Pathfinder Bancorp, Inc. Announces Second Quarter Earnings and Share Repurchase Plan

Market Wire, July, 2008

Pathfinder Bancorp, Inc., the mid-tier holding company of Pathfinder Bank, (NASDAQ: PBHC) (listing: PathBcp) announced reported net income of $300,000, or $0.12 per diluted share, for the three months ended June 30, 2008 as compared to $166,000, or $0.07 per diluted share for the same period in 2007. For the six months ended June 30, 2008, the Company reported net income of $632,000, or $0.25 per share, compared to $331,000, or $0.13 per share, for the same period in 2007.

"Second quarter earnings and growth have continued on a favorable trend," according to Thomas W. Schneider, President and CEO. "Net earnings of $300,000 and $632,000 for the quarter and six months respectively, are 81% and 91% ahead of last year's income.

"The Company has recorded an impairment charge on a security of $205,000, net of taxes during the quarter. This charge is explained more fully in the following text. Exclusive of this charge, quarterly income is at record levels," Schneider continued. "Improved earnings are being driven by a 13% year-over-year rate of growth in the loan portfolio and enhanced net interest spreads from a steeper yield curve. This has resulted in revenue growth for the first six months of the year of 16%, while operating expenses have remained stable."

On July 22, 2008, the Board of Directors approved a Share Repurchase Plan of up to 5% of public shares outstanding. The repurchase program will expire in six months.

Net interest income for the quarter ended June 30, 2008, increased 25% when compared to the same period during 2007. Interest income increased $169,000, or 4%, combined with a decrease in interest expense of $354,000, or 16%. Net interest rate spread increased to 3.20% for the second quarter of 2008 from 2.74% for the same period in 2007. Average interest-earning assets increased 9% to $313.3 million for the quarter ended June 30, 2008 as compared to $286.6 million for the same quarter of 2007. The yield on interest-earning assets decreased 29 basis points to 5.80% compared to 6.09% for the same period in 2007. The increase in average earning assets is primarily attributable to a $23.1 million increase in the average balance of the loan portfolio and an $8.1 million increase in the average balance of the investment securities portfolio, offset by a decrease in the average balance of interest earning deposits of $4.5 million. Average interest-bearing liabilities increased $22.2 million and the cost of funds decreased 75 basis points to 2.60% from 3.35% for the same period in 2007. The increase in average interest-bearing liabilities resulted primarily from a $12.5 million and a $9.7 million increase in the average balance of borrowed funds and deposits, respectively.

Provision for loan losses for the quarter ended June 30, 2008 increased to $135,000 from $75,000 for the same period in 2007. The increased provision is reflective of a growing loan portfolio and one more heavily weighted to commercial term and commercial real estate, which have higher inherent risk characteristics than a consumer real estate portfolio, as well as a general weakening in economic conditions. The Company's ratio of allowance for loan losses to period end loans increased to 0.85% at June 30, 2008 as compared to 0.76% at December 31, 2007. Nonperforming loans to period end loans increased to 1.24% at June 30, 2008 from 0.71% at December 31, 2007. The increase in total non-performing loans is primarily the result of $497,000 in short-term, interest only, notes maturing during the period. These notes are currently awaiting permanent financing structures by the Company. In addition, one large commercial credit relationship, with approximately $1.1 million outstanding, is awaiting initial production orders in connection with a contract with a national distributor. Management believes the financial strength of the individual borrowers, combined with the related value of any underlying collateral, will not result in any recorded loss beyond currently established reserves.

Non-interest income, exclusive of gains and losses from the sale of securities, loans and foreclosed real estate, decreased to $653,000 for the quarter ended June 30, 2008 compared to $684,000 for the same quarter in the prior year. The decrease in non-interest income is primarily attributable to a decrease in service charges on deposit accounts and decreased loan servicing fees.

The increase in net securities losses is a result of recording an other than temporary impairment charge of $342,000 relating to the Company's holdings in the AMF Ultra Short Mortgage Fund (the "fund"). The fund's value decline is a result of both weakness in the trading market of the underlying securities and a deterioration in the credit quality of a portion of the funds underlying private label mortgage-backed security holdings. The company's ability to reduce its investment position in the fund is limited by the fund's redemption policy. In particular, the fund currently is limiting cash redemptions to $250,000 every 90 days, with any excess redemptions paid by transferring underlying assets held by the fund. The Company has received an initial $250,000 cash redemption and currently expects, subject to market conditions, to request further cash redemptions when allowed in the future. At June 30, 2008, the total carrying value of the Company's remaining investment in the fund is approximately $3,073,000.