Directors under this Section 12. For purposes of this Section, a person shall be deemed to be acting in concert with another person if such person knowingly acts toward a common goal relating to the management, governance or control of the Corporation in parallel with such other person and there are overt actions by, or communications between, such persons reasonably suggesting that they are coordinating their efforts toward such common goal or if such persons are acting in concert within the meaning of 12 C.F.R. §238.31 or any successor provision.

(b)        Unless otherwise proscribed by law, no person may be elected, appointed, nominated, or otherwise serve as a director of the Corporation after December 31 of the year in which such person attains the age of 70. Notwithstanding the foregoing, the Board of Directors may waive this age requirement if the Board of Directors determines, by 2/3 vote, that such waiver is the best interest of the Corporation.

(c)        The Board of Directors shall have the power to construe and apply the provisions of this Section 12 and to make all determinations necessary or desirable to implement such provisions, including but not limited to determinations as to whether a person is a nominee or

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representative of a person, a company or a group, whether a person or company is included in a group, and whether a person is the representative, agent or nominee of a group acting in concert.

Section 13. Attendance at Board Meetings.

The Board of Directors shall have the right to remove any director from the board upon a director’s unexcused absence from (i) three consecutive regularly scheduled meetings of the Board of Directors or (ii) five regularly scheduled meetings of the Board of Directors in any fiscal year of the Corporation.

ARTICLE III

COMMITTEES

Section 1. Committees of the Board of Directors.

(a)        General Provisions. The Board of Directors may appoint from among its members an Audit Committee, a Compensation Committee, a Nominating/Governance Committee, and such other committees as the Board of Directors deems necessary or desirable. The Board of Directors may delegate to any committee so appointed any of the powers and authorities of the Board of Directors to the fullest extent permitted by the MGCL and any other applicable law.

(b)        Composition. Each committee shall be composed of one or more directors or any other number of members specified in these Bylaws or required by applicable regulations or stock exchange rules. The Chairman of the Board may recommend committees, committee memberships, and committee chairs to the Board of Directors. The Board of Directors shall have the power at any time to appoint the Chairman and the members of any committee, change the membership of any committee, to fill all vacancies on committees, to designate alternate members to replace or act in the place of any absent or disqualified member of a committee, or to dissolve any committee. A member of a committee may resign from that committee at any time by giving written notice of such resignation to the Chairman of the Board. Unless otherwise specified therein, such resignation from the committee shall take effect upon receipt thereof.

(c)        Issuance of Stock. If the Board of Directors has given general authorization for the issuance of stock providing for or establishing a method or procedure for determining the maximum number of shares to be issued, a committee of the Board of Directors, in accordance with that general authorization or any stock option or other plan or program adopted by the Board of Directors, may authorize or fix the terms of stock subject to classification or reclassification and the terms on which any stock may be issued, including all terms and conditions required or permitted to be established or authorized by the Board of Directors. Any committee so designated may exercise the power and authority of the Board of Directors if the resolution that designated the committee or a supplemental resolution of the Board of Directors shall so provide.

Section 2. Conduct of Business.

Each committee may determine the procedural rules for meeting and conducting its business and shall act in accordance therewith, except as otherwise provided herein or required

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by law. Adequate provision shall be made for notice to members of all meetings; one-third of the members shall constitute a quorum unless the committee shall consist of one or two members, in which event one member shall constitute a quorum; and all matters shall be determined by a majority vote of the members present. Action may be taken by any committee without a meeting if a unanimous consent which sets forth the action is given in writing or by electronic transmission by each member of the committee and filed in paper or electronic form with the minutes of the proceedings of such committee. The members of any committee may conduct any meeting thereof by conference telephone or other communications equipment in accordance with the provisions of Section 6 of Article II.

ARTICLE IV

OFFICERS

Section 1. Generally.

(a)        The Board of Directors as soon as may be practicable after the annual meeting of stockholders shall choose a Chairman of the Board, Chief Executive Officer, President, one or more Vice Presidents, a Secretary and a Chief Financial Officer and from time to time may choose such other officers as it may deem proper. Any number of offices may be held by the same person, except that no person may concurrently serve as both President and Vice President of the Corporation.

(b)        The term of office of all officers shall be until the next annual election of officers and until their respective successors are chosen, but any officer may be removed from office at any time by the affirmative vote of a majority of the Whole Board.

(c)        All officers chosen by the Board of Directors shall each have such powers and duties as generally pertain to their respective offices, subject to the specific provisions of this Article IV. Such officers shall also have such powers and duties as from time to time may be conferred by the Board of Directors or by any committee thereof.

Section 2. Chairman of the Board of Directors.

The Chairman of the Board of Directors of the Corporation shall perform all duties and have all powers which are commonly incident to the office of Chairman of the Board or which are delegated to him or her by the Board of Directors. He or she shall have power to sign all stock certificates, contracts and other instruments of the Corporation that are authorized.

Section 3. Vice Chairman of the Board of Directors.

If appointed, the Vice Chairman of the Board of Directors of the Corporation shall perform all duties and have all powers which are commonly incident to the office of Chairman of the Board, with such duties to be performed and powers to be held in the absence of the Chairman of the Board, or which are delegated to him or her by the Board of Directors.

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Section 4. Chief Executive Officer.

The Chief Executive Officer, subject to the control of the Board of Directors, shall serve in general executive capacity and have general power over the management and oversight of the administration and operation of the Corporation’s business and general supervisory power and authority over its policies and affairs. The Chief Executive Officer shall see that all orders and resolutions of the Board of Directors and of any committee thereof are carried into effect.

Section 5. President.

The President shall perform the duties of the Chief Executive Officer in the Chief Executive Officer’s absence or during his or her disability to act. In addition, the President shall perform the duties and exercise the powers usually incident to their respective office and/or such other duties and powers as may be properly assigned to the President from time to time by the Board of Directors, the Chairman of the Board or the Chief Executive Officer.

Section 6. Vice President.

The Vice President or Vice Presidents (including Executive Vice Presidents or other levels of Vice President designated by the Board of Directors), if any, shall perform the duties of the Chief Executive Officer in the absence of both the Chief Executive Officer and the President, or during their disability to act. In addition, the Vice Presidents shall perform the duties and exercise the powers usually incident to their respective office and/or such other duties and powers as may be properly assigned to the Vice Presidents from time to time by the Board of Directors, the Chairman of the Board or the Chief Executive Officer.

Section 7. Secretary.

The Secretary or an Assistant Secretary shall issue notices of meetings, shall keep the minutes of meetings, shall have charge of the seal and the corporate books, shall perform such other duties and exercise such other powers as are usually incident to such offices and/or such other duties and powers as are properly assigned thereto by the Board of Directors, the Chairman of the Board or the Chief Executive Officer.

Section 8. Chief Financial Officer.

The Chief Financial Officer shall have charge of all monies and securities of the Corporation, other than monies and securities of any division of the Corporation that has a treasurer or financial officer appointed by the Board of Directors, and shall keep regular books of account. The funds of the Corporation shall be deposited in the name of the Corporation by the Chief Financial Officer with such banks or trust companies or other entities as the Board of Directors from time to time shall designate. The Chief Financial Officer shall sign or countersign such instruments as require his or her signature, shall perform all such duties and have all such powers as are usually incident to such office and/or such other duties and powers as are properly assigned to him or her by the Board of Directors, the Chairman of the Board or the Chief Executive Officer, and may be required to give bond for the faithful performance of his or her duties in such sum and with such surety as may be required by the Board of Directors.

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Section 9. Other Officers.

The Board of Directors may designate and fill such other offices in its discretion and the persons holding such other offices shall have such powers and shall perform such duties as the Board of Directors or Chief Executive Officer may from time to time assign.

Section 10. Action with Respect to Securities of Other Corporations

Stock of other corporations or associations, registered in the name of the Corporation, may be voted by the Chief Executive Officer, the President, a Vice President, or a proxy appointed by either of them. The Board of Directors, however, may by resolution appoint some other person to vote such shares, in which case such person shall be entitled to vote such shares upon the production of a certified copy of such resolution.

ARTICLE V

STOCK

Section 1. Certificates of Stock.

The Board of Directors may determine to issue certificated or uncertificated shares of capital stock and other securities of the Corporation. For certificated stock, each stockholder is entitled to certificates which represent and certify the shares of stock he or she holds in the Corporation. Each stock certificate shall include on its face the name of the Corporation, the name of the stockholder or other person to whom it is issued, and the class of stock and number of shares it represents. It shall also include on its face or back (a) a statement of any restrictions on transferability and a statement of the designations and any preferences, conversion and other rights, voting powers, restrictions, limitations as to dividends, qualifications, and terms and conditions of redemption of the stock of each class which the Corporation is authorized to issue, of the differences in the relative rights and preferences between the shares of each series of preferred stock which the Corporation is authorized to issue, to the extent they have been set, and of the authority of the Board of Directors to set the relative rights and preferences of subsequent series of preferred stock or (b) a statement which provides in substance that the Corporation will furnish a full statement of such information to any stockholder on request and without charge. Such request may be made to the Secretary or to the Corporation’s transfer agent. Upon the issuance of uncertificated shares of capital stock, the Corporation shall send the stockholder a written statement of the same information required above with respect to stock certificates. Each stock certificate shall be in such form, not inconsistent with law or with the Corporation’s Articles, as shall be approved by the Board of Directors or any officer or officers designated for such purpose by resolution of the Board of Directors. Each stock certificate shall be signed by the Chairman of the Board, the President, or a Vice President, and countersigned by the Secretary, an Assistant Secretary, the Treasurer, or an Assistant Treasurer. Each certificate may be sealed with the actual corporate seal or a facsimile of it or in any other form and the signatures may be either manual or facsimile signatures. A certificate is valid and may be issued whether or not an officer who signed it is still an officer when it is issued. A certificate may not be issued until the stock represented by it is fully paid.

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Section 2. Transfers of Stock.

Transfers of stock shall be made only upon the transfer books of the Corporation kept at an office of the Corporation or by transfer agents designated to transfer shares of the stock of the Corporation. Except where a certificate is issued in accordance with Section 4 of Article V of these Bylaws, an outstanding certificate for the number of shares involved shall be surrendered for cancellation before a new certificate is issued therefor.

Section 3. Record Dates or Closing of Transfer Books.

The Board of Directors may, and shall have the power to, set a record date or direct that the stock transfer books be closed for a stated period for the purpose of making any proper determination with respect to stockholders, including which stockholders are entitled to notice of a meeting, vote at a meeting, receive a dividend, or be allotted other rights. The record date may not be prior to the close of business on the day the record date is fixed nor, subject to Section 3 of Article I of these Bylaws, more than 90 days before the date on which the action requiring the determination will be taken; the transfer books may not be closed for a period longer than 20 days; and, in the case of a meeting of stockholders, the record date or the closing of the transfer books shall be at least ten days before the date of the meeting. Any shares of the Corporation’s own stock acquired by the Corporation between the record date for determining stockholders entitled to notice of or to vote at a meeting of stockholders and the time of the meeting may be voted at the meeting by the holder of record as of the record date and shall be counted in determining the total number of outstanding shares entitled to be voted at the meeting.

Section 4. Lost, Stolen or Destroyed Certificates.

The Board of Directors of the Corporation may determine the conditions for issuing a new stock certificate in place of one which is alleged to have been lost, stolen, or destroyed, or the Board of Directors may delegate such power to any officer or officers of the Corporation. In their discretion, the Board of Directors or such officer or officers may require the owner of the certificate to give a bond, with sufficient surety, to indemnify the Corporation against any loss or claim arising as a result of the issuance of a new certificate. In their discretion, the Board of Directors or such officer or officers may refuse to issue such new certificate without the order of a court having jurisdiction over the matter.

Section 5. Stock Ledger.

The Corporation shall maintain a stock ledger which contains the name and address of each stockholder and the number of shares of stock of each class which the stockholder holds. The stock ledger may be in written form or in any other form which can be converted within a reasonable time into written form for visual inspection. The original or a duplicate of the stock ledger shall be kept at the offices of a transfer agent for the particular class of stock or, if none, at the principal executive office of the Corporation.

Section 6. Regulations.

The issue, transfer, conversion and registration of certificates of stock shall be governed by such other regulations as the Board of Directors may establish.

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ARTICLE VI

MISCELLANEOUS

Section 1. Facsimile Signatures.

In addition to the provisions for use of facsimile signatures elsewhere specifically authorized in these Bylaws, facsimile signatures of any officer or officers of the Corporation may be used whenever and as authorized by the Board of Directors or a committee thereof.

Section 2. Corporate Seal.

The Board of Directors may provide a suitable seal, bearing the name of the Corporation, which shall be in the charge of the Secretary. The Board of Directors may authorize one or more duplicate seals and provide for the custody thereof. If the Corporation is required to place its corporate seal to a document, it is sufficient to meet the requirement of any law, rule, or regulation relating to a corporate seal to place the word “(seal)” adjacent to the signature of the person authorized to sign the document on behalf of the Corporation.

Section 3. Books and Records.

The Corporation shall keep correct and complete books and records of its accounts and transactions and minutes of the proceedings of its stockholders and Board of Directors and of any committee when exercising any of the powers of the Board of Directors. The books and records of the Corporation may be in written form or in any other form which can be converted within a reasonable time into written form for visual inspection. Minutes shall be recorded in written form but may be maintained in the form of a reproduction. The original or a certified copy of these Bylaws shall be kept at the principal office of the Corporation.

Section 4. Reliance upon Books, Reports and Records.

Each director, each member of any committee designated by the Board of Directors, and each officer and agent of the Corporation shall, in the performance of his or her duties, in addition to any protections conferred upon him or her by law, be fully protected in relying in good faith upon the books of account or other records of the Corporation and upon such information, opinions, reports or statements presented to the Corporation by any of its officers or employees, or committees of the Board of Directors so designated, or by any other person as to matters which such director, committee member, officer or agent reasonably believes are within such other person’s professional or expert competence and who has been selected with reasonable care by or on behalf of the Corporation.

Section 5. Fiscal Year.

The fiscal year of the Corporation shall commence on the first day of January and end on the last day of December in each year.

16

Section 6. Time Periods.

In applying any provision of these Bylaws that requires that an act be done or not be done a specified number of days prior to an event or that an act be done during a period of a specified number of days prior to an event, calendar days shall be used, the day of the doing of the act shall be excluded and the day of the event shall be included.

Section 7. Checks, Drafts, Etc.

All checks, drafts and orders for the payment of money, notes and other evidences of indebtedness, issued in the name of the Corporation, shall be signed by any officer, employee or agent of the Corporation that is authorized by the Board of Directors.

Section 8. Mail.

Any notice or other document that is required by these Bylaws to be mailed shall be deposited in the United States mail, postage prepaid.

Section 9. Contracts and Agreements.

To the extent permitted by applicable law, and except as otherwise prescribed by the Articles or these Bylaws, the Board of Directors may authorize any officer, employee or agent of the Corporation to enter into any contract or execute and deliver any instrument in the name of and on behalf of the Corporation. Such authority may be general or confined to specific instances. A person who holds more than one office in the Corporation may not act in more than one capacity to execute, acknowledge, or verify an instrument required by law to be executed, acknowledged, or verified by more than one officer.

ARTICLE VII

AMENDMENTS

These Bylaws may be adopted, amended or repealed as provided in the Articles of the Corporation.

17

EX-4

Exhibit 4

INCORPORATED UNDER THE LAWS OF THE STATE OF MARYLAND

No. PATHFINDER BANCORP, INC.   Shares  

CUSIP:  ____________

FULLY PAID AND NON-ASSESSABLE

PAR VALUE $0.01 PER SHARE

THE SHARES REPRESENTED BY THIS

CERTIFICATE ARE SUBJECT TO

RESTRICTIONS, SEE REVERSE SIDE

THIS CERTIFIES that is the owner of

SHARES OF COMMON STOCK

of

Pathfinder Bancorp, Inc.

a Maryland corporation

The shares evidenced by this certificate are transferable only on the books of Pathfinder Bancorp, Inc. by the holder hereof, in person or by attorney, upon surrender of this certificate properly endorsed. The capital stock evidenced hereby is not an account of an insurable type and is not insured by the Federal Deposit Insurance Corporation or any other Federal or state governmental agency.

IN WITNESS WHEREOF, Pathfinder Bancorp, Inc. has caused this certificate to be executed by the facsimile signatures of its duly authorized officers and has caused a facsimile of its seal to be hereunto affixed.

By:		[SEAL]	By:
	EDWARD A. MERVINE			THOMAS W. SCHNEIDER
	CORPORATE SECRETARY			PRESIDENT AND CHIEF EXECUTIVE
				OFFICER

The Board of Directors of Pathfinder Bancorp, Inc. (the “Company”) is authorized by resolution or resolutions, from time to time adopted, to provide for the issuance of more than one class of stock, including preferred stock in series, and to fix and state the voting powers, designations, preferences, limitations and restrictions thereof. The Company will furnish to any stockholder upon request and without charge a full description of each class of stock and any series thereof.

The shares evidenced by this certificate are subject to a limitation contained in the Articles of Incorporation to the effect that in no event shall any record owner of any outstanding common stock which is beneficially owned, directly or indirectly, by a person who beneficially owns in excess of 10% of the outstanding shares of common stock (the “Limit”) be entitled or permitted to any vote in respect of shares held in excess of the Limit.

The shares represented by this certificate may not be cumulatively voted on any matter. The Articles of Incorporation requires that, with limited exceptions, no amendment, addition, alteration, change or repeal of the Articles of Incorporation shall be made, unless such is first approved by the Board of Directors of the Company and approved by the stockholders by a majority of the total shares entitled to vote, or in certain circumstances approved by the affirmative vote of up to 80% of the shares entitled to vote.

The following abbreviations when used in the inscription on the face of this certificate shall be construed as though they were written out in full according to applicable laws or regulations.

TEN COM	- as  tenants in common	UNIF GIFT MIN ACT	- _________ Custodian __________
			(Cust)                                   (Minor)
TEN ENT	- as tenants by the entireties
			Under Uniform Gifts to Minors Act
JT TEN	- as joint tenants with right
	of survivorship and not as
	tenants in common		(State)

Additional abbreviations may also be used though not in the above list

For value received, ________________________________ hereby sell, assign and transfer unto

PLEASE INSERT SOCIAL SECURITY NUMBER OR OTHER IDENTIFYING NUMBER

(please print or typewrite name and address including postal zip code of assignee)

Shares of

the Common Stock represented by the within Certificate, and do hereby irrevocably constitute and appoint ________________________________________________________________________ Attorney to transfer the said shares on the books of the within named corporation with full power of substitution in the premises.

Dated,

In the presence of Signature:

NOTE: THE SIGNATURE TO THIS ASSIGNMENT MUST CORRESPOND WITH THE NAME OF THE STOCKHOLDER(S) AS WRITTEN UPON THE FACE OF THE CERTIFICATE, IN EVERY PARTICULAR, WITHOUT ALTERATION OR ENLARGEMENT, OR ANY CHANGE WHATSOEVER.

EX-5

Exhibit 5

LUSE GORMAN POMERENK & SCHICK

A PROFESSIONAL CORPORATION

ATTORNEYS AT LAW

5335 Wisconsin Avenue, NW, Suite 780

Washington, D.C. 20015

—————

Telephone (202) 274-2000

Facsimile (202) 362-2902

www.luselaw.com

WRITER’S DIRECT DIAL NUMBER

(202) 274-2000

June 10, 2014

The Board of Directors

Pathfinder Bancorp, Inc.

214 West First Street

Oswego, New York 13126

Re: Pathfinder Bancorp, Inc.

Common Stock, Par Value $0.01 Per Share

Ladies and Gentlemen:

You have requested the opinion of this firm as to certain matters in connection with the offer and sale of the shares of common stock, par value $0.01 per share (“Common Stock”) of Pathfinder Bancorp, Inc. (the “Company”). We have reviewed the Company’s Articles of Incorporation, Registration Statement on Form S-1 (the “Form S-1”), as well as applicable statutes and regulations governing the Company and the offer and sale of the Common Stock. The opinion expressed below is limited to matters governed by Maryland and Federal law.

We are of the opinion that upon the declaration of effectiveness of the Form S-1, the Common Stock, when sold, will be legally issued, fully paid and non-assessable.

We hereby consent to our firm being referenced under the caption “Legal Matters” and to the filing of this opinion as an exhibit to the Form S-1.

Very truly yours,

/s/ Luse Gorman Pomerenk & Schick, P.C.

Luse Gorman Pomerenk & Schick

A Professional Corporation

EX-8.1

Exhibit 8.1

FORM OF

FEDERAL TAX OPINION

________________, 2014

Boards of Directors

Pathfinder Bancorp, MHC

Pathfinder Bancorp, Inc.

Pathfinder Bank

New Pathfinder Bancorp, Inc.

214 West First Street

Oswego, New York 13126

RE:  Federal Tax Opinion

Ladies and Gentlemen:

You have requested this firm’s opinion regarding the material federal income tax consequences that will result from the conversion of Pathfinder Bancorp, MHC, a Federally-chartered Mutual Holding Company (the “Mutual Holding Company”), into the capital stock form of organization (the “Conversion”) pursuant to the Plan of Conversion and Reorganization of Pathfinder Bancorp, MHC, Pathfinder Bancorp, Inc. and Pathfinder Bank, dated April 8, 2014 (the “Plan”), and the integrated transactions described below.

In connection with rendering our opinion, we have made such investigations as we have deemed relevant or necessary for the purpose of this opinion. In our examination, we have assumed the authenticity of original documents, the accuracy of copies and the genuineness of signatures. We have further assumed the absence of adverse facts not apparent from the face of the instruments and documents we examined and have relied upon the accuracy of the factual matters set forth in the Plan and the Registration Statement filed by Pathfinder Bancorp, Inc., a Maryland corporation (“New Pathfinder”), with the Securities and Exchange Commission (“SEC”) under the Securities Act of 1933, as amended, and the Application for Conversion of a Mutual Holding Company filed by the Mutual Holding Company with the Board of Governors of the Federal Reserve System (“FRB”). In addition, we are relying on a letter from RP Financial, LC. to you, dated ____________, 2014, stating its belief as to certain valuation matters described below. Capitalized terms used but not defined herein shall have the same meaning as set forth in the Plan. Furthermore, we assume that each of the parties to the Conversion will comply with all reporting obligations with respect to the Conversion required under the Internal Revenue Code of 1986, as amended (the “Code”), and the regulations thereunder (the “Treasury Regulations”).

LUSE GORMAN POMERENK & SCHICK

A PROFESSIONAL CORPORATION

Boards of Directors

Pathfinder Bancorp, MHC

Pathfinder Bancorp, Inc.

New Pathfinder Bancorp, Inc.

______________, 2014

Page 2

Our opinion is based upon the existing provisions of the Code, the Treasury Regulations and upon current Internal Revenue Service (“IRS”) published rulings and existing court decisions, any of which could be changed at any time. Any such changes may be retroactive and could significantly modify the statements and opinions expressed herein. Similarly, any change in the facts and assumptions upon which this opinion is based, could modify the conclusions. This opinion is as of the date hereof, and we disclaim any obligation to advise you of any change in any matter considered herein after the date hereof.

We opine only as to the matters we expressly set forth herein, and no opinions should be inferred as to any other matters or as to the tax treatment of the transactions that we do not specifically address. We express no opinion as to other federal laws and regulations, or as to laws and regulations of other jurisdictions, or as to factual or legal matters other than as set forth herein.

For purposes of this opinion, we are relying on the representations as to factual matters provided to us by the Mutual Holding Company, Pathfinder Bank (the “Bank”), Pathfinder Bancorp, Inc., a Federally-chartered mid-tier holding company (“Pathfinder-Federal”) and New Pathfinder, as set forth in the certificates for each of those aforementioned entities and signed by authorized officers of each of the aforementioned entities, incorporated herein by reference.

BACKGROUND

Based upon our review of the documents described above, and in reliance upon such documents, we understand that the relevant facts are as follows. The Bank is a New York chartered community bank that has served the banking needs of its customers since 1859. The Bank conducts its community banking business from eight banking offices located in Oswego and Onondaga Counties, New York and will open a new business banking office in Syracuse, New York. The Bank is primarily engaged in the business of attracting deposits from the general public in its market area, and investing such deposits, together with other sources of funds, in loans secured by one- to four-family residential real estate, commercial real estate, commercial and municipal loans, and to a lesser extent, home equity and junior liens and consumer loans. Since 1997 the Bank has operated in a two-tiered mutual holding company structure. Pathfinder-Federal is a federally chartered, publicly-traded stock holding company and the parent company of Pathfinder Bank. At March 31, 2014, Pathfinder-Federal had consolidated assets of $525.8 million, deposits of $438.4 million and shareholders' equity of $43.8 million. Pathfinder-Federal’s parent company is the Mutual Holding Company. At March 31, 2014, Pathfinder-Federal had 2,623,182 shares of common stock outstanding, of which 1,039,943 shares, or 39.6%, were owned by the public and the remaining 1,583,239 shares were held by Pathfinder Bancorp, MHC.

LUSE GORMAN POMERENK & SCHICK

A PROFESSIONAL CORPORATION

Boards of Directors

Pathfinder Bancorp, MHC

Pathfinder Bancorp, Inc.

New Pathfinder Bancorp, Inc.

______________, 2014

Page 3

The Mutual Holding Company is a mutual holding company with no capital stock or direct owners. Rather, the owners of the Mutual Holding Company are the depositors of the Bank, who are entitled upon the complete liquidation of the Mutual Holding Company to any liquidation proceeds after the payment of creditors. Depositors of the Bank have no voting rights with respect to the Mutual Holding Company, except for the right to vote on the Conversion.

Facts Regarding the Conversion

The Board of Directors of the Mutual Holding Company, Pathfinder-Federal and the Bank adopted the Plan providing for the conversion of the Mutual Holding Company from the mutual to the capital stock form of organization. As part of the Conversion, New Pathfinder will succeed to all the rights and obligations of the Mutual Holding Company and Pathfinder-Federal, and will offer shares of Holding Company Common Stock to the Bank’s depositors and members of the general public in the Offering.

Pursuant to the Plan, the Conversion will be effected as follows, in such order as is necessary to consummate the Conversion:

(1) Pathfinder-Federal will organize New Pathfinder as a first-tier subsidiary.

(2) The Mutual Holding Company will merge with and into Pathfinder-Federal with Pathfinder-Federal as the resulting entity (the “MHC Merger”), whereby the shares of Pathfinder-Federal held by the Mutual Holding Company will be cancelled and Eligible Account Holders will constructively receive liquidation interests in Pathfinder-Federal in exchange for their ownership interests in the Mutual Holding Company.

(3) Immediately after the MHC Merger, Pathfinder-Federal will merge with and into New Pathfinder (the “Mid-Tier Merger”), with New Pathfinder as the resulting entity. As part of the Mid-Tier Merger, the liquidation interests in Pathfinder-Federal constructively received by Eligible Account Holders and Supplemental Eligible Account Holders will automatically, without further action on the part of the holders thereof, be exchanged for interests in the Liquidation Account and the Minority Shares will automatically, without further action on the part of the holders thereof, be converted into and become the right to receive shares of New Pathfinder common stock (“Holding Company Common Stock”) based on the Exchange Ratio.

(4) Immediately after the Mid-Tier Merger, New Pathfinder will offer for sale Holding Company Common Stock in the Offering.

LUSE GORMAN POMERENK & SCHICK

A PROFESSIONAL CORPORATION

Boards of Directors

Pathfinder Bancorp, MHC

Pathfinder Bancorp, Inc.

New Pathfinder Bancorp, Inc.

______________, 2014

Page 4

(5) New Pathfinder will contribute at least 50% of the net proceeds of the Offering to the Bank.

Following the Conversion, a Liquidation Account will be maintained by New Pathfinder for the benefit of Eligible Account Holders who continue to maintain their deposit accounts with the Bank. Pursuant to Section 19 of the Plan, the Liquidation Account will be equal to the product of (a) the percentage of the outstanding shares of the common stock of Pathfinder-Federal owned by the Mutual Holding Company prior to the completion of the Conversion (before any upward adjustment that may be required by regulation or policy to reflect the market value of Mutual Holding Company assets other than common stock of Pathfinder-Federal), multiplied by (b) Pathfinder-Federal’s total stockholders’ equity as reflected in the latest statement of financial condition contained in the final Prospectus used in the Conversion, plus the value of the net assets of the Mutual Holding Company as reflected in the latest statement of financial condition of the Mutual Holding Company prior to the effective date of the Conversion (excluding its ownership of Pathfinder-Federal common stock). The terms of the Liquidation Account are described in Section 19 of the Plan.

As part of the Conversion, all of the then-outstanding shares of Pathfinder-Federal common stock owned by Minority Stockholders will be converted into and become shares of Holding Company Common Stock pursuant to the Exchange Ratio. The Exchange Ratio ensures that after the Conversion, Minority Stockholders will own in the aggregate the same percentage of Holding Company Common Stock as they held in Pathfinder-Federal common stock immediately prior to the Conversion, exclusive of Minority Stockholders’ purchases of additional shares of Holding Company Common Stock in the Offering and receipt of cash in lieu of fractional shares, and prior to any adjustment for assets held by the Mutual Holding Company (other than shares of stock in Pathfinder-Federal). As part of the Conversion, additional shares of Holding Company Common Stock will be offered for sale on a priority basis to depositors and to members of the public in the Offering.

As a result of the Conversion and Offering, New Pathfinder will be a publicly-held corporation, will register New Pathfinder Common Stock under Section 12(b) of the Securities Exchange Act of 1934, as amended, and will become subject to the rules and regulations thereunder and file periodic reports and proxy statements with the SEC. The Bank will become a wholly owned subsidiary of New Pathfinder and will continue to carry on its business and activities as conducted immediately prior to the Conversion.

The stockholders of New Pathfinder will be the former Minority Stockholders of Pathfinder-Federal immediately prior to the Conversion, plus those persons who purchase shares of Holding Company Common Stock in the Offering. Nontransferable rights to subscribe for New Pathfinder Common Stock have been granted, in order of priority, to Eligible Account Holders, the

LUSE GORMAN POMERENK & SCHICK

A PROFESSIONAL CORPORATION

Boards of Directors

Pathfinder Bancorp, MHC

Pathfinder Bancorp, Inc.

New Pathfinder Bancorp, Inc.

______________, 2014

Page 5

Bank’s tax-qualified employee plans (“Employee Plans”), Supplemental Eligible Account Holders and certain depositors of the Bank as of the Voting Record Date (“Other Depositors”). Subscription rights are nontransferable. New Pathfinder may also offer shares of Holding Company Common Stock not subscribed for in the Subscription Offering to members of the general public through one or more underwriters on a firm commitment basis.

OPINIONS

Based on the foregoing description of the Conversion, including the MHC Merger and the Mid-Tier Merger, and subject to the qualifications and limitations set forth in this letter, we are of the opinion that:

1.          The MHC Merger will qualify as a tax-free reorganization within the meaning of Section 368(a)(1)(A) of the Code.

2.          The constructive exchange of the Eligible Account Holders’ and Supplemental Eligible Account Holders ownership interests (e.g., liquidation and voting rights) in the Mutual Holding Company for liquidation interests in Pathfinder-Federal in the MHC Merger will satisfy the continuity of interest requirement of Section 1.368-1(b) of the Treasury Regulations. (cf. Rev. Rul. 69-3, 1969-1 C.B. 103, and Rev. Rul. 69-646, 1969-2 C.B. 54.)

3.          No gain or loss will be recognized by the Mutual Holding Company on the transfer of its assets to Pathfinder-Federal and Pathfinder-Federal’s assumption of its liabilities, if any, in constructive exchange for liquidation interests in Pathfinder-Federal or on the constructive distribution of such liquidation interests to the Eligible Account Holders and Supplemental Eligible Account Holders. (Section 361(a), 361(c) and 357(a) of the Code.)

4.          No gain or loss will be recognized by Pathfinder-Federal upon the receipt of the assets of the Mutual Holding Company in the MHC Merger in exchange for the constructive transfer to the Eligible Account Holders and Supplemental Eligible Account Holders of the liquidation interests in Pathfinder-Federal. (Section 1032(a) of the Code.)

5.          Eligible Account Holders and Supplemental Eligible Account Holders will recognize no gain or loss upon the constructive receipt of liquidation interests in Pathfinder-Federal in exchange for their ownership interests in the Mutual Holding Company. (Section 354(a) of the Code.)

6.          The basis of the assets of Mutual Holding Company (other than stock in Pathfinder-Federal) to be received by Pathfinder-Federal will be the same as the basis of such

LUSE GORMAN POMERENK & SCHICK

A PROFESSIONAL CORPORATION

Boards of Directors

Pathfinder Bancorp, MHC

Pathfinder Bancorp, Inc.

New Pathfinder Bancorp, Inc.

______________, 2014

Page 6

assets in the Mutual Holding Company immediately prior to the transfer. (Section 362(b) of the Code.)

7.          The holding period of the assets of the Mutual Holding Company transferred to Pathfinder-Federal will include the holding period of those assets in the Mutual Holding Company. (Section 1223(2) of the Code.)

8.          The Mid-Tier Merger will constitute a mere change in identity, form or place of organization within the meaning of Section 368(a)(1)(F) of the Code and, therefore, will qualify as a tax-free reorganization within the meaning of Section 368(a)(1)(F) of the Code. (Section 368(a)(1)(F) of the Code.)

9.          Pathfinder-Federal will not recognize any gain or loss on the transfer of its assets to New Pathfinder and New Pathfinder’s assumption of its liabilities in exchange for shares of Holding Company Common Stock or the distribution of such stock to Minority Stockholders and distribution of interests in the Liquidation Account to Eligible Account Holders and Supplemental Eligible Account Holders. (Sections 361(a), 361(c) and 357(a) of the Code.)

10.        No gain or loss will be recognized by New Pathfinder upon the receipt of the assets of Pathfinder-Federal in the Mid-Tier Merger. (Section 1032(a) of the Code.)

11.        The basis of the assets of Pathfinder-Federal to be received by New Pathfinder will be the same as the basis of such assets in Pathfinder-Federal immediately prior to the transfer. (Section 362(b) of the Code.)

12.        The holding period of the assets of Pathfinder-Federal to be received by New Pathfinder will include the holding period of those assets in Pathfinder-Federal immediately prior to the transfer. (Section 1223(2) of the Code.)

13.        Pathfinder-Federal stockholders will not recognize any gain or loss upon their exchange of Pathfinder-Federal common stock for Holding Company Common Stock. (Section 354 of the Code.)

14.        Eligible Account Holders and Supplemental Eligible Account Holders will not recognize any gain or loss upon the exchange of their liquidation interests in Pathfinder-Federal which they constructively received for interests in the Liquidation Account in New Pathfinder. (Section 354 of the Code.)

15.        The exchange of the Eligible Account Holders’ and Supplemental Eligible Account Holders’ liquidation interests in Pathfinder-Federal which they constructively received in the MHC Merger for interests in a Liquidation Account established in New Pathfinder will satisfy

LUSE GORMAN POMERENK & SCHICK

A PROFESSIONAL CORPORATION

Boards of Directors

Pathfinder Bancorp, MHC

Pathfinder Bancorp, Inc.

New Pathfinder Bancorp, Inc.

______________, 2014

Page 7

the continuity of interest requirement of Section 1.368-1(b) of the Treasury Regulations with respect to the MHC Merger. (cf. Rev. Rul. 69-3, 1969-1 C.B. 103, and Rev. Rul. 69-646, 1969-2 C.B. 54.)

16.        The payment of cash to the Minority Stockholders in lieu of fractional shares of Holding Company Common Stock will be treated as though the fractional shares were distributed as part of the Mid-Tier Merger and then redeemed by Holding Company. The cash payments will be treated as distributions in full payment for the fractional shares deemed redeemed under Section 302(a) of the Code, with the result that such stockholders will have short-term or long-term capital gain or loss to the extent that the cash they receive differs from the basis allocable to such fractional shares. (Rev. Rul. 66-365, 1966-2 C.B. 116 and Rev. Proc. 77-41, 1977-2 C.B. 574.)

17.        It is more likely than not that the fair market value of the nontransferable subscription rights to purchase Holding Company Common Stock is zero. Accordingly, it is more likely than not that no gain or loss will be recognized by Eligible Account Holders, Supplemental Eligible Account Holders or Other Depositors upon distribution to them of nontransferable subscription rights to purchase shares of Holding Company Common Stock. (Section 356(a) of the Code.) Eligible Account Holders, Supplemental Eligible Account Holders and Other Depositors will not realize any taxable income as a result of their exercise of the nontransferable subscriptions rights. (Rev. Rul. 56-572, 1956-2 C.B. 182.)

18.        It is more likely than not that the fair market value of the benefit provided by the possible creation of a Bank liquidation account supporting the payment of the Liquidation Account in the event New Pathfinder liquidates and lacks sufficient net assets is zero. Accordingly, it is more likely than not that no gain or loss will be recognized by Eligible Account Holders or Supplemental Eligible Account Holders upon the constructive distribution to them of such rights in a Bank liquidation account as of the effective date of the Mid-Tier Merger. (Section 356(a) of the Code)

19.        Each stockholder’s aggregate basis in his or her Holding Company Common Stock(including fractional share interests) received in the exchange will be the same as the aggregate basis of Pathfinder-Federal common stock surrendered in exchange therefor. (Section 358(a) of the Code.)

20.        Because it is more likely than not that the subscription rights have no value, it is more likely than not that the basis of New Pathfinder Common Stock purchased in the Offering by the exercise of the nontransferable subscription rights will be the purchase price thereof. (Section 1012 of the Code.)

LUSE GORMAN POMERENK & SCHICK

A PROFESSIONAL CORPORATION

Boards of Directors

Pathfinder Bancorp, MHC

Pathfinder Bancorp, Inc.

New Pathfinder Bancorp, Inc.

______________, 2014

Page 8

21.        Each stockholder’s holding period in his or her Holding Company Common Stock received in the exchange will include the period during which Pathfinder-Federal common stock surrendered was held, provided that the common stock surrendered is a capital asset in the hands of the stockholder on the date of the exchange. (Section 1223(1) of the Code.)

22.        The holding period of New Pathfinder Common Stock purchased pursuant to the exercise of subscriptions rights will commence on the date on which the right to acquire such stock was exercised. (Section 1223(5) of the Code.)

23.        No gain or loss will be recognized by New Pathfinder on the receipt of money in exchange for Holding Company Common Stock sold in the Offering. (Section 1032 of the Code.)

Our opinions under paragraph 17 and 20 above are predicated on the representation that no person shall receive any payment, whether in money or property, in lieu of the issuance of subscription rights. Our opinions under paragraphs 17, 19 and 20 are based on the position that the subscription rights to purchase shares of Holding Company Common Stock received by Eligible Account Holders and Other Depositors have a fair market value of zero. We understand that the subscription rights will be granted at no cost to the recipients, will be legally nontransferable and of short duration, and will provide the recipient with the right only to purchase shares of Holding Company Common Stock at the same price to be paid by members of the general public in a firm commitment underwritten offering. We also note that the IRS has not in the past concluded that subscription rights have value. In addition, we are relying on a letter from RP Financial, LC. to you stating its belief that subscription rights do not have any economic value at the time of distribution or at the time the rights are exercised in the Subscription Offering. Based on the foregoing, we believe it is more likely than not that the nontransferable subscription rights to purchase Holding Company Common Stock have no value.

Our opinion under paragraph 18 above is based on the position that the benefit provided by the possible creation of a Bank liquidation account supporting the payment of the Liquidation Account in the event New Pathfinder is liquidated and lacks sufficient net assets has a fair market value of zero. We understand that: (i) no holder of an interest in a liquidation account has ever received payment attributable to such interest in a liquidation account; (ii) the interests in the Liquidation Account and the right to interests in a Bank liquidation account (to the extent created) are not transferable; (iii) the amounts due under the Liquidation Account with respect to each Eligible Account Holder will be reduced as their deposits in the Bank are reduced as described in the Plan; and (iv) the Bank liquidation account payment obligation arises only if it is created because New Pathfinder is liquidated and lacks sufficient net assets to fund the Liquidation Account. We also note that the U.S. Supreme Court in Paulsen v. Commissioner, 469 U.S. 131 (1985) stated the following:

LUSE GORMAN POMERENK & SCHICK

A PROFESSIONAL CORPORATION

Boards of Directors

Pathfinder Bancorp, MHC

Pathfinder Bancorp, Inc.

New Pathfinder Bancorp, Inc.

______________, 2014

Page 9

The right to participate in the net proceeds of a solvent liquidation is also not a significant part of the value of the shares. Referring to the possibility of a solvent liquidation of a mutual savings association, this Court observed: “It stretches the imagination very far to attribute any real value to such a remote contingency, and when coupled with the fact that it represents nothing which the depositor can readily transfer, any theoretical value reduces almost to the vanishing point.” Society for the Savings v. Bowers, 349 U.S. 143, 150 (1955).

In addition, we are relying on a letter from RP Financial, LC. to you stating its belief that the benefit provided by a Bank liquidation account supporting the payment of the Liquidation Account in the event New Pathfinder is liquidated and lacks sufficient net assets does not have any economic value at the time of the Conversion. Based on the foregoing, we believe it is more likely than not that such rights in a Bank liquidation account have no value.

If such rights are subsequently found to have an economic value, income may be recognized by each Eligible Account Holder and Supplemental Eligible Account Holder in the amount equal to the fair market value of their right in a Bank liquidation account in the event New Pathfinder is liquidated and lacks sufficient net assets as of the effective date of the Conversion.

CONSENT

We hereby consent to the filing of this opinion as an exhibit to the Mutual Holding Company’s Application for Conversion of a Mutual Holding Company filed with the FRB and to New Pathfinder’s Registration Statement on Form S-1 as filed with the SEC. We also consent to the references to our firm in the Prospectus contained in the Application for Conversion and Form S-1 under the captions “The Conversion and Offering—Material Income Tax Consequences” and “Legal Matters.”

Very truly yours,

Luse Gorman Pomerenk & Schick P.C.

EX-8.2

Exhibit 8.2

____________, 2014

Boards of Directors

Pathfinder Bancorp, MHC (the “Mutual Holding Company”)

Pathfinder Bancorp, Inc. (the “Mid-Tier Holding Company” or “Pathfinder-Federal”)

Pathfinder Bancorp, Inc. (the “Holding Company” or “New Pathfinder”)

Pathfinder Bank (the “Bank”)

RE:  New York State (NYS) Income and Franchise Tax Consequences of Conversion of Pathfinder Bancorp, MHC from a Federally Chartered Mutual Holding Company to a Maryland Stock Corporation

To the Members of the Boards of Directors:

Scope of Opinion

You have requested our opinion with regard to the material New York State (NYS) income and franchise tax consequences resulting directly from the conversion of Pathfinder Bancorp, MHC, a federally chartered mutual holding company (the “Mutual Holding Company”), into the capital stock form of organization (the “Conversion”) pursuant to the Plan of Conversion and Reorganization of Pathfinder Bancorp, MHC, Pathfinder Bancorp, Inc., and Pathfinder Bank dated April 8, 2014 (the “Plan”). Each capitalized term used herein, unless otherwise defined, has the meaning set forth in the Plan and/or the Federal Tax Opinion.

In rendering our opinion, we have relied upon the facts, information, assumptions and representations as contained in the Plan. We have also relied on the facts, assumptions and federal income tax conclusions set forth in the Federal Tax Opinion issued by Luse Gorman Pomerenk & Schick P.C. on _________, 2014. We have reasonably assumed these facts to be complete and accurate and have not independently audited or otherwise verified any of these facts or assumptions. You have represented to us that we have been provided with all of the facts necessary to render our opinion. If any of the facts, assumptions or federal income tax conclusions in the Federal Tax Opinion are inaccurate or incorrect, our opinion expressed herein may require modification.

We have not considered any non-income tax, or federal, local or foreign income tax consequences (other than the NYS Franchise Tax on Banking Corporations).  We have also not considered NYS taxes other than those recited in this opinion or taxes that might be levied by other states, and, therefore, do not express any opinion regarding the treatment that would be given the transaction by the applicable authorities on any issues outside of the above-specified NYS taxes.  We also express no opinion on non-tax issues such as corporate law or securities law matters.  We express no opinion other than that as stated below, and neither this opinion nor any prior statements are intended to imply or to be an opinion on any other matters.

Boards of Directors

Pathfinder Bancorp, MHC (the “Mutual Holding Company”)

Pathfinder Bancorp, Inc. (the “Mid-Tier Holding Company” or “Pathfinder-Federal”)

Pathfinder Bancorp, Inc. (the “Holding Company” or “New Pathfinder”)

Pathfinder Bank (the “Bank”)

________________, 2014

In connection with our opinion, we have examined originals or copies, certified or otherwise, and identified to our satisfaction the Plan and such other documents as we have deemed necessary or appropriate to enable us to render the opinion below.  In our examination, we have assumed the conformity to the originals of all documents submitted to us as copies.  We have also relied upon the assumptions that:

(i) all signatures are genuine and all documents submitted to us, both originals and copies, are authentic,

(ii) each document examined by us has been or will be fully executed and delivered in substantially the same form, is or will be in full force and effect and has not been or will not be amended or modified in any respect,

(iii) all parties to the documents at all times had and will have full corporate power, authority and capacity to enter into, execute and perform all obligations under those documents and to observe and perform the terms and conditions thereof, and

(iv) the factual matters, statements, and recitations contained in the documents are accurate, true and complete. 

You have represented to us that we have been provided all of the facts necessary to render our opinion.

Statement of Facts

Pathfinder Bank (the “Bank”) is a New York chartered community bank that has served the banking needs of its customers since 1859. Since 1997 the Bank has operated in a two-tiered mutual holding company structure. Pathfinder-Federal is a federally chartered, publicly-traded stock holding company and the parent company of Pathfinder Bank. Pathfinder-Federal’s parent company is the Mutual Holding Company, which owned 60.4% of Pathfinder-Federal at March 31, 2014. The remaining 39.6% of Pathfinder-Federal’s common stock outstanding was owned by the public.

The Mutual Holding Company is a mutual holding company with no capital stock or direct owners. Rather, the owners of the Mutual Holding Company are the depositors of the Bank, who are entitled upon the complete liquidation of the Mutual Holding Company to any liquidation proceeds after the payment of creditors. Depositors of the Bank have no voting rights with respect to the Mutual Holding Company, except for the right to vote on the Conversion.

Proposed Transaction

The Boards of Directors of the Mutual Holding Company, Pathfinder-Federal and the Bank adopted the Plan providing for the conversion of the Mutual Holding Company from the mutual to the capital stock form of organization. As part of the Conversion, New Pathfinder will succeed to all the rights and obligations of the Mutual Holding Company and Pathfinder-Federal, and will offer shares of Holding Company Common Stock to the Bank’s depositors and members of the general public in the Offering.

Pursuant to the Plan, the Conversion will be effected as follows, in such order as is necessary to consummate the Conversion:

(1) Pathfinder Bancorp, Inc., a Maryland corporation (New Pathfinder), will be organized as a first-tier stock subsidiary of Pathfinder-Federal.

(2) The Mutual Holding Company will merge with and into Pathfinder-Federal with Pathfinder-Federal as the surviving entity (the “MHC Merger”), whereby the shares of Pathfinder-Federal held by the Mutual Holding Company will be cancelled and Qualifying Depositors will constructively receive liquidation interests in Pathfinder-Federal in exchange for their ownership interests in the Mutual Holding Company.

Boards of Directors

Pathfinder Bancorp, MHC (the “Mutual Holding Company”)

Pathfinder Bancorp, Inc. (the “Mid-Tier Holding Company” or “Pathfinder-Federal”)

Pathfinder Bancorp, Inc. (the “Holding Company” or “New Pathfinder”)

Pathfinder Bank (the “Bank”)

________________, 2014

(3) Immediately after the MHC Merger, Pathfinder-Federal will merge with and into New Pathfinder (the “Mid-Tier Merger”), with New Pathfinder as the surviving entity. As part of the Mid-Tier Merger, the liquidation interests in Pathfinder-Federal constructively received by Qualifying Depositors as part of the MHC Merger will automatically, without further action on the part of the holders thereof, be exchanged for interests in the Liquidation Account, and each of the Minority Shares will automatically, without further action on the part of the holders thereof, be converted into and become the right to receive shares of New Pathfinder common stock (“Holding Company Common Stock”) based upon the Exchange Ratio.

(4) Immediately after the Mid-Tier Merger, New Pathfinder will offer for sale Holding Company Common Stock in the Offering.

(5) New Pathfinder will contribute at least 50% of the net proceeds of the Offering to the Bank in constructive exchange for additional shares of common stock of the Bank and in exchange for the Bank Liquidation Account.

Following the Conversion, a Liquidation Account will be maintained by New Pathfinder for the benefit of Qualifying Depositors who continue to maintain their deposit accounts with the Bank. The terms of the Liquidation Account are described in Section 19 of the Plan.

As part of the Conversion, all of the then-outstanding shares of Pathfinder-Federal common stock owned by Minority Stockholders will be converted into and become shares of Holding Company Common Stock pursuant to the Exchange Ratio. The Exchange Ratio ensures that after the Conversion, Minority Stockholders will own in the aggregate the same percentage of Holding Company Common Stock as they held in Pathfinder-Federal common stock immediately prior to the Conversion, exclusive of Minority Stockholders’ purchases of additional shares of Holding Company Common Stock in the Offering and receipt of cash in lieu of fractional shares, and prior to any adjustment for assets held by the Mutual Holding Company (other than shares of stock in Pathfinder-Federal). As part of the Conversion, additional shares of Holding Company Common Stock will be offered for sale on a priority basis to depositors and to members of the public in the Offering.

As a result of the Conversion and Offering, New Pathfinder will be a publicly-held corporation, will register New Pathfinder Common Stock under Section 12(b) of the Securities Exchange Act of 1934, as amended, and will become subject to the rules and regulations thereunder and file periodic reports and proxy statements with the SEC. The Bank will become a wholly owned subsidiary of New Pathfinder and will continue to carry on its business and activities as conducted immediately prior to the Conversion.

Effect of Misstatement of, or Changes in, Facts, Assumptions or Representations

A misstatement or omission of any fact or a change or amendment in any of the facts, assumptions or representations upon which we have relied may require a modification of all or a part of this opinion.

Opinion

You have provided us with a copy of the Federal Tax Opinion regarding the Plan in which Luse Gorman Pomerenk & Schick P.C. has opined that the various proposed transactions to be undertaken as part of the Plan will be treated for federal income tax purposes as “reorganizations” within the meaning of §368(a)(1) of the Internal Revenue Code of 1986, as amended.

Our opinion regarding the NYS income and franchise tax consequences related to the Plan adopts and relies upon the facts, representations, assumptions, and conclusions as set forth in the Federal Tax Opinion.

Boards of Directors

Pathfinder Bancorp, MHC (the “Mutual Holding Company”)

Pathfinder Bancorp, Inc. (the “Mid-Tier Holding Company” or “Pathfinder-Federal”)

Pathfinder Bancorp, Inc. (the “Holding Company” or “New Pathfinder”)

Pathfinder Bank (the “Bank”)

________________, 2014

Our opinion assumes that the ultimate federal income tax consequences of the Plan will be those as described in the Federal Tax Opinion. Based upon that information, we render the following opinion with respect to the NYS income and franchise tax effects of the Plan:

1. It is more likely than not that the federal tax treatment of the Plan, including the MHC Merger and Mid-Tier Merger, will be respected in determining the computation of NYS taxable income (more specifically entitled “allocated entire net income” and “allocated alternative entire net income” for purposes of the NYS Franchise Tax on Banking Corporations) of the Mutual Holding Company, Mid-Tier Holding Company, Holding Company, and Bank.

2. It is more likely than not that the federal tax treatment of the receipt of subscription rights and/or liquidation interests by Qualifying Depositors and Other Depositors under the Plan will be respected in determining the computation of NYS taxable income (or for corporations, more specifically entitled “entire net income” or “minimum taxable income”) of the Qualifying Depositors and Other Depositors who are otherwise required to file a NYS corporate or personal income tax return.

3. It is more likely than not that the federal tax treatment of the Plan will be respected in determining the computation of NYS taxable income (or for corporations, more specifically entitled “entire net income” or “minimum taxable income”) of the Mid-Tier Holding Company shareholders upon their exchange of Mid-Tier Holding Company common stock for Holding Company Common Stock.

4. It is more likely than not that the federal tax treatment of the Plan will be respected in determining the computation of NYS taxable income (or for corporations, more specifically entitled “entire net income” or “minimum taxable income”) of the Minority Stockholders who receive payment of cash in lieu of fractional shares upon their exchange of Mid-Tier Holding Company common stock for Holding Company Common Stock.

Limitations on Opinion

Our opinion is as of ___________, 2014 and we have no responsibility to update this opinion for events, transactions, circumstances or changes in any of the facts, assumptions or representations occurring after this date.  Our opinion is based solely upon our interpretation of the current New York Tax Law, New York Code, New York Department of Taxation administrative interpretations, and judicial interpretations as of the date of this letter, all of which are subject to change. If there is a change, including a change having retroactive effect, in the Internal Revenue Code of 1986, as amended, U.S. Treasury Regulations, New York Tax Law, New York Code, New York Department of Taxation administrative interpretations or in the prevailing judicial interpretations of the foregoing, the opinions expressed herein would necessarily have to be reevaluated in light of any such changes. We have no responsibility to update this opinion for any such changes occurring after the date of this letter.

Our opinion is not binding on the New York State Department of Taxation & Finance, and there can be no assurance that the New York State Department of Taxation & Finance will not take a position contrary to the conclusions reached in the opinion.  In the event of such disagreement, there can be no assurance that the New York State Department of Taxation & Finance would not prevail in a judicial proceeding.

The opinion expressed herein reflects our assessment of the probable outcome of litigation and other adversarial proceedings based solely on an analysis of the existing tax authorities relating to the issues.  It is important, however, to note that litigation and other adversarial proceedings are frequently decided on the basis of such matters as negotiation and pragmatism upon the outcome of such potential litigation or other adversarial proceedings.

Boards of Directors

Pathfinder Bancorp, MHC (the “Mutual Holding Company”)

Pathfinder Bancorp, Inc. (the “Mid-Tier Holding Company” or “Pathfinder-Federal”)

Pathfinder Bancorp, Inc. (the “Holding Company” or “New Pathfinder”)

Pathfinder Bank (the “Bank”)

________________, 2014

The opinion expressed herein reflects what we regard to be the material NYS income and franchise tax consequences to the Mutual Holding Company, Mid-Tier Holding Company, Holding Company, Bank, Qualifying Depositors, and Other Depositors of the transaction as described herein; nevertheless, it is an opinion only and should not be taken as assurance of the ultimate tax treatment.

Should it finally be determined that the facts or the federal income tax consequences are not as outlined in the Federal Tax Opinion, the NYS income and franchise tax consequences and our New York tax opinion may differ from what is contained herein.  If any fact contained in this opinion letter or the Federal Tax Opinion changes to alter the federal tax treatment, it is imperative that we be notified in order to determine the effect on the NYS income and franchise tax consequences, if any.  We have no responsibility to update this opinion for events, transactions, circumstances, or changes in any of the facts, assumptions or representations occurring after the date of this letter.

Consent

We hereby consent to the filing of this opinion as an exhibit to the Mutual Holding Company’s Application for Conversion of a Mutual Holding Company filed with the FRB and to New Pathfinder’s Registration Statement on Form S-1 as filed with the SEC. We also consent to the references to our firm in the Prospectus contained in the Application for Conversion and Form S-1 under the captions “The Conversion and Offering – Material Income Tax Consequences” and “Legal Matters.”

Very truly yours,

BONADIO & CO., LLP

EX-21

Exhibit 21

Subsidiaries of the Registrant

Name	State of Incorporation
Pathfinder Bank	New York (direct)
Pathfinder Statutory Trust II	Delaware (direct)
Pathfinder Commercial Bank	New York (indirect)
Pathfinder REIT, Inc.	New York (indirect)
Whispering Oaks Development Corp.	New York (indirect)
Pathfinder Risk Management Company, Inc.	New York (indirect)
FitzGibbons Agency, LLC(1)	New York (indirect)

(1) Pathfinder Bancorp, Inc. indirectly owns 51% of FitzGibbons Agency, LLC.

EX-23.2

Exhibit 23.2

	RP® FINANCIAL, LC.
	Advisory | Planning | Valuation

June 10, 2014

Boards of Directors
Pathfinder Bancorp, MHC
Pathfinder Bancorp, Inc.
Pathfinder Bank
214 West First Street

Oswego, New York 13126

Members of the Boards of Directors:

We hereby consent to the use of our firm’s name in the Form AC Application for Conversion, and any amendments thereto, to be filed with the Federal Reserve Board, and in the Registration Statement on Form S-1, and any amendments thereto, to be filed with the Securities and Exchange Commission. We also hereby consent to the inclusion of, summary of and references to our Valuation Appraisal Report and any Valuation Appraisal Report Updates and our statement concerning subscription rights and liquidation rights in such filings including the prospectus of Pathfinder Bancorp, Inc. We also consent to the reference to our firm under the heading “Experts” in the prospectus.

Sincerely,

RP^® FINANCIAL, LC.    

Washington Headquarters
Three Ballston Plaza	Telephone:  (703) 528-1700
1100 North Glebe Road, Suite 600	Fax No.:  (703) 528-1788
Arlington, VA  22201	Toll-Free No.:  (866) 723-0594
www.rpfinancial.com	E-Mail:  mail@rpfinancial.com

EX-23.3

Exhibit 23.3

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

We consent to the reference to our firm under the caption “Experts” and to the use of our report dated March 17, 2014, relating to the consolidated financial statements of Pathfinder Bancorp, Inc. and subsidiaries as of and for the years ended December 31, 2013 and 2012 in the Prospectus.

/s/ BONADIO & CO., LLP

Bonadio & Co., LLP

Syracuse, New York

June 11, 2014

EX-99.1

Exhibit 99.1

RP^® FINANCIAL, LC.

Advisory | Planning | Valuation

February 7, 2014

Mr. Thomas W. Schneider

President and Chief Executive Officer
Pathfinder Bancorp, Inc. / Pathfinder Bank

214 West First Street

Oswego, New York 13126

Dear Mr. Schneider:

This letter sets forth the agreement between Pathfinder Bank, Oswego, New York (the “Bank”), the wholly-owned subsidiary of Pathfinder Bancorp, Inc. (the “Company”), and RP^® Financial, LC. (“RP Financial”), whereby RP Financial will provide the independent conversion appraisal services in conjunction with the second step conversion transaction by the Company. The scope, timing and fee structure for these appraisal services are described below.

These appraisal services will be conducted by a team of senior members of RP Financial and appropriate research staff.

Description of Appraisal Services

In conjunction with these appraisal services, RP Financial will conduct a financial due diligence, including on-site interviews of senior management and reviews of historical and pro forma financial information and other documents and records, to gain insight into the operations, financial condition, profitability, market area, risks and various internal and external factors of the Company, all of which will be considered in estimating the pro forma market value of the Company in accordance with the applicable regulatory appraisal guidelines. RP Financial will prepare a detailed written valuation report of the Company that will be fully consistent with applicable regulatory appraisal guidelines and standard pro forma valuation practices. The appraisal report will include an analysis of the Company’s financial condition and operating results, as well as an assessment of the Company’s interest rate risk, credit risk and liquidity risk. The appraisal report will incorporate an evaluation of the Company’s business strategies, market area, prospects for the future and the intended use of proceeds. A peer group analysis relative to certain publicly-traded banking companies will be conducted for the purpose of determining appropriate valuation adjustments for the Company relative to the peer group.

We will review pertinent sections of the Company’s prospectus and conduct discussions with representatives of the Company to obtain necessary data and information for the appraisal report, including key deal elements such as dividend policy, use of proceeds, reinvestment rate, tax rate, offering expenses, and characteristics of stock plans.

Washington Headquarters
Three Ballston Plaza	Direct:  (703) 647-6553
1100 North Glebe Road, Suite 600	Telephone:  (703) 528-1700
Arlington, VA  22201	Fax No.:  (703) 528-1788
E-Mail:  mfaust@rpfinancial.com	Toll-Free No.:  (866) 723-0594

Mr. Thomas W. Schneider
February 7, 2014
Page 2

The original appraisal report will establish a midpoint pro forma market value in accordance with the applicable regulatory requirements. The appraisal report may be periodically updated throughout the conversion process, and there will be at least one updated appraisal that would be prepared at the time of the closing of the stock offering to determine the number of shares to be issued in accordance with the conversion regulations.

RP Financial agrees to deliver the original appraisal report and subsequent updates, in writing, to the Company at the above address in conjunction with the filing of the regulatory conversion applications and amendments thereto. Subsequent updates will be filed promptly as certain events occur which would warrant the preparation and filing of such appraisal updates pursuant to regulatory guidelines. Under the conversion regulations a closing appraisal update is required in conjunction with the completion of the offering. In addition, there may appraisal updates required prior to commencement of the offering if interim changes in market conditions or financial results dictate. Also, if there is a syndicated offering phase, it will be necessary to prepare an update immediately upon completion of the subscription / community offering and prior to the commencement of the syndicated phase of the offering.

Further, RP Financial agrees to perform such other services as are necessary or required in connection with the regulatory review of the appraisal and respond to the regulatory comments, if any, regarding the original appraisal and subsequent updates. In the event of a syndicated community offering phase, RP Financial will participate in the various all hands calls regarding the offering results, pricing discussions and timing.

RP Financial expects to formally present the appraisal report, including the appraisal methodology, peer group selection and assumptions, to the Board of Directors for review and consideration. If appropriate, RP Financial will present subsequent updates to the Board. It is understood that this appraisal may be presented either in person or telephonically.

Fee Structure and Payment Schedule

The Company agrees to pay RP Financial fees for preparation and delivery of the original appraisal report and the closing appraisal update as shown in the detail below, plus reimbursable expenses. Payment of these fees shall be made according to the following schedule:

· $10,000 upon execution of this letter of agreement engaging RP Financial’s appraisal services;

· $45,000 upon delivery of the completed original appraisal report; and,

· $7,500 upon delivery of each subsequent appraisal update report. There will be at least one appraisal update report, to be filed upon completion of the reorganization and stock offering.

The Company will reimburse RP Financial for reasonable out-of-pocket expenses incurred in preparation of the original appraisal and subsequent updates. Such out-of-pocket expenses will likely include travel, printing, telephone, facsimile, shipping, reasonable counsel fees, computer

Mr. Thomas W. Schneider
February 7, 2014
Page 3

and data services, and will not exceed $10,000 in the aggregate, without the Company’s authorization to exceed this level.

In the event the Company shall, for any reason, discontinue the proposed transaction prior to delivery of the completed original appraisal report or subsequent updates and payment of the corresponding fees, the Company agrees to compensate RP Financial according to RP Financial’s standard billing rates for consulting services based on accumulated and verifiable time expenses, not to exceed the respective fee caps noted above, after applying full credit to the initial retainer fee towards such payment, together with reasonable out-of-pocket expenses, subject to the cap on such expenses as set forth above. RP Financial’s standard billing rates range from $75 per hour for research associates to $450 per hour for managing directors.

If during the course of the proposed transaction, unforeseen events occur so as to materially change the nature or the work content of the services described in this contract, the terms of said contract shall be subject to renegotiation by the Company and RP Financial. Such unforeseen events shall include, but not be limited to, material changes to the structure of the transaction such as inclusion of a simultaneous business combination transaction, material changes in the conversion regulations, appraisal guidelines or processing procedures as they relate to conversion appraisals, material changes in management or procedures, operating policies or philosophies, and excessive delays or suspension of processing of conversion applications by the regulators such that completion of the conversion transaction requires the preparation by RP Financial of a new appraisal.

Covenants, Representations and Warranties

The Company and RP Financial agree to the following:

1.     The Company agrees to make available or to supply to RP Financial such information with respect to its business and financial condition as RP Financial may reasonably request in order to provide the aforesaid valuation. Such information heretofore or hereafter supplied or made available to RP Financial shall include: annual financial statements, periodic regulatory filings and material agreements, debt instruments, off balance sheet assets or liabilities, commitments and contingencies, unrealized gains or losses and corporate books and records. All information provided by the Company to RP Financial shall remain strictly confidential (unless such information is otherwise made available to the public), and if the conversion is not consummated or the services of RP Financial are terminated hereunder, RP Financial shall promptly return to the Company the original and any copies of such information.

2.     The Company represents and warrants to RP Financial that any information provided to RP Financial does not and will not, to the best of the Company’s knowledge, at the times it is provided to RP Financial, contain any untrue statement of a material fact or in response to informational requests by RP Financial fail to state a material fact necessary to make the statements therein not false or misleading in light of the circumstances under which they were made.

3.     (a)  The Company agrees that it will indemnify and hold harmless RP Financial, any affiliates of RP Financial, the respective members, officers, agents and employees of RP Financial or their successors and assigns who act for or on behalf of RP Financial in connection

Mr. Thomas W. Schneider
February 7, 2014
Page 4

with the services called for under this agreement (hereinafter referred to as “RP Financial”), from and against any and all losses, claims, damages and liabilities (including, but not limited to, reasonable attorneys fees, and all losses and expenses in connection with claims under the federal securities laws) attributable to (i) any untrue statement or alleged untrue statement of a material fact contained in the financial statements or other information furnished or otherwise provided by the Company to RP Financial, either orally or in writing; (ii) the omission or alleged omission of a material fact from the financial statements or other information furnished or otherwise made available by the Company to RP Financial; or (iii) any action or omission to act by the Company, or the Company’s respective officers, directors, employees or agents, which action or omission is undertaken in bad faith or is negligent. The Company will be under no obligation to indemnify RP Financial hereunder if a court determines that RP Financial was negligent or acted in bad faith with respect to any actions or omissions of RP Financial related to a matter for which indemnification is sought hereunder. Reasonable time devoted by RP Financial to situations for which RP Financial is deemed entitled to indemnification hereunder, shall be an indemnifiable cost payable by the Company at the normal hourly professional rate chargeable by such employee.

(b)  RP Financial shall give written notice to the Company of such claim or facts within thirty days of the assertion of any claim or discovery of material facts upon which RP Financial intends to base a claim for indemnification hereunder, including the name of counsel that RP Financial intends to engage in connection with any indemnification related matter. In the event the Company elects, within seven days of the receipt of the original notice thereof, to contest such claim by written notice to RP Financial, the Company shall not be obligated to make payments under Section 3(c), but RP Financial will be entitled to be paid any amounts payable by the Company hereunder within five days after the final non-appealable determination of such contest either by written acknowledgement of the Company or a decision of a court of competent jurisdiction or alternative adjudication forum, unless it is determined in accordance with Section 3(c) hereof that RP Financial is not entitled to indemnity hereunder. If the Company does not so elect to contest a claim for indemnification by RP Financial hereunder, RP Financial shall (subject to the Company’s receipt of the written statement and undertaking under Section 3(c) hereof) be paid promptly and in any event within thirty days after receipt by the Company of detailed billing statements or invoices for which RP Financial is entitled to reimbursement under Section 3(c) hereof.

(c)  Subject to the Company’s right to contest under Section 3(b) hereof, the Company shall pay for or reimburse the reasonable expenses, including reasonable attorneys’ fees, incurred by RP Financial in advance of the final disposition of any proceeding within thirty days of the receipt of such request if RP Financial furnishes the Company: (1) a written statement of RP Financial’s good faith belief that it is entitled to indemnification hereunder; (2) a written undertaking to repay the advance if it ultimately is determined in a final, non-appealable adjudication of such proceeding that it or he is not entitled to such indemnification; and (3) a detailed invoice of the expenses for which reimbursement is sought.

(d)  In the event the Company does not pay any indemnified loss or make advance reimbursements of expenses in accordance with the terms of this agreement, RP Financial shall have all remedies available at law or in equity to enforce such obligation.

This agreement constitutes the entire understanding of the Company and RP Financial concerning the subject matter addressed herein, and such contract shall be governed and

Mr. Thomas W. Schneider
February 7, 2014
Page 5

construed in accordance with the Commonwealth of Virginia. This agreement may not be modified, supplemented or amended except by written agreement executed by both parties.

The Company and RP Financial are not affiliated, and neither the Company nor RP Financial has an economic interest in, or is held in common with, the other and has not derived a significant portion of its gross revenues, receipts or net income for any period from transactions with the other. RP Financial represents and warrants that it is not aware of any fact or circumstance that would cause it not to be “independent” within the meaning of the conversion regulations of the federal banking agencies or otherwise prohibit or restrict in anyway RP Financial from serving in the role of independent appraiser for the Company.

* * * * * * * * * * *

Please acknowledge your agreement to the foregoing by signing as indicated below and returning to RP Financial a signed copy of this letter, together with the initial retainer fee of $10,000.

Sincerely,

Marcus Faust

Managing Director

Agreed To and Accepted By:	Thomas W. Schneider
	President and Chief Executive Officer

For: Pathfinder Bank, Oswego, New York, Pathfinder Bancorp, Inc.

Date Executed: 4-25-14

EX-99.2

Exhibit 99.2

	RP® FINANCIAL, LC.
	Advisory | Planning | Valuation

June 10, 2014

Boards of Directors

Pathfinder Bancorp, MHC

Pathfinder Bancorp, Inc.

Pathfinder Bank

214 West First Street

Oswego, New York 13126

Re: Plan of Conversion and Reorganization

Pathfinder Bancorp, MHC

Pathfinder Bancorp, Inc.

Members of the Boards of Directors:

All capitalized terms not otherwise defined in this letter have the meanings given such terms in the Plan of Conversion and Reorganization (the “Plan”) adopted by the Boards of Directors of Pathfinder Bancorp, MHC (the “MHC”) and Pathfinder Bancorp, Inc., a federal corporation. The Plan provides for the conversion of the MHC into the capital stock form of organization. Pursuant to the Plan, a new Maryland stock holding company named Pathfinder Bancorp, Inc. (the “Company”) will be organized and will sell shares of common stock in a public offering. When the conversion is completed, all of the capital stock of Pathfinder Bank will be owned by the Company and all of the common stock of the Company will be owned by public stockholders.

We understand that in accordance with the Plan, subscription rights to purchase shares of common stock in the Company are to be issued to: (1) Eligible Account Holders; (2) Tax-Qualified Plans including Pathfinder Bank’s employee stock ownership plan (the “ESOP”); (3) Supplemental Eligible Account Holders; and (4) Other Depositors. Based solely upon our observation that the subscription rights will be available to such parties without cost, will be legally non-transferable and of short duration, and will afford such parties the right only to purchase shares of common stock at the same price as will be paid by members of the general public in the community or syndicated offerings but without undertaking any independent investigation of state or federal law or the position of the Internal Revenue Service with respect to this issue, we are of the belief that, as a factual matter:

(1) the subscription rights will have no ascertainable market value; and,

(2) the price at which the subscription rights are exercisable will not be more or less than the pro forma market value of the shares upon issuance.

Changes in the local and national economy, the legislative and regulatory environment, the stock market, interest rates, and other external forces (such as natural disasters or significant world events) may occur from time to time, often with great unpredictability and may materially impact the value of thrift stocks as a whole or the Company’s value alone. Accordingly, no assurance can be given that persons who subscribe to shares of common stock in the subscription offering will thereafter be able to buy or sell such shares at the same price paid in the subscription offering.

Sincerely,

RP Financial, LC.

Washington Headquarters
Three Ballston Plaza	Telephone:  (703) 528-1700
1100 North Glebe Road, Suite 600	Fax No.:  (703) 528-1788
Arlington, VA  22201	Toll-Free No.:  (866) 723-0594
www.rpfinancial.com	E-Mail:  mail@rpfinancial.com

EX-99.3

Exhibit 99.3 

 

May 16, 2014

Boards of Directors

Pathfinder Bancorp, M.H.C.

Pathfinder Bancorp, Inc.
Pathfinder Bank

214 West First Street

Oswego, New York 13126

Members of the Boards of Directors:

At your request, we have completed and hereby provide an independent appraisal (“Appraisal") of the estimated pro forma market value of the common stock which is to be issued in connection with the mutual-to-stock conversion transaction described below.

This Appraisal is furnished pursuant to the requirements stipulated in the Code of Federal Regulations and has been prepared in accordance with the “Guidelines for Appraisal Reports for the Valuation of Savings and Loan Associations Converting from Mutual to Stock Form of Organization” (the “Valuation Guidelines”) of the Office of Thrift Supervision (“OTS”) and accepted by the Federal Reserve Board (“FRB”), the Office of the Comptroller of the Currency (“OCC”), the Federal Deposit Insurance Corporation (“FDIC”), the New York Department of Financial Services (“NYDFS”), and applicable regulatory interpretations thereof.

Description of Plan of Conversion

On April 8, 2014, the Boards of Directors of Pathfinder Bancorp, M.H.C. (the “MHC”) and Pathfinder Bancorp, Inc. (“PBHC”) adopted a plan of conversion whereby the MHC will convert to stock form. As a result of the conversion, PBHC, which currently owns all of the issued and outstanding common stock of Pathfinder Bank (the “Bank”), will be succeeded by a new Maryland corporation with the name of Pathfinder Bancorp, Inc. (“Pathfinder Bancorp” or the “Company”). Following the conversion, the MHC will no longer exist. For purposes of this document, the existing consolidated entity will hereinafter also be referred to as Pathfinder Bancorp or the Company, unless otherwise identified as PBHC. As of March 31, 2014, the MHC had a majority ownership interest in, and its principal asset consisted of, approximately 60.36% of the common stock (the “MHC Shares”) of PBHC. The remaining 39.64% of PBHC’s common stock is owned by public stockholders. 

It is our understanding that Pathfinder Bancorp will offer its stock, representing the majority ownership interest held by the MHC, in a subscription offering to Eligible Account Holders, Tax-Qualified Employee Benefit Plans including the Bank’s employee stock ownership plan (the “ESOP”), Supplemental Eligible Account Holders and Other Depositors. To the extent that shares remain available for purchase after satisfaction of all subscriptions

Washington Headquarters
Three Ballston Plaza	Telephone:  (703) 528-1700
1100 North Glebe Road, Suite 600	Fax No.:  (703) 528-1788
Arlington, VA  22201	Toll-Free No.:  (866) 723-0594
www.rpfinancial.com	E-Mail:  mail@rpfinancial.com

Boards of Directors
May 16, 2014
Page 2

received in the subscription offering, the shares may be offered for sale to the public at large in a community offering and a syndicated offering. Upon completing the mutual-to-stock conversion and stock offering (the “second-step conversion”), the Company will be 100% owned by public shareholders, the publicly-held shares of PBHC will be exchanged for shares in the Company at a ratio that retains their ownership interest at the time the conversion is completed and the MHC assets will be consolidated with the Company.

RP^® Financial, LC.

RP^® Financial, LC. (“RP Financial”) is a financial consulting firm serving the financial services industry nationwide that, among other things, specializes in financial valuations and analyses of business enterprises and securities, including the pro forma valuation for savings institutions converting from mutual-to-stock form. The background and experience of RP Financial is detailed in Exhibit V-1. We believe that, except for the fee we will receive for the Appraisal, we are independent of the Company, the Bank, the MHC and the other parties engaged by the Bank or the Company to assist in the stock conversion process.

Valuation Methodology 

In preparing our Appraisal, we have reviewed the regulatory applications of the Company, the Bank and the MHC, including the prospectus as filed with the FRB, the FDIC, the NYDFS and the Securities and Exchange Commission (“SEC”). We have conducted a financial analysis of the Company, the Bank and the MHC that has included a review of audited financial information for the years ended December 31, 2009 through December 31, 2013 and a review of various unaudited information and internal financial reports through March 31, 2014, and due diligence related discussions with the Company’s management; Bonadio & Co., LLP, the Company’s independent auditor; Luse Gorman Pomerenk & Schick, P.C. the Company’s conversion counsel and Keefe, Bruyette & Woods, Inc., the Company’s marketing advisor in connection with the stock offering. All assumptions and conclusions set forth in the Appraisal were reached independently from such discussions. In addition, where appropriate, we have considered information based on other available published sources that we believe are reliable. While we believe the information and data gathered from all these sources are reliable, we cannot guarantee the accuracy and completeness of such information.

We have investigated the competitive environment within which Pathfinder Bancorp operates and have assessed Pathfinder Bancorp’s relative strengths and weaknesses. We have kept abreast of the changing regulatory and legislative environment for financial institutions and analyzed the potential impact on Pathfinder Bancorp and the industry as a whole. We have analyzed the potential effects of the stock conversion on Pathfinder Bancorp’s operating characteristics and financial performance as they relate to the pro forma market value of Pathfinder Bancorp. We have analyzed the assets held by the MHC, which will be consolidated with Pathfinder Bancorp’s assets and equity pursuant to the completion of the second-step conversion. We have reviewed the economic and demographic characteristics of the Company’s primary market area. We have compared Pathfinder Bancorp’s financial performance and condition with selected publicly-traded thrifts in accordance with the Valuation Guidelines, as well as all publicly-traded thrifts and thrift holding companies. We have reviewed the current conditions in the securities markets in general and the market for thrift stocks in

Boards of Directors
May 16, 2014
Page 3

particular, including the market for existing thrift issues, initial public offerings by thrifts and thrift holding companies, and second-step conversion offerings. We have excluded from such analyses thrifts subject to announced or rumored acquisition, and/or institutions that exhibit other unusual characteristics.

The Appraisal is based on Pathfinder Bancorp’s representation that the information contained in the regulatory applications and additional information furnished to us by Pathfinder Bancorp and its independent auditor, legal counsel and other authorized agents are truthful, accurate and complete. We did not independently verify the financial statements and other information provided by Pathfinder Bancorp, or its independent auditor, legal counsel and other authorized agents nor did we independently value the assets or liabilities of Pathfinder Bancorp. The valuation considers Pathfinder Bancorp only as a going concern and should not be considered as an indication of Pathfinder Bancorp’s liquidation value.

Our appraised value is predicated on a continuation of the current operating environment for Pathfinder Bancorp and for all thrifts and their holding companies. Changes in the local, state and national economy, the legislative and regulatory environment for financial institutions and mutual holding companies, the stock market, interest rates, and other external forces (such as natural disasters or significant world events) may occur from time to time, often with great unpredictability and may materially impact the value of thrift stocks as a whole or the value of Pathfinder Bancorp’s stock alone. It is our understanding that there are no current plans for selling control of Pathfinder Bancorp following completion of the second-step conversion. To the extent that such factors can be foreseen, they have been factored into our analysis.

The estimated pro forma market value is defined as the price at which Pathfinder Bancorp’s common stock, immediately upon completion of the second-step stock offering, would change hands between a willing buyer and a willing seller, neither being under any compulsion to buy or sell and both having reasonable knowledge of relevant facts.

In preparing the pro forma pricing analysis we have taken into account the pro forma impact of the MHC’s net assets (i.e., unconsolidated equity) that will be consolidated with the Company and thus will slightly increase equity. After accounting for the impact of the MHC’s net assets, the public shareholders’ ownership interest was reduced by approximately 0.39%. Accordingly, for purposes of the Company’s pro forma valuation, the public shareholders’ pro forma ownership interest was reduced from 39.64% to 39.23% and the MHC’s ownership interest was increased from 60.36% to 60.77%.

Valuation Conclusion

It is our opinion that, as of May 16, 2014, the estimated aggregate pro forma valuation of the shares of the Company to be issued and outstanding at the end of the conversion offering – including (1) newly-issued shares representing the MHC’s current ownership interest in the Company and (2) exchange shares issued to existing public shareholders of PBHC – was $32,909,690 at the midpoint, equal to 3,290,969 shares at $10.00 per share. The resulting range of value and pro forma shares, all based on $10.00 per share, are as follows: $27,973,240 or 2,797,324 shares at the minimum, $37,846,140 or 3,784,614 shares at the maximum and $43,523,060 or 4,352,306 shares at the super maximum.

Boards of Directors
May 16, 2014
Page 4

Based on this valuation and taking into account the ownership interest represented by the shares owned by the MHC, the midpoint of the offering range is $20,000,000 equal to 2,000,000 shares at $10.00 per share. The resulting offering range and offering shares, all based on $10.00 per share, are as follows: $17,000,000 or 1,700,000 shares at the minimum, $23,000,000 or 2,300,000 shares at the maximum and $26,450,000 or 2,645,000 shares at the super maximum,

Establishment of the Exchange Ratio

The conversion regulations provide that in a conversion of a mutual holding company, the minority stockholders are entitled to exchange the public shares for newly issued shares in the fully converted company. The Boards of Directors of the MHC and PBHC have independently determined the exchange ratio, which has been designed to preserve the current aggregate percentage ownership in the Company (adjusted for the dilution resulting from the consolidation of the MHC’s unconsolidated equity into the Company). The exchange ratio to be received by the existing minority shareholders of the Company will be determined at the end of the offering, based on the total number of shares sold in the offering and the final appraisal. Based on the valuation conclusion herein, the resulting offering value and the $10.00 per share offering price, the indicated exchange ratio at the midpoint is 1.2414 shares of the Company’s stock for every one share held by public shareholders. Furthermore, based on the offering range of value, the indicated exchange ratio is 1.0552 at the minimum, 1.4276 at the maximum and 1.6417 at the super maximum. RP Financial expresses no opinion on the proposed exchange of newly issued Company shares for the shares held by the public stockholders or on the proposed exchange ratio.

Limiting Factors and Considerations

The valuation is not intended, and must not be construed, as a recommendation of any kind as to the advisability of purchasing shares of the common stock. Moreover, because such valuation is determined in accordance with applicable regulatory guidelines and is necessarily based upon estimates and projections of a number of matters, all of which are subject to change from time to time, no assurance can be given that persons who purchase shares of common stock in the conversion offering, or prior to that time, will thereafter be able to buy or sell such shares at prices related to the foregoing valuation of the estimated pro forma market value thereof. The appraisal reflects only a valuation range as of this date for the pro forma market value of Pathfinder Bancorp immediately upon issuance of the stock and does not take into account any trading activity with respect to the purchase and sale of common stock in the secondary market on the date of issuance of such securities or at anytime thereafter following the completion of the second-step conversion.

RP Financial’s valuation was based on the financial condition, operations and shares outstanding of Pathfinder Bancorp as of March 31, 2014, the date of the financial data included in the prospectus. The proposed exchange ratio to be received by the current public stockholders of PBHC and the exchange of the public shares for newly issued shares of Pathfinder Bancorp’s common stock as a full public company was determined independently by the Boards of Directors of the MHC and PBHC. RP Financial expresses no opinion on the proposed exchange ratio to public stockholders or the exchange of public shares for newly issued shares.

Boards of Directors
May 16, 2014
Page 5

RP Financial is not a seller of securities within the meaning of any federal and state securities laws and any report prepared by RP Financial shall not be used as an offer or solicitation with respect to the purchase or sale of any securities. RP Financial maintains a policy which prohibits RP Financial, its principals or employees from purchasing stock of its client institutions.

This valuation will be updated as provided for in the conversion regulations and guidelines. These updates will consider, among other things, any developments or changes in the financial performance and condition of Pathfinder Bancorp, management policies, and current conditions in the equity markets for thrift shares, both existing issues and new issues. These updates may also consider changes in other external factors which impact value including, but not limited to: various changes in the legislative and regulatory environment for financial institutions, the stock market and the market for thrift stocks, and interest rates. Should any such new developments or changes be material, in our opinion, to the valuation of the shares, appropriate adjustments to the estimated pro forma market value will be made. The reasons for any such adjustments will be explained in the update at the date of the release of the update. The valuation will also be updated at the completion of Pathfinder Bancorp’s stock offering.

Respectfully submitted,

RP^® FINANCIAL, LC.

Marcus Faust
Managing Director 

Gregory E. Dunn

Director

RP® Financial, LC.	TABLE OF CONTENTS
	i

TABLE OF CONTENTS
PATHFINDER BANCORP, INC.
PATHFINDER BANK
Oswego, New York

DESCRIPTION		PAGE NUMBER
CHAPTER ONE	OVERVIEW AND FINANCIAL ANALYSIS
Introduction		I.1
Plan of Conversion		I.1
Strategic Overview		I.2
Balance Sheet Trends		I.5
Income and Expense Trends		I.9
Interest Rate Risk Management		I.12
Lending Activities and Strategy		I.13
Asset Quality		I.15
Funding Composition and Strategy		I.16
Subsidiaries		I.17
Legal Proceedings		I.17
CHAPTER TWO	MARKET AREA ANALYSIS
Introduction		II.1
National Economic Factors		II.1
Market Area Demographics		II.5
Regional Economy		II.7
Unemployment Trends		II.8
Market Area Deposit Characteristics and Competition		II.8
CHAPTER THREE	PEER GROUP ANALYSIS
Peer Group Selection		III.1
Financial Condition		III.6
Income and Expense Components		III.9
Loan Composition		III.11
Interest Rate Risk		III.13
Credit Risk		III.15
Summary		III.15

RP® Financial, LC.	TABLE OF CONTENTS
	ii

TABLE OF CONTENTS
PATHFINDER BANCORP, INC.
PATHFINDER BANK
Oswego, New York

(continued)

DESCRIPTION		PAGE NUMBER
CHAPTER FOUR	VALUATION ANALYSIS
Introduction		IV.1
Appraisal Guidelines		IV.1
RP Financial Approach to the Valuation		IV.1
Valuation Analysis		IV.2
1. Financial Condition		IV.2
2. Profitability, Growth and Viability of Earnings		IV.4
3. Asset Growth		IV.6
4. Primary Market Area		IV.6
5. Dividends		IV.8
6. Liquidity of the Shares		IV.8
7. Marketing of the Issue		IV.9
A. The Public Market		IV.9
B. The New Issue Market		IV.13
C. The Acquisition Market		IV.14
D. Trading in Pathfinder Bancorp’s Stock		IV.17
8. Management		IV.17
9. Effect of Government Regulation and Regulatory Reform		IV.18
Summary of Adjustments		IV.18
Valuation Approaches		IV.18
1. Price-to-Earnings (“P/E”)		IV.20
2. Price-to-Book (“P/B”)		IV.21
3. Price-to-Assets (“P/A”)		IV.23
Comparison to Recent Offerings		IV.23
Valuation Conclusion		IV.24
Establishment of the Exchange Ratio		IV.25

RP® Financial, LC.	TABLE OF CONTENTS
	iii

LIST OF TABLES
PATHFINDER BANCORP, INC.
PATHFINDER BANK
Oswego, New York

TABLE Number	DESCRIPTION	page
1.1	Historical Balance Sheet Data	I.6
1.2	Historical Income Statements	I.10
2.1	Summary Demographic Data	II.6
2.2	Primary Market Area Employment Sectors	II.7
2.3	Unemployment Trends	II.8
2.4	Deposit Summary	II.9
2.5	Market Area Deposit Competitors	II.10
3.1	Peer Group of Publicly-Traded Thrifts	III.3
3.2	Balance Sheet Composition and Growth Rates	III.7
3.3	Income as a % of Average Assets and Yields, Costs, Spreads	III.10
3.4	Loan Portfolio Composition and Related Information	III.12
3.5	Interest Rate Risk Measures and Net Interest Income Volatility	III.14
3.6	Credit Risk Measures and Related Information	III.16
4.1	Market Area Unemployment Rates	IV.7
4.2	Pricing Characteristics and After-Market Trends	IV.15
4.3	Market Pricing Comparatives	IV.16
4.4	Public Market Pricing Versus Peer Group	IV.22

RP® Financial, LC.	OVERVIEW AND FINANCIAL ANALYSIS
	I.1

I. Overview and Financial Analysis

Introduction

Pathfinder Bank (the "Bank"), founded in 1859, is a New York-chartered stock savings bank headquartered in Oswego, New York. The Bank is headquartered in Oswego, New York and currently serves Central New York through the main office and seven branch locations. The main office and six branch offices are located in Oswego County and one branch office is located in northern Onondaga County. The Bank intends to add a business banking office in the third quarter of 2014, which will be located in downtown Syracuse. The Bank is subject to regulation and oversight by the Federal Deposit Insurance Corporation (the “FDIC”) and the New York Department of Financial Services (the “NYDFS”). The Bank is a member of the Federal Home Loan Bank ("FHLB") system, and its deposits are insured up to the regulatory maximums by the FDIC. Exhibit I-1 is a map of the Bank’s office locations.

The Bank completed its initial public offering on November 15, 1995, pursuant to which it sold 881,666 shares or 46.00% of its outstanding common stock to the public and issued 1,035,000 shares or 54.00% of its common stock outstanding to Pathfinder Bancorp, M.H.C. (the “MHC”). Pathfinder Bancorp, Inc. (“PBHC”), which was originally organized as a Delaware corporation in September 1997, is a federally chartered mid-tier stock holding company of the Bank. PBHC owns 100% of the outstanding common stock of the Bank. Since being formed in 1997, PBHC has been engaged primarily in the business of holding the common stock of the Bank. The MHC and PBHC are subject to supervision and regulation by the Department and the Board of Governors of the Federal Reserve System (the “Federal Reserve Board” or the “FRB”). At March 31, 2014, PBHC had total consolidated assets of $525.8 million, deposits of $438.4 million and equity of $43.8 million or 8.33% of total assets. PBHC’s audited financial statements for the most recent period are included by reference as Exhibit I-2.

Plan of Conversion

On April 8, 2014, the respective Board of Directors of the MHC and PBHC adopted a Plan of Conversion and Reorganization (the “Plan of Conversion”), whereby the MHC will convert to stock form. As a result of the conversion, PBHC, which currently owns all of the issued and outstanding common stock of the Bank, will be succeeded by a new Maryland corporation with the name of Pathfinder Bancorp, Inc. (“Pathfinder Bancorp” or the “Company”).

RP® Financial, LC.	OVERVIEW AND FINANCIAL ANALYSIS
	I.2

Following the conversion, the MHC will no longer exist. For purposes of this document, the existing consolidated entity will also hereinafter be referred to as Pathfinder Bancorp or the Company, unless otherwise identified as PBHC. As of March 31, 2014, the MHC had a majority ownership interest of approximately 60.36% in, and its principal asset consisted of, 1,583,239 common stock shares of Pathfinder Bancorp (the “MHC Shares”). The remaining 1,039,943 shares or approximately 39.64% of Pathfinder Bancorp’s common stock was owned by public shareholders.

It is our understanding that Pathfinder Bancorp will offer its stock, representing the majority ownership interest held by the MHC, in a subscription offering to Eligible Account Holders, Tax-Qualified Employee Benefit Plans including the Bank’s employee stock ownership plan (the “ESOP”), Supplemental Eligible Account Holders and Other Depositors. To the extent that shares remain available for purchase after satisfaction of all subscriptions received in the subscription offering, the shares may be offered for sale to the public at large in a community offering and a syndicated offering. Upon completing the mutual-to-stock conversion and stock offering (the “second-step conversion”), the Company will be 100% owned by public shareholders, the publicly-held shares of PBHC will be exchanged for shares in the Company at a ratio that retains their ownership interest at the time the conversion is completed and the MHC assets will be consolidated with the Company.

Strategic Overview

Pathfinder Bancorp maintains a local community banking emphasis, with a primary strategic objective of meeting the borrowing and savings needs of consumers and businesses in Oswego County and surrounding counties. Lending activities by the Company have emphasized the origination of mortgage loans, including 1-4 family permanent mortgage loans, commercial real estate loans, multi-family loans, home equity loans and construction loans. Lending diversification by the Company also includes the origination of commercial business loans and consumer loans. In recent years, the Company has focused on growing the commercial real estate and commercial business loan portfolios. The Company’s lending activities are supplemented with investments in securities, which comprise a much smaller portion of the Company’s interest-earning asset composition. Mortgage-backed securities comprise the largest segment of the Company’s investment portfolio. Assets are primarily funded by retail deposits generated through the branch network, with supplemental funding

RP® Financial, LC.	OVERVIEW AND FINANCIAL ANALYSIS
	I.3

provided by borrowings as an alternative funding source for purposes of managing funding costs, interest rate risk and increasing the Bank’s regulatory capital.

Overall, implementation of the Company’s growth strategies has served to effectively leverage capital and grow net interest income. The Company’s lending markets were adversely impacted by the 2008 national recession and the resulting fallout from the financial crisis that occurred with the implosion of the housing market, pursuant to which the Company experienced credit quality deterioration. Non-performing assets increased from $1.9 million or 0.67% of assets at yearend 2009 to $6.3 million or 1.54% of assets at yearend 2010. Since yearend 2010, the balance of non-performing assets has remained at relatively elevated levels and is viewed to be indicative of the largely stagnant economy in the Company’s lending markets. Non-performing assets totaled $7.7 million or 1.46% of assets at March 31, 2014.

Pathfinder Bancorp’s earnings base is largely dependent upon net interest income and operating expense levels. Overall, the Company has maintained a relatively stable net interest margin; although, since 2011 the Company has experienced some net interest margin compression, as the prolonged low interest rate environment has resulted in yields earned on interest-earnings assets declining more relative to funding costs paid on interest-bearing liabilities. Operating expenses have been maintained at relatively stable levels, as the Company has been relatively effective in leveraging increases in operating expenses associated implementation of growth strategies. Revenues derived from non-interest operating income sources have been a fairly stable contributor to the Company’s core earnings base, with such income consisting mostly of customer service charges on deposit accounts and miscellaneous other charges and commission and fees.

A key component of the Company’s business plan is to complete a second-step conversion offering. The post-offering business plan of the Company is expected to continue to focus on implementing strategic initiatives to develop and grow a full service community banking franchise. Accordingly, Pathfinder Bancorp will continue to be an independent full service community bank, with a commitment to meeting the retail and commercial banking needs of individuals and businesses in Central New York.

The capital realized from the stock offering will increase the Company’s operating flexibility and allow for continued growth of the balance sheet. The additional capital realized from stock proceeds will increase liquidity to support funding of future loan growth and other interest-earning assets. The Company’s strengthened capital position will also provide more of

RP® Financial, LC.	OVERVIEW AND FINANCIAL ANALYSIS
	I.4

a cushion against potential credit quality related losses, as the Company continues to implement workout strategies to reduce the balance of non-performing assets. Pathfinder Bancorp’s higher capital position resulting from the infusion of stock proceeds will also serve to reduce interest rate risk, particularly through enhancing the Company’s interest-earning assets/interest-bearing liabilities (“IEA/IBL”) ratio. The additional funds realized from the stock offering will serve to raise the level of interest-earning assets funded with equity and, thereby, reduce the ratio of interest-earning assets funded with interest-bearing liabilities as the balance of interest-bearing liabilities will initially remain relatively unchanged following the conversion, which may facilitate a reduction in Pathfinder Bancorp’s funding costs. Additionally, Pathfinder Bancorp’s higher equity-to-assets ratio will enable the Company to pursue expansion opportunities. Such expansion would most likely occur through the establishment or acquisition of additional banking offices or customer facilities that would increase market penetration in the markets currently served by the Company or to gain a market presence into nearby complementary markets. The Company will also be better positioned to pursue growth through acquisition of other financial service providers following the stock offering, given its strengthened capital position and ability to offer stock as consideration. At this time, other than the planned opening of a business banking office in Syracuse, the Company has no specific plans for expansion. The projected uses of proceeds are highlighted below.

· Pathfinder Bancorp. The Company is expected to retain up to 50% of the net offering proceeds. At present, funds at the Company level, net of the loan to the ESOP, are expected to be primarily invested initially into liquid funds held as a deposit at the Bank. Over time, the funds may be utilized for various corporate purposes, possibly including acquisitions, infusing additional equity into the Bank, repurchases of common stock, and the payment of cash dividends.

· Pathfinder Bank. Approximately 50% of the net stock proceeds will be infused into the Bank in exchange for all of the Bank’s stock. Cash proceeds (i.e., net proceeds less deposits withdrawn to fund stock purchases) infused into the Bank are anticipated to become part of general operating funds, and are expected to be primarily utilized to fund loan growth over time.

Overall, it is the Company’s objective to pursue growth that will serve to increase returns, while, at the same time, growth will not be pursued that could potentially compromise the overall risk associated with Pathfinder Bancorp’s operations.

RP® Financial, LC.	OVERVIEW AND FINANCIAL ANALYSIS
	I.5

Balance Sheet Trends

Table 1.1 shows the Company’s historical balance sheet data for the past five and one-quarter years. The Company sustained positive asset growth throughout the period covered in Table 1.1, with assets increasing at an annual rate of 8.51% from yearend 2009 through March 31, 2014. Asset growth was primarily sustained by loan growth and was primarily funded by deposit growth. A summary of Pathfinder Bancorp’s key operating ratios for the past five and one-quarter years is presented in Exhibit I-3.

Pathfinder Bancorp’s loans receivable portfolio increased at a 6.81% annual rate from yearend 2009 through March 31, 2104, in which loan growth was sustained throughout the period. The Company’s slightly lower loan growth rate compared to its asset growth rate provided for a decrease in the loans-to-assets ratio from 69.79% at December 31, 2009 to 65.26% at March 31, 2014. Net loans receivable at March 31, 2014 totaled $343.1 million, versus $259.4 million at December 31, 2009.

Residential real estate loans, commercial real estate loans and commercial business loans have accounted for most of the Company’s loan growth since yearend 2009, with recent loan growth primarily sustained by growth of commercial real estate loans and commercial business loans. Residential real estate loans comprise the largest segment of the loan portfolio, although the concentration of residential real estate loans decreased from 51.33% of total loans at December 31, 2009 to 48.39% of total loans at March 31, 2014. Comparatively, commercial real estate loans increased from 23.78% of total loans at December 31, 2009 to 29.48% of total loan at March 31, 2014 and over the same time period commercial business loans increased from 13.53% of total loans to 14.84% of total loans. The balance of outstanding home equity loans has declined since yearend 2009, decreasing as a percent of total loans from 9.97% at December 31, 2009 to 6.15% of total loans at March 31, 2014. Consumer lending other than home equity loans and lines of credit has consistently been a minor area of lending diversification for the Company, with the balance of consumer loans increasing modestly since yearend 2009 and decreasing as percent of total loans from 1.37% at December 31, 2009 to 1.14% at March 31, 2014. 

The intent of the Company’s investment policy is to provide adequate liquidity and to generate a favorable return within the context of supporting overall credit and interest rate risk objectives. It is anticipated that proceeds retained at the holding company level will primarily be invested into liquid funds held as a deposit at the Bank. Since yearend 2009, the Company’s

RP® Financial, LC.	OVERVIEW AND FINANCIAL ANALYSIS
	I.6

Table 1.1

Pathfinder Bancorp, Inc.

Historical Balance Sheet Data

																															12/31/09-
																															03/31/14
	At Fiscal Year Ended December 31,																									At March 31,					Annual.
	2009					2010					2011					2012					2013					2014					Growth Rate
	Amount		Pct(1)			Amount		Pct(1)			Amount		Pct(1)			Amount		Pct(1)			Amount		Pct(1)			Amount		Pct(1)			Pct
	($000)		(%)			($000)		(%)			($000)		(%)			($000)		(%)			($000)		(%)			($000)		(%)			(%)
Total Amount of:
Assets	$	371,692		100.00	%	$	408,545		100.00	%	$	442,980		100.00	%	$	477,796		100.00	%	$	503,793		100.00	%	$	525,846		100.00	%		8.51	%
Cash and cash equivalents		14,631		3.94	%		13,763		3.37	%		10,218		2.31	%		8,665		1.81	%		16,575		3.29	%		18,933		3.60	%		6.25	%
Interest earning time deposits		-		0.00	%		-		0.00	%		2,000		0.45	%		2,000		0.42	%		500		0.10	%		500		0.10	%		NM
Investment securities		72,754		19.57	%		85,327		20.89	%		100,395		22.66	%		108,339		22.67	%		115,371		22.90	%		126,653		24.09	%		13.93	%
Loans receivable, net		259,387		69.79	%		281,648		68.94	%		300,770		67.90	%		329,247		68.91	%		336,592		66.81	%		343,143		65.26	%		6.81	%
Bank owned life insurance		6,956		1.87	%		6,915		1.69	%		7,939		1.79	%		8,046		1.68	%		8,268		1.64	%		10,108		1.92	%		9.19	%
FHLB stock		1,899		0.51	%		2,134		0.52	%		1,528		0.34	%		1,929		0.40	%		2,440		0.48	%		2,035		0.39	%		1.64	%
Goodwill/Intangible assets		3,840		1.03	%		3,840		0.94	%		3,840		0.87	%		3,840		0.80	%		4,554		0.90	%		4,551		0.87	%		4.08	%
Deposits		296,389		79.74	%		326,502		79.92	%		366,129		82.65	%		391,805		82.00	%		410,140		81.41	%		438,352		83.36	%		9.65	%
Borrowings		41,155		11.07	%		46,155		11.30	%		31,229		7.05	%		40,119		8.40	%		46,008		9.13	%		38,981		7.41	%		-1.27	%
Equity		29,238		7.87	%		30,592		7.49	%		37,841		8.54	%		40,747		8.53	%		43,070		8.55	%		43,802		8.33	%		9.98	%
Tangible equity		25,398		6.83	%		26,752		6.55	%		34,001		7.68	%		36,907		7.72	%		38,516		7.65	%		39,251		7.46	%		10.79	%
Loans/Deposits				87.52	%				86.26	%				82.15	%				84.03	%				82.07	%				78.28	%
Full Service Banking Offices Open		7					7					8					8					8					8

(1)  Ratios are as a percent of ending assets.

Sources:  Pathfinder Bancorp’s prospectus, audited and unaudited financial statements and RP Financial calculations.

RP® Financial, LC.	OVERVIEW AND FINANCIAL ANALYSIS
	I.7

level of cash and investment securities (inclusive of FHLB stock) ranged from a low of 24.02% of assets at yearend 2009 to a high of 28.17% of assets at March 31, 2014. As of March 31, 2014, the Company’s cash and investments totaled $148.1 million. Mortgage-backed securities totaling $55.3 million comprised the most significant component of the Company’s investment portfolio at March 31, 2014. The mortgage-backed securities portfolio consists of securities that are guarantee by Government Sponsored Enterprises (“GSEs”). Other investments held by the Company at March 31, 2014 consisted of municipal bonds ($29.3 million), U.S. Government and federal agency obligations ($24.4 million), corporate bonds ($15.8 million), mutual funds ($1.7 million), and common stock equities ($289,000). As of March 31, 2014, the Company maintained $83.7 million of investment securities as available-for-sale and $43.0 million of investment securities as held-to-maturity. The available-for-sale portfolio had a net unrealized gain of $484,000 at March 31, 2014. Exhibit I-4 provides historical detail of the Company’s investment portfolio. The Company also held $500,000 of interest-earning time deposits with other banks, $18.9 million of cash and cash equivalents and $2.0 million of FHLB stock.

The Company also maintains an investment in bank-owned life insurance (“BOLI”) policies, which cover the lives of Board members and certain officers of the Company. The purpose of the investment is to provide funding for the benefit plans of the covered individuals. The life insurance policies earn tax-exempt income through cash value accumulation and death proceeds. As of March 31, 2014, the cash surrender value of the Company’s BOLI equaled $10.1 million or 1.92% of assets.

Over the past five and one-quarter years, Pathfinder Bancorp’s funding needs have been addressed through a combination of deposits, borrowings and internal cash flows. From yearend 2009 through March 31, 2014, the Company’s deposits increased at a 9.65% annual rate. Deposit growth was sustained throughout the period covered in Table 1.1 and, overall, deposits increased from $296.4 million or 79.74% of assets at yearend 2009 to $438.4 million or 83.36% of assets at March 31, 2014. Transaction and savings account deposits constitute the largest concentration of the Company’s deposits and have been the primary source of the Company’s deposit growth in recent years.

Borrowings serve as an alternative funding source for the Company to address funding needs for growth and to support management of deposit costs and interest rate risk. Additionally, borrowed funds by the Company were down streamed into the Bank for purposes of increasing regulatory capital. From yearend 2009 through March 31, 2014, the Company’s

RP® Financial, LC.	OVERVIEW AND FINANCIAL ANALYSIS
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balance of borrowings ranged from a low of $31.2 million or 7.05% of assets at yearend 2011 to a high of $46.0 million or 9.13% of assets at yearend 2013. As of March 31, 2014, borrowing held by the Company totaled $39.0 million or 7.41% of assets. Overall, borrowings decreased at a 1.27% annual rate from yearend 2009 through March 31, 2014. FHLB advances constitute the primary source of borrowings utilized by the Company, with other borrowings consisting of trust preferred debt and a third party loan to fund the Bank’s Employee Stock Ownership Plan (“ESOP”).

The Company’s equity increased at a 9.98% annual rate from yearend 2009 through March 31, 2014. Capital growth was supplemented with the issuance of $13.0 million of preferred stock in 2011. On September 1, 2011, the Company issued and sold 13,000 shares of senior non-cumulative perpetual preferred stock, Series B (“Series B Preferred Stock”), with a liquidation value of $1,000 per share. The Company sold the Series B Preferred Stock to the U.S. Treasury as part of the Small Business Lending Fund Program (“SBLF”) for an aggregate purchase price of $13,000,000. Non-cumulative dividends on the Series B Preferred Stock accrue at an annual rate of between 1% and 5% for the first four and one-half years and at an annual rate of 9% thereafter. The variable rate is determined based upon changes in the amount of the Company’s “Qualified Small Business Lending” as compared to a baseline level. At March 31, 2014, as a result of the Company’s small business lending activity, the dividend rate was 1.00%. Proceeds from the issuance of the Series B Preferred Stock funded the redemption of the Company’s Series A Preferred Stock issued and sold to the U.S. Treasury Department as part of the Capital Purchase Program. The Company paid $6.8 million to the U.S. Treasury Department to fund the redemption of the Series A Preferred Stock. Overall, comparatively stronger equity growth relative to asset growth increased the Company’s equity-to-assets ratio from 7.87% at yearend 2009 to 8.33% at March 31, 2014. Over the same time period, the Company’s tangible equity-to-assets ratio increased from 6.83% to 7.46%. Goodwill and intangibles resulting from the acquisition of branches and an insurance agency equaled $4.6 million or 0.87% of assets at March 31, 2014. The Bank maintained capital surpluses relative to all of its regulatory capital requirements at March 31, 2014. The addition of stock proceeds will serve to strengthen the Company’s capital position, as well as support growth opportunities. At the same time, the significant increase in Pathfinder Bancorp’s pro forma capital position will initially depress its ROE.

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Income and Expense Trends

Table 1.2 shows the Company’s historical income statements for the past five years and for the twelve months ended March 31, 2014. The Company’s reported earnings over the past five and one-quarter years ranged a low of $1.6 million or 0.45% of average assets in 2009 to a high of $2.6 million or 0.57% of average assets in 2012. For the twelve months ended March 31, 2014, the Company reported net income of $2.4 million or 0.46% of average assets. Net interest income and operating expenses represent the primary components of the Company’s earnings. Non-interest operating income and loan loss provisions have been fairly stable factors in the Company earnings over the past five and one-quarter years. Non-operating income has primarily consisted of gains on sale and redemption of investments.

Over the past five and one-quarter years, the Company’s net interest income to average assets ratio ranged from a low of 3.06% during the twelve months ended March 31, 2014 to a high of 3.40% during 2011. The decline in the Company’s net interest income ratio since 2011 has beens largely attributable to interest rate spread compression that has resulted from a more significant decrease in the yield earned on interest-earnings assets relative to the cost of interest-bearing liabilities. As the result of the prolonged low interest rate environment, the decline in yield earned on less rate sensitive interest-earning assets has become more significant relative to the decline in rate paid on more rate sensitive liabilities which had more significant downward repricing earlier in the prevailing interest rate environment. Overall, during the past five and one-quarter years, the Company’s interest rate spread decreased from a peak of 3.62% during 2011 to a low of 3.32% during 2013. For the three months ended March 31, 2014, the Company’s interest rate spread increased to 3.38%. The Company’s net interest rate spreads and yields and costs for the past five and one-quarter years are set forth in Exhibit I-3 and Exhibit I-5.

Non-interest operating income as a percent of average assets has also been a fairly stable contributor to the Company’s earnings, ranging from a low of $2.5 million or 0.58% of average assets during 2011 to a high of $2.9 million or 0.73% of average assets during 2010. For the twelve months ended March 31, 2014, non-interest operating income equaled $2.8 million or 0.54% of average assets. Service charges on deposit accounts and other charges, commissions and fees are the primary contributors to the Company’s non-interest operating revenues, which also includes income earned on BOLI, loan servicing fees and debit card interchange fees.

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	I.10

Table 1.2

Pathfinder Bancorp, Inc.

Historical Income Statements

	For the Fiscal Year Ended December 31,																									For the 12 Months
	2009					2010					2011					2012					2013					Ended 03/31/14
		Amount		Pct(1)			Amount		Pct(1)			Amount		Pct(1)			Amount		Pct(1)			Amount		Pct(1)			Amount		Pct(1)
	($	000	)	(%)		($	000	)	(%)		($	000	)	(%)		($	000	)	(%)		($	000	)	(%)		($	000	)	(%)
Interest income	$	17,806		4.96	%	$	18,139		4.61	%	$	18,604		4.44	%	$	18,765		4.02	%	$	18,883		3.79	%	$	18,857		3.66	%
Interest expense		(6,029	)	-1.68	%		(4,808	)	-1.22	%		(4,341	)	-1.04	%		(3,908	)	-0.84	%		(3,264	)	-0.66	%		(3,063	)	-0.59	%
Net interest income	$	11,777		3.28	%	$	13,331		3.39	%	$	14,263		3.40	%	$	14,857		3.18	%	$	15,619		3.14	%	$	15,794		3.06	%
Provision for loan losses		(876	)	-0.24	%		(1,050	)	-0.27	%		(940	)	-0.22	%		(825	)	-0.18	%		(1,032	)	-0.21	%		(953	)	-0.17	%
Net interest income after provisions	$	10,901		3.04	%	$	12,281		3.12	%	$	13,323		3.18	%	$	14,032		3.00	%	$	14,587		2.93	%	$	14,841		2.88	%
Non-interest operating income	$	2,724		0.76	%	$	2,854		0.73	%	$	2,451		0.58	%	$	2,627		0.56	%	$	2,581		0.52	%	$	2,794		0.54	%
Non-interest operating expense		(11,126	)	-3.10	%		(11,789	)	-3.00	%		(13,148	)	-3.14	%		(13,518	)	-2.89	%		(14,751	)	-2.96	%		(15,153	)	-2.94	%
Net operating income	$	2,499		0.70	%	$	3,346		0.85	%	$	2,626		0.63	%	$	3,141		0.67	%	$	2,417		0.49	%	$	2,482		0.48	%
Non-Operating Income
Gain(loss) on sale and redemption of investments	$	805		0.22	%		211		0.05	%	$	791		0.19	%	$	375		0.08	%	$	365		0.07	%		328		0.06	%
Net gains(losses) on sale of loans and OREO		54		0.02	%		(45	)	-0.01	%		(50	)	-0.01	%		61		0.01	%		470		0.09	%		444		0.09	%
Loss on impairment of invesetments		(693	)	-0.19	%		-		0.00	%		0		0.00	%		-		0.00	%		-		0.00	%		-		0.00	%
Net non-operating income	$	166		0.05	%	$	166		0.04	%	$	741		0.18	%	$	436		0.09	%	$	835		0.17	%	$	772		0.15	%
Net income before tax	$	2,665		0.74	%	$	3,512		0.89	%	$	3,367		0.80	%	$	3,577		0.77	%	$	3,252		0.65	%	$	3,254		0.63	%
Income tax provision		(1,050	)	-0.29	%		(1,007	)	-0.26	%		(1,044	)	-0.25	%		(929	)	-0.20	%		(847	)	-0.17	%		(836	)	-0.16	%
Net income (loss) before noncontrolling interest	$	1,615		0.45	%	$	2,505		0.64	%	$	2,323		0.55	%	$	2,648		0.57	%	$	2,405		0.48	%	$	2,418		0.47	%
Net income(loss) attributable to noncontrolling interest		-		0.00	%		-		0.00	%		-		0.00	%		-		0.00	%		(1	)	0.00	%		28		0.01	%
Net income (loss)	$	1,615		0.45	%	$	2,505		0.64	%	$	2,323		0.55	%	$	2,648		0.57	%	$	2,406		0.48	%	$	2,390		0.46	%
Adjusted Earnings
Net income	$	1,615		0.45	%	$	2,505		0.64	%	$	2,323		0.55	%	$	2,648		0.57	%	$	2,406		0.48	%	$	2,390		0.46	%
Add(Deduct):  Net gain/(loss) on sale		(166	)	-0.05	%		(166	)	-0.04	%		(741	)	-0.18	%		(436	)	-0.09	%		(835	)	-0.17	%		(772	)	-0.15	%
Tax effect (2)		66		0.02	%		66		0.02	%		296		0.07	%		174		0.04	%		334		0.07	%		309		0.06	%
Adjusted earnings	$	1,515		0.42	%	$	2,405		0.61	%	$	1,878		0.45	%	$	2,386		0.51	%	$	1,905		0.38	%	$	1,927		0.37	%
Expense Coverage Ratio (3)		1.06	x				1.13	x				1.08	x				1.10	x				1.06	x				1.04	x
Efficiency Ratio (4)		76.73	%				72.82	%				78.89	%				77.27	%				80.87	%				81.67	%
Effective tax rate		39.40	%				28.67	%				31.01	%				25.97	%				26.05	%				25.69	%

(1) Ratios are as a percent of average assets.

(2) Assumes a 40.0% effective tax rate.

(3) Expense coverage ratio calculated as net interest income before provisions for loan losses divided by operating expenses.

(4) Efficiency ratio calculated as operating expenses divided by the sum of net interest income before provisions for loan losses plus other income (excluding non-operating gains).

Sources:  Pathfinder Bancorp’s prospectus, audited & unaudited financial statements and RP Financial calculations

RP® Financial, LC.	OVERVIEW AND FINANCIAL ANALYSIS
	I.11

Operating expenses represent the other major component of the Company’s earnings and have trended higher over the past five and one-quarter years, but have declined slightly as a percent of average assets. Operating expenses increased from $11.1 million or 3.10% of average assets during 2009 to $15.2 million or 2.94% of average assets during the twelve months ended March 31, 2014. The increase in operating expenses was largely related to normal cost increases and adding personnel to implement growth strategies, which included the opening of a branch office in 2011.

Overall, the general trends in the Company’s net interest margin and operating expense ratio since 2009 reflect stability in core earnings, as indicated by the Company’s expense coverage ratios (net interest income divided by operating expenses). Pathfinder Bancorp’s expense coverage ratio equaled 1.06 times during 2009, versus a ratio of 1.04 times during the twelve months ended March 31, 2014. Likewise, Pathfinder Bancorp’s efficiency ratio (operating expenses as a percent of the sum of net interest income and other operating income) of 76.73% during 2009 was slightly more favorable compared to its efficiency ratio of 81.67% during the twelve months ended March 31, 2014.

Over the past five and one-quarter years, loan loss provisions established by the Company have been fairly stable as a percent of average assets ranging from a low of 0.17% during the twelve months ended March 31, 2014 to a high 0.27% during 2010. For the twelve months ended March 31, 2014, the Company established loan loss provisions of $953,000. As of March 31, 2014, the Company maintained valuation allowances of $5.0 million, equal to 0.44% of total loans and 71.59% of non-accruing loans. Exhibit I-6 sets forth the Company’s loan loss allowance activity during the past five and one-quarter years.

Non-operating income and losses have had a varied impact on the Company’s earnings over the past five and one-quarter years, primarily consisting of gains on sale and redemption of investment securities. Gains on the sale of loans and OREO had a more significant impact on the Company’s earnings during 2013 and for the twelve months ended March 31, 2014, while a loss on impairment of investments negatively impacted the Company’s earnings during 2009. For the twelve months ended, net non-operating income equaled $772,000 or 0.15% of average assets and consisted of a $328,000 gain on sale and redemption of investment securities and $444,000 of net gains on the sale of loans and OREO most of which was the realized from the sale of $8.8 million of residential loans during the second quarter of 2013. Overall, the various

RP® Financial, LC.	OVERVIEW AND FINANCIAL ANALYSIS
	I.12

items that comprise the Company’s non-operating income are not viewed to be part of the Company’s core or recurring earnings base.

The Company’s effective tax rate ranged from 25.69% during the twelve months ended March 31, 2014 to 39.40% during 2009. As set forth in the prospectus, the Company’s effective marginal tax rate is 40.0%.

Interest Rate Risk Management

The Company’s balance sheet is liability-sensitive in the short-term (less than one year) and, thus, the net interest margin will typically be adversely affected during periods of rising and higher interest rates. Comparatively, the Company’s net interest margin benefits from a declining interest rate environment. As interest rates have remained at or near historically low levels for an extended period of time, the Company has experienced interest spread compression as the average yield earned on interest-earning assets has started to decline more relative to the average rate paid on interest-bearing liabilities. The Company’s interest rate risk analysis indicated that as of March 31, 2014, in the event of a 200 basis point instantaneous and sustained increase in interest rates, net portfolio would decrease by 9.0% which was within policy limits (see Exhibit I-7).

The Company pursues a number of strategies to manage interest rate risk, particularly with respect to seeking to limit the repricing mismatch between interest rate sensitive assets and liabilities. The Company manages interest rate risk from the asset side of the balance sheet through maintaining most investments as available-for-sale, maintaining an investment portfolio with laddered terms and diversifying into other types of lending beyond 1-4 family permanent mortgage loans which consists primarily of adjustable rate loans or shorter-term fixed rate loans. As of December 31, 2013, ARM loans comprised 47.46% of the dollar amount of all fixed rate and adjustable rate loans due after December 31, 2014 (see Exhibit I-8). On the liability side of the balance sheet, management of interest rate risk has been pursued through utilizing fixed rate FHLB advances with ladder terms due within ten years and emphasizing growth of lower costing and less interest rate sensitive transaction and savings account deposits. Transaction and savings account deposits comprised 64.47% of the Company’s total deposits at March 31, 2014.

The infusion of stock proceeds will serve to further limit the Company’s interest rate risk exposure, as most of the net proceeds will be redeployed into interest-earning assets and the

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	I.13

increase in the Company’s capital position will lessen the proportion of interest rate sensitive liabilities funding assets.

Lending Activities and Strategy

Pathfinder Bancorp’s lending activities have traditionally emphasized 1-4 family permanent mortgage loans and such loans continue to comprise the largest component of the Company’s loan portfolio. Pursuant to the Company’s strategic plan, the Company is pursuing a diversified lending strategy emphasizing commercial real estate loans and commercial business loans as the primary areas of targeted loan growth. Other areas of lending diversification for the Company include construction loans, home equity loans and lines of credit and consumer loans. Exhibit I-9 provides historical detail of Pathfinder Bancorp’s loan portfolio composition for the past five and one-quarter years and Exhibit I-10 provides the contractual maturity of the Company’s loan portfolio by loan type as of March 31, 2014.

1-4 Family Residential Loans. Pathfinder Bancorp offers both fixed rate and adjustable rate 1-4 family permanent mortgage loans, which are substantially secured by properties in the counties of Oswego and Onondaga. Loans are generally underwritten to secondary market guidelines, so they can sold in the secondary market. The Company’s current philosophy is to retain 1-4 family loan originations for its own portfolio, although the Company sold $8.8 million of 1-4 family loans out of its loans receivable portfolio during the second quarter of 2013. ARM loans offered by the Company have initial repricing terms of one, three or five years and then adjust annually for the balance of the loan term. ARM loans are indexed to the one year Treasury adjusted to a constant maturity. As of March 31, 2014, the Company’s outstanding balance of 1-4 family residential loans totaled $168.4 million or 48.39% of total loans outstanding and included $1.2 million of construction loans for construction of single-family homes.

Home Equity Loans and Lines of Credit. The Company’s 1-4 family lending activities include home equity loans and lines of credit. Home equity loans are originated as fixed rate loans with amortization terms up to 20 years. Home equity lines of credit are tied to the prime rate as published in The Wall Street Journal and are offered for terms of up to a ten year draw period followed by a 20 year repayment period. The Company will originate home equity loans and lines of credit up to a maximum loan-to value (“LTV”) ratio of 80%, inclusive of other liens on the property. If the Company hold the first mortgage on the property, the maximum LTV ratio

RP® Financial, LC.	OVERVIEW AND FINANCIAL ANALYSIS
	I.14

may be increased to 90%. As of March 31, 2014, the Company’s outstanding balance of home equity loans and lines of credit totaled $21.4 million or 6.15% of total loans outstanding.

Commercial Real Estate Loans. Commercial real estate loans consist largely of loans originated by the Company, which are collateralized by properties in the Company’s regional lending area. On a more limited basis, the Company supplements originations of commercial real estate loans with purchased loan participations secured by properties in the Company’s local lending market. Loan participations are subject to the same underwriting criteria and loan approvals as applied to loans originated by the Company. Pathfinder Bancorp generally originates commercial real estate loans up to a LTV ratio of 80% and generally requires a minimum debt-coverage ratio of 1.20 times. The Company offers both fixed and adjustable rate commercial real estate loans, generally for terms of up to 20 years. Adjustable rate loans reprice every three or five years and are typically indexed to the corresponding FHLB of New York advance rate. Most of the Company’s adjustable rate commercial real estate loans reprice every five years and amortize over terms of 20 years. Properties securing the commercial real estate loan portfolio include apartments, office buildings, mixed-use properties, 1-4 family investment properties, warehouses and retail properties. As of March 31, 2014, the Company’s outstanding balance of commercial real estate loans totaled $102.6 million equal to 29.48% of total loans outstanding.

Construction Loans. Construction loans originated by the Company consist of loans to finance the construction of 1-4 family residences and commercial/multi-family properties. The Company’s 1-4 family construction lending activities consist of construction loans, which convert to a permanent loan at the end of the construction period. Residential and commercial construction loans are interest only loans during the construction period and are generally offered up to a maximum LTV ratio of 80% of the appraised value of the completed property. As of March 31, 2014, Pathfinder Bancorp’s outstanding balance of construction loans equaled $1.2 million or 0.35% of total loans outstanding.

Commercial Business Loans. The commercial business loan portfolio is generated through extending loans to businesses operating in the local market area. Expansion of commercial business lending activities is a desired area of loan growth for the Company, pursuant to which the Company is seeking to become a full service community bank to its commercial loan customers through offering a full range of commercial loan products that can be packaged with lower cost commercial deposit products. Commercial business loans offered

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	I.15

by the Company consist of floating lines of credit indexed to The Wall Street Journal prime rate and fixed rate term loans. Depending on the collateral securing the loan, commercial loans are originated up to a maximum LTV ratio of 80% of the value of the collateral securing the loan. The commercial business loan portfolio consists substantially of loans secured by business assets such as accounts receivable, inventory, equipment, furniture and fixtures and other business assets. The Company also originates working capital lines of credit to finance the short-term cash flow needs of businesses and municipal loans are term loans and typically unsecured. As of March 31, 2014, Pathfinder Bancorp’s outstanding balance of commercial business loans equaled $51.6 million or 14.84% of total loans outstanding.

Consumer Loans. The Company’s diversification into consumer lending has been limited, with such loans generally consisting of automobile loans and other installment loans, loans secured by deposits and unsecured personal loans. As of March 31, 2014, Pathfinder Bancorp’s outstanding balance of consumer loans equaled $4.0 million or 1.14% of total loans outstanding.

Asset Quality

Historically, the Company’s lending emphasis on lending in local and familiar markets generally supported maintenance of relatively favorable credit quality measures. However, with the onset of the national recession and bursting of the housing bubble in 2008, the Company experienced elevated levels of problems assets. Over the past five and one-quarter years, Pathfinder Bancorp’s balance of non-performing assets ranged from a low of $2.5 million or 0.67% of assets at yearend 2009 to a high of $7.7 million or 1.46% of assets at March 31, 2014. As shown in Exhibit I-11, non-performing assets at March 31, 2014 consisted of $7.0 million of non-accruing loans and $699,000 of foreclosed real estate. Non-accruing commercial real estate loans comprised the largest concentration of the non-performing loan balance, accounting for $3.8 million or 54.66% of total non-accruing loans at March 31, 2014. The second largest concentration of non-accruing loans consisted of 1-4 family permanent mortgage loans totaling $1.9 million or 26.82% of total non-accruing loans at March 31, 2014.

To track the Company’s asset quality and the adequacy of valuation allowances, the Company has established detailed asset classification policies and procedures which are consistent with regulatory guidelines. Classified assets are reviewed monthly by senior management and the Board. Pursuant to these procedures, when needed, the Company

RP® Financial, LC.	OVERVIEW AND FINANCIAL ANALYSIS
	I.16

establishes additional valuation allowances to cover anticipated losses in classified or non-classified assets. As of March 31, 2014, the Company maintained loan loss allowances of $5.0 million, equal to 1.44% of total loans outstanding and 71.59% of non-accruing loans.

Funding Composition and Strategy

Deposits have consistently served as the Company’s primary funding source and at March 31, 2014 deposits accounted for 91.83% of the Company’s combined balance of deposits and borrowings. Exhibit I-12 sets forth the Company’s deposit composition for the past three and one-quarter years. Transaction and savings account deposits constituted 64.47% of total deposits during at March 31, 2014, as compared to 58.12% of total deposits at December 31, 2011. The increase in the concentration of core deposits comprising total deposits since 2011 was realized through core deposits increasing at a faster rate relative to CD growth. The largest source of core deposit growth since 2011 has been money market deposits, followed by growth of demand deposits and saving account deposits. Money market deposits comprised 21.45% of total deposits and 33.27% of core deposits at March 31, 2014.

The balance of the Company’s deposits consists of CDs, which equaled 35.53% of total deposits at March 31, 2014 compared to 41.88% of total deposits at December 31, 2011. Pathfinder Bancorp’s current CD composition reflects a higher concentration of short-term CDs (maturities of one year or less). The CD portfolio totaled $155.7 million at March 31, 2014 and $113.7 million or 72.98% of the CDs were scheduled to mature in one year or less. Exhibit I-13 sets forth the maturity schedule of the Company’s CDs as of March 31, 2014. As of March 31, 2014, jumbo CDs (CD accounts with balances of $100,000 or more) amounted to $86.9 million or 55.77% of total CDs. The Company held $40.5 million of brokered CDs at March 31, 2014.

Borrowings serve as an alternative funding source for the Company to facilitate management of funding costs and interest rate risk, as well as increasing the Bank’s regulatory capital. Borrowings totaled $39.0 million at March 31, 2014 and consisted of $17.0 million of short-term FHLB advances, $16.0 million of long-term FHLB advances, $5.2 million of junior subordinated debentures and an $826,000 ESOP loan payable. At March 31, 2014, the weighted average interest rate on the FHLB advances was 1.43%. Long-term FHLB advances had laddered terms extending out to five years. The Company’s junior subordinated debentures consist of an issuances of trust preferred securities (“Statutory Trust II”). Statutory Trust II pays a cumulative quarterly distribution at a rate per annum equal to three month LIBOR (25 basis

RP® Financial, LC.	OVERVIEW AND FINANCIAL ANALYSIS
	I.17

points at March 31, 2014) plus 1.65% for a total of 1.90% at March 31, 2014. Statutory Trust II matures in 2037. Exhibit I-14 provides further detail of the Company’s borrowings activities during the past three and one-quarter years.

Subsidiaries

In addition to the Bank, the Company is the parent company of Statutory Trust II. Statutory Trust II was formed in connection with the issuance of $5.2 million of trust preferred securities. The Bank has four operating subsidiaries – Pathfinder Commercial Bank, Pathfinder REIT, Inc., Pathfinder Risk Management Company, Inc. and Whispering Oaks Development Corp.

Pathfinder Commercial Bank is a limited commercial bank subsidiary, which serves the depository needs of municipalities and public entities in its market area. New York law requires municipal deposits to be held only by commercial banks.

Pathfinder REIT, Inc., a New York Corporation, is a wholly-owned real estate investment trust subsidiary. At March 31, 2014, Pathfinder REIT, Inc. held $16.8 million in mortgages and mortgage related assets.

Whispering Oaks Development Corp., a New York corporation, was formed in the case of a need to operate or develop foreclosed real estate emerges.

Pathfinder Risk Management, Inc. was established to record the 51% controlling interest upon the December 2013 purchase of the Fitzgibbons Agency, LLC, an Oswego County property and casualty and life and health insurance brokerage business with approximately $500,000 in annual revenues.

Legal Proceedings

Periodically, the Company has been involved in routine legal proceedings in the ordinary course of business. Such routine legal proceedings, in the aggregate, are believed by management to be immaterial to the Company’s financial condition, results of operations and cash flows. 

RP® Financial, LC.	MARKET AREA
	II.1

II. MARKET AREA

Introduction

Pathfinder Bancorp is headquartered in Oswego, New York and currently serves Central New York through the main office and seven branch locations. The main office and six branch offices are located in Oswego County and one branch office is located in northern Onondaga County. The Company intends to add a business banking office in Onondaga County, which will be located in downtown Syracuse. Oswego is 40 miles north of Syracuse. Details regarding the Company’s office properties are set forth in Exhibit II-1.

Oswego, which currently maintains a population of approximately 18,000, is located on Lake Ontario and is known as the Port City of Central New York. Manufacturing and the State University of New York College at Oswego constitute the basis of local economy. Future growth opportunities for Pathfinder Bancorp depend on the future growth and stability of the local and regional economy, demographic growth trends and the nature and intensity of the competitive environment. These factors have been briefly examined to help determine the growth potential that exists for the Company, the relative economic health of the Company’s market area, and the resultant impact on value.

National Economic Factors

The future success of the Company’s operations is partially dependent upon various national and local economic trends. Manufacturing activity grew for a fifth consecutive month in October 2013, with the PMI index rising to its highest level in more than two years. Service sector activity also continued to expand in October. The employment report for October showed that 204,000 jobs were added, while the October unemployment rate edged up to 7.3%. Despite the partial government shutdown in early-October, retail sales increased in October. Existing home sales declined in October, which was viewed as a potential sign that rising interest rates were starting to weigh on the housing recovery. The pace of manufacturing activity accelerated further in November, while service sector activity grew at a slightly lower rate in November. Employment growth remained steady in November, with 203,000 jobs being added and the November unemployment rate hitting a five year low of 7.0%. New and existing home sales were down slightly in November compared to October, as home buyers faced higher interest rates and an increase in home prices. Bolstered by a rebound in consumer

RP® Financial, LC.	MARKET AREA
	II.2

confidence, retail sales for November showed a healthy increase from October, While manufacturing activity expanded at a slightly lower rate in December, the PMI readings for November and December were the highest and second highest for 2013. Similarly, December service sector activity also grew at a slightly lower rate compared to November. December job growth was the lowest in almost three years, as only 74,000 jobs were added in December. However, the December unemployment rate dropped to 6.7%, which was mostly attributable to people leaving the labor force. Fourth quarter GDP increased at a 3.2% annual rate (subsequently revised to 2.6%).

The pace of manufacturing activity slowed considerably in January 2014, with the PMI reading declining 5.2 points to 51.3. Comparatively, January service sector activity expanded at a slight faster pace, with PMI reading of 56.7 compared to 55.7 in December. January was the second straight month of weak job growth, with a tepid gain of 113,000 jobs. The January unemployment rate dipped to 6.6% in January. Existing home sales in January declined to the lowest level since July 2012, while new home sales were up solidly in January. January 2014 home prices were up 0.9% from December and up 12.0% from a year ago January. Manufacturing activity accelerated in February, with the PMI registering 53.2. Comparatively, February service sector activity expanded at a slower pace in February, decreasing from a reading of 54.0 for January to 51.6 for February. Job growth picked-up in February, as the U.S. economy added 175,000 jobs. However, as more peoples entered the labor force, the February unemployment rate ticked up to 6.7%. Despite poor weather conditions in many areas of the U.S., retail sales rose slightly in February. Sales of existing and new homes were both lower in February compared to January, which was in part attributable to rising mortgage rates and higher home prices. Home prices were up 12.2% in February compared to a year ago. Manufacturing activity expanded for the tenth consecutive month in March, with the March PMI of 53.7 reflecting a slight increase compared to February. Similarly, service sector activity expanded at a slightly faster rate in March compared to February. Job growth was up slightly in March, with a total of 192,000 added during the month. However, the March unemployment rate remained at 6.7%. A healthy increase in March retail sales offered evidence of an improving economy. Sales of existing homes were down slightly in March compared to February, while new single-family home sales were down 14.5% from February to March. However, March pending home sales were up 3.4% in March compared to February, marking the first gain in nine months. First quarter GDP growth fell short of expectations, as the U.S. economy increased at a modest 0.1% annual rate during the quarter.

RP® Financial, LC.	MARKET AREA
	II.3

Manufacturing and non-manufacturing activity both accelerated in April 2014, providing more evidence that the economy was regaining momentum. The April jobs report showed a healthy pick-up in hiring with 288,000 jobs added and the April unemployment rate declined to 6.3%, but most of the decline was due to fewer job seekers as more people elected to drop out of the labor force. In early-May 2014 testimony before Congress, Federal Reserve Chairwoman Janet Yellen stated that the economy was on track for solid growth in the current quarter; although, a slowdown in housing that became evident in late-2013 showed few signs of reviving. The modest 0.1% increase in April sales provided an indication that the rebound in the U.S. was losing momentum.

In terms of interest rates trends over the past few quarters, Treasury yields dipped lower at the beginning of October 2013 as hiring in the private sector increased less than expected during September. Stalled negotiations in Washington to avert the first ever default on the U.S. debt pushed Treasury yields higher going into mid-October, which was followed by a rally in Treasury bonds on news of an agreement in Washington that raised the debt ceiling and avoided an imminent default by the U.S. Government. A weaker than expected jobs report for September furthered the downward trend in interest rates, as investors became more confident that the Federal Reserve would leave its bond buying program unchanged. A sharp decline in October consumer confidence and an October employment report that continued to reflect a relatively slow pace of job growth provided for a stable interest rate environment at the end of October and into early-November. Long-term Treasury yields edged higher in mid-November and then stabilized for the balance of November, as investors reacted to generally favorable October economic data and Congressional testimony by the Federal Reserve Chairman nominee Janet Yellen, in which she stated for a continuation of the Federal Reserve’s stimulus efforts. Signs of the economic recovery gaining momentum and the Federal Reserve’s mid-December announcement that it would begin to taper its stimulus program provided for a general upward trend in interest rates throughout December, with the 10-year Treasury yield edging above 3.0% in late-December.

Interest rates eased lower at the start of 2014, with the 10-year Treasury yield dipping below 3.0%. The weaker-than-expected jobs report for December furthered the downward trend in long-term Treasury yields heading into mid-January. The downward trend in long-term Treasury yields continued through the balance of January, as investors sought the safe haven of Treasury bonds amid turmoil in emerging markets and soft jobs data. The Federal Reserve concluded its late-January meeting by voting to scale back its bond buying program by another

RP® Financial, LC.	MARKET AREA
	II.4

$10 billion. Soft economic data provided for a stable interest rate environment through most of February, which was followed by a slight decline in long-term Treasury yields in late-February as investors responded to a decline in February consumer confidence and a downward revision to fourth quarter GDP. Stronger-than-expected job growth reflected in the February employment report and an increase in February manufacturing activity translated into Treasury yields edging higher during first half of March. A lower reading for March consumer confidence provided for a slight dip in the 10-year Treasury yield in mid-March, which was followed by an up-tick in the 10-year Treasury yield at the conclusion of the Federal Reserve’s March meeting and announcement that the Federal Reserve decided to trim its bond buying program by another $10 billion to $55 billion in monthly bond purchases. Long-term Treasury yields stabilized in the closing weeks of the first quarter.

Treasury yields edged higher in early-April 2014, as employment data for March showed job growth accelerating, and then declined slightly going into mid-April. Interest rates stabilized through the balance of April, as inflation remained in check and economic data generally reflected a continuation of sluggish economic growth. The Federal Reserve trimmed its monthly bond purchase program by another $10 billion to a total of $45 billion in monthly bond purchases at the end of April. The 10-year Treasury yield dropped to six month lows in early- and mid-May, as investors moved into safe haven investments amid geopolitical fears, uncertainty over global economic growth and data indicating that the U.S. economy was growing at a tepid pace. As of May 16, 2014, the bond equivalent yields for U.S. Treasury bonds with terms of one and ten years equaled 0.09% and 2.52%, respectively, versus comparable year ago yields of 0.12% and 1.87%. Exhibit II-2 provides historical interest rate trends.

Based on the consensus outlook of economists surveyed by The Wall Street Journal in May 2014, GDP growth was projected to come in at 2.4% in 2014 and increase to 2.9% in 2015. The unemployment rate was forecasted to fall to 6.1% in December 2014 and continue to decline to 5.8% in June 2015 An average of 215,000 jobs were projected to be added per month during 2014. On average, the economists did not expect the Federal Reserve to begin raising its target rate until mid-2015 at the earliest and the 10-year Treasury yield would increase to 3.28% at the end of 2014. The surveyed economists also forecasted home prices would rise by 5.4% in 2014. Housing starts were forecasted to continue to trend slightly higher in 2014.

RP® Financial, LC.	MARKET AREA
	II.5

Market Area Demographics

Key demographic and economic indicators in the Company’s market area include population, number of households and household/per capita income levels. Demographic data for Oswego and Onondaga Counties, as well as comparative data for New York and the U.S., are provided in Table 2.1. The market area is characterized by two different market types. Onondaga County represents a densely populated blend of urban and suburban markets, whilst Oswego County has a smaller population base that is largely suburban and rural in nature. Both primary market area counties displayed relatively stable population and household figures over the past three years, with population and household growth rates falling below the comparable national and state growth rates. The slow demographic growth stems from a regional economy where overall job growth has been limited by the lack of new economic activity. Population and household growth rates for Oswego County are projected to remain below the comparable growth rates for the U.S. and the state of New York for the next five years, while projected population and household growth rates for Onondaga County are projected to approximate the comparable New York growth rates.

Compared to the U.S. and the state of New York, median and per capita income figures were lower in Oswego County, which is indicative of the somewhat rural nature of Oswego County that tends to facilitate a lower cost of living relative to the more densely populated urban and suburban markets in the state of New York. Comparatively, income measures for Onondaga County, which includes the Syracuse metropolitan area, were comparable to the U.S. measures. Over the next five years, household and per capita income growth rates for Oswego and Onondaga Counties are projected to be in line with the comparable New York and U.S growth rates.

The less affluent nature of Oswego County is further implied by household income distribution measures, which show that in comparison to Onondaga County as well as New York and the U.S., Oswego County maintains a higher percentage of households with incomes of less than $50,000 and a lower percentage of households with incomes upwards of $100,000. Age distribution measures for Oswego County were fairly consistent with the age distribution measures for New York and the U.S., while Onondaga County has a slightly older population relative to Oswego County, New York and the U.S.

RP® Financial, LC.	MARKET AREA
	II.6

Table 2.1
Pathfinder Bancorp, Inc.
Summary Demographic Data

	Year			Growth Rate
	2010	2013	2018	2010-2013		2013-2018
				(%)		(%)
Population (000)
USA	308,746	314,468	323,986	0.6	%	0.6	%
New York	19,378	19,553	19,878	0.3	%	0.3	%
Oswego, NY	122	123	122	0.1	%	-0.1	%
Onondaga, NY	467	469	476	0.1	%	0.3	%
Households (000)
USA	116,716	118,979	122,665	0.6	%	0.6	%
New York	7,318	7,390	7,526	0.3	%	0.4	%
Oswego, NY	46	47	47	0.2	%	0.0	%
Onondaga, NY	188	189	192	0.2	%	0.3	%
Median Household Income ($)
USA	NA	51,314	56,895	NA		2.1	%
New York	NA	55,170	62,961	NA		2.7	%
Oswego, NY	NA	47,429	53,138	NA		2.3	%
Onondaga, NY	NA	51,316	57,860	NA		2.4	%
Per Capita Income ($)
USA	NA	27,567	29,882	NA		1.6	%
New York	NA	31,695	34,449	NA		1.7	%
Oswego, NY	NA	23,468	25,725	NA		1.9	%
Onondaga, NY	NA	29,171	31,859	NA		1.8	%
2013 Age Distribution (%)	0-14 Yrs.	15-34 Yrs.	35-54 Yrs.	55-69 Yrs.		70+ Yrs.
USA	19.4	27.5	26.7	17.1		9.4
New York	17.8	28.0	27.1	17.2		9.9
Oswego, NY	17.6	28.1	27.0	18.4		8.9
Onondaga, NY	17.9	27.8	26.0	17.8		10.4
2013 HH Income Dist. (%)	Less Than 25,000	$25,000 to 50,000	$50,000 to 100,000	$100,000+
USA	24.0	24.6	30.2	21.2
New York	22.4	23.0	28.1	26.5
Oswego, NY	23.8	28.3	32.6	15.3
Onondaga, NY	22.7	26.0	29.8	21.6
Source:  SNL Financial

RP® Financial, LC.	MARKET AREA
	II.7

 Regional Economy

The Company’s primary market area has a fairly diversified local economy, with employment in services, wholesale/retail trade, healthcare, manufacturing and government serving as the basis of the regional economy. Service jobs represented the largest employment sector in both of the primary market area counties, followed by wholesale/retail trade. Once the backbone of the regional economy, the manufacturing sector has experienced job erosion since the 1970s. The loss of manufacturing jobs has been a major contributing factor that has limited population growth in the region. Major private employers in the Company’s market area include Entergy Nuclear Northeast, Novelis, Constellation, NRG and Huhtamaki. The State University of New York College at Oswego and Oswego Health both play a significant role in the Owego County’s economy, as the two largest public employers, providing stable jobs through various stages of the economic cycle. In line with national trends, service jobs have accounted for most of the new employment within the regional economy. Table 2.2 provides an overview of employment by sector, for both of the primary market area counties and the state of New York.

Table 2.2

Pathfinder Bancorp, Inc.

Primary Market Area Employment Sectors

(Percent of Labor Force)

Employment Sector	New York		Oswego County		Onondaga County
	(% of Total Employment)
Services	34.2	%	35.5	%	32.0	%
Healthcare	10.8	%	8.0	%	12.6	%
Government	5.9	%	10.1	%	6.2	%
Wholesale/Retail Trade	23.4	%	22.3	%	23.1	%
Finance/Insurance/Real Estate	8.8	%	3.5	%	6.6	%
Manufacturing	7.0	%	10.1	%	8.3	%
Construction	3.5	%	4.6	%	4.3	%
Information	1.1	%	0.3	%	1.3	%
Transportation/Utility	3.5	%	3.7	%	4.3	%
Agriculture	0.8	%	1.3	%	0.8	%
Other	1.0	%	0.4	%	0.6	%
	100.0	%	100.0	%	100.0	%
Source: SNL Financial

RP® Financial, LC.	MARKET AREA
	II.8

Unemployment Trends

Comparative unemployment rates for Oswego and Onondaga Counties, as well as for the U.S. and New York, are shown in Table 2.3 and provide further evidence of Oswego County’s sluggish economy. The March 2014 unemployment rate for Oswego County of 9.1% was above the comparable unemployment rates for the U.S. and New York, equal to 6.7% and 7.3%, respectively. Comparatively, Onondaga County’s March 2014 unemployment rate was 6.4%. Consistent with the U.S. and New York, Oswego and Onondaga Counties reported lower unemployment rates in March 2014 compared to a year ago.  

Table 2.3

Pathfinder Bancorp, Inc.
Unemployment Trends

Region	March 2013 Unemployment		March 2014 Unemployment
USA	7.6	%	6.7	%
New York	8.1	%	7.3	%
Oswego, NY	11.2	%	9.1	%
Onondaga, NY	7.7	%	6.4	%
Source: SNL Financial

Market Area Deposit Characteristics and Competition

The Company’s deposit base is closely tied to the economic fortunes of Oswego and Onondaga Counties and, in particular, the areas surrounding Pathfinder’s branch locations. Table 2.4 displays deposit market trends from June 30, 2009 through June 30, 2013 for Pathfinder Bancorp, as well as for all commercial bank and savings institution branches located in the market area counties and the state of New York. Consistent with the state of New York, commercial banks maintained a larger market share of deposits than savings institutions in Oswego and Onondaga Counties. For the four year period covered in Table 2.4, savings institutions’ deposit market share increased in Oswego County and decreased in Onondaga County. Overall, for the past four years, bank and thrift deposits decreased at an annual rate of 1.8% in Oswego County and increased at an annual rate of 2.3% in Onondaga County, both of which fell well below the comparable state annual deposit growth rate of 9.3%.

RP® Financial, LC.	MARKET AREA
	II.9

Table 2.4

Pathfinder Bancorp, Inc.

Deposit Summary

	As of June 30,
	2009							2013
	Deposits		Market Share			No. of Branches		Deposits		Market Share			No. of Branches		Deposit Growth Rate 2009-2013
	(Dollars in Thousands)														(%)
New York	$	784,982,230		100.0	%		5,407	$	1,120,317,680		100.0	%		5,374		9.3	%
Commercial Banks		692,924,587		88.3	%		4,366		1,048,173,678		93.6	%		4,427		10.9	%
Savings Institutions		92,057,643		11.7	%		1,041		72,144,002		6.4	%		947		-5.9	%
Oswego County	$	1,246,492		100.0	%		37	$	1,161,484		100.0	%		35		-1.8	%
Commercial Banks		774,961		62.2	%		23		598,174		51.5	%		23		-6.3	%
Savings Institutions		471,531		37.8	%		14		563,310		48.5	%		12		4.5	%
Pathfinder Bancorp, Inc.		281,943		22.6	%		7		362,229		31.2	%		7		6.5	%
Onondaga County	$	7,964,040		100.0	%		137	$	8,722,843		100.0	%		131		2.3	%
Commercial Banks		7,049,247		88.5	%		127		7,774,331		89.1	%		122		2.5	%
Savings Institutions		914,793		11.5	%		10		948,512		10.9	%		9		0.9	%
Pathfinder Bancorp, Inc		-		0.0	%		-		40,137		0.5	%		1		-

Source: FDIC 

Pathfinder Bancorp maintains its largest balance and deposit market share in Oswego County, where the Company maintains seven branch locations, including its main office. The Company’s $362.2 million of deposits at the Oswego County branches represented a 31.2% market share of thrift and bank deposits at June 30, 2013 and constituted a number one market share among banks and thrifts that maintained deposits in Oswego County. Comparatively, the single branch office in Onondaga County had total deposits of $40.1 million at June 30, 2013, which represented a 0.5% market share of Onondaga County bank and thrift deposits. The Onondaga County branch was opened in 2011. At the core of the Syracuse metropolitan area, Onondaga County is home to a highly competitive banking market where Pathfinder Bancorp competes against significantly larger banks, and a number of institutions local to the Syracuse metropolitan area. During the period covered in Table 2.4, a 6.5% annual deposit growth rate in Oswego County translated into significant growth in the Company’s deposit market share from 22.6% at June 30, 2009 to 31.2% at June 30, 2013.

The Company faces notable competition in both deposit gathering and lending activities. Among the Company’s competitors are much larger and more diversified institutions, which have greater resources than maintained by Pathfinder Bancorp. Financial institution competitors in the Company’s primary market area include other locally based thrifts, banks and

RP® Financial, LC.	MARKET AREA
	II.10

credit unions, as well as regional, super-regional and money center banks. From a competitive standpoint, Pathfinder Bancorp has sought to emphasize its community orientation in the markets served by its branches. Table 2.5 lists the Company’s largest competitors in the market area counties, based on deposit market share as noted parenthetically. The Company’s market share and market rank are also provided in Table 2.5.

Table 2.5

Pathfinder Bancorp, Inc.
Market Area Deposit Competitors

Location	Name	Market Share  Rank
Oswego County	Fulton Savings Bank	16.56%
	KeyCorp	11.54%
	Community Bank System	11.53%
	Pathfinder Bancorp, Inc.	31.19% 1 out of 8
Onondaga County	M&T Bank Corp.	29.11%
	KeyCorp	20.34%
	First Niagra Finl Group	9.21%
	Pathfinder Bancorp, Inc.	0.46% 12 out of 16

RP® Financial, LC.	PEER GROUP ANALYSIS
	III.1

III. PEER GROUP ANALYSIS

This chapter presents an analysis of Pathfinder Bancorp’s operations versus a group of comparable savings institutions (the "Peer Group") selected from the universe of all publicly-traded savings institutions in a manner consistent with the regulatory valuation guidelines. The basis of the pro forma market valuation of Pathfinder Bancorp is derived from the pricing ratios of the Peer Group institutions, incorporating valuation adjustments for key differences in relation to the Peer Group. Since no Peer Group can be exactly comparable to Pathfinder Bancorp, key areas examined for differences are: financial condition; profitability, growth and viability of earnings; asset growth; primary market area; dividends; liquidity of the shares; marketing of the issue; management; and effect of government regulations and regulatory reform.

Peer Group Selection

The Peer Group selection process is governed by the general parameters set forth in the regulatory valuation guidelines. Accordingly, the Peer Group is comprised of only those publicly-traded savings institutions whose common stock is either listed on the NYSE or NASDAQ, since their stock trading activity is regularly reported and generally more frequent than non-publicly traded and closely-held institutions. Institutions that are not listed on the NYSE or NASDAQ are inappropriate, since the trading activity for thinly-traded or closely-held stocks are typically highly irregular in terms of frequency and price and thus may not be a reliable indicator of market value. We have also excluded from the Peer Group those companies under acquisition or subject to rumored acquisition, mutual holding companies and recent conversions, since their pricing ratios are subject to unusual distortion and/or have limited trading history. A recent listing of the universe of all publicly-traded savings institutions is included as Exhibit III-1.

Ideally, the Peer Group, which must have at least 10 members to comply with the regulatory valuation guidelines, should be comprised of locally- or regionally-based institutions with comparable resources, strategies and financial characteristics. There are approximately 105 fully-converted, publicly-traded institutions nationally and, thus, it is typically the case that the Peer Group will be comprised of institutions with relatively comparable characteristics. To the extent that differences exist between the converting institution and the Peer Group, valuation adjustments will be applied to account for the differences. Since Pathfinder Bancorp

RP® Financial, LC.	PEER GROUP ANALYSIS
	III.2

will be a full public company upon completion of the offering, we considered only full public companies to be viable candidates for inclusion in the Peer Group. From the universe of publicly-traded thrifts, we selected ten institutions with characteristics similar to those of Pathfinder Bancorp. In the selection process, we applied two “screens” to the universe of all public companies that were eligible for consideration:

o Screen #1 Mid-Atlantic institutions with assets between $250 million and $1.0 billion, tangible equity-to-assets ratios of greater than 7.5% and positive core earnings. Nine companies met the criteria for Screen #1 and five were included in the Peer Group: Alliance Bancorp, Inc. of Pennsylvania, CMS Bancorp, Inc. of New York, Oneida Financial Corp. of New York, TF Financial Corp. of Pennsylvania and WVS Financial Corp. of Pennsylvania. The four companies which met the selection criteria, but were excluded from the Peer Group were Carver Bancorp, Inc. of New York, FedFirst Financial Corporation of Pennsylvania, OBA Financial Services of Maryland and Prudential Bancorp, Inc. of Pennsylvania. Carver Bancorp was excluded as the result of its low level of tangible common equity and resulting not meaningful price-to-book ratio, FedFirst Financial Corporation and OBA Financial Services were excluded as the result of being the targets of announced acquisitions and Prudential Bancorp was excluded due to its recent conversion status (conversion completed October 2013). Exhibit III-2 provides financial and public market pricing characteristics of all publicly-traded Mid-Atlantic thrifts.

o Screen #2 New England institutions with assets between $250 million and $1.0 billion, tangible equity-to-assets ratios of greater than 7.5% and positive core earnings. Six companies met the criteria for Screen #2 and five were included in the Peer Group: Chicopee Bancorp, Inc. of Massachusetts, Georgetown Bancorp, Inc. of Massachusetts, Hampden Bancorp, Inc. of Massachusetts, Peoples Federal Bancshares, Inc. of Massachusetts and Wellesley Bancorp, Inc. of Massachusetts. Coastway Bancorp, Inc. of Rhode Island met the selection criteria, but was excluded from the Peer Group due to its recent conversion status (conversion completed January 2014). Exhibit III-3 provides financial and public market pricing characteristics of all publicly-traded New England thrifts.

Table 3.1 shows the general characteristics of each of the ten Peer Group companies and Exhibit III-4 provides summary demographic and deposit market share data for the primary market areas served by each of the Peer Group companies. While there are expectedly some differences between the Peer Group companies and Pathfinder Bancorp, we believe that the Peer Group companies, on average, provide a good basis for valuation subject to valuation adjustments. The following sections present a comparison of Pathfinder Bancorp’s financial condition, income and expense trends, loan composition, interest rate risk and credit risk versus the Peer Group as of the most recent publicly available date. Comparative data for all publicly-traded thrifts, publicly-traded New York thrifts and institutions comparable to Pathfinder Bancorp

RP® Financial, LC.	PEER GROUP ANALYSIS
	III.3

Table 3.1

Peer Group of Publicly-Traded Thrifts

As of December 31, 2013

									As of
									May 16, 2014
Ticker	Financial Institution	Exchange	City	State	Total Assets	Offices	Fiscal Year End	Conv. Date	Stock Price	Market Value
					($Mil)				($)	($Mil)
ALLB	Alliance Bancorp, Inc. of Pennsylvania	NASDAQ	Broomall	PA	426	8	Dec	1/18/2011	15.50	64.89
CBNK	Chicopee Bancorp, Inc.	NASDAQ	Chicopee	MA	588	9	Dec	7/20/2006	16.86	91.69
CMSB	CMS Bancorp, Inc.	NASDAQ	White Plains	NY	263	6	Sep	4/4/2007	9.60	17.88
GTWN	Georgetown Bancorp, Inc.	NASDAQ	Georgetown	MA	263	3	Dec	7/12/2012	14.90	27.33
HBNK	Hampden Bancorp, Inc.	NASDAQ	Springfield	MA	694	10	Jun	1/17/2007	16.20	91.60
ONFC	Oneida Financial Corp.	NASDAQ	Oneida	NY	742	13	Dec	7/7/2010	12.73	89.30
PEOP	Peoples Federal Bancshares, Inc.	NASDAQ	Brighton	MA	588	8	Sep	7/7/2010	18.14	113.68
THRD	TF Financial Corporation	NASDAQ	Newtown	PA	836	19	Dec	7/13/1994	30.74	96.88
WEBK	Wellesley Bancorp, Inc.	NASDAQ	Wellesley	MA	459	4	Dec	1/26/2012	17.76	43.60
WVFC	WVS Financial Corp.	NASDAQ	Pittsburgh	PA	314	6	Jun	11/29/1993	11.70	24.08

Source:  SNL Financial, LC.

RP® Financial, LC.	PEER GROUP ANALYSIS
	III.4

that have recently completed a second-step conversion offering have been included in the Chapter III tables as well.

In addition to the selection criteria used to identify the Peer Group companies, a summary description of the key comparable characteristics of each of the Peer Group companies relative to Pathfinder Bancorp’s characteristics is detailed below.

o Alliance Bancorp, Inc. of Pennsylvania. Comparable due completed second-step conversion in 2011, same size of branch network, similar interest-earning asset composition, similar net interest income to average assets ratio, similar impact of loan loss provisions on earnings, similar concentration of 1-4 family permanent mortgage loans as a percent of assets and lending diversification emphasis on commercial real estate loans.

o Chicopee Bancorp, Inc. of Massachusetts. Comparable due to similar asset size, similar size of branch network, similar interest-bearing funding composition, similar return on average assets, similar net interest income to average assets ratio, similar earnings contribution from sources of non-interest operating income, similar ratio of operating expenses as a percent of average assets, similar concentration of 1-4 family permanent mortgage loans as a percent of assets and lending diversification emphasis on commercial real estate and commercial business loans.

o CMS Bancorp, Inc. of New York. Comparable due to similar size of branch network, similar interest-bearing funding composition, similar impact of loan loss provisions on earnings, similar ratio of operating expenses as a percent of average assets, similar concentration of mortgage-backed securities and 1-4 family permanent mortgage loans as a percent of assets and lending diversification emphasis on commercial real estate and commercial business loans.

o Georgetown Bancorp, Inc. of Massachusetts. Comparable due to completed second-step conversion in 2012 and lending diversification emphasis on commercial real estate loans.

o Hampden Bancorp, Inc. of Massachusetts. Comparable due to similar interest-earning asset composition, similar net interest income to average assets ratio, similar impact of loan loss provisions on earnings, similar earnings contribution from sources of non-interest operating income and lending diversification emphasis on commercial real estate and commercial business loans.

o Oneida Financial Corp. of New York. Comparable due to completed second-step conversion in 2010, similar market area located east of Syracuse and similar concentration of deposits as a percent of assets.

o Peoples Federal Bancshares, Inc. of Massachusetts. Comparable due to similar asset size, same size of branch network and similar net interest income to average assets ratio.

o TF Financial Corporation of Pennsylvania. Comparable due to similar interest-earning asset composition, similar interest-bearing funding composition, similar impact of loan loss provisions, similar earning contribution from sources of non-interest operating income, lending diversification emphasis on commercial real estate loans and similar ratio of non-performing assets as a percent of assets.

RP® Financial, LC.	PEER GROUP ANALYSIS
	III.5

o Wellesley Bancorp, Inc. of Massachusetts. Comparable due to similar asset size, similar interest-bearing funding composition, similar impact of loan loss provisions on earnings, lending diversification emphasis on commercial real estate loans and similar ratio of non-performing assets as percent of assets.

o WVS Financial Corp. of Pennsylvania. Comparable due to similar size of branch network.

In aggregate, the Peer Group companies maintained a slightly lower level of tangible equity than the industry average (12.18% of assets versus 12.45% for all public companies), generated slightly lower earnings as a percent of average assets (0.48% core ROAA versus 0.55% for all public companies), and earned a slightly lower ROE (3.85% core ROE versus 4.43% for all public companies). Overall, the Peer Group’s average P/TB ratio and average core P/E multiple were below and above the respective averages for all publicly-traded thrifts.   

	All Publicly-Traded			Peer Group
Financial Characteristics (Averages)
Assets ($Mil)	$	2,715		$	517
Market capitalization ($Mil)	$	379		$	66
Tangible equity/assets (%)		12.45	%		12.18	%
Core return on average assets (%)		0.55			0.48
Core return on average equity (%)		4.43			3.85
Pricing Ratios (Averages)(1)
Core price/earnings (x)		17.68	x		21.16	x
Price/tangible book (%)		110.86	%		99.65	%
Price/assets (%)		12.90			11.87
(1) Based on market prices as of May 16, 2014.

Ideally, the Peer Group companies would be comparable to Pathfinder Bancorp in terms of all of the selection criteria, but the universe of publicly-traded thrifts does not provide for an appropriate number of such companies. However, in general, the companies selected for the Peer Group were fairly comparable to Pathfinder Bancorp, as will be highlighted in the following comparative analysis. Comparative data for all publicly-traded thrifts, publicly-traded New York thrifts and institutions comparable to Pathfinder Bancorp that have recently completed a second-step conversion offering have been included in the Chapter III tables as well.

RP® Financial, LC.	PEER GROUP ANALYSIS
	III.6

Financial Condition

Table 3.2 shows comparative balance sheet measures for Pathfinder Bancorp and the Peer Group, reflecting the expected similarities and some differences given the selection procedures outlined above. The Company’s and the Peer Group’s ratios reflect balances as of March 31, 2014 and December 31, 2013, respectively. Pathfinder Bancorp’s equity-to-assets ratio of 8.33% was lower than the Peer Group’s median net worth ratio of 11.77%. With the infusion of the net conversion proceeds, the Company’s pro forma equity-to-assets ratio will be more comparable to the Peer Group’s equity-to-assets ratio. However, the Company’s capital strength would still be viewed less favorable compared to the Peer Group’s capital strength, as the Company’s capital includes $13.0 million of higher costing Series B Preferred Stock. The annual dividend rate on the Series B Preferred Stock is scheduled to increase from a current annual rate of 1.0% to an annual rate of 9.0% beginning March 2, 2016. Comparatively, CMS Bancorp was the only Peer Group company with a capital structure that included preferred stock. Tangible equity-to-assets ratios for the Company and the Peer Group equaled 7.46% and 10.89%, respectively. The increase in Pathfinder Bancorp’s pro forma capital position will be favorable from a risk perspective and in terms of future earnings potential that could be realized through leverage and lower funding costs. At the same time, the Company’s higher pro forma capitalization will initially depress return on equity. Both Pathfinder Bancorp’s and the Peer Group’s capital ratios reflected capital surpluses with respect to the regulatory capital requirements.

The interest-earning asset compositions for the Company and the Peer Group were somewhat similar, with loans constituting the bulk of interest-earning assets for both Pathfinder Bancorp and the Peer Group. The Company’s loans-to-assets ratio of 65.26% was lower than the comparable Peer Group median ratio of 76.74%. Comparatively, the Company’s cash and investments-to-assets ratio of 28.17% was higher than the comparable Peer Group ratio of 17.88%. Overall, Pathfinder Bancorp’s interest-earning assets amounted to 93.43% of assets, which was below the comparable Peer Group ratio of 94.62%. The Peer Group’s non-interest earning assets included bank-owned life insurance (“BOLI”) equal to 2.32% of assets, while the Company non-interest assets included BOLI equal to 1.92% of assets and goodwill/intangible equal to 0.87% of assets.

Pathfinder Bancorp’s funding liabilities reflected a funding strategy that was somewhat similar to that of the Peer Group’s funding composition. The Company’s deposits equaled 83.36% of assets, which was above the Peer Group’s median ratio of 77.25%. Comparatively,

RP® Financial, LC.	PEER GROUP ANALYSIS
	III.7

Table 3.2

Balance Sheet Composition and Growth Rates

Comparable Institution Analysis

As of Decenber 31, 2013 or most recent available

			Balance Sheet as a Percent of Assets																				Balance Sheet Annual Growth Rates														Regulatory Capital
			Cash & Equivalents		MBS & Invest		BOLI		Net Loans (1)		Deposits		Borrowed Funds		Sub. Debt		Total Equity		Goodwill & Intang		Tangible Equity		Assets		MBS, Cash & Investments		Loans		Deposits		Borrows. &Subdebt		Total Equity		Tangible Equity		Tangible		Tier 1 Risk-Based		Risk-Based Capital
Pathfinder Bancorp, Inc.		NY
March 31, 2014			3.60	%	24.57	%	1.92	%	65.26	%	83.36	%	6.43	%	0.98	%	8.33	%	0.87	%	7.46	%	4.14	%	3.81	%	2.66	%	2.33	%	25.38	%	6.71	%	5.49	%	8.73	%	12.53	%	13.83	%
All Public Companies
Averages			5.48	%	20.66	%	1.90	%	67.67	%	73.79	%	11.40	%	0.38	%	13.23	%	0.71	%	12.45	%	3.35	%	4.83	%	5.49	%	2.34	%	17.33	%	4.08	%	3.32	%	12.86	%	19.97	%	20.96	%
Medians			3.62	%	16.60	%	1.94	%	69.72	%	75.09	%	10.23	%	0.00	%	12.29	%	0.02	%	11.14	%	2.21	%	-4.48	%	4.31	%	1.12	%	4.91	%	-0.43	%	-0.85	%	12.29	%	18.83	%	19.76	%
State of NY
Averages			5.35	%	20.02	%	1.59	%	68.57	%	75.24	%	11.59	%	0.58	%	11.21	%	1.14	%	10.07	%	2.40	%	-5.34	%	4.85	%	1.84	%	7.41	%	2.93	%	3.39	%	11.14	%	16.73	%	17.69	%
Medians			3.39	%	18.26	%	1.64	%	66.81	%	80.52	%	7.53	%	0.00	%	9.62	%	0.24	%	8.64	%	3.15	%	-4.08	%	5.55	%	2.23	%	12.47	%	1.40	%	2.82	%	9.45	%	13.88	%	15.18	%
Comparable Recent Conversions(2)
CSBK	Clifton Savings Bancorp, Inc.	NJ	1.40	%	42.10	%	3.30	%	51.20	%	73.10	%	8.50	%	0.00	%	17.40	%	0.00	%	17.40	%	4.50	%	-13.94	%	21.91	%	1.12	%	67.01	%	0.84	%	0.84	%	15.29	%	35.66	%	36.29	%
Comparable Group
Averages			4.10	%	22.51	%	1.98	%	68.37	%	73.82	%	12.59	%	0.00	%	12.60	%	0.42	%	12.18	%	9.12	%	-0.61	%	10.16	%	6.11	%	23.15	%	0.04	%	0.02	%	11.29	%	17.23	%	18.16	%
Medians			3.70	%	14.18	%	2.32	%	76.74	%	77.25	%	8.25	%	0.00	%	11.77	%	0.00	%	10.89	%	8.09	%	-4.81	%	7.44	%	2.40	%	19.04	%	0.07	%	0.07	%	10.53	%	16.27	%	17.43	%
Comparable Group
ALLB	Alliance Bancorp, Inc. of Pennsylvania	PA	10.63	%	12.93	%	2.93	%	70.24	%	81.17	%	0.81	%	0.00	%	16.49	%	0.00	%	16.49	%	-7.68	%	-35.53	%	7.17	%	-6.92	%	5.40	%	-12.29	%	-12.29	%	13.25	%	20.87	%	22.12	%
CBNK	Chicopee Bancorp, Inc.	MA	3.22	%	9.07	%	2.41	%	82.64	%	76.53	%	7.66	%	0.00	%	15.69	%	0.00	%	15.69	%	-2.04	%	-30.73	%	4.40	%	-3.52	%	4.40	%	2.51	%	2.51	%	15.82	%	18.65	%	19.59	%
CMSB	CMS Bancorp, Inc.	NY	1.28	%	15.47	%	0.00	%	81.03	%	82.48	%	7.53	%	0.00	%	8.66	%	0.00	%	8.66	%	-3.99	%	-27.37	%	2.62	%	-0.37	%	-36.15	%	2.82	%	2.82	%	8.45	%	12.39	%	12.75	%
GTWN	Georgetown Bancorp, Inc.	MA	2.39	%	8.45	%	1.10	%	85.51	%	66.90	%	20.88	%	0.00	%	11.00	%	0.00	%	11.00	%	24.31	%	46.87	%	22.77	%	13.94	%	132.73	%	-5.30	%	-5.30	%	9.66	%	13.07	%	14.30	%
HBNK	Hampden Bancorp, Inc.	MA	2.15	%	21.50	%	2.48	%	71.64	%	68.72	%	18.20	%	0.00	%	12.19	%	0.00	%	12.19	%	7.21	%	-11.44	%	15.62	%	3.92	%	32.68	%	-2.18	%	-2.18	%	12.20	%	16.30	%	17.40	%
ONFC	Oneida Financial Corp.	NY	5.68	%	36.99	%	2.45	%	45.21	%	85.83	%	0.13	%	0.00	%	12.22	%	3.58	%	8.64	%	8.97	%	11.24	%	7.70	%	12.14	%	-83.33	%	-2.51	%	-2.88	%	9.00	%	15.25	%	15.97	%
PEOP	Peoples Federal Bancshares, Inc.	MA	5.29	%	9.41	%	3.43	%	79.96	%	71.81	%	8.84	%	0.00	%	17.88	%	0.00	%	17.88	%	1.89	%	-7.85	%	3.96	%	-0.98	%	57.58	%	-3.35	%	-3.35	%	15.18	%	23.92	%	25.00	%
THRD	TF Financial Corporation	PA	5.42	%	15.42	%	2.22	%	73.53	%	81.84	%	5.94	%	0.00	%	11.35	%	0.58	%	10.78	%	17.40	%	23.69	%	16.51	%	22.06	%	-18.22	%	14.38	%	14.53	%	10.35	%	16.23	%	17.46	%
WEBK	Wellesley Bancorp, Inc.	MA	4.18	%	8.69	%	1.44	%	83.87	%	77.97	%	11.45	%	0.00	%	10.20	%	0.00	%	10.20	%	21.93	%	-1.77	%	26.82	%	19.95	%	66.67	%	4.04	%	4.04	%	8.31	%	10.87	%	12.10	%
WVFC	WVS Financial Corp.	PA	0.77	%	87.18	%	1.29	%	10.02	%	44.99	%	44.44	%	0.00	%	10.28	%	0.00	%	10.28	%	23.24	%	26.82	%	-5.96	%	0.87	%	69.74	%	2.32	%	2.32	%	10.70	%	24.70	%	24.90	%

(1) Includes loans held for sale.

(2) Ratios are based on the date of the most recent financial statements disclosed in the offering prospectus.

Source:  SNL Financial, LC. and RP^® Financial, LC. calculations.  The information provided in this table has been obtained from sources we believe are reliable, but we cannot guarantee the accuracy or completeness of such information.

Copyright (c) 2014 by RP^® Financial, LC.

RP® Financial, LC.	PEER GROUP ANALYSIS
	III.8

the Company maintained a similar level of borrowings as the Peer Group, as indicated by borrowings-to-assets ratios of 7.41% and 8.25% for Pathfinder Bancorp and the Peer Group, respectively. Total interest-bearing liabilities maintained by the Company and the Peer Group, as a percent of assets, equaled 90.77% and 85.50%, respectively.

A key measure of balance sheet strength for a thrift institution is its interest-earnings assets/interest-bearing liabilities (“IEA/IBL”) ratio. Presently, the Company’s IEA/IBL ratio is lower than the Peer Group’s ratio, based on IEA/IBL ratios of 102.93% and 110.67%, respectively. The additional capital realized from stock proceeds should serve to provide Pathfinder Bancorp with an IEA/IBL ratio that is more comparable to the Peer Group’s ratio, as the increase in capital provided by the infusion of stock proceeds will serve to lower the level of interest-bearing liabilities funding assets and will be primarily deployed into interest-earning assets.

The growth rate section of Table 3.2 shows annual growth rates for key balance sheet items. Pathfinder Bancorp’s and the Peer Group’s growth rates are based on annual growth for the twelve months ended March 31, 2014 and December 31, 2013, respectively. Pathfinder Bancorp recorded a 4.14% increase in assets, versus median asset growth of 8.09% recorded by the Peer Group. Asset growth for Pathfinder Bancorp included a 2.66% increase in loans and a 3.81% increase in cash and investments. Asset growth for the Peer Group was primarily sustained by a 7.44% increase in loans, which was partially offset by a 4.81% decrease in cash and investments.

Asset growth for Pathfinder Bancorp was funded through a 2.33% increase in deposits and a 25.38% increase in borrowings. Similarly, asset growth for the Peer Group was funded through deposit growth of 2.40% and a 19.04% increase in borrowings. The Company’s tangible capital increased by 5.49%, which was largely realized through retention of earnings. Comparatively, the Peer Group’s tangible capital increased 0.07%, as retention of earnings was largely offset by stock repurchases and dividend payments. The Company’s post-conversion capital growth rate will initially be constrained by maintenance of a higher pro forma capital position. Additional implementation of any stock repurchases and dividend payments, pursuant to regulatory limitations and guidelines, could also slow the Company’s capital growth rate in the longer term following the stock offering.

RP® Financial, LC.	PEER GROUP ANALYSIS
	III.9

Income and Expense Components

Table 3.3 displays statements of operations for the Company and the Peer Group. The Company’s and the Peer Group’s ratios are based on earnings for the twelve months ended March 31, 2014 and December 31, 2013, respectively. Pathfinder Bancorp and the Peer Group reported net income to average assets ratios of 0.46% and 0.40%, respectively. Higher ratios for of non-interest operating income and non-operating gains and a lower effective tax rate represented earnings advantages for the Company, which were largely offset by the Peer Group’s higher ratio for net interest income and lower ratios for loan loss provisions and operating expenses.

The Peer Group’s higher net interest income to average assets ratio was realized through both a higher interest income ratio and a lower interest expense ratio. The Peer Group’s higher interest income ratio was supported by maintaining a higher concentration of assets in interest-earning assets, which was partially offset by the Company maintaining a slightly higher overall yield earned on interest-earning assets (4.10% versus 4.04% for the Peer Group). The Peer Group’s lower interest expense ratio was supported by a lower cost of funds (0.70% versus 0.76% for the Company), as well as maintaining a lower concentration of interest-bearing liabilities as a percent of assets. Overall, Pathfinder Bancorp and the Peer Group reported net interest income to average assets ratios of 3.06% and 3.18%, respectively.

In another key area of core earnings strength, the Company maintained a higher level of operating expenses than the Peer Group. For the period covered in Table 3.3, the Company and the Peer Group reported operating expense to average assets ratios of 2.94% and 2.66%, respectively. The Company’s higher operating expense ratio was consistent with the comparatively higher number of employees maintained relative to its asset size. Assets per full time equivalent employee equaled $4.654 million for the Company, versus $5.461 million for the Peer Group.

When viewed together, net interest income and operating expenses provide considerable insight into a thrift’s earnings strength, since those sources of income and expenses are typically the most prominent components of earnings and are generally more predictable than losses and gains realized from the sale of assets or other non-recurring activities. In this regard, as measured by their expense coverage ratios (net interest income divided by operating expenses), the Company’s earnings were less favorable than the Peer Group’s. Expense coverage ratios for Pathfinder Bancorp and the Peer Group equaled 1.04x and 1.20x, respectively.

RP® Financial, LC.	PEER GROUP ANALYSIS
	III.10

Table 3.3

Income as Percent of Average Assets and Yields, Costs, Spreads

Comparable Institution Analysis

For the 12 Months Ended December 31, 2013 or most recent available

					Net Interest Income										Non-Interest Income						Non-Op. Items						Yields, Costs, and Spreads
			Net Income		Income		Expense		NII		Loss Provis. on IEA		NII After Provis.		Recurring Gain on Sale of Loans		Other Non-Int Income		Total Non-Int Expense		Net Gains/ Losses (2)		Extrao. Items		Provision for Taxes		Yield On IEA		Cost Of IBL		Yld-Cost Spread		MEMO: Assets/ FTE Emp.	MEMO: Effective Tax Rate
			(%)		(%)		(%)		(%)		(%)		(%)		(%)		(%)		(%)		(%)		(%)		(%)		(%)		(%)		(%)			(%)
Pathfinder Bancorp, Inc.		NY
March 31, 2014			0.46	%	3.66	%	0.59	%	3.06	%	0.17	%	2.88	%	0.00	%	0.54	%	2.94	%	0.15	%	0.00	%	0.16	%	4.10	%	0.76	%	3.34	%	$4,654	25.69	%
All Public Companies
Averages			0.55	%	3.71	%	0.71	%	3.00	%	0.15	%	2.84	%	0.36	%	0.58	%	3.06	%	0.09	%	0.00	%	0.21	%	3.99	%	0.91	%	3.10	%	$5,618	23.85	%
Medians			0.56	%	3.71	%	0.67	%	3.05	%	0.12	%	2.91	%	0.08	%	0.44	%	2.85	%	0.03	%	0.00	%	0.25	%	4.01	%	0.91	%	3.16	%	$4,951	32.64	%
State of NY
Averages			0.68	%	3.80	%	0.75	%	3.05	%	0.02	%	3.03	%	0.04	%	0.80	%	2.91	%	0.03	%	0.00	%	0.32	%	4.07	%	0.95	%	3.12	%	$6,622	29.29	%
Medians			0.77	%	3.84	%	0.73	%	3.14	%	0.07	%	3.06	%	0.01	%	0.43	%	2.55	%	0.01	%	0.00	%	0.23	%	4.13	%	0.97	%	3.21	%	$5,264	28.77	%
Comparable Recent Conversions(2)
CSBK	Clfton Savings Bancorp, Inc.	NJ	0.59	%	3.19	%	0.99	%	2.20	%	0.10	%	2.10	%	0.00	%	0.20	%	1.38	%	0.05	%	0.00	%	0.38	%	3.84	%	1.26	%	2.18	%	$10,513	33.92	%
Comparable Group
Averages			0.49	%	3.63	%	0.59	%	3.03	%	0.11	%	2.92	%	0.06	%	0.72	%	2.98	%	0.07	%	0.00	%	0.24	%	3.85	%	0.77	%	3.08	%	$5,628	33.16	%
Medians			0.40	%	3.75	%	0.53	%	3.18	%	0.11	%	3.05	%	0.04	%	0.33	%	2.66	%	0.02	%	0.00	%	0.22	%	4.04	%	0.70	%	3.22	%	$5,461	35.66	%
Comparable Group
ALLB	Alliance Bancorp, Inc. of Pennsylvania	PA	0.32	%	3.73	%	0.55	%	3.18	%	0.20	%	2.98	%	0.00	%	0.17	%	2.66	%	0.00	%	0.00	%	0.17	%	3.94	%	0.71	%	3.23	%	$4,779	35.06	%
CBNK	Chicopee Bancorp, Inc.	MA	0.44	%	3.93	%	0.74	%	3.19	%	0.07	%	3.12	%	0.03	%	0.52	%	3.09	%	0.03	%	0.00	%	0.12	%	4.24	%	1.04	%	3.20	%	$4,556	21.20	%
CMSB	CMS Bancorp, Inc.	NY	0.37	%	4.32	%	0.85	%	3.47	%	0.17	%	3.30	%	0.06	%	0.07	%	2.99	%	-0.11	%	0.00	%	0.18	%	4.39	%	1.05	%	3.34	%	$6,412	32.64	%
GTWN	Georgetown Bancorp, Inc.	MA	0.32	%	4.22	%	0.51	%	3.70	%	0.31	%	3.39	%	0.21	%	0.53	%	3.63	%	0.00	%	0.00	%	0.18	%	4.40	%	0.68	%	3.72	%	$4,615	36.36	%
HBNK	Hampden Bancorp, Inc.	MA	0.55	%	3.68	%	0.79	%	2.90	%	0.10	%	2.79	%	0.09	%	0.52	%	2.49	%	0.08	%	0.00	%	0.31	%	3.92	%	1.09	%	2.83	%	$6,142	36.26	%
ONFC	Oneida Financial Corp.	NY	0.86	%	3.16	%	0.37	%	2.79	%	0.07	%	2.72	%	0.05	%	4.38	%	5.92	%	0.08	%	0.00	%	0.35	%	3.66	%	0.45	%	3.21	%	$2,099	28.73	%
PEOP	Peoples Federal Bancshares, Inc.	MA	0.37	%	3.34	%	0.45	%	2.89	%	0.01	%	2.87	%	0.02	%	0.29	%	2.54	%	0.00	%	0.00	%	0.27	%	3.56	%	0.64	%	2.92	%	$7,175	41.72	%
THRD	TF Financial Corporation	PA	0.85	%	3.78	%	0.51	%	3.27	%	0.11	%	3.16	%	0.09	%	0.37	%	2.57	%	0.60	%	0.00	%	0.25	%	4.13	%	0.59	%	3.54	%	$4,134	22.94	%
WEBK	Wellesley Bancorp, Inc.	MA	0.55	%	4.14	%	0.69	%	3.45	%	0.12	%	3.32	%	0.03	%	0.18	%	2.66	%	0.03	%	0.00	%	0.35	%	4.25	%	0.89	%	3.36	%	$8,315	38.76	%
WVFC	WVS Financial Corp.	PA	0.29	%	1.98	%	0.48	%	1.49	%	-0.04	%	1.53	%	0.00	%	0.17	%	1.25	%	0.01	%	0.00	%	0.17	%	2.01	%	0.58	%	1.43	%	$8,050	37.94	%

(1) Net gains/losses includes gain/loss on sale of securities and nonrecurring income and expense.

(2) Ratios are based on the date of the most recent financial statements disclosed in the offering prospectus.

Source: SNL Financial, LC. and RP^® Financial, LC. calculations. The information provided in this table has been obtained from sources we believe are reliable, but we cannot guarantee the accuracy or completeness of such information.

Copyright (c) 2014 by RP^® Financial, LC. 

RP® Financial, LC.	PEER GROUP ANALYSIS
	III.11

Sources of non-interest operating income provided a larger contribution to the Company’s earnings, with such income amounting to 0.54% and 0.37% of Pathfinder Bancorp’s and the Peer Group’s average assets, respectively. Taking non-interest operating income into account in comparing the Company’s and the Peer Group’s earnings, Pathfinder Bancorp’s efficiency ratio (operating expenses, as a percent of the sum of non-interest operating income and net interest income) of 81.67% was less favorable than the Peer Group’s efficiency ratio of 74.93%.

Loan loss provisions had a slightly larger impact on the Company’s earnings, with loan loss provisions established by the Company and the Peer Group equaling 0.17% and 0.11% of average assets, respectively. The higher level of loan provisions established by the Company was consistent with the Company’s higher ratio of non-performing loans as a percent of loans (see Table 3.6).

Net non-operating gains equaled 0.15% of average assets for the Company, versus median net non-operating gains equal to 0.02% of average assets for the Peer Group. Typically, gains and losses generated from the sale of assets and other non-operating activities are viewed as earnings with a relatively high degree of volatility, particularly to the extent that such gains and losses result from the sale of investments or other assets that are not considered to be part of an institution’s core operations. Extraordinary items were not a factor in either the Company’s or the Peer Group’s earnings.

Taxes had a less significant impact on the Company’s earnings, as the Company and the Peer Group posted effective tax rates of 25.69% and 35.66%, respectively. As indicated in the prospectus, the Company’s effective marginal tax rate is equal to 40.0%.

Loan Composition

Table 3.4 presents data related to the Company’s and the Peer Group’s loan portfolio compositions (including the investment in mortgage-backed securities). The Company’s loan portfolio composition reflected a slightly higher concentration of 1-4 family permanent mortgage loans and mortgage-backed securities combined, compared to the Peer Group (42.30% of assets versus 39.64% for the Peer Group), as the Company’s higher concentrations of mortgage-backed securities was only partially offset by the Peer Group’s higher concentration of 1-4 family permanent mortgage loans. Loans serviced for others equaled 5.30% and 9.32% of

RP® Financial, LC.	PEER GROUP ANALYSIS
	III.12

Table 3.4

Loan Portfolio Composition and Related Information

Comparable Institution Analysis

As of December 31, 2013 or most recent available

			Portfolio Composition as a Percent of Assets
			MBS		1-4 Family		Constr. & Land		Multi- Family		Comm RE		Commerc. Business		Consumer		RWA/ Assets		Serviced For Others		Servicing Assets
			(%)		(%)		(%)		(%)		(%)		(%)		(%)		(%)		($000	)	($000	)
Pathfinder Bancorp, Inc.		NY
March 31, 2014			10.51	%	31.79	%	0.23	%	3.19	%	16.32	%	9.82	%	4.82	%	66.76	%	$27,856		$77
All Public Companies
Averages			12.38	%	33.17	%	2.92	%	7.27	%	17.31	%	4.13	%	1.86	%	64.55	%	$1,583,919		$15,855
Medians			10.41	%	32.22	%	2.00	%	2.48	%	17.76	%	2.87	%	0.32	%	65.28	%	$30,304		$275
State of NY
Averages			9.69	%	29.70	%	1.07	%	19.51	%	14.16	%	4.09	%	0.55	%	62.07	%	$2,106,406		$23,198
Medians			9.65	%	37.23	%	0.79	%	7.44	%	14.13	%	3.15	%	0.06	%	63.48	%	$11,715		$80
Comparable Recent Conversions(1)
CSBK	Clifton Savings Bancorp, Inc.	NJ	29.19	%	47.30	%	0.05	%	2.05	%	1.83	%	0.00	%	0.09	%	42.82	%	$0		$0
Comparable Group
Averages			12.04	%	35.27	%	5.02	%	3.73	%	18.17	%	5.67	%	1.19	%	67.50	%	$57,147		$345
Medians			6.02	%	33.62	%	3.91	%	1.79	%	18.91	%	4.97	%	0.31	%	68.27	%	$48,728		$64
Comparable Group
ALLB	Alliance Bancorp, Inc. of Pennsylvania	PA	1.10	%	29.19	%	4.65	%	5.21	%	28.86	%	2.44	%	1.06	%	63.85	%	$0		$0
CBNK	Chicopee Bancorp, Inc.	MA	0.11	%	28.13	%	8.43	%	1.30	%	30.56	%	14.59	%	0.41	%	83.78	%	$97,704		$381
CMSB	CMS Bancorp, Inc.	NY	2.57	%	38.05	%	0.36	%	9.74	%	20.71	%	12.38	%	0.03	%	68.27	%	$0		$0
GTWN	Georgetown Bancorp, Inc.	MA	6.44	%	46.58	%	8.00	%	1.87	%	23.48	%	6.32	%	0.16	%	74.05	%	$117,673		$1,058
HBNK	Hampden Bancorp, Inc.	MA	18.86	%	27.08	%	4.69	%	1.71	%	26.11	%	7.71	%	5.14	%	74.56	%	$70,670		$0
ONFC	Oneida Financial Corp.	NY	13.33	%	22.82	%	1.23	%	1.45	%	9.58	%	6.60	%	3.94	%	NA		$107,761		$411
PEOP	Peoples Federal Bancshares, Inc.	MA	6.82	%	53.87	%	3.16	%	12.19	%	9.00	%	1.56	%	0.85	%	63.37	%	$26,786		$128
THRD	TF Financial Corporation	PA	5.60	%	55.44	%	1.03	%	2.15	%	14.64	%	0.85	%	0.21	%	63.82	%	$150,825		$1,472
WEBK	Wellesley Bancorp, Inc.	MA	3.83	%	45.72	%	17.47	%	0.87	%	17.10	%	3.61	%	0.06	%	73.43	%	$48		$0
WVFC	WVS Financial Corp.	PA	61.76	%	5.80	%	1.20	%	0.85	%	1.60	%	0.58	%	0.07	%	42.37	%	$0		$0

(1) Ratios are based on the date of the most recent financial statements disclosed in the offering prospectus.

Source:  SNL Financial LC. and RP^® Financial, LC. calculations. The information provided in this table has been obtained from sources we believe are reliable, but we cannot guarantee the accuracy or completeness of such information.

Copyright (c) 2014 by RP^® Financial, LC. 

RP® Financial, LC.	PEER GROUP ANALYSIS
	III.13

the Company’s and the Peer Group’s assets, respectively, thereby indicating that loan servicing income had a slightly larger impact on the Peer Group’s earnings. Loan servicing intangibles constituted a relatively small balance sheet item for both the Company and the Peer Group.

Overall, diversification into higher risk and higher yielding types of lending was more significant for the Company, which was mostly attributable to the Company’s higher concentrations of commercial business loans and consumer loans. Commercial real estate loans constituted the most significant type of lending diversification for the Company and the Peer Group, equaling 16.32% of the Company’s assets and 18.91% of the Peer Group’s assets. Commercial business loans accounted for the second largest area of lending diversification for the Company amounting to 9.82% of assets, versus 4.97% of assets for the Peer Group. Based on the Peer Group’s medians, the Company also maintained higher concentrations of consumer loans and multi-family loans. Construction and land loans was the one area of lending diversification that was more significant for the Peer Group. In total, construction/land, commercial real estate, multi-family, commercial business and consumer loans comprised 34.38% and 29.89% of the Company’s and the Peer Group’s assets, respectively. Overall, the Company’s asset compositions provided for a slightly lower risk weighted assets-to-assets ratios of 66.76%, versus a comparable Peer Group ratio of 68.27%.

Interest Rate Risk

Table 3.5 reflects various key ratios highlighting the relative interest rate risk exposure of the Company versus the Peer Group. In terms of balance sheet composition, Pathfinder Bancorp’s interest rate risk characteristics were overall considered to be less favorable than the Peer Group’s measures. Most notably, the Company’s tangible equity-to-assets ratio and average IEA/IBL ratio were below the comparable Peer Group ratios. The Company also maintained a slight disadvantage with respect to its higher ratio of non-interest earning assets as a percent of assets. On a pro forma basis, the infusion of stock proceeds should serve to narrow the current comparative advantages reflected in the Peer Group’s balance sheet interest rate risk characteristics.

To analyze interest rate risk associated with the net interest margin, we reviewed quarterly changes in net interest income as a percent of average assets for Pathfinder Bancorp and the Peer Group. In general, the comparative fluctuations in the Company’s and the Peer Group’s net interest income ratios implied that the interest rate risk associated with their respective net interest margins was fairly similar, based on the interest rate environment that

RP® Financial, LC.	PEER GROUP ANALYSIS
	III.14

Table 3.5

Interest Rate Risk Measures and Net Interest Income Volatility

Comparable Institution Analysis

As of December 31, 2013 or most recent available

			Balance Sheet Measures
			Tangible						Non-IEA			Quarterly Change in Net Interest Income
			Equity/ Assets			IEA/ IBL			Assets/ Assets
			(%)			(%)			(%)				12/31/2013	9/30/2013	6/30/2013	3/31/2013	12/31/2012	9/30/2012
												(change in net interest income is annualized in basis points)
Pathfinder Bancorp, Inc.		NY
March 31, 2014				7.5	%		102.9	%		6.6	%		2	6	0	-9	6	-2
All Public Companies				12.5	%		109.9	%		7.3	%		3	2	-2	-7	-2	-1
State of NY				10.2	%		107.6	%		7.1	%		2	-2	3	-7	-1	4
Comparable Recent Conversions(1)
CSBK	Clifton Savings Bancorp, Inc.	NJ		17.4	%		116.1	%		5.3	%		-3	-5	0	2	-3	4
Comparable Group
Average				12.2	%		110.0	%		6.1	%		0	2	0	-5	-4	1
Median				10.9	%		109.6	%		5.7	%		0	0	-1	-4	-6	4
Comparable Group
ALLB	Alliance Bancorp, Inc. of Pennsylvania	PA		16.5	%		114.4	%		5.7	%		11	15	5	3	-6	18
CBNK	Chicopee Bancorp, Inc.	MA		15.7	%		112.8	%		6.5	%		-1	-1	-7	3	2	11
CMSB	CMS Bancorp, Inc.	NY		8.7	%		108.6	%		3.0	%		-5	-1	7	0	-9	19
GTWN	Georgetown Bancorp, Inc.	MA		11.0	%		109.8	%		5.1	%		9	-2	2	3	20	-12
HBNK	Hampden Bancorp, Inc.	MA		12.2	%		109.6	%		6.1	%		4	1	6	-9	-20	-5
ONFC	Oneida Financial Corp.	NY		9.0	%		102.2	%		14.0	%		-11	6	-6	-7	-2	6
PEOP	Peoples Federal Bancshares, Inc.	MA		17.9	%		117.4	%		6.1	%		7	-2	8	-16	-6	3
THRD	TF Financial Corporation	PA		10.8	%		107.5	%		5.7	%		1	0	-8	-23	-5	6
WEBK	Wellesley Bancorp, Inc.	MA		10.2	%		108.2	%		3.8	%		-13	12	-7	10	-9	-9
WVFC	WVS Financial Corp.	PA		10.3	%		109.5	%		4.4	%		-5	-10	-4	-14	-2	-20

NA=Change is greater than 100 basis points during the quarter.

(1) Ratios are based on the date of the most recent financial statements disclosed in the offering prospectus. 

Source:  SNL Financial LC. and RP^® Financial, LC. calculations. The information provided in this table has been obtained from sources we believe are reliable, but we cannot guarantee the accuracy or completeness of such information.

Copyright (c) 2014 by RP^® Financial, LC. 

RP® Financial, LC.	PEER GROUP ANALYSIS
	III.15

prevailed during the period covered in Table 3.5. The stability of the Company’s net interest margin should be enhanced by the infusion of stock proceeds, as interest rate sensitive liabilities will be funding a lower portion of Pathfinder Bancorp’s assets and the proceeds will be substantially deployed into interest-earning assets.

Credit Risk

Overall, based on a comparison of credit risk measures, the Company’s implied credit risk exposure was viewed to be slightly greater relative to the Peer Group’s credit risk exposure. As shown in Table 3.6, the Company’s ratios for non-performing/assets and non-performing loans/loans equaled 1.83% and 2.57%, respectively, versus comparable measures of 1.28% and 1.52% for the Peer Group. It should be noted that the measures for non-performing assets and non-performing loans include accruing loans that are classified as troubled debt restructurings. The Company’s and Peer Group’s loss reserves as a percent of non-performing loans equaled 55.85% and 68.55%, respectively. Loss reserves maintained as percent of loans receivable equaled 1.44% for the Company, versus 1.00% for the Peer Group. Net loan charge-offs were a more significant factor for the Company, as net loan charge-offs for the Company and the Peer Group equaled 0.18% and 0.05% of loans, respectively.

Summary

Based on the above analysis, RP Financial concluded that the Peer Group forms a reasonable basis for determining the pro forma market value of the Company. Such general characteristics as asset size, capital position, interest-earning asset composition, funding composition, core earnings measures, loan composition, credit quality and exposure to interest rate risk all tend to support the reasonability of the Peer Group from a financial standpoint. Those areas where differences exist will be addressed in the form of valuation adjustments to the extent necessary.

RP® Financial, LC.	PEER GROUP ANALYSIS
	III.16

Table 3.6

Credit Risk Measures and Related Information

Comparable Institution Analysis

As of December 31, 2013 or most recent available

		REO/ Assets		NPAs & 90+Del/ Assets (1)		NPLs/ Loans (1)		Rsrves/ Loans HFI		Rsrves/ NPLs (1)		Rsrves/ NPAs & 90+Del (1)		Net Loan Chargeoffs (2)	NLCs/ Loans
		(%)		(%)		(%)		(%)		(%)		(%)		($000)	(%)
Pathfinder Bancorp, Inc.	NY
March 31, 2014		0.13	%	1.83	%	2.57	%	1.44	%	55.85	%	51.81	%	$640	0.18	%
All Public Companies
Averages		0.36	%	2.54	%	2.97	%	1.37	%	70.24	%	67.43	%	$5,272	0.35	%
Medians		0.16	%	1.81	%	2.08	%	1.18	%	58.06	%	43.68	%	$915	0.18	%
State of NY
Averages		0.19	%	2.10	%	2.60	%	1.12	%	75.23	%	58.84	%	$5,033	0.17	%
Medians		0.12	%	1.37	%	1.94	%	1.08	%	64.66	%	47.11	%	$766	0.15	%
Comparable Recent Conversions(3)
CSBK  Clifton Savings Bancorp, Inc.	NJ	0.04	%	0.50	%	0.90	%	0.53	%	58.71	%	54.33	%	$356	0.06	%
Comparable Group
Averages		0.19	%	1.30	%	1.58	%	0.94	%	80.95	%	72.88	%	$440	0.14	%
Medians		0.01	%	1.28	%	1.52	%	1.00	%	68.55	%	61.79	%	$180	0.05	%
Comparable Group
ALLB    Alliance Bancorp, Inc. of Pennsylvania	PA	0.75	%	2.48	%	2.08	%	1.40	%	67.16	%	40.19	%	$1,576	0.55	%
CBNK   Chicopee Bancorp, Inc.	MA	0.07	%	1.23	%	1.39	%	0.94	%	67.25	%	63.47	%	$193	0.04	%
CMSB   CMS Bancorp, Inc.	NY	0.00	%	2.65	%	3.26	%	0.30	%	9.28	%	9.28	%	$646	0.31	%
GTWN  Georgetown Bancorp, Inc.	MA	0.00	%	1.20	%	1.39	%	1.06	%	75.92	%	75.92	%	$92	0.05	%
HBNK   Hampden Bancorp, Inc.	MA	0.18	%	1.32	%	1.56	%	1.09	%	69.85	%	60.11	%	$335	0.07	%
ONFC   Oneida Financial Corp.	NY	0.01	%	0.22	%	0.45	%	0.92	%	201.82	%	192.93	%	$166	0.05	%
PEOP   Peoples Federal Bancshares, Inc.	MA	0.00	%	0.47	%	0.58	%	0.85	%	144.93	%	144.93	%	$68	0.01	%
THRD    TF Financial Corporation	PA	0.67	%	1.84	%	1.47	%	1.06	%	72.02	%	42.65	%	$1,186	0.21	%
WEBK   Wellesley Bancorp, Inc.	MA	0.00	%	1.43	%	1.64	%	1.09	%	66.14	%	64.21	%	$131	0.04	%
WVFC   WVS Financial Corp.	PA	NA		0.20	%	1.98	%	0.69	%	35.14	%	35.14	%	$10	0.03	%

(1) Includes TDRs for the Company and the Peer Group.

(2) Net loan chargeoffs are shown on a last twelve month basis.

(3) Ratios are based on the date of the most recent financial statements disclosed in the offering prospectus.

Source:  SNL Financial, LC and RP^® Financial, LC. calculations. The information provided in this table has been obrained from sources we believe are reliable, but we cannot guarantee the accuracy or completeness of such information.

Copyright (c) 2014 by RP^® Financial, LC.

RP® Financial, LC.	VALUATION ANALYSIS
	IV.1

IV.  VALUATION ANALYSIS

Introduction

This chapter presents the valuation analysis and methodology, prepared pursuant to the regulatory valuation guidelines, and valuation adjustments and assumptions used to determine the estimated pro forma market value of the common stock to be issued in conjunction with the Company’s conversion transaction.

Appraisal Guidelines

The federal regulatory appraisal guidelines required by the FRB, the FDIC and state banking agencies specify the pro forma market value methodology for estimating the pro forma market value of a converting thrift. Pursuant to this methodology: (1) a peer group of comparable publicly-traded institutions is selected; (2) a financial and operational comparison of the subject company to the peer group is conducted to discern key differences; and (3) a valuation analysis in which the pro forma market value of the subject company is determined based on the market pricing of the peer group as of the date of valuation, incorporating valuation adjustments for key differences. In addition, the pricing characteristics of recent conversions, both at conversion and in the aftermarket, must be considered.

RP Financial Approach to the Valuation

The valuation analysis herein complies with such regulatory approval guidelines. Accordingly, the valuation incorporates a detailed analysis based on the Peer Group, discussed in Chapter III, which constitutes “fundamental analysis” techniques. Additionally, the valuation incorporates a “technical analysis” of recently completed stock conversions, particularly second-step conversions, including closing pricing and aftermarket trading of such offerings. It should be noted that these valuation analyses cannot possibly fully account for all the market forces which impact trading activity and pricing characteristics of a particular stock on a given day.

The pro forma market value determined herein is a preliminary value for the Company’s to-be-issued stock. Throughout the conversion process, RP Financial will: (1) review changes in Pathfinder Bancorp’s operations and financial condition; (2) monitor Pathfinder Bancorp’s operations and financial condition relative to the Peer Group to identify any fundamental

RP® Financial, LC.	VALUATION ANALYSIS
	IV.2

changes; (3) monitor the external factors affecting value including, but not limited to, local and national economic conditions, interest rates, and the stock market environment, including the market for thrift stocks and Pathfinder Bancorp’s stock specifically; and (4) monitor pending conversion offerings, particularly second-step conversions, (including those in the offering phase), both regionally and nationally. If, during the conversion process, material changes occur, RP Financial will determine if updated valuation reports should be prepared to reflect such changes and their related impact on value, if any. RP Financial will also prepare a final valuation update at the closing of the offering to determine if the prepared valuation analysis and resulting range of value continues to be appropriate.

The appraised value determined herein is based on the current market and operating environment for the Company and for all thrifts. Subsequent changes in the local and national economy, the legislative and regulatory environment, the stock market, interest rates, and other external forces (such as natural disasters or major world events), which may occur from time to time (often with great unpredictability) may materially impact the market value of all thrift stocks, including Pathfinder Bancorp’s value, or Pathfinder Bancorp’s value alone. To the extent a change in factors impacting the Company’s value can be reasonably anticipated and/or quantified, RP Financial has incorporated the estimated impact into the analysis.

Valuation Analysis

A fundamental analysis discussing similarities and differences relative to the Peer Group was presented in Chapter III. The following sections summarize the key differences between the Company and the Peer Group and how those differences affect the pro forma valuation. Emphasis is placed on the specific strengths and weaknesses of the Company relative to the Peer Group in such key areas as financial condition, profitability, growth and viability of earnings, asset growth, primary market area, dividends, liquidity of the shares, marketing of the issue, management, and the effect of government regulations and/or regulatory reform. We have also considered the market for thrift stocks, in particular new issues, to assess the impact on value of the Company coming to market at this time.

1. Financial Condition

The financial condition of an institution is an important determinant in pro forma market value because investors typically look to such factors as liquidity, capital, asset composition and

RP® Financial, LC.	VALUATION ANALYSIS
	IV.3

quality, and funding sources in assessing investment attractiveness. The similarities and differences in the Company’s and the Peer Group’s financial strengths are noted as follows:

o Overall A/L Composition.  In comparison to the Peer Group, the Company’s interest-earning asset composition showed a higher concentration of cash and investments and a lower concentration of loans. Diversification into higher risk and higher yielding types of loans was more significant for the Company, while the Peer Group maintained a slightly higher concentration of 1-4 family loans. Overall, in comparison to the Peer Group, the Company’s interest-earning asset composition provided for a slightly higher yield earned on interest-earning assets and a similar risk weighted assets-to-assets ratio. Pathfinder Bancorp’s funding composition reflected a higher level of deposits and a similar level of borrowings relative to the comparable Peer Group measures, which translated into a slightly higher cost of funds for the Company. Overall, as a percent of assets, the Company maintained a lower level of interest-earning assets and a higher level of interest-bearing liabilities compared to the Peer Group’s ratios, which resulted in a lower IEA/IBL ratio for the Company. After factoring in the impact of the net stock proceeds, the Company’s IEA/IBL ratio should be more comparable to the Peer Group’s IEA/IBL ratio. On balance, RP Financial concluded that asset/liability composition was a neutral factor in our adjustment for financial condition.

o Credit Quality.  The Company’s ratios for non-performing assets as a percent of assets and non-performing loans as a percent of loans were slightly higher than the comparable ratios for the Peer Group. In comparison to the Peer Group, the Company maintained lower loss reserves as a percent of non-performing loans and higher loss reserves as a percent of loans. Net loan charge-offs as a percent of loans were slightly higher for the Company. The Company’s risk weighted assets-to-assets ratio was similar to the Peer Group’s ratio. Overall, RP Financial concluded that credit quality was a slightly negative factor in our adjustment for financial condition.

o Balance Sheet Liquidity.  The Company operated with a higher level of cash and investment securities relative to the Peer Group (28.17% of assets versus 17.88% for the Peer Group). Following the infusion of stock proceeds, the Company’s cash and investments ratio is expected to increase as the net proceeds realized from the second-step offering will be initially deployed into cash and investments. The Company was viewed as having similar future borrowing capacity relative to the Peer Group, based on the similar levels of borrowings currently funding the Company’s and the Peer Group’s assets. Overall, RP Financial concluded that balance sheet liquidity was a slightly positive factor in our adjustment for financial condition.

o Funding Liabilities.  The Company’s interest-bearing funding composition reflected a higher concentration of deposits and a similar concentration of borrowings relative to the comparable Peer Group ratios, which translated into a slightly higher cost of funds for the Company. Total interest-bearing liabilities as a percent of assets were higher for the Company. Following the stock offering, the increase in the Company’s capital position will reduce the level of interest-bearing liabilities funding the Company’s assets to a ratio that is more comparable to the Peer Group’s ratio of interest-bearing liabilities as a percent of assets. Overall, RP Financial concluded that funding liabilities were a neutral factor in our adjustment for financial condition.

RP® Financial, LC.	VALUATION ANALYSIS
	IV.4

o Capital.  The Company currently operates with a lower tangible equity-to-assets ratio than the Peer Group. Following the stock offering, Pathfinder Bancorp’s pro forma tangible capital position is expected to be comparable to the Peer Group’s tangible equity-to-assets ratio. However, approximately one-third of the Company’s current tangible equity consists of preferred stock, with a current annual dividend rate of 1.0% that will increase to an annual rate of 9.0% beginning March 2, 2016. Comparatively, only one of the Peer Group companies held preferred stock. On balance, in light of the higher cost of the Company’s capital structure, RP Financial concluded that capital strength was a slightly negative factor in our adjustment for financial condition.

On balance, Pathfinder Bancorp’s balance sheet strength was considered to be slightly less favorable than the Peer Group’s balance sheet strength and, thus, a slight downward adjustment was applied for the Company’s financial condition.

2. Profitability, Growth and Viability of Earnings

Earnings are a key factor in determining pro forma market value, as the level and risk characteristics of an institution’s earnings stream and the prospects and ability to generate future earnings heavily influence the multiple that the investment community will pay for earnings. The major factors considered in the valuation are described below.

o Reported Earnings.  The Company’s reported earnings were slightly higher than the Peer Group’s on a ROAA basis (0.46% of average assets versus 0.40% for the Peer Group), as the Peer Group earnings advantages with respect to net interest income, loan loss provisions and operating expenses were more than offset by the Company’s earnings advantages with respect to non-interest operating income, net gains and effective tax rate. Reinvestment of stock proceeds into interest-earning assets will serve to increase the Company’s earnings, with the benefit of reinvesting proceeds expected to be somewhat offset by implementation of additional stock benefit plans in connection with the second-step offering. Overall, given the non-recurring nature of the Company’s net gains, ,the Company’s pro forma reported earnings were considered to be comparable to the Peer Group’s earnings and, thus, RP Financial concluded that this was a neutral factor in our adjustment for profitability, growth and viability of earnings.

o Core Earnings.  Net interest income, operating expenses, non-interest operating income and loan loss provisions were reviewed in assessing the relative strengths and weaknesses of the Company’s and the Peer Group’s core earnings. The Company maintained a lower net interest income ratio, a higher operating expense ratio and a higher level of non-interest operating income. The Company’s less favorable ratios for net interest income and operating expenses translated into a lower expense coverage ratio in comparison to the Peer Group’s ratio (equal to 1.04x versus 1.20x for the Peer Group). Similarly, the Company’s efficiency ratio of 81.67% was less favorable than the Peer Group’s efficiency ratio of 74.93%. Slightly higher loan loss provisions also contributed to the Company’s lower core earnings. Overall, these measures, as well as the expected earnings benefits the Company

RP® Financial, LC.	VALUATION ANALYSIS
	IV.5

should realize from the redeployment of stock proceeds into interest-earning assets and leveraging of post-conversion capital, which will be somewhat negated by expenses associated with the stock benefit plans, indicate that the Company’s pro forma core earnings will remain less favorable than the Peer Group’s core earnings. Therefore, RP Financial concluded that this was a slightly negative factor in our adjustment for profitability, growth and viability of earnings.

o Interest Rate Risk.  Quarterly changes in the Company’s and the Peer Group’s net interest income to average assets ratios indicated a similar degree of volatility was associated with their respective net interest margins. Measures of balance sheet interest rate risk, such as capital, IEA/IBL and non-interest earning asset ratios were more favorable for the Peer Group. On a pro forma basis, the infusion of stock proceeds can be expected to provide the Company with equity-to-assets and IEA/ILB ratios that will be more comparable to the Peer Group ratios, as well as enhance the stability of the Company’s net interest margin through the reinvestment of stock proceeds into interest-earning assets. On balance, RP Financial concluded that interest rate risk was a neutral factor in our adjustment for profitability, growth and viability of earnings.

o Credit Risk.  Loan loss provisions were a slightly larger factor in the Company’s earnings (0.17% of average assets versus 0.11% of average assets for the Peer Group). In terms of future exposure to credit quality related losses, lending diversification into higher risk types of loans was more significant for the Company. The Company’s credit quality measures generally implied a slightly greater degree of credit risk exposure relative to the comparable credit quality measures indicated for the Peer Group. Overall, RP Financial concluded that credit risk was a slightly negative factor in our adjustment for profitability, growth and viability of earnings.

o Earnings Growth Potential.  Several factors were considered in assessing earnings growth potential. First, the Company maintained a slightly higher interest rate spread than the Peer Group, which would tend to facilitate a slightly higher net interest margin for the Company going forward based on the current prevailing interest rate environment. Second, the infusion of stock proceeds will provide the Company with similar growth potential through leverage as currently maintained by the Peer Group. Third, the Company’s higher ratio of non-interest operating income and the Peer Group’s lower operating expense ratio were viewed as respective advantages to sustain earnings growth during periods when net interest margins come under pressure as the result of adverse changes in interest rates. Overall, earnings growth potential was considered to be a neutral factor in our adjustment for profitability, growth and viability of earnings.

o Return on Equity.  Currently, the Company’s core ROE is slightly higher than the Peer Group’s core ROE. As the result of the increase in capital that will be realized from the infusion of net stock proceeds into the Company’s equity, the Company’s pro forma return equity on a core earnings basis will be more comparable to the Peer Group’s core ROE. Accordingly, this was a neutral factor in the adjustment for profitability, growth and viability of earnings.

On balance, Pathfinder Bancorp’s pro forma earnings strength was considered to be less favorable than the Peer Group’s and, thus, a slight downward adjustment was applied for

RP® Financial, LC.	VALUATION ANALYSIS
	IV.6

profitability, growth and viability of earnings.

3. Asset Growth

Comparative twelve-month asset growth rates for the Company and the Peer Group showed a 4.14% increase in the Company’s assets, versus an 8.09% increase in the Peer Group’s assets. Asset growth for the Company consisted of loans and cash and investments, with a slightly higher growth rate reflected for cash and investments. Comparatively, the Peer Group’s asset growth was sustained by loan growth, which was partially funded with cash and investments. Overall, the Company’s recent asset growth trends would tend to be viewed less favorably than the Peer Group’s in terms of supporting future earnings growth. On a pro forma basis, the Company’s tangible equity-to-assets ratio will be more comparable to the Peer Group’s tangible equity-to-assets ratio, indicating similar leverage capacity for the Company. On balance, a slight downward adjustment was applied for asset growth.

4. Primary Market Area

The general condition of an institution’s market area has an impact on value, as future success is in part dependent upon opportunities for profitable activities in the local market served. Pathfinder Bancorp serves Central New York through the main office and seven branch locations. Operating in somewhat of a rural market area that has experienced very modest population growth in recent years limits growth opportunities in the primary market served by the Company. The Company competes against significantly larger institutions that provide a larger array of services and have significantly larger branch networks than maintained by Pathfinder Bancorp. While the demographics of Oswego County are not conducive for growth, it also a less competitive operating environment compared to faster growing and more densely populated markets as implied by the Company’s relatively higher market share of deposits in Oswego County.

All of the Peer Group companies operate in markets with larger populations compared to Oswego County. Population growth for the primary market area counties served by the Peer Group companies reflect a range of growth rates, but overall population growth rates in the markets served by the Peer Group companies approximated Oswego County’s population growth rate in recent years. Oswego County has a lower per capita income compared to the average per capita income of the Peer Group’s primary market area counties and the Peer

RP® Financial, LC.	VALUATION ANALYSIS
	IV.7

Group’s primary market area counties were relatively more affluent markets within their respective states compared to Oswego County, which had a comparatively lower per capita income compared to New York’s per capita income. The average and median deposit market shares maintained by the Peer Group companies were well below the Company’s market share of deposits in Oswego County. Overall, the degree of competition faced by the Peer Group companies was viewed as greater than faced by the Company, while the growth potential of the markets served by the Peer Group companies was for the most part viewed to be stronger than the Company’s primary market area. Summary demographic and deposit market share data for the Company and the Peer Group companies is provided in Exhibit III-4. As shown in Table 4.1, the average unemployment rate for the primary market area counties served by the Peer Group companies was well below the unemployment rate reflected for Oswego County. On balance, we concluded that a moderate downward adjustment was appropriate for the Company’s market area.

Table 4.1
Market Area Unemployment Rates
Pathfinder Bancorp and the Peer Group Companies(1)

		March 2014
	County	Unemployment
Pathfinder Bancorp - NY	Oswego	9.1	%
Peer Group Average		6.6	%
Alliance Bancorp, Inc.- PA	Delaware	6.1
Chicopee Bancorp, Inc. - MA	Hampden	8.5
CMS Bancorp, Inc. - NY	Westchester	5.7
Georgetown Bancorp, Inc. - MA	Essex	6.9
Hampden Bancorp, Inc. - MA	Hampden	8.5
Oneida Financial Corp. - NY	Oneida	7.2
Peoples Federal Bancshares - MA	Suffolk	5.8
TF Financial Corporation - PA	Bucks	6.0
WVS Financial Corp. - PA	Allegheny	5.7
Wellesley Bancorp, Inc. - MA	Norfolk	5.4

(1) Unemployment rates are not seasonally adjusted.

Source: SNL Financial.

RP® Financial, LC.	VALUATION ANALYSIS
	IV.8

5. Dividends                   

Pathfinderd Bancorp has indicated its intention to pay a cash dividend that will preserve the current $0.12 per share annual cash dividend paid to its public shareholders, which is equal to a 1.2% yield based on the $10.00 per share IPO price. However, future declarations of dividends by the Board of Directors will depend upon a number of factors, including investment opportunities, growth objectives, financial condition, profitability, tax considerations, minimum capital requirements, regulatory limitations, stock market characteristics and general economic conditions.

Eight out of the ten Peer Group companies pay regular cash dividends, with implied dividend yields ranging from 1.10% to 3.77%. The average dividend yield on the stocks of the Peer Group institutions was 1.34% as of May 16, 2014. Comparatively, as of May 16, 2014, the average dividend yield on the stocks of all fully-converted publicly-traded thrifts equaled 1.81%. The dividend paying thrifts generally maintain higher than average profitability ratios, facilitating their ability to pay cash dividends.

The Company’s indicated dividend policy provides for a slightly lower yield compared to the Peer Group’s average dividend yield, while the Company’s implied payout ratio is lower than the Peer Group’s payout ratio. Accordingly, on balance, we concluded that no adjustment was warranted for purposes of the Company’s dividend policy.

6. Liquidity of the Shares

The Peer Group is by definition composed of companies that are traded in the public markets. All of the Peer Group companies trade on NASDAQ. Typically, the number of shares outstanding and market capitalization provides an indication of how much liquidity there will be in a particular stock. The market capitalization of the Peer Group companies ranged from $18 million to $114 million as of May 16, 2014, with average and median market values of $66 million and $77 million, respectively. The shares issued and outstanding of the Peer Group companies ranged from 1.8 million to 7.0 million, with average and median shares outstanding of 4.0 million and 3.7 million, respectively. The Company’s second-step stock offering is expected to provide for a pro forma market value that will in the lower end of the Peer Group’s range of market value and in the middle of the Peer Group’s range of shares outstanding. Following the second-step conversion, the Company’s stock will continue to be traded on the NASDAQ Capital Market. Overall, we anticipate that the Company’s stock will have a

RP® Financial, LC.	VALUATION ANALYSIS
	IV.9

comparable trading market as the Peer Group companies on average and, therefore, concluded no adjustment was necessary for this factor.

7. Marketing of the Issue

We believe that four separate markets exist for thrift stocks, including those coming to market such as Pathfinder Bancorp’s: (A) the after-market for public companies, in which trading activity is regular and investment decisions are made based upon financial condition, earnings, capital, ROE, dividends and future prospects; (B) the new issue market in which converting thrifts are evaluated on the basis of the same factors, but on a pro forma basis without the benefit of prior operations as a fully-converted company; (C) the acquisition market for thrift franchises based in New York; and (D) the market for the public stock of Pathfinder Bancorp. All of these markets were considered in the valuation of the Company’s to-be-issued stock.

A. The Public Market

The value of publicly-traded thrift stocks is easily measurable, and is tracked by most investment houses and related organizations. Exhibit IV-1 provides pricing and financial data on all publicly-traded thrifts. In general, thrift stock values react to market stimuli such as interest rates, inflation, perceived industry health, projected rates of economic growth, regulatory issues and stock market conditions in general. Exhibit IV-2 displays historical stock market trends for various indices and includes historical stock price index values for thrifts and commercial banks. Exhibit IV-3 displays various stock price indices for thrifts.

In terms of assessing general stock market conditions, the performance of the overall stock market has been mixed in recent quarters. Stocks fell broadly at the beginning of the fourth quarter of 2013, as investors weighed the consequences of the budget impasse in Washington and the possibility of an extended shutdown of the U.S. Government. Indications that lawmakers were nearing a deal to raise the federal debt ceiling and end the shutdown of the U.S. Government fueled a stock market rally heading into mid-October. A last minute compromise to raise the debt ceiling, which averted a default on the national debt and allowed for the re-opening of the U.S. Government sustained the positive trend in stocks through late-October. The Dow Jones Industrial Average (“DJIA”) closed at a record high in late-October, as weaker-than-expected job growth reflected in the September employment data and subdued inflation readings raised expectations that the Federal Reserve would stay the course on its

RP® Financial, LC.	VALUATION ANALYSIS
	IV.10

easy money policies at its end of October meeting. An overall strong month for stocks closed with consecutive losses at the end of October, as investors who were expecting the Federal Reserve to downgrade its economic outlook were surprised that the Federal Reserve’s assessment of the economy was unchanged and, thereby, raised expectations that it could taper its stimulus efforts as early as its next policy meeting in December. Favorable reports on manufacturing and nonmanufacturing activity in October, along with comments from a Federal Reserve President suggesting that the Federal Reserve should wait for stronger evidence of economic momentum before tapering its bond-buying program, contributed to a rebound in stocks at the start of November. The DJIA closed at multiple record highs through mid-November, with a better-than-expected employment report for October and comments made by Federal Reserve Chairman nominee Janet Yellen during confirmation hearings that the Federal Reserve’s economic stimulus efforts would continue under her leadership contributed to the rally that included the DJIA closing above 16000 for the first time. Stocks edged higher in the final week of November, as positive macroeconomic news contributed to the gains. Stocks traded lower at the start of December 2013, as a number of favorable economic reports stoked concerns that the Federal Reserve would start to wind down its stimulus efforts in the near future. After five consecutive losses in the DJIA, the stock market rebounded on news of the strong employment report for November. The rebound was temporary, as stocks eased lower ahead of the Federal Reserve’s mid-December meeting. Stocks surged at the conclusion of the Federal Reserve’s meeting, as investors approved of the Federal Reserve’s action to begin measured paring of its $85 billion a-month bond buying program. The DJIA moved to record highs in late-December, as more favorable economic reports helped to sustain the stock market rally through the end of 2013. Overall, the DJIA was up 30% during 2013, which was its strongest performance in 18 years.

Stocks retreated at the start of 2014, as profit taking and a disappointing employment report for December weighed on the broader stock market. Mixed fourth quarter earnings reports translated into an up and down stock market in mid-January. Concerns about weakening economies in emerging market countries precipitated a global stock market selloff heading into the second half of January, as the DJIA posted five consecutive losses. News that the Federal Reserve voted again to scale back its monthly bond buying program by another $10 billion, despite recent turmoil in emerging markets and soft jobs data, added to the selloff to close out January. A significant decline in January manufacturing activity drove stocks sharply lower at the start of February. Stocks rebounded heading into mid-February, as disappointing

RP® Financial, LC.	VALUATION ANALYSIS
	IV.11

job growth reflected in the January employment report and congressional testimony by the new Federal Reserve Chairwoman eased investor concerns that the Federal Reserve would not continue on its current course of easy monetary policies. The release of minutes from the Federal Reserve’s previous meeting, which indicated that some Federal Reserve officials were considering raising interest rates sooner than expected, pressured stocks lower heading into the second half of February. Despite data showing a softening economy, stocks traded higher to close out February. Stocks declined sharply on the first day of trading in March as the Ukraine crisis sparked a global selloff which was followed by a rebound in the stock market to close out the first week of March as the threat of the Ukraine crisis escalating diminished and the February employment report showed better-than-expected job growth. Data showing that China’s economy weakened sharply during the first two months of 2014 and rising tensions in Ukraine contributed to stocks trading lower into mid-March. The broader stock market traded unevenly in the second half of March, as investors reacted to mixed reports on the economy and comments from the Federal Reserve Chairwoman signaling that the Federal Reserve could begin raising interest rates earlier than expected. New assurances from the Federal Reserve Chairwoman on the Federal Reserve’s plan to keep rates low until the job market returned to normal health and remarks from China’s premier that the Chinese government was ready to take steps to support China’s economy helped to lift stocks at the close of March.

Stocks edged higher at the start of the second quarter of 2014, which was followed by a downturn as investors reacted to March employment data in which the unemployment rate was unchanged from February and job growth was slightly below expectations. Led by advances in technology shares, the broader stock market traded higher for the first time in four sessions at the start of the first quarter earnings season. Stocks retreated heading into mid-April, with once high-flying biotechnology and Internet companies leading the decline. A strong retail sales report for March helped stocks to rebound in mid-April, with technology stocks leading the market higher. Investor confidence was also bolstered by reassurances from the Federal Reserve Chairwoman on maintaining her stance for keeping interest rates low. A rebound in technology stocks and a series of deals in the healthcare sector helped to extend gains in the broader stock market heading into late-April. The DJIA closed at a record high at the end of April, as a number of positive first quarter earnings reports helped to offset investors’ worries about tensions in Ukraine and slowing growth in China. Stocks traded unevenly during the first half of May, as investors reacted to mixed data on the economy and gravitated towards lower risk investments. On May 16, 2014, the DJIA closed at 16491.31, an

RP® Financial, LC.	VALUATION ANALYSIS
	IV.12

increase of 7.4% from one year ago and an decrease of 0.5% year-to-date, and the NASDAQ closed at 4090.59, an increase of 16.9% from one year ago and a decrease of 2.1% year-to-date. The Standard & Poor’s 500 Index closed at 1877.86 on May 16, 2014, an increase of 12.6% from one year ago and an increase of 1.6% year-to-date.

The market for thrift stocks has also experienced varied trends in recent quarters. Thrift issues stabilized at the start of the fourth quarter of 2013 and then traded lower as the budget impasse in Washington continued into a second week. A deal to raise the federal debt ceiling and re-open the U.S. Government lifted thrift stocks and the broader stock market to healthy gains in mid-October. Third quarter earnings reports and signs of merger activity picking up in the thrift sector boosted thrift shares in late-October, which was followed by a slight downturn at the end of October and into early-November as the Federal Reserve concluded its two day meeting by staying the course on quantitative easing and the benchmark interest rate. Thrift shares followed the broader stock market higher through mid-November, as the financial sector benefited from the better-than-expected employment report for October and a continuation of low interest rates. A larger-than-expected increase in a November consumer sentiment index and a decline in weekly jobless claims supported a modest gain for the thrift sector in late-November. Thrift issues generally followed trends in the broader stock market throughout December 2013, declining in early-December on the uncertain outlook for the Federal Reserve’s stimulus efforts and then rallying higher on the stronger-than-expected job growth reflected in the November employment data. After trading in a narrow range into mid-December, the rally in thrift issues resumed following the Federal Reserve’s mid-December meeting and announcement that it will begin to taper its bond buying. Thrift stocks participated in the broader stock market rally to close out 2013, with the SNL Index for all publicly-traded thrifts posting a gain of 25% for all of 2013.

Shares of thrift issues traded down at the start of 2014, as the 10-year Treasury yield approached 3.0% in early-January. Thrift stocks were also hurt by the disappointing employment report for December and then traded in a narrow range in mid-January, as investors reacted to mixed fourth quarter earnings reports coming out the banking sector at the start of the fourth quarter earnings season. Financial shares participated in the selloff experienced in the broader stock market during the second half of January and the first trading day of February. Janet Yellen’s debut congressional testimony as Federal Reserve Chairwoman helped to spark a rally in thrift stocks heading into mid-February, as she indicated that there no plans to change course from the Federal Reserve’s current monetary policies.

RP® Financial, LC.	VALUATION ANALYSIS
	IV.13

Thrift issues generally followed trends in the broader stock market in late-February and at the start of March, rallying at the end of February and then selling off at the start of March. Lessening concerns about Ukraine, financial sector merger activity and rising home prices boosted thrift shares following the March 1 selloff. The mid-March global sell-off sparked by news of a slowdown in China’s economy impacted thrift shares as well, which was followed by a rebound supported by some favorable economic data including a pick-up in industrial production. Mixed signals from the Federal Reserve regarding the end of its quantitative easing program and a decline in February pending home sales were factors that pressured thrift stocks lower in late-March. Thrift stocks traded up at the end of the first quarter, as comments by the Federal Reserve Chairwoman that the Federal Reserve would continue to support the economic recovery were well received in the broader stock market.

Consistent with the broader stock market, thrift stocks traded lower in early-April 2014 with the release of the March employment report. A disappointing first quarter earnings report posted by J.P. Morgan, along with a selloff in the broader stock market, pressured financial shares lower heading into mid-April. Led by Citigroup’s better-than-expected first quarter earnings report, financial shares participated in the broader stock market rally going in the second half of April. News that Bank of America would suspend its stock buyback program and a planned increase in its quarterly dividend pressured financial shares lower in late-April. Thrift shares traded in a narrow range during early-May and then bounced higher, as the Federal Reserve Chairwoman reiterated the Federal Reserve’s stance to keep short-term interest rates near zero for the foreseeable future. Fresh concerns over the pace of economic growth and weakness in the housing sector pressured financial shares lower in mid-May. On May 16, 2014, the SNL Index for all publicly-traded thrifts closed at 683.1, an increase of 12.4% from one year ago and a decrease of 3.3% year-to-date.

B. The New Issue Market

In addition to thrift stock market conditions in general, the new issue market for converting thrifts is also an important consideration in determining the Company’s pro forma market value. The new issue market is separate and distinct from the market for seasoned thrift stocks in that the pricing ratios for converting issues are computed on a pro forma basis, specifically: (1) the numerator and denominator are both impacted by the conversion offering amount, unlike existing stock issues in which price change affects only the numerator; and (2) the pro forma pricing ratio incorporates assumptions regarding source and use of proceeds,

RP® Financial, LC.	VALUATION ANALYSIS
	IV.14

effective tax rates, stock plan purchases, etc. which impact pro forma financials, whereas pricing for existing issues are based on reported financials. The distinction between pricing of converting and existing issues is perhaps no clearer than in the case of the price/book (“P/B”) ratio in that the P/B ratio of a converting thrift will typically result in a discount to book value whereas in the current market for existing thrifts the P/B ratio may reflect a premium to book value. Therefore, it is appropriate to also consider the market for new issues, both at the time of the conversion and in the aftermarket.

As shown in Table 4.2, one standard conversions and three second-step conversions have been completed during the past three months. The second-step conversion offerings are considered to be more relevant for Pathfinder Bancorp’s pro forma pricing. The average closing pro forma price/tangible book ratio of the three recent second-step conversion offerings equaled 78.90%. On average, the three second-step conversion offerings had price appreciation of 16.10% after their first week of trading. As of May 16, 2014, the three recent second-step conversion offerings showed an average price increase of 19.1% from their respective IPO prices.

Shown in Table 4.3 are the current pricing ratios for the two fully-converted offerings completed during the past three months and trade on NASDAQ. Both Clifton Bancorp and Investors Bancorp were second-step conversion offerings. The current average P/TB ratio of the NASDAQ traded, fully-converted recent conversions equaled 101.00%, based on closing stock prices as of May 16, 2014.

C. The Acquisition Market

Also considered in the valuation was the potential impact on Pathfinder Bancorp’s stock price of recently completed and pending acquisitions of thrift institutions operating in New York. As shown in Exhibit IV-4, there were six New York thrift acquisitions completed from the beginning of 2010 through May 16, 2014 and there is one acquisition pending for a New York savings institution. The recent acquisition activity involving regional financial institutions may imply a certain degree of acquisition speculation for the Company’s stock. To the extent that acquisition speculation may impact the Company’s offering, we have largely taken this into account in selecting companies for the Peer Group which operate in markets that have experienced some degree of acquisition activity as well and, thus, are subject to the same type of acquisition speculation that may influence Pathfinder Bancorp’s stock. However, since converting thrifts are subject to a three-year regulatory moratorium from being

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	IV.15

Table 4.2

Pricing Characteristics and After-Market Trends

Conversions Completed in the Last Three Months

Institutional Information			Pre-Conversion Data					Offering Information					Contribution to		Insider Purchases					Pro Forma Data							Post-IPO Pricing Trends
			Financial Info.			Asset Quality							Char. Found.		% Off Incl. Fdn.+Merger Shares					Pricing Ratios(2)(5)			Financial Charac.				Closing Price:
								Excluding Foundation						% of	Benefit Plans				Initial								First		After		After
	Conversion				Equity/	NPAs/	Res.	Gross		%	% of	Exp./		Public Off.		Recog.	Stk	Mgmt.&	Div.		Core		Core		Core	IPO	Trading	%	First	%	First	%	Thru	%
Institution	Date	Ticker	Assets		Assets	Assets	Cov.	Proc.		Offer	Mid.	Proc.	Form	Excl. Fdn.	ESOP	Plans	Option	Dirs.	Yield	P/TB	P/E	P/A	ROA	TE/A	ROE	Price	Day	Chge	Week(3)	Chge	Month(4)	Chge	5/16/14	Chge
			($Mil)		(%)	(%)	(%)	($Mil.)		(%)	(%)	(%)		(%)	(%)	(%)	(%)	(%)(1)	(%)	(%)	(x)	(%)	(%)	(%)	(%)	($)	($)	(%)	($)	(%)	($)	(%)	($)	(%)
Standard Conversions
Home Bancorp Wisconsin, Inc. - WI	4/24/14	HWIS-OTCBB	$	115	6.14%	1.53%	158%	$	9.0	100%	102%	14.2%	N.A	N.A.	8.0%	4.0%	10.0%	5.1%	0.00%	65.8%	NM	7.4%	-2.3%	11.3%	-20.1%	$10.00	$9.61	-3.9%	$9.26	-7.4%	$8.40	-16.0%	$8.40	-16.0%
Averages - Standard Conversions:			$	115	6.14%	1.53%	158%	$	9.0	100%	102%	14.2%	N.A.	N.A.	8.0%	4.0%	10.0%	5.1%	0.00%	65.8%	NM	7.4%	-2.3%	11.3%	-20.1%	$10.00	$9.61	-3.9%	$9.26	-7.4%	$8.40	-16.0%	$8.40	-16.0%
Medians - Standard Conversions:			$	115	6.14%	1.53%	158%	$	9.0	100%	102%	14.2%	N.A.	N.A.	8.0%	4.0%	10.0%	5.1%	0.00%	65.8%	NM	7.4%	-2.3%	11.3%	-20.1%	$10.00	$9.61	-3.9%	$9.26	-7.4%	$8.40	-16.0%	$8.40	-16.0%
Second Step Conversions
New Investors Bancorp, Inc. - NJ*	5/8/14	ISBC-NASDAQ	$	16,437	8.56%	0.95%	124%	$	2,195.8	61%	110%	2.1%	C/S	$10M/0.5%	3.0%	4.0%	10.0%	0.1%	0.78%	108.4%	31	19.4%	0.6%	18.0%	3.4%	$10.00	$10.42	4.2%	$10.40	4.0%	$10.45	4.5%	$10.45	4.5%
Sugar Creek Financial Corp. - IL*	4/9/14	SUGR-OTCBB	$	87	11.96%	2.05%	25%	$	3.7	56%	100%	24.7%	N.A.	N.A.	8.0%	4.0%	10.0%	4.8%	0.00%	52.1%	20.15	7.4%	0.4%	14.3%	2.6%	$7.00	$9.20	31.4%	$9.00	28.6%	$9.20	36.4%	$9.30	36.4%
Clifton Bancorp Inc. - NJ*	4/2/14	CSBK-NASDAQ	$	1,099	17.42%	0.41%	67%	$	170.6	64%	87%	1.7%	N.A.	N.A.	6.0%	4.0%	10.0%	0.6%	0.00%	76.4%	47.03	21.2%	0.5%	27.7%	1.6%	$10.00	$11.61	16.1%	$11.57	15.7%	$11.55	15.5%	$11.63	16.3%
Averages - Second Step Conversions:			$	5,874	12.65%	1.14%	72%	$	790.0	61%	99%	9.5%	N.A.	N.A.	5.7%	4.0%	10.0%	1.9%	0.26%	78.9%	32.7x	16.0%	0.5%	20.0%	2.5%	$9.00	$10.41	17.2%	$10.32	16.1%	$10.40	18.8%	$10.46	19.1%
Medians - Second Step Conversions:			$	1,099	11.96%	0.95%	67%	$	170.6	61%	100%	2.1%	N.A.	N.A.	6.0%	4.0%	10.0%	0.6%	0.00%	76.4%	31.0x	19.4%	0.5%	18.0%	2.6%	$10.00	$10.42	16.1%	$10.40	15.7%	$10.45	15.5%	$10.45	16.3%
Averages - All Conversions:			$	4,434	11.02%	1.24%	94%	$	594.8	70%	100%	10.7%	N.A.	N.A.	6.3%	4.0%	10.0%	2.7%	0.20%	75.6%	32.7x	13.9%	-0.2%	17.8%	-3.1%	$9.25	$10.21	12.0%	$10.06	10.2%	$9.90	10.1%	$9.95	10.3%
Medians - All Conversions:			$	607	10.26%	1.24%	96%	$	89.8	63%	101%	8.1%	N.A.	N.A.	7.0%	4.0%	10.0%	2.7%	0.00%	71.1%	31.0x	13.4%	0.4%	16.2%	2.1%	$10.00	$10.02	10.2%	$9.83	9.9%	$9.83	10.0%	$9.88	10.4%

Note: * - Appraisal performed by RP Financial; BOLD = RP Fin. Did the business plan, "NT" - Not Traded; "NA" - Not Applicable, Not Available; C/S-Cash/Stock.
(1) As a percent of MHC offering for MHC transactions.	(5) Mutual holding company pro forma data on full conversion basis.
(2) Does not take into account the adoption of SOP 93-6.	(6) Simultaneously completed acquisition of another financial institution.
(3) Latest price if offering is less than one week old.	(7) Simultaneously converted to a commercial bank charter.
(4) Latest price if offering is more than one week but less than one month old.	(8) Former credit union.	May 16, 2014

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	IV.16

Table 4.3

Market Pricing Comparatives

Prices As of May 16, 2014

		Market		Per Share Data
		Capitalization		Core	Book						Dividends(3)			Financial Characteristics(5)
		Price/	Market	12 Month	Value/	Pricing Ratios(2)					Amount/		Payout	Total	Equity/	Tang Eq/	NPAs/	Reported		Core
Financial Institution		Share	Value	EPS(1)	Share	P/E	P/B	P/A	P/TB	P/Core	Share	Yield	Ratio(4)	Assets	Assets	Assets	Assets	ROA	ROE	ROA	ROE
		($)	($Mil)	($)	($)	(x)	(%)	(%)	(%)	(x)	($)	(%)	(%)	($Mil)	(%)	(%)	(%)	(%)	(%)	(%)	(%)
All Non-MHC Public Companies		$15.85	$379.21	$0.85	$15.42	17.58x	102.78%	12.90%	110.86%	17.68x	$0.29	1.81%	55.15%	$2,715	13.21%	12.25%	2.31%	0.56%	4.39%	0.55%	4.43%
Converted Last 3 Months (no MHC)		$11.04	$2,026.24	$0.27	$11.30	30.74x	99.45%	22.47%	101.00%	32.66x	$0.23	1.46%	62.50%	$9,843	23.10%	22.88%	0.60%	0.57%	2.64%	0.54%	2.51%
Converted Last 3 Months (no MHC)
CSBK	Clifton Bancorp, Inc. of NJ	$11.63	$309.28	$0.21	$13.10	NM	88.78%	24.62%	88.78%	NM	$0.25	2.16%	NM	$1,256	27.73%	27.73%	0.41%	0.48%	1.72%	0.45%	1.62%
ISBC	Investors Bancorp Inc of NJ	$10.45	$3,743.21	$0.32	$9.49	30.74x	110.12%	20.31%	113.22%	32.66x	$0.20	0.75%	62.50%	$18,430	18.46%	18.03%	0.78%	0.66%	3.55%	0.63%	3.40%

(1)	Core income, on a diluted per-share basis. Core income is net income after taxes and before extraordinary items, less net income attributable to noncontrolling interest, gain on the sale of securities, amortization of intangibles, goodwill and nonrecurring items. Assumed tax rate is 35%.
(2)	P/E = Price to earnings; P/B = Price to book; P/A = Price to assets; P/TB = Price to tangible book value; and P/Core = Price to core earnings. P/E and P/Core = NM if the ratio is negative or above 35x.
(3)	Indicated 12 month dividend, based on last quarterly dividend declared.
(4)	Indicated 12 month dividend as a percent of trailing 12 month earnings.
(5)	ROAA (return on average assets) and ROAE (return on average equity) are indicated ratios based on trailing 12 month earnings and average equity and assets balances.
(6)	Excludes from averages and medians those companies the subject of actual or rumored acquisition activities or unusual operating characteristics.

Source: SNL Financial, LC. and RP^® Financial, LC. calculations. The information provided in this report has been obtained from sources we believe are reliable, but we cannot guarantee the accuracy or completeness of such information.

Copyright (c) 2014 by RP^® Financial, LC.

RP® Financial, LC.	VALUATION ANALYSIS
	IV.17

acquired, acquisition speculation in Pathfinder Bancorp’s stock would tend to be less compared to the stocks of the Peer Group companies.

D. Trading in Pathfinder Bancorp’s Stock

Since Pathfinder Bancorp’s minority stock currently trades under the symbol “PBHC” on the NASDAQ, RP Financial also considered the recent trading activity in the valuation analysis. Pathfinder Bancorp had a total of 2,623,182 shares issued and outstanding at March 31, 2014, of which 1,039,943 shares were held by public shareholders and traded as public securities. The Company’s stock has had a 52 week trading range of $11.76 to $16.00 per share and its closing price on May 16, 2014 was $14.90 per share. There are significant differences between the Company’s minority stock (currently being traded) and the conversion stock that will be issued by the Company. Such differences include different liquidity characteristics, a different return on equity for the conversion stock and the stock is currently traded based on speculation of a range of exchange ratios. Since the pro forma impact has not been publicly disseminated to date, it is appropriate to discount the current trading level. As the pro forma impact is made known publicly, the trading level will become more informative.

*  *  *  *  *  *  *  *  *  *  *

In determining our valuation adjustment for marketing of the issue, we considered trends in both the overall thrift market, the new issue market including the new issue market for second-step conversions, the acquisition market, and recent trading activity in the Company’s minority stock. Taking these factors and trends into account, RP Financial concluded that no adjustment was appropriate in the valuation analysis for purposes of marketing of the issue.

8. Management

The Company’s management team appears to have experience and expertise in all of the key areas of the Company’s operations. Exhibit IV-5 provides summary resumes of the Company’s Board of Directors and senior management. The financial characteristics of the Company suggest that the Board and senior management have been effective in implementing an operating strategy that can be well managed by the Company’s present organizational structure. The Company currently does not have any senior management positions that are

RP® Financial, LC.	VALUATION ANALYSIS
	IV.18

vacant. Similarly, the returns, equity positions and other operating measures of the Peer Group companies are indicative of well-managed financial institutions, which have Boards and management teams that have been effective in implementing competitive operating strategies. Therefore, on balance, we concluded no valuation adjustment relative to the Peer Group was appropriate for this factor.

9. Effect of Government Regulation and Regulatory Reform

As a fully-converted regulated institution, Pathfinder Bancorp will operate in substantially the same regulatory environment as the Peer Group members – all of whom are adequately capitalized institutions and are operating with no apparent restrictions. Exhibit IV-6 reflects the Bank’s pro forma regulatory capital ratios. On balance, no adjustment has been applied for the effect of government regulation and regulatory reform.

Summary of Adjustments

Overall, based on the factors discussed above, we concluded that the Company’s pro forma market value should reflect the following valuation adjustments relative to the Peer Group:

Key Valuation Parameters:	Valuation Adjustment
Financial Condition	Slight Downward
Profitability, Growth and Viability of Earnings	Slight Downward
Asset Growth	Slight Downward
Primary Market Area	Moderate Downward
Dividends	No Adjustment
Liquidity of the Shares	No Adjustment
Marketing of the Issue	No Adjustment
Management	No Adjustment
Effect of Govt. Regulations and Regulatory Reform	No Adjustment

Valuation Approaches

In applying the accepted valuation methodology promulgated by the FRB and the NYDFS, i.e., the pro forma market value approach, we considered the three key pricing ratios in valuing the Company’s to-be-issued stock – price/earnings (“P/E”), price/book (“P/B”), and price/assets (“P/A”) approaches – all performed on a pro forma basis including the effects of the stock proceeds. In computing the pro forma impact of the conversion and the related pricing

RP® Financial, LC.	VALUATION ANALYSIS
	IV.19

ratios, we have incorporated the valuation parameters disclosed in the Company’s prospectus for reinvestment rate, effective tax rate, stock benefit plan assumptions and expenses (summarized in Exhibits IV-7 and IV-8). In our estimate of value, we assessed the relationship of the pro forma pricing ratios relative to the Peer Group and recent conversion offerings.

RP Financial’s valuation placed an emphasis on the following:

o P/E Approach.  The P/E approach is generally the best indicator of long-term value for a stock and we have given it significant weight among the valuation approaches. Given certain similarities between the Company’s and the Peer Group’s earnings composition and overall financial condition, the P/E approach was carefully considered in this valuation. At the same time, recognizing that (1) the earnings multiples will be evaluated on a pro forma basis for the Company; and (2) the Peer Group on average has had the opportunity to realize the benefit of reinvesting and leveraging their offering proceeds, we also gave weight to the other valuation approaches.

o P/B Approach.  P/B ratios have generally served as a useful benchmark in the valuation of thrift stocks, particularly in the context of an initial public offering, as the earnings approach involves assumptions regarding the use of proceeds. RP Financial considered the P/B approach to be a valuable indicator of pro forma value, taking into account the pricing ratios under the P/E and P/A approaches. We have also modified the P/B approach to exclude the impact of intangible assets (i.e., price/tangible book value or “P/TB”), in that the investment community frequently makes this adjustment in its evaluation of this pricing approach.

o P/A Approach.  P/A ratios are generally a less reliable indicator of market value, as investors typically assign less weight to assets and attribute greater weight to book value and earnings. Furthermore, this approach as set forth in the regulatory valuation guidelines does not take into account the amount of stock purchases funded by deposit withdrawals, thus understating the pro forma P/A ratio. At the same time, the P/A ratio is an indicator of franchise value, and, in the case of highly capitalized institutions, high P/A ratios may limit the investment community’s willingness to pay market multiples for earnings or book value when ROE is expected to be low.

o Trading of PBHC stock.  Converting institutions generally do not have stock outstanding. Pathfinder Bancorp, however, has public shares outstanding due to the mutual holding company form of ownership and first-step minority stock offering. Since Pathfinder Bancorp is currently traded on the NASDAQ, it is an indicator of investor interest in the Company’s conversion stock and therefore received some weight in our valuation. Based on the May 16, 2014, stock price of $14.90 per share and the 2,623,182 shares of Pathfinder Bancorp stock outstanding, the Company’s implied market value of $39.1 million was considered in the valuation process. However, since the conversion stock will have different characteristics than the minority shares, and since pro forma information has not been publicly disseminated to date, the current trading price of Pathfinder Bancorp’s stock was somewhat discounted herein but will become more important towards the closing of the offering.

RP® Financial, LC.	VALUATION ANALYSIS
	IV.20

The Company has adopted “Employers’ Accounting for Employee Stock Ownership Plans” (“ASC 718-40”), which causes earnings per share computations to be based on shares issued and outstanding excluding unreleased ESOP shares. For purposes of preparing the pro forma pricing analyses, we have reflected all shares issued in the offering, including all ESOP shares, to capture the full dilutive impact, particularly since the ESOP shares are economically dilutive, receive dividends and can be voted. However, we did consider the impact of ASC 718-40 in the valuation.

In preparing the pro forma pricing analysis we have taken into account the pro forma impact of the MHC’s net assets (i.e., unconsolidated equity) that will be consolidated with the Company and, thus, will slightly increase equity. This pro forma adjustment also takes into account the quarterly dividend paid by the Company in the second quarter of 2014 and to be paid by the Company in the third quarter of 2014. At March 31, 2014, the MHC had estimate pro forma net assets of $346,000, which has been added to the Company’s March 31, 2014 pro forma equity to reflect the consolidation of the MHC into the Company’s operations. Exhibit IV-9 shows that after accounting for the impact of the MHC’s net assets, the public shareholders’ ownership interest was reduced by approximately 0.41%. Accordingly, for purposes of the Company’s pro forma valuation, the public shareholders’ ownership interest was reduced from 39.64% to 39.23% and the MHC’s ownership interest was increased from 60.36% to 60.77%.

Based on the application of the three valuation approaches, taking into consideration the valuation adjustments discussed above, RP Financial concluded that as of May 16, 2014, the aggregate pro forma market value of Pathfinder Bancorp’s conversion stock equaled $32,909,690 at the midpoint, equal to 3,290,969 shares at $10.00 per share. The $10.00 per share price was determined by the Pathfinder Bancorp Board. The midpoint and resulting valuation range is based on the sale of a 60.77% ownership interest to the public, which provides for a $20,000,000 public offering at the midpoint value.

1.      Price-to-Earnings (“P/E”). The application of the P/E valuation method requires calculating the Company’s pro forma market value by applying a valuation P/E multiple to the pro forma earnings base. In applying this technique, we considered both reported earnings and a recurring earnings base, that is, earnings adjusted to exclude any one-time non-operating items, plus the estimated after-tax earnings benefit of the reinvestment of the net proceeds. The Company’s reported earnings equaled $2.390 million for the twelve months ended March 31, 2014. In deriving Pathfinder Bancorp’s core earnings, the adjustments made to reported

RP® Financial, LC.	VALUATION ANALYSIS
	IV.21

earnings were to eliminate net gains on the sale and redemption of investment securities equal to $328,000 and net gains on the sale of loans and other real estate owned equal to $444,000. As shown below, assuming an effective marginal tax rate of 40.0% for the earnings adjustments, the Company’s core earnings were estimated to equal $1.927 million for the twelve months ended March 31, 2014.

	Amount
	($000)
Net income	$2,390
Deduct; Net gains on sales and redemption of investments(1)	(197)
Deduct: Net gains on sales of loans and OREO(1)	(266)
Core earnings estimate	$1,927

(1) Adjustments were tax effected at 40.0%.

Based on the Company’s reported and estimated core earnings, and incorporating the impact of the pro forma assumptions discussed previously, the Company’s pro forma reported and core P/E multiples at the $32.9 million midpoint value equaled 14.10x and 17.58x, respectively, indicating discounts of 34.66% and 16.92% relative to the Peer Group’s average reported and core earnings multiples of 21.58x and 21.16x, respectively (see Table 4.4). In comparison to the Peer Group’s median reported and core earnings multiples of 19.96x and 21.04x, respectively, the Company’s pro forma reported and core P/E multiples at the midpoint value indicated discounts of 29.36% and 16.44%, respectively. The Company’s pro forma P/E ratios based on reported earnings at the minimum and the super maximum equaled 11.95x and 18.76x, respectively, and based on core earnings at the minimum and the super maximum equaled 14.89x and 23.43x, respectively.

2.   Price-to-Book (“P/B”). The application of the P/B valuation method requires calculating the Company’s pro forma market value by applying a valuation P/B ratio, as derived from the Peer Group’s P/B ratio, to the Company’s pro forma book value. Based on the $32.9 million midpoint valuation, the Company’s pro forma P/B and P/TB ratios equaled 68.45% and 75.59%, respectively. In comparison to the average P/B and P/TB ratios for the Peer Group of 95.31% and 99.65%, the Company’s ratios reflected discounts of 28.18% on a P/B basis and 24.14% on a P/TB basis. In comparison to the Peer Group’s median P/B and P/TB ratios of 96.63% and 99.21%, respectively, the Company’s pro forma P/B and P/TB ratios at the midpoint value reflected discounts of 29.16% and 23.81%, respectively. At the super maximum of the

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	IV.22

Table 4.4

Public Market Pricing Versus Peer Group

Pathfinder Bancorp, Inc. and the Comparables

As of May 16, 2014

			Market		Per Share Data
			Capitalization		Core	Book						Dividends(3)			Financial Characteristics(5)
			Price/	Market	12 Month	Value/	Pricing Ratios(2)					Amount/		Payout	Total	Equity/	Tang. Eq./	NPAs/	Reported		Core		Exchange	Offering
			Share	Value	EPS(1)	Share	P/E	P/B	P/A	P/TB	P/Core	Share	Yield	Ratio(4)	Assets	Assets	T. Assets	Assets	ROAA	ROAE	ROAA	ROAE	Ratio	Range
			($)	($Mil)	($)	($)	(x)	(%)	(%)	(%)	(x)	($)	(%)	(%)	($Mil)	(%)	(%)	(%)	(%)	(%)	(%)	(%)	(x)	($Mil)
Pathfinder Bancorp, Inc.		NY
Super Maximum			$10.00	$43.52	$0.43	$12.41	18.76x	80.58%	7.93%	88.03%	23.43	$0.12	1.20%	28.12%	$549	12.21%	11.38%	1.76%	0.42%	4.30%	0.34%	3.44%	1.6417x	$26.45
Maximum			$10.00	$37.85	$0.49	13.43	16.26x	74.46%	6.93%	81.77%	20.29	$0.12	1.20%	24.35%	$546	11.70%	10.86%	1.77%	0.43%	4.58%	0.34%	3.67%	1.4276x	$23.00
Midpoint			$10.00	$32.91	$0.57	14.61	14.10x	68.45%	6.06%	75.59%	17.58	$0.12	1.20%	21.10%	$543	11.25%	10.41%	1.78%	0.43%	4.86%	0.34%	3.89%	1.2414x	$20.00
Minimum			$10.00	$27.97	$0.67	16.20	11.95x	61.73%	5.18%	68.63%	14.89	$0.12	1.20%	17.87%	$540	10.79%	9.95%	1.79%	0.43%	5.17%	0.35%	4.14%	1.0552x	$17.00
All Non-MHC Public Companies(6)
Averages			$15.85	$379.21	$0.85	$15.42	17.58x	102.78%	12.90%	110.85%	17.66x	$0.29	1.81%	55.15%	$2,715	13.21%	12.25%	2.31%	0.56%	4.39%	0.55%	4.43%
Median			$14.12	$103.18	$0.60	$14.31	17.00x	93.90%	12.12%	98.99%	16.24x	$0.24	1.55%	43.28%	$846	12.25%	11.27%	1.60%	0.57%	4.56%	0.81%	4.44%
All Non-MHC State of NY(6)
Averages			$11.84	$1,304.08	$0.70	$9.95	17.57x	107.94%	10.49%	129.75%	15.96x	$0.35	2.80%	55.10%	$10,545	9.84%	8.29%	1.63%	0.72%	7.10%	0.72%	6.90%
Medians			$12.58	$554.00	$0.65	$12.03	14.69x	95.96%	11.37%	134.16%	14.46x	$0.26	3.73%	55.17%	$4,280	9.89%	8.12%	1.37%	0.84%	6.62%	0.87%	7.56%
State of NY (7)
AF	Astoria Financial Corp.	NY	$12.58	$1,250.65	NA	$14.31	16.55x	87.93%	8.03%	101.09%	NM	$0.16	1.27%	21.05%	$15,700	9.89%	8.81%	2.96%	0.53%	5.72%	NA	NA
CARV	Carver Bancorp Inc.	NY	$11.66	$43.09	$0.19	$1.50	32.39x	85.46%	7.26%	83.51%	NM	$0.00	0.00%	NM	$639	7.90%	8.08%	3.61%	0.26%	2.82%	0.15%	1.68%
CMSB	CMS Bancorp Inc.	NY	$9.60	$17.88	$0.41	$11.68	18.46x	82.19%	6.72%	82.19%	23.48x	$0.00	0.00%	NM	$267	8.70%	7.84%	2.08%	0.38%	4.38%	0.31%	3.52%
DCOM	Dime Community Bancshares Inc.	NY	$15.03	$554.00	$1.20	$12.03	12.42x	124.97%	12.89%	142.98%	12.54x	$0.56	3.73%	46.28%	$4,280	10.32%	9.14%	0.75%	1.07%	10.18%	1.06%	10.08%
NYCB	New York Community Bancorp	NY	$14.82	$6,560.17	$1.07	$12.97	13.85x	114.24%	13.79%	199.24%	13.83x	$1.00	6.75%	93.46%	$47,567	12.07%	7.30%	0.49%	1.04%	8.36%	1.04%	8.38%
ONFC	Oneida Financial Corp.	NY	$12.73	$89.30	$0.88	$13.27	14.63x	95.96%	11.37%	134.16%	14.46x	$0.48	3.77%	55.17%	$785	11.86%	8.76%	0.17%	0.84%	6.62%	0.85%	6.75%
TRST	TrustCo Bank Corp NY	NY	$6.48	$613.43	$0.42	$3.93	14.69x	164.82%	13.38%	165.07%	15.46x	$0.26	4.05%	59.52%	$4,579	8.12%	8.12%	1.37%	0.93%	11.59%	0.89%	11.01%
Comparable Group
Averages			$16.41	$66.09	$0.70	$17.10	21.58x	95.31%	11.87%	99.65%	21.16x	$0.22	1.34%	83.01%	$517	12.60%	12.22%	1.30%	0.49%	3.93%	0.48%	3.85%
Medians			$15.85	$77.09	$0.45	$15.90	19.96x	96.63%	11.41%	99.21%	21.04x	$0.20	1.33%	47.10%	$523	11.77%	10.92%	1.28%	0.40%	3.54%	0.41%	3.15%
Comparable Group
ALLB	Alliance Bancorp, Inc. of Pennsylvania	PA	$15.50	$64.89	$0.33	$15.93	NM	97.29%	15.07%	97.29%	NM	$0.20	1.29%	60.61%	$426	16.49%	16.49%	2.48%	0.32%	1.80%	0.32%	1.80%
CBNK	Chicopee Bancorp, Inc.	MA	$16.86	$91.69	$0.08	$16.67	NM	101.13%	15.28%	101.13%	NM	$0.28	1.66%	300.00%	$588	15.69%	15.69%	1.23%	0.44%	2.79%	0.45%	2.88%
CMSB	CMS Bancorp, Inc.	NY	$9.60	$17.88	$0.41	$11.68	18.46x	82.19%	6.72%	82.19%	23.48x	$0.00	0.00%	NM	$263	8.66%	8.66%	2.65%	0.37%	4.29%	0.30%	3.42%
GTWN	Georgetown Bancorp, Inc.	MA	$14.90	$27.33	$0.45	$15.87	33.11x	93.90%	10.19%	93.90%	33.11x	$0.17	1.14%	36.11%	$263	11.00%	11.00%	1.20%	0.32%	2.46%	0.32%	2.46%
HBNK	Hampden Bancorp, Inc.	MA	$16.20	$91.60	$0.76	$15.19	22.82x	106.67%	12.76%	106.67%	21.33x	$0.24	1.48%	33.80%	$694	12.19%	12.19%	1.32%	0.55%	4.31%	0.54%	4.23%
ONFC	Oneida Financial Corp.	NY	$12.73	$89.30	$0.88	$13.27	14.63x	95.96%	11.37%	134.16%	14.46x	$0.48	3.77%	55.17%	$742	12.22%	8.96%	0.22%	0.86%	6.59%	0.91%	7.05%
PEOP	Peoples Federal Bancshares, Inc.	MA	$18.14	$113.68	$0.35	$16.49	NM	110.03%	19.06%	110.03%	NM	$0.20	1.10%	120.00%	$588	17.88%	17.88%	0.47%	0.37%	2.01%	0.37%	2.01%
THRD	TF Financial Corp.	PA	$30.74	$96.88	$2.22	$30.78	13.54x	99.88%	11.45%	105.08%	13.83x	$0.48	1.56%	19.38%	$836	11.35%	10.84%	1.84%	0.85%	7.40%	0.82%	7.20%
WEBK	Wellesley Bancorp, Inc.	MA	$17.76	$43.60	$0.86	$19.32	19.96x	91.92%	9.16%	91.92%	20.74x	$0.00	0.00%	NM	$459	10.20%	10.20%	1.43%	0.55%	5.09%	0.54%	4.94%
WVFC	WVS Financial Corp.	PA	$11.70	$24.08	NA	$15.79	28.54x	74.09%	7.59%	74.09%	NM	$0.16	1.37%	39.02%	$314	10.28%	10.28%	0.20%	0.29%	2.55%	0.28%	2.50%

(1)	Core income, on a diluted per-share basis. Core income is net income after taxes and before extraordinary items, less net income attributable to noncontrolling interest, gain on the sale of securities, amortization of intangibles, goodwill and nonrecurring items. Assumed tax rate is 35.0%
(2)	P/E = Price to earnings; P/B = Price to book; P/A = Price to assets; P/TB = Price to tangible book value; and P/Core = Price to core earnings. P/E and P/Core = NM if the ratio is negative or above 35x.
(3)	Indicated 12 month dividend, based on last quarterly dividend declared.
(4)	Indicated 12 month dividend as a percent of trailing 12 month earnings.
(5)	ROAA (return on average assets) and ROAE (return on average equity) are indicated ratios based on trailing 12 month earnings and average equity and assets balances.
(6)	Excludes from averages and medians those companies the subject of actual or rumored acquisition activities or unusual operating characteristics.

Source:  SNL Financial, LC. and RP Financial, LC. calculations. The information provided in this report has been obtained from sources we believe are reliable, but we cannot guarantee the accuracy or completeness of such information.

Copyright (c) 2014 by RP^® Financial, LC.

RP® Financial, LC.	VALUATION ANALYSIS
	IV.23

range, the Company’s P/B and P/TB ratios equaled 80.58% and 88.03%, respectively. In comparison to the Peer Group’s average P/B and P/TB ratios, the Company’s P/B and P/TB ratios at the super maximum of the range reflected discounts of 15.45% and 11.66%, respectively. In comparison to the Peer Group’s median P/B and P/TB ratios, the Company’s P/B and P/TB ratios at the super maximum of the range reflected discounts of 16.61% and 11.27%, respectively. RP Financial considered the discounts under the P/B approach to be reasonable, given the nature of the calculation of the P/B ratio which tends to mathematically result in a ratio discounted to book value.

3.         Price-to-Assets (“P/A”). The P/A valuation methodology determines market value by applying a valuation P/A ratio to the Company’s pro forma asset base, conservatively assuming no deposit withdrawals are made to fund stock purchases. In all likelihood there will be deposit withdrawals, which results in understating the pro forma P/A ratio which is computed herein. At the $32.9 million midpoint of the valuation range, the Company’s value equaled 6.06% of pro forma assets. Comparatively, the Peer Group companies exhibited an average P/A ratio of 11.87%, which implies a discount of 48.95% has been applied to the Company’s pro forma P/A ratio. In comparison to the Peer Group’s median P/A ratio of 11.41%, the Company’s pro forma P/A ratio at the midpoint value reflects a discount of 46.89%.

Comparison to Recent Offerings

As indicated at the beginning of this chapter, RP Financial’s analysis of recent conversion offering pricing characteristics at closing and in the aftermarket has been limited to a “technical” analysis and, thus, the pricing characteristics of recent conversion offerings cannot be a primary determinate of value. Particular focus was placed on the P/TB approach in this analysis, since the P/E multiples do not reflect the actual impact of reinvestment and the source of the stock proceeds (i.e., external funds vs. deposit withdrawals). As discussed previously, the three recently completed second-step offerings had an average forma price/tangible book ratio at closing of 78.90% (see Table 4.2). In comparison, the Company’s pro forma price/tangible book ratio at the midpoint value reflects an implied discount of 4.20%. The current average P/TB ratio of the two recent second-step conversions that trade on NASDAQ is 101.00%, based on closing stock prices as of May 16, 2014. In comparison, the Company’s P/TB ratio at the midpoint value reflects an implied discount of 25.16%.

RP® Financial, LC.	VALUATION ANALYSIS
	IV.24

Out of the three recent second-step offerings that have been completed, Clifton Bancorp’s second-step offering was viewed to be most comparable to Pathfinder Bancorp’s second-step offering. Clifton Bancorp’s pro forma price/tangible book ratio at closing equaled 76.40% (see Table 4.2). In comparison, the Company’s pro forma price/tangible book ratio at the midpoint value reflects an implied discount of 1.06%. Clifton Bancorp’s current P/TB ratio, based on closing stock prices as of May 16, 2014, equaled 88.78%. In comparison to Clifton Bancorp’s current P/TB ratio, the Company’s P/TB ratio at the midpoint value reflects an implied discount of 14.86%. Comparative pre-conversion financial data for Clifton Bancorp has been included in the Chapter III tables and show that, in comparison to Pathfinder Bancorp, Clifton Bancorp maintained a higher tangible equity-to-assets ratio (17.40% versus 7.46% for Pathfinder Bancorp), a higher return on average assets (0.59% versus 0.46% for Pathfinder Bancorp) and a lower ratio of non-performing assets as a percent of assets (0.50% versus 1.83% for Pathfinder Bancorp).

Valuation Conclusion

Based on the foregoing, it is our opinion that, as of May 16, 2014, the estimated aggregate pro forma valuation of the shares of the Company to be issued and outstanding at the end of the conversion offering – including (1) newly-issued shares representing the MHC’s current ownership interest in the Company and (2) exchange shares issued to existing public shareholders of the Company – was $32,909,690 at the midpoint, equal to 3,290,969 shares at a per share value of $10.00. The resulting range of value and pro forma shares, all based on $10.00 per share, are shown below.

The pro forma valuation calculations relative to the Peer Group are shown in Table 4.4 and are detailed in Exhibit IV-7 and Exhibit IV-8.

RP® Financial, LC.	VALUATION ANALYSIS
	IV.25

	Total Shares			Offering Shares			Exchange Shares Issued to Public Shareholders			Exchange Ratio
Shares
Maximum, as Adjusted	4,352,306			2,645,000			1,707,306			1.6417
Maximum	3,784,614			2,300,000			1,484,614			1.4276
Midpoint	3,290,969			2,000,000			1,290,969			1.2414
Minimum	2,797,324			1,700,000			1,097,324			1.0552
Distribution of Shares
Maximum, as Adjusted	100.00		%	60.77		%	39.23		%
Maximum	100.00		%	60.77		%	39.23		%
Midpoint	100.00		%	60.77		%	39.23		%
Minimum	100.00		%	60.77		%	39.23		%
Aggregate Market Value at $10 per share
Maximum, as Adjusted	$	43,523,060		$	26,450,000		$	17,073,060
Maximum	$	37,846,140		$	23,000,000		$	14,846,140
Midpoint	$	32,909,690		$	20,000,000		$	12,909,690
Minimum	$	27,973,240		$	17,000,000		$	10,973,240

Establishment of the Exchange Ratio

Conversion regulations provide that in a conversion of a mutual holding company, the minority shareholders are entitled to exchange the public shares for newly issued shares in the fully converted company. The Boards of Directors of the MHC and PBHC have independently determined the exchange ratio, which has been designed to preserve the current aggregate percentage ownership in the Company (adjusted for the dilution resulting from the consolidation of the MHC’s unconsolidated equity into the Company). The exchange ratio to be received by the existing minority shareholders of the Company will be determined at the end of the offering, based on the total number of shares sold in the second-step conversion offering and the final appraisal. Based on the valuation conclusion herein, the resulting offering value and the $10.00 per share offering price, the indicated exchange ratio at the midpoint is 1.2414 shares of the Company for every one public share held by public shareholders. Furthermore, based on the offering range of value, the indicated exchange ratio is 1.0552 at the minimum, 1.4278 at the maximum and 1.6417 at the super maximum. RP Financial expresses no opinion on the proposed exchange of newly issued Company shares for the shares held by the public shareholders or on the proposed exchange ratio.

EX-99.6

Exhibit 99.6

	RP®FINANCIAL, LC.
	Advisory | Planning | Valuation

June 10, 2014

Boards of Directors

Pathfinder Bancorp, MHC

Pathfinder Bancorp, Inc.

Pathfinder Bank

214 West First Street

Oswego, New York 13126

Re: Plan of Conversion and Reorganization

Pathfinder Bancorp, MHC

Pathfinder Bancorp, Inc.

Members of the Boards of Directors:

All capitalized terms not otherwise defined in this letter have the meanings given such terms in the Plan of Conversion and Reorganization (the “Plan”) adopted by the Boards of Directors of Pathfinder Bancorp, MHC (the “MHC”) and Pathfinder Bancorp, Inc. (the “Mid-Tier”). The Plan provides for the conversion of the MHC into the full stock form of organization. Pursuant to the Plan, the MHC will be merged into the Mid-Tier and the Mid-Tier will merge with Pathfinder Bancorp, Inc., a newly-formed Maryland corporation (the “Company”) with the Company as the resulting entity, and the MHC will no longer exist. As part of the Plan, the Company will sell shares of common stock in an offering that will represent the ownership interest in the Mid-Tier now owned by the MHC.

We understand that in accordance with the Plan, depositors will receive rights in a liquidation account maintained by the Company representing the amount of (i) the MHC’s ownership interest in the Mid-Tier’s total stockholders’ equity as of the date of the latest statement of financial condition used in the prospectus plus (ii) the value of the net assets of the MHC as of the date of the latest statement of financial condition of the MHC prior to the consummation of the conversion (excluding its ownership of the Mid-Tier). The Company shall continue to hold the liquidation account for the benefit of Eligible Account Holders and Supplemental Eligible Account Holders who continue to maintain deposits in Pathfinder Bank. The liquidation accounts are designed to provide payments to depositors of their liquidation interests in the event of liquidation of Pathfinder Bank (or the Company and Pathfinder Bank).

In the unlikely event that either Pathfinder Bank (or the Company and Pathfinder Bank) were to liquidate after the conversion, all claims of creditors, including those of depositors, would be paid first, followed by distribution to depositors as of March 31, 2013 and depositors as of the last day of the calendar quarter immediately preceding the date on which the Federal Reserve Board (“FRB”) approves the MHC’s application for conversion, of the liquidation account maintained by the Company. Also, in a complete liquidation of both entities, or of Pathfinder Bank, when the Company has insufficient assets (other than the stock of Pathfinder Bank), to fund the liquidation account distribution due to Eligible Account Holders and Supplemental Eligible Account Holders and Pathfinder Bank has positive net worth, Pathfinder Bank shall immediately make a distribution to fund the Company’s remaining obligations under the liquidation account. The Plan further provides that if the Company is completely liquidated or sold apart from a sale or liquidation of Pathfinder Bank, then the rights of Eligible Account Holders and Supplemental Eligible Account Holders in the liquidation account maintained by the Company shall be surrendered and treated as a liquidation account in Pathfinder Bank, the bank liquidation account and depositors shall have an equivalent interest in such bank liquidation account, subject to the same rights and terms as the liquidation account.

Washington Headquarters
Three Ballston Plaza	Telephone:  (703) 528-1700
1100 North Glebe Road, Suite 600	Fax No.:  (703) 528-1788
Arlington, VA  22201	Toll Free No.:  (866) 723-0594
www.rpfinancial.com	E-Mail:  mail@rpfinancial.com

RP^® Financial, LC.

Boards of Directors

June 10, 2014

Page 2

Based upon our review of the Plan and our observations that the liquidation rights become payable only upon the unlikely event of the liquidation of Pathfinder Bank (or the Company and Pathfinder Bank), that liquidation rights in the Company automatically transfer to Pathfinder Bank in the event the Company is completely liquidated or sold apart from a sale or liquidation of Pathfinder Bank, and that after two years from the date of conversion and upon written request of the FRB, the Company will transfer the liquidation account and depositors’ interest in such account to Pathfinder Bank and the liquidation account shall thereupon become the liquidation account of Pathfinder Bank no longer subject to the Company’s creditors, we are of the belief that: the benefit provided by the Pathfinder Bank liquidation account supporting the payment of the liquidation account in the event the Company lacks sufficient net assets does not have any economic value at the time of the transactions contemplated in the first and second paragraphs above. We note that we have not undertaken any independent investigation of state or federal law or the position of the Internal Revenue Service with respect to this issue.

Sincerely,

RP^® Financial, LC.

EX-99.7

Exhibit 99.7

REVOCABLE PROXY

PATHFINDER BANCORP, INC.
SPECIAL MEETING OF STOCKHOLDERS

[MEETING DATE]

The undersigned hereby appoints the Board of Directors of Pathfinder Bancorp, Inc., a federal corporation, with full powers of substitution, to act as attorneys and proxies for the undersigned to vote all shares of common stock of Pathfinder Bancorp, Inc. that the undersigned is entitled to vote at the Special Meeting of Stockholders (“Special Meeting”), to be held at [Meeting Location], at [Meeting Time], Eastern Time, on [Meeting Date]. The Board of Directors is authorized to cast all votes to which the undersigned is entitled as follows:

		FOR	AGAINST	ABSTAIN
1.	The approval of a plan of conversion and reorganization, whereby Pathfinder Bancorp, MHC and Pathfinder Bancorp, Inc., a federal corporation, will convert and reorganize from the mutual holding company structure to the stock holding company structure, as more fully described in the proxy statement/prospectus;	¨	¨	¨
2.	The approval of the adjournment of the special meeting, if necessary, to solicit additional proxies in the event that there are not sufficient votes at the time of the special meeting to approve the plan of conversion and reorganization;	¨	¨	¨
The following informational proposals.
3a.	Approval of a provision in New Pathfinder’s articles of incorporation requiring a super-majority vote of stockholders to approve certain amendments to New Pathfinder’s articles of incorporation;	¨	¨	¨
3b.	Approval of a provision in New Pathfinder’s articles of incorporation requiring a super-majority vote of stockholders to approve stockholder-proposed amendments to New Pathfinder’s bylaws;	¨	¨	¨
3c.	Approval of a provision in New Pathfinder’s articles of incorporation to limit the voting rights of shares beneficially owned in excess of 10% of New Pathfinder’s outstanding voting stock; and	¨	¨	¨

Such other business as may properly come before the meeting.

The Board of Directors recommends a vote “FOR” each of the above-listed proposals.

VOTING FOR APPROVAL OF THE PLAN OF CONVERSION AND REORGANIZATION WILL ALSO INCLUDE APPROVAL OF THE EXCHANGE RATIO, THE ARTICLES OF INCORPORATION AND BYLAWS OF NEW PATHFINDER (INCLUDING THE ANTI-TAKEOVER/LIMITATIONS ON

STOCKHOLDER RIGHTS PROVISIONS AND THE ESTABLISHMENT OF A LIQUIDATION ACCOUNT FOR THE BENEFIT OF ELIGIBLE DEPOSITORS OF PATHFINDER BANK) AND THE AMENDMENTS TO PATHFINDER BANK’S RESTATED ORGANIZATION CERTIFICATE TO PROVIDE FOR RESTRICTIONS ON THE OWNERSHIP OF 10% OR MORE OF PATHFINER BANK’s COMMON STOCK AND A LIQUIDATION ACCOUNT FOR ELIGIBLE DEPOSITORS.

THE PROVISIONS OF NEW PATHFINDER’S ARTICLES OF INCORPORATION THAT ARE SUMMARIZED AS INFORMATIONAL PROPOSALS 3a THROUGH 3c WERE APPROVED AS PART OF THE PROCESS IN WHICH THE BOARD OF DIRECTORS OF PATHFINDER BANCORP, INC. APPROVED THE PLAN OF CONVERSION AND REORGANIZATION. THESE PROPOSALS ARE INFORMATIONAL IN NATURE ONLY, BECAUSE FEDERAL REGULATIONS GOVERNING MUTUAL-TO-STOCK CONVERSIONS DO NOT PROVIDE FOR VOTES ON MATTERS OTHER THAN THE PLAN. WHILE WE ARE ASKING YOU TO VOTE WITH RESPECT TO EACH OF THE INFORMATIONAL PROPOSALS LISTED ABOVE, THE PROPOSED PROVISIONS FOR WHICH AN INFORMATIONAL VOTE IS REQUESTED WILL BECOME EFFECTIVE IF STOCKHOLDERS APPROVE THE PLAN, REGARDLESS OF WHETHER STOCKHOLDERS VOTE TO APPROVE ANY OR ALL OF THE INFORMATIONAL PROPOSALS.

THIS PROXY WILL BE VOTED AS DIRECTED, BUT IF NO INSTRUCTIONS ARE SPECIFIED FOR ONE OR MORE PROPOSALS, THIS PROXY, IF SIGNED, WILL BE VOTED FOR THE UNVOTED PROPOSALS. IF ANY OTHER BUSINESS IS PRESENTED AT THE SPECIAL MEETING, THIS PROXY WILL BE VOTED BY THE MAJORITY OF THE BOARD OF DIRECTORS. AT THE PRESENT TIME, THE BOARD OF DIRECTORS KNOWS OF NO OTHER BUSINESS TO BE PRESENTED AT THE SPECIAL MEETING.

THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS

Should the above-signed be present and elect to vote at the Special Meeting or at any adjournment thereof and after notification to the Secretary of Pathfinder Bancorp, Inc. at the Special Meeting of the stockholder’s decision to terminate this proxy, then the power of said attorneys and proxies shall be deemed terminated and of no further force and effect. This proxy may also be revoked by sending written notice to the Secretary of Pathfinder Bancorp, Inc. at the address set forth on the Notice of Special Meeting of Stockholders, or by the filing of a later-dated proxy prior to a vote being taken on a particular proposal at the Special Meeting.

The above-signed acknowledges receipt from Pathfinder Bancorp, Inc. prior to the execution of this proxy of a Notice of Special Meeting and the enclosed proxy statement/prospectus dated [prospectus date].

Dated: _________________, 2014 ¨ Check Box if You Plan to Attend the Special Meeting

PRINT NAME OF STOCKHOLDER	PRINT NAME OF STOCKHOLDER
SIGNATURE OF STOCKHOLDER	SIGNATURE OF STOCKHOLDER

Please sign exactly as your name appears on this proxy card. When signing as attorney, executor, administrator, trustee or guardian, please give your full title. If shares are held jointly, each holder should sign, but only one holder is required to sign.

Please complete, sign and date this proxy card and return it promptly

in the enclosed postage-prepaid envelope.

IMPORTANT NOTICE REGARDING THE AVAILABILITY OF PROXY MATERIALS FOR THE SPECIAL MEETING

The Notice of Special Meeting of Stockholders, Proxy Statement and Proxy Card are available at ___________________.