UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C.  20549
                          _____________________________

                                    FORM 10-K

[X]ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934 For the Fiscal Year Ended December 31, 2005

                                       OR

[  ]TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d.) OF THE SECURITIES
EXCHANGE ACT OF 1934 For the transaction period from _______ to _______

                          COMMISSION FILE NUMBER: 23601
                                                  -----

                            PATHFINDER BANCORP, INC.
                            ------------------------
             (Exact Name of Registrant as Specified in its Charter)

                     FEDERAL                         16-1540137
           ------------------------------    -------------------------------
           State or Other Jurisdiction of              (I.R.S.
           Incorporation or Organization)    Employer Identification Number)

                     214 West First Street, Oswego, NY 13126
                     ---------------------------------------
               (Address of Principal Executive Office) (Zip Code)

                                 (315) 343-0057
                                 --------------
               (Registrant's Telephone Number including area code)

          Securities Registered Pursuant to Section 12(b) of the Act:
                                      None


          Securities Registered Pursuant to Section 12(g) of the Act:
                     Common Stock, par value $.01 per share
                     --------------------------------------
                                (Title of Class)

     Indicate  by  check mark if the registrant is a well-known seasoned issuer,
as defined in Rule 405 of the Securities Act.
Yes [ ] No [X].

     Indicate  by  check  mark if the registrant is not required to file reports
pursuant to Section 13 or Section 15(d) of the Act.
Yes [ ] No [X].

     Indicate  by  check  mark  whether the Registrant (1) has filed all reports
required  to  be  filed by Section 13 or 15(d) of the Securities Exchange Act of
1934  during  the  preceding  twelve months (or for such shorter period that the
Registrant  was  required to file such reports) and (2) has been subject to such
requirements for the past 90 days. Yes [X] No [ ].

     Indicate  by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best  of  Registrant's  knowledge, in definitive proxy or information statements
incorporated  by  reference  in  Part III of this Form 10-K or any amendments to
this Form 10-K. [ ]

     Indicate by check mark whether the Registrant is a large accelerated filer,
an accelerated filer, or a non-accelerated filer. See definition of "accelerated
filer  and  large  accelerated  filer" in Rule 12b-2 of the Exchange Act. (Check
one):

Large Accelerated Filer [ ] Accelerated Filer [ ] Non-Accelerated  Filer [X]

     Indicate  by  check  mark  whether  the  registrant  is a shell company (as
defined in Rule 12b-2 of the Exchange Act). Yes [ ] No [X]

     As  of  March  15,  2006  there  were 2,950,419 shares issued and 2,463,132
shares outstanding of the Registrant's Common Stock.

     The  aggregate market value of the voting and non-voting common equity held
by  non-affiliates  of  the  Registrant,  computed by reference to the last sale
price  on  March  15,  2006,  as  reported  by  the  Nasdaq  National Market was
approximately $10,602,711.

                      DOCUMENTS INCORPORATED BY REFERENCE:

(1)     Proxy  Statement for the 2005 Annual Meeting of Stockholders (Part III).

<PAGE>
                                TABLE OF CONTENTS

                             FORM 10-K ANNUAL REPORT
                               FOR THE YEAR ENDED
                                DECEMBER 31, 2005
                            PATHFINDER BANCORP, INC.
                                                                            Page
PART I
     Item 1.  Description of the Business                                      1
     Item 1A. Risk Factors                                                     9
     Item 1B. Unresolved Staff Comments                                       11
     Item 2.  Properties                                                      12
     Item 3.  Legal Proceedings                                               12
     Item 4.  Submission of Matters to a Vote of Security Holders             12

PART II
     Item 5.  Market for the Registrant's Common Equity, Related Stockholder  13
               Matters and Issuer Purchases of Equity Securities
     Item 6.  Selected Financial Data                                         14
     Item 7.  Management's Discussion and Analysis of Financial Condition and
               Results of Operations                                          15
     Item 7A.  Quantitative and Qualitative Disclosures about Market Risk     33
     Item 8.  Financial Statements and Supplementary Data                     36
     Item 9.  Changes In and Disagreements with Accountants on Accounting and
               Financial Disclosure                                           68
     Item 9A. Controls and Procedures                                         68
     Item 9B. Other Information                                               68

PART III
     Item 10. Directors and Executive Officers of the Registrant             68
     Item 11. Executive Compensation                                         69
     Item 12. Security Ownership of Certain Beneficial Owners and
               Management and Related Stockholder Matters                    69
     Item 13. Certain Relationships and Related Transactions                 69
     Item 14. Principal Accountant Fees and Services                         69

PART IV
     Item 15. Exhibits and Financial Statement Schedules                     70

<PAGE>
PART  I

ITEM  1:  BUSINESS

GENERAL

PATHFINDER  BANCORP,  INC.

Pathfinder  Bancorp,  Inc.  (the  "Company")  is  a Federally chartered mid-tier
holding  company headquartered in Oswego, New York.  The primary business of the
Company  is  its  investment  in  Pathfinder  Bank  (the  "Bank") and Pathfinder
Statutory Trust I.  The Company is majority owned by Pathfinder Bancorp, M.H.C.,
a  federally-chartered  mutual  holding  company (the "Mutual Holding Company").
At December 31, 2005, the Mutual Holding Company held 1,583,239 shares of Common
Stock  and  the  public  held  879,893  shares  of  Common  Stock (the "Minority
Shareholders").  At December 31, 2005, Pathfinder Bancorp, Inc. had total assets
of  $296.9 million, total deposits of $236.4 million and shareholders' equity of
$20.9  million.

The  Company's executive office is located at 214 West First Street, Oswego, New
York  and  the  telephone  number  at  that  address  is  (315)  343-0057.

PATHFINDER  BANK

The Bank is a New York-chartered savings bank headquartered in Oswego, New York.
The  Bank  operates  from  its  main  office as well as six full-service offices
located  in  its  market  area  consisting  of  Oswego County and the contiguous
counties.  The  Bank's  deposits  are  insured  by the Federal Deposit Insurance
Corporation  ("FDIC"). The Bank was chartered as a New York savings bank in 1859
as  Oswego  City  Savings  Bank.  The  Bank  is  a consumer-oriented institution
dedicated  to  providing mortgage loans and other traditional financial services
to  its  customers.  The Bank is committed to meeting the financial needs of its
customers in Oswego County, New York, the county in which it operates.

The  Bank  is  primarily engaged in the business of attracting deposits from the
general  public in the Bank's market area, and investing such deposits, together
with other sources of funds, in loans secured by one- to four-family residential
real  estate  and commercial real estate.  At December 31, 2005, $150.9 million,
or  80%  of  the  Bank's total loan portfolio consisted of loans secured by real
estate,  of  which  $119.1  million,  or  64%,  were  loans  secured  by one- to
four-family  residences  and  $31.8  million, or 17%, were secured by commercial
real  estate.  Additionally,  $16.3 million, or 11%, of total real estate loans,
were  secured  by  second liens on residential properties that are classified as
consumer  loans.  The  Bank  also  originates commercial and consumer loans that
totaled  $18.3  and $3.4 million, respectively, or 12%, of the Bank's total loan
portfolio.  The Bank invests a portion of its assets in securities issued by the
United States Government agencies and sponsored enterprises, state and municipal
obligations,  corporate  debt  securities,  mutual funds, and equity securities.
The  Bank  also  invests  in  mortgage-backed  securities  primarily  issued  or
guaranteed  by  United  States  Government  sponsored  enterprises.  The  Bank's
principal  sources  of  funds  are  deposits, principal and interest payments on
loans  and  borrowings from correspondent financial institutions.  The principal
source  of  income  is  interest on loans and investment securities.  The Bank's
principal  expenses are interest paid on deposits, and employee compensation and
benefits.

The  Bank's  executive  office  is located at 214 West First Street, Oswego, New
York,  and  its  telephone  number  at  that  address  is  (315)  343-0057.

Pathfinder  Bank formed a limited purpose commercial bank subsidiary, Pathfinder
Commercial Bank, in October of 2002.  Pathfinder Commercial Bank was established
to  serve  the  depository  needs  of  public  entities  in  its  market  area.

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                                     Page 1
<PAGE>

In  April  1999,  the  Bank  established  Pathfinder  REIT,  Inc.  as the Bank's
wholly-owned  real  estate  investment  trust subsidiary.  At December 31, 2005,
Pathfinder  REIT,  Inc.  held  $23.7  million  in mortgages and mortgage related
assets.  Recent  legislation  proposed  by  the New York State legislature would
eliminate the tax treatment accorded REITs.  Enactment of this legislation would
increase  the  state tax rate for the Company.  All disclosures in the Form 10-K
relating  to the Bank's loans and investments include loans and investments that
are  held  by  Pathfinder  REIT,  Inc.

The Bank also has 100% ownership in Whispering Oaks Development Corp., which was
originally  formed  to  develop  the  Whispering Oaks real estate subdivision in
Baldwinsville,  New  York.  The  Bank  gained titled to the Whispering Oaks real
estate  subdivision  through  foreclosure.  The  Whispering  Oaks  real  estate
subdivision  has  been fully developed.  The subsidiary is retained, however, in
case  the  need  to  operate  or  develop  other foreclosed real estate emerges.

MARKET  AREA  AND  COMPETITION

The  economy  in  the  Bank's  market area is manufacturing-oriented and is also
significantly dependent upon the State University of New York College at Oswego.
The  major manufacturing employers in the Bank's market area are Entergy Nuclear
Northeast,  Novelis,  Constellation,  NRG and Huhtamaki.  The Bank is the second
largest financial institution headquartered in Oswego County.  However, the Bank
encounters  competition  from  a  variety  of  sources.  The Bank's business and
operating  results are significantly affected by the general economic conditions
prevalent  in  its  market  areas.

The  Bank  encounters  strong  competition  both  in  attracting deposits and in
originating  real  estate  and  other  loans.  Its  most  direct competition for
deposits  has  historically  come  from  commercial  and  savings banks, savings
associations  and credit unions in its market area.  Competition for loans comes
from  such  financial  institutions  as well as mortgage banking companies.  The
Bank  expects  continued strong competition in the foreseeable future, including
increased  competition  from  "super-regional"  banks  entering  the  market  by
purchasing  large  commercial  banks  and savings banks.  Many such institutions
have  greater  financial and marketing resources available to them than does the
Bank.  The  Bank  competes  for  savings  deposits by offering depositors a high
level  of  personal  service  and a wide range of competitively priced financial
services.  The  Bank  competes  for  real  estate  loans  primarily  through the
interest  rates  and  loan  fees  it  charges  and  advertising,  as  well as by
originating and holding in its portfolio mortgage loans which do not necessarily
conform  to  secondary  market  underwriting  standards.

REGULATION  AND  SUPERVISION

GENERAL

The Bank is a New York-chartered stock savings bank and its deposit accounts are
insured  up  to  applicable  limits  by the FDIC through the Bank Insurance Fund
("BIF").  The  Bank  is  subject  to  extensive regulation by the New York State
Banking  Department  (the  "Department"),  as  its chartering agency, and by the
FDIC,  as  its  deposit  insurer  and  primary  federal  regulator.  The Bank is
required to file reports with, and is periodically examined by, the FDIC and the
Superintendent  of  the  Department  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  banking institutions.  The Bank is a member of the Federal Home Loan Bank
of New York ("FHLBNY") and is subject to certain regulations by the Federal Home
Loan  Bank  System.  On July 19, 2001 the Company and the Mutual Holding Company
completed  their conversion to federal charters.  Consequently, they are subject
to  regulations  of the Office of Thrift Supervision ("OTS") as savings and loan
holding  companies.  Any  change in such regulations, whether by the Department,
the  FDIC,  or  the  OTS  could  have a material adverse impact on the Bank, the
Company  or  the  Mutual  Holding  Company.

Regulatory  requirements  applicable  to  the  Bank,  the Company and the Mutual
Holding  Company  are  referred  to  below  or  elsewhere  herein.

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                                     Page 2
<PAGE>

NEW  YORK  BANK  REGULATION

The  exercise  by  an  FDIC-insured  savings  bank of the lending and investment
powers  under  the New York State Banking Law is limited by FDIC regulations and
other  federal law and regulations.  In particular, the applicable provisions of
New  York  State  Banking Law and regulations governing the investment authority
and  activities  of  an  FDIC  insured  state-chartered  savings  bank have been
substantially  limited  by the Federal Deposit Insurance Corporation Improvement
Act  of  1991  ("FDICIA")  and  the  FDIC  regulations  issued pursuant thereto.

The  Bank derives its lending, investment and other authority primarily from the
applicable  provisions  of New York State Banking Law and the regulations of the
Department,  as  limited by FDIC regulations.  Under these laws and regulations,
savings banks, including the 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.  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, which
may  be  authorized  by  the  Banking  Board.  Under  FDICIA  and  the  FDIC's
implementing  regulations,  the  Bank's  investment  and  service  corporation
activities  are limited to activities permissible for a national bank unless the
FDIC  otherwise  permits  it.

The  FDIC and the Superintendent have broad enforcement authority over the Bank.
Under  this authority, the FDIC and the Superintendent have the ability to issue
formal  or  informal  orders  to  correct violations of law or unsafe or unsound
banking  practices.

INSURANCE  OF  ACCOUNTS  AND  REGULATION  BY  THE  FDIC

The  Bank  is  a member of the BIF, which is administered by the FDIC.  Deposits
are  insured up to applicable limits by the FDIC and such insurance is backed by
the  full  faith  and  credit  of  the  U.S.  Government.

On  February  15,  2006, federal legislation to reform federal deposit insurance
was  signed  into law.  This law requires, among other things, the merger of the
Savings  Association  Insurance  Fund and the Bank Insurance Fund into a unified
insurance  deposit  fund, an increase in the amount of federal deposit insurance
coverage  from  $100,000 to $130,000 (with a cost of living adjustment to become
effective  in five years), and the reserve ratio to be modified to provide for a
range  between  1.15% and 1.50% of estimated insured deposits.  The law requires
the  FDIC  to issue implementing regulations and the changes required by the law
will  not  become effective until final regulations have been issued, which must
be  no  later  than  270  days  from  February  15,  2006.

REGULATORY  CAPITAL  REQUIREMENTS

The FDIC has adopted risk-based capital guidelines to which the Bank is subject.
The guidelines establish a systematic analytical framework that makes regulatory
capital  requirements  more  sensitive  to  differences  in  risk profiles among
banking  organizations.  The  Bank  is  required  to  maintain certain levels of
regulatory  capital in relation to regulatory risk-weighted assets. The ratio of
such regulatory capital to regulatory risk-weighted assets is referred to as the
Bank's  "risk-based  capital ratio." Risk-based capital ratios are determined by
allocating  assets  and  specified off-balance sheet items to four risk-weighted
categories ranging from 0% to 100%, with higher levels of capital being required
for  the  categories  perceived  as  representing  greater  risk.

These  guidelines divide a savings bank's capital into two tiers. The first tier
("Tier  I")  includes  common  equity, retained earnings, certain non-cumulative
perpetual preferred stock (excluding auction rate issues) and minority interests
in  equity  accounts  of  consolidated  subsidiaries,  less  goodwill  and other
intangible  assets  (except  mortgage servicing rights and purchased credit card
relationships subject to certain limitations). Supplementary ("Tier II") capital

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<PAGE>

includes,  among  other  items,  cumulative perpetual and long-term limited-life
preferred  stock,  mandatory  convertible  securities,  certain  hybrid  capital
instruments, term subordinated debt and the allowance for loan and lease losses,
subject  to  certain  limitations,  less  required deductions. Savings banks are
required  to  maintain a total risk-based capital ratio of at least 8%, of which
at  least  4%  must  be  Tier  I  capital.

In  addition,  the FDIC has established regulations prescribing a minimum Tier I
leverage  ratio  (Tier  I  capital  to adjusted total assets as specified in the
regulations).  These  regulations provide for a minimum Tier I leverage ratio of
3%  for banks that meet certain specified criteria, including that they have the
highest  examination rating and are not experiencing or anticipating significant
growth.  All  other banks are required to maintain a Tier I leverage ratio of 3%
plus  an  additional  cushion of at least 100 to 200 basis points.  The FDIC and
the  other  federal banking regulators have proposed amendments to their minimum
capital  regulations  to  provide  that the minimum leverage capital ratio for a
depository  institution that has been assigned the highest composite rating of 1
under  the  Uniform Financial Institutions Rating System will be 3% and that the
minimum  leverage  capital ratio for any other depository institution will be 4%
unless  a  higher  leverage  capital  ratio  is  warranted  by  the  particular
circumstances  or  risk  profile  of  the depository institution.  The FDIC may,
however,  set  higher leverage and risk-based capital requirements on individual
institutions  when  particular circumstances warrant. Savings banks experiencing
or  anticipating  significant  growth  are  expected to maintain capital ratios,
including  tangible  capital  positions,  well  above  the  minimum  levels.

LIMITATIONS  ON  DIVIDENDS  AND  OTHER  CAPITAL  DISTRIBUTIONS

The  FDIC  has the authority to use its enforcement powers to prohibit a savings
bank  from  paying  dividends if, in its opinion, the payment of dividends would
constitute  an  unsafe  or  unsound  practice.  Federal  law  also prohibits the
payment  of dividends by a bank that will result in the bank failing to meet its
applicable  capital  requirements  on  a  pro  forma  basis.  New  York law also
restricts  the  Bank  from  declaring  a dividend which would reduce its capital
below  (i)  the amount required to be maintained by state law and regulation, or
(ii) the amount of the Bank's liquidation account established in connection with
the  reorganization  undertook  in  1997.

PROMPT  CORRECTIVE  ACTION

The  federal  banking  agencies  have  promulgated  regulations to implement the
system  of  prompt  corrective  action  required  by  federal  law.  Under  the
regulations, a bank shall be deemed to be (i) "well capitalized" if it has total
risk-based  capital  of  10.0% or more, has a Tier I risk-based capital ratio of
6.0%  or  more,  has  a Tier I leverage capital ratio of 5.0% or more and is not
subject to any written capital order or directive; (ii) "adequately capitalized"
if  it has a total risk-based capital ratio of 8.0% or more, a Tier I risk-based
capital  ratio  of  4.0%  or more and a Tier I leverage capital ratio of 4.0% or
more  (3.0%  under  certain  circumstances)  and does not meet the definition of
"well  capitalized";  (iii)  "undercapitalized"  if  it  has  a total risk-based
capital  ratio  that is lessthan 8.0%, a Tier I risk-based capital ratio that is
less  than  4.0% or a Tier I leverage capital ratio that is less than 4.0% (3.0%
under  certain circumstances); (iv) "significantly undercapitalized" if it has a
total  risk-based  capital  ratio  that  is  less than 6.0%, a Tier I risk-based
capital  ratio that is less than 3.0% or a Tier I leverage capital ratio that is
less  than  3.0%;  and  (v)  "critically  undercapitalized" if it has a ratio of
tangible equity to total assets that is equal to or less than 2.0%.  Federal law
and  regulations also specify circumstances under which a federal banking agency
may  reclassify a well capitalized institution as adequately capitalized and may
require an adequately capitalized institution to comply with supervisory actions
as  if  it  were  in  the  next  lower  category  (except  that the FDIC may not
reclassify  a  significantly  undercapitalized  institution  as  critically
undercapitalized).

Based  on  the foregoing, the Bank currently meets the criteria to be classified
as  a  "well  capitalized"  savings  institution.

TRANSACTIONS  WITH  AFFILIATES  AND  INSIDERS

Under  current  federal  law,  transactions  between depository institutions and
their affiliates are governed by Sections 23A and 23B of the Federal Reserve Act
and  its implementing regulations. An affiliate of a savings bank is any company

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                                     Page 4
<PAGE>

or  entity  that controls, is controlled by, or is under common control with the
savings  bank, other than a subsidiary of the savings bank. In a holding company
context,  at  a  minimum,  the  parent holding company of a savings bank and any
companies  which are controlled by such parent holding company are affiliates of
the  savings bank. Generally, Section 23A limits the extent to which the savings
bank  or  its  subsidiaries  may  engage  in "covered transactions" with any one
affiliate  to  an  amount  equal to 10% of such savings bank's capital stock and
surplus  and  contains  an  aggregate  limit  on  all such transactions with all
affiliates to an amount equal to 20% of such capital stock and surplus. The term
"covered transaction" includes the making of loans or other extensions of credit
to  an  affiliate; the purchase of assets from an affiliate, the purchase of, or
an  investment  in, the securities of an affiliate; the acceptance of securities
of  an  affiliate as collateral for a loan or extension of credit to any person;
or  issuance  of  a  guarantee,  acceptance, or letter of credit on behalf of an
affiliate.  Section  23A  also  establishes specific collateral requirements for
loans  or  extensions  of  credit  to,  or guarantees, acceptances on letters of
credit  issued  on  behalf  of  an  affiliate. Section 23B requires that covered
transactions  and  a  broad  list  of  other  specified transactions be on terms
substantially  the  same,  or  no  less  favorable,  to  the savings bank or its
subsidiary  as  similar  transactions  with  nonaffiliates.

Further,  Section  22(h)  of  the  Federal  Reserve  Act  and  its  implementing
regulations  restrict  a  savings  bank  with  respect  to  loans  to directors,
executive  officers,  and  principal stockholders. Under Section 22(h), loans to
directors,  executive  officers  and  stockholders  who  control,  directly  or
indirectly,  10%  or  more  of  voting  securities of a savings bank and certain
related  interests  of  any  of the foregoing, may not exceed, together with all
other  outstanding  loans  to  such persons and affiliated entities, the savings
bank's  total  capital  and  surplus.  Section  22(h) also prohibits loans above
amounts  prescribed  by  the  appropriate  federal  banking agency to directors,
executive  officers,  and  stockholders  who  control  10%  or  more  of  voting
securities  of  a  stock  savings  bank, and their respective related interests,
unless  such loan is approved in advance by a majority of the board of directors
of  the  savings  bank.  Any  "interested"  director  may not participate in the
voting.  The  loan  amount  (which  includes all other outstanding loans to such
person)  as  to  which such prior board of director approval is required, is the
greater  of  $25,000  or  5%  of capital and surplus or any loans over $500,000.
Further,  pursuant  to Section 22(h), loans to directors, executive officers and
principal stockholders must generally be made on terms substantially the same as
offered  in  comparable  transactions  to  other  persons.  Section 22(g) of the
Federal  Reserve  Act  places  additional  limitations  on  loans  to  executive
officers.

FEDERAL  HOLDING  COMPANY  REGULATION

GENERAL.  The  Company  and the Mutual Holding Company are nondiversified mutual
savings  and  loan holding companies within the meaning of the Home Owners' Loan
Act.  The Company and the Mutual Holding Company are registered with the OTS and
are  subject  to  OTS  regulations,  examinations,  supervision  and  reporting
requirements.  As  such,  the OTS has enforcement authority over the Company and
the  Mutual  Holding  Company,  and  their non-savings institution subsidiaries.
Among  other  things,  this  authority  permits  the OTS to restrict or prohibit
activities  that  are  determined to be a serious risk to the subsidiary savings
institution.

PERMITTED ACTIVITIES.  Under OTS regulation and policy, a mutual holding company
and  a  federally  chartered  mid-tier holding company, such as the Company, may
engage  in  the  following  activities:  (i) investing in the stock of a savings
association;  (ii)  acquiring  a  mutual  association through the merger of such
association  into a savings association subsidiary of such holding company or an
interim  savings  association  subsidiary of such holding company; (iii) merging
with  or  acquiring  another  holding  company,  one  of whose subsidiaries is a
savings association; (iv) investing in a corporation, the capital stock of which
is  available  for  purchase by a savings association under federal law or under
the  law  of  any state where the subsidiary savings association or associations
share their home offices; (v) furnishing or performing management services for a
savings  association  subsidiary  of  such  company;  (vi)  holding, managing or
liquidating  assets owned or acquired from a savings subsidiary of such company;
(vii)  holding  or managing properties used or occupied by a savings association
subsidiary  of such company; (viii) acting as trustee under deeds of trust; (ix)
any  other  activity  (A)  that  the  Federal  Reserve Board, by regulation, has
determined  to  be  permissible for bank holding companies under Section 4(c) of
the  Bank  Holding  Company  Act  of  1956,  unless  the Director of the OTS, by
regulation,  prohibits  or limits any such activity for savings and loan holding
companies;  or  (B)  in  which  multiple savings and loan holding companies were
authorized (by regulation) to directly engage on March 5, 1987; (x) any activity
permissible  for  financial  holding  companies  under  Section 4(k) of the Bank

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Holding  Company  Act, including securities and insurance underwriting; and (xi)
purchasing,  holding,  or  disposing  of  stock  acquired  in  connection with a
qualified  stock issuance if the purchase of such stock by such savings and loan
holding  company  is  approved  by  the  Director.  If  a mutual holding company
acquires or merges with another holding company, the holding company acquired or
the holding company resulting from such merger or acquisition may only invest in
assets  and  engage  in  activities  listed in (i) through (xi) above, and has a
period  of  two  years  to  cease any nonconforming activities and divest of any
nonconforming  investments.

The Home Owners' Loan Act prohibits a savings and loan holding company, directly
or  indirectly,  or  through  one  or  more subsidiaries, from acquiring another
savings  association  or holding company thereof, without prior written approval
of  the  OTS.  It  also  prohibits the acquisition or retention of, with certain
exceptions, more than 5% of a nonsubsidiary savings association, a nonsubsidiary
holding  company,  or  a  nonsubsidiary company engaged in activities other than
those  permitted by the Home Owners' Loan Act; or acquiring or retaining control
of  an institution that is not federally insured.  In evaluating applications by
holding  companies  to  acquire  savings associations, the OTS must consider the
financial  and  managerial  resources,  future  prospects  of  the  company  and
association involved, the effect of the acquisition on the risk to the insurance
fund,  the  convenience  and  needs  of  the  community and competitive factors.

The  Office  of  Thrift Supervision is prohibited from approving any acquisition
that  would  result  in  a multiple savings and loan holding company controlling
savings  associations in more than one state, subject to two exceptions: (i) the
approval  of  interstate  supervisory  acquisitions  by savings and loan holding
companies, and (ii) the acquisition of a savings institution in another state if
the laws of the state of the target savings institution specifically permit such
acquisitions.  The  states  vary  in  the extent to which they permit interstate
savings  and  loan  holding  company  acquisitions.

WAIVERS  OF  DIVIDENDS  BY MUTUAL HOLDING COMPANY.  Office of Thrift Supervision
regulations require the Mutual Holding Company to notify the OTS of any proposed
waiver  of  its  receipt  of  dividends  from  the  Company

CONVERSION  OF THE MUTUAL HOLDING COMPANY TO STOCK FORM.  OTS regulations permit
the  Mutual  Holding  Company to convert from the mutual form of organization to
the  capital stock form of organization (a "Conversion Transaction").  There can
be  no  assurance  when,  if  ever, a Conversion Transaction will occur, and the
Board  of  Directors  has no current intention or plan to undertake a Conversion
Transaction.  In  a Conversion Transaction a new holding company would be formed
as  the successor to the Company (the "New Holding Company"), the Mutual Holding
Company's  corporate  existence  would  end,  and certain depositors of the Bank
would  receive  the  right to subscribe for additional shares of the New Holding
Company.  In  a  Conversion  Transaction,  each  share  of  common stock held by
stockholders  other  than  the  Mutual Holding Company ("Minority Stockholders")
would  be automatically converted into a number of shares of common stock of the
New  Holding  Company  determined  pursuant  an exchange ratio that ensures that
Minority Stockholders own the same percentage of common stock in the New Holding
Company  as  they  owned  in  the  Company  immediately  prior to the Conversion
Transaction.  Under  OTS regulations, Minority Stockholders would not be diluted
because  of  any  dividends  waived  by  the  Mutual Holding Company (and waived
dividends would not be considered in determining an appropriate exchange ratio),
in  the  event  the  Mutual  Holding  Company converts to stock form.  The total
number  of  shares  held by Minority Stockholders after a Conversion Transaction
also  would  be increased by any purchases by Minority Stockholders in the stock
offering  conducted  as  part  of  the  Conversion  Transaction.

NEW  YORK  STATE  BANK  HOLDING  COMPANY  REGULATION

In  addition  to  the  federal regulation, a holding company controlling a state
chartered savings bank organized or doing business in New York State also may be
subject  to  regulation  under  the  New York State Banking Law.  The term "bank
holding company," for the purposes of the New York State Banking Law, is defined
generally  to  include  any person, company or trust that directly or indirectly
either controls the election of a majority of the directors or owns, controls or
holds  with  power  to  vote more than 10% of the voting stock of a bank holding
company  or,  if  the  Company  is  a  banking  institution,  another  banking
institution,  or  10% or more of the voting stock of each of two or more banking

--------------------------------------------------------------------------------
                                     Page 6
<PAGE>

institutions.  In  general,  a  bank  holding  company  controlling, directly or
indirectly, only one banking institution will not be deemed to be a bank holding
company  for  the  purposes of the New York State Banking Law.  As such, neither
the  Company  nor  the  Mutual  Holding Company is subject to supervision by the
Department.

FEDERAL  SECURITIES  LAW

The  common  stock  of the Company is registered with the SEC under the Exchange
Act.  The  Company  is  subject  to the information, proxy solicitation, insider
trading  restrictions  and other requirements of the SEC under the Exchange Act.

The Company Common Stock held by persons who are affiliates (generally officers,
directors  and  principal stockholders) of the Company may not be resold without
registration  or unless sold in accordance with certain resale restrictions.  If
the  Company  meets  specified  current  public  information  requirements, each
affiliate  of  the  Company  is  able  to  sell  in  the  public market, without
registration,  a  limited  number  of  shares  in  any  three-month  period.

FEDERAL  RESERVE  SYSTEM

The  Federal  Reserve  Board  requires  all  depository institutions to maintain
noninterest-bearing  reserves  at  specified  levels  against  their transaction
accounts  (primarily  checking, money management and NOW checking accounts).  At
December  31,  2005, the Bank was in compliance with these reserve requirements.

FEDERAL  COMMUNITY  REINVESTMENT  REGULATION

Under  the Community Reinvestment Act, as amended (the "CRA"), as implemented by
FDIC  regulations,  a  savings 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,  consistent  with  the CRA.  The CRA requires the FDIC, in connection
with  its  examination  of  a  savings  institution, 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.  The CRA
requires  the  FDIC  to  provide  a  written  evaluation of an institution's CRA
performance  utilizing  a  four-tiered  descriptive  rating  system.  The Bank's
latest  CRA  rating  was  "outstanding."

NEW  YORK  STATE  COMMUNITY  REINVESTMENT  REGULATION

The  Bank  is also subject to provisions of the New York State Banking Law which
impose  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 CRA.  Pursuant
to  the NYCRA, a bank must file an annual NYCRA report and copies of all federal
CRA  reports  with  the Department.  The NYCRA requires the Department 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.

The Bank's NYCRA rating as of its latest examination was "satisfactory."

THE  USA  PATRIOT  ACT

The  USA  PATRIOT  Act was signed into law on October 26, 2001.  The USA PATRIOT
Act gives the federal government new powers to address terrorist threats through

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                                     Page 7
<PAGE>

enhanced  domestic  security  measures,  expanded surveillance powers, increased
information  sharing  and broadened anti-money laundering requirements.  The USA
PATRIOT  Act  also  requires  the  federal  banking  agencies  to  take  into
consideration  the effectiveness of controls designed to combat money laundering
activities  in  determining  whether  to  approve  a merger or other acquisition
application of a member institution.  Accordingly, if the Company were to engage
in  a  merger  or  other  acquisitions,  its  controls  designed to combat money
laundering  would be considered as part of the application process.  The Company
and  the  Bank  have  established  policies,  procedures and systems designed to
comply  with  these  regulations.

SARBANES-OXLEY  ACT  OF  2002

The  Sarbanes-Oxley  Act  of  2002  was  signed  into law on July 30, 2002.  The
Sarbanes-Oxley  Act  of  2002  is  a  law  that  addresses,  among other issues,
corporate  governance,  auditing  and  accounting,  executive  compensation, and
enhanced and timely disclosure of corporate information.  As directed by Section
302(a)  of  Sarbanes-Oxley Act of 2002, the Company Chief Executive Officers and
Chief  Financial  Officer  are  each  required  to  certify  that  the company's
quarterly  and  annual reports do not contain any untrue statement of a material
fact.  The  rules  have  several  requirements,  including having these officers
certify  that:  they are responsible for establishing, maintaining and regularly
evaluating  the  effectiveness  of our internal controls; they have made certain
disclosures  to  our  auditors and the audit committee of the Board of Directors
about our internal controls; and they have included information in our quarterly
and  annual  reports  about  their  evaluation  and  whether  there  have  been
significant  changes  in  our  internal  controls or in other factors that could
significantly affect internal controls subsequent to the evaluation.  We will be
subject  to  further  reporting  and  audit  requirements  with  the year ending
December  31,  2007  under the requirements of Sarbanes-Oxley.  We have existing
policies,  procedures and systems designed to comply with these regulations, and
are  further  enhancing and documenting such policies, procedures and systems to
ensure  continued  compliance  with  these  regulations.

The  company  maintains an Internet website located at WWW.PATHFINDERBANK.COM on
which,  among other things, the Company makes available, free of charge, various
reports  that  it  files  with  or  furnishes  to  the  Securities  and Exchange
Commission,  including its Annual Report on Form 10-K, quarterly reports on Form
10-Q,  and  current reports on Form 8-K.  The Company has also made available on
its  website  its  Audit  Committee  Charter,  Governance Guidelines and Code of
Ethics.  These  reports  are  made  available  as soon as reasonably practicable
after  these  reports are filed with or furnished to the Securities and Exchange
Commission.

FEDERAL  AND  STATE  TAXATION

FEDERAL  TAXATION

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  the  Company  or  the  Bank.

BAD DEBT RESERVES.  Prior to the 1996 Act, the 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 the
Bank's taxable income.  As a result of the 1996 Act, the Bank must use the small
bank  experience  method  in computing its bad debt deduction beginning with its
1996  Federal  tax  return.

TAXABLE  DISTRIBUTIONS  AND RECAPTURE.  Prior to the 1996 Act, bad debt reserves
created  prior  to January 1, 1988 were subject to recapture into taxable income
should  the  Bank  fail to meet certain thrift asset and definitionaltests.  New
federal  legislation  eliminated these thrift related recapture rules.  However,
under current law, pre-1988 reserves remain subject to recapture should the Bank
cease  to  retain  a  bank  or  thrift  charter  or  make  certain  non-dividend
distributions.

MINIMUM  TAX.   The  Internal  Revenue  Code  imposes an alternative minimum tax
("AMT")  at  a  rate of 20% on a base of regular taxable income plus certain tax
preferences  ("alternative  minimum  taxable  income"  or  "AMTI").  The  AMT is

--------------------------------------------------------------------------------
                                     Page 8
<PAGE>

payable  to  the  extent  such  AMTI  is  in excess of an exemption amount.  Net
operating  losses  can  offset  no  more  than 90% of AMTI.  Certain payments of
alternative  minimum  tax may be used as credits against regular tax liabilities
in  future  years.

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.  This  provision  applies  to losses incurred in
taxable  years  beginning  after  August  5,  1997.

The  Internal Revenue Service has examined the federal income tax return for the
fiscal  year ended 1992; the New York State fiscal year-end tax returns for 1998
through 1999 are currently under examination by the New York State Department of
Taxation  and  Finance.  See  Note  13  to  the  Financial  Statements.

STATE  TAXATION

NEW  YORK  TAXATION.  The Bank is subject to the New York State Franchise Tax on
Banking Corporations in an annual amount equal to the greater of (i) 8.0% of the
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 the Bank's assets allocable
to  New York State with certain modifications, (b) 3% of the Bank's "alternative
entire  net income" allocable to New York State, or (c) $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.

The  Company's  Annual  Report  on  Form  10-K  may be accessed on the Company's
website  at  WWW.PATHFINDERBANK.COM.

ITEM 1A: RISK FACTORS

The material risks and uncertainties that management believes affect the Company
are  described  below.  The  risks and uncertainties described below are not the
only ones facing the Company. Additional risks and uncertainties that management
is  not  aware  of or that management currently deems immaterial may also impair
the  Company's  business operations. This report is qualified in its entirety by
these  risk factors. If any of the following risks actually occur, the Company's
financial  condition and results of operations could be materially and adversely
affected.

CHANGES  IN  INTEREST  RATES  CAN  HAVE  AN  ADVERSE  EFFECT  ON  PROFITABILITY

The  Company's  earnings  and  cash  flows  are  largely  dependent upon its net
interest  income.  Net interest income is the difference between interest income
earned  on  interest  earning assets such as loans and investment securities and
interest  expense  paid  on  interest  bearing  liabilities such as deposits and
borrowed  funds.  Interest  rates  are highly sensitive to many factors that are
beyond  the  Company's  control,  including  general  economic  conditions,
competition,  and  policies of various governmental and regulatory agencies and,
in  particular, the Board of Governors of the Federal Reserve System. Changes in
monetary  policy,  including changes in interest rates, could influence not only
the  interest  the  Company  receives on loans and investment securities and the
amount  of  interest  it pays on deposits and borrowings, but such changes could
also  affect  (i)  the Company's ability to originate loans and obtain deposits,
(ii) the fair value of the Company's financial assets and liabilities, and (iii)
the  average  duration  of the Company's assets and liabilities. If the interest
rates  paid  on deposits and other borrowings increase at a faster rate than the
interest  rates  received  on  loans  and  other  investments, the Company's net
interest  income,  and therefore earnings, could be adversely affected. Earnings
could  also  be  adversely  affected if the interest rates received on loans and
other investments fall more quickly than the interest rates paid on deposits and
other  borrowings.

     Although  management  believes  it  has  implemented  effective  asset  and
liability  management  strategies  to reduce the potential effects of changes in
interest  rates  on  the  Company's  results  of  operations,  any  substantial,

--------------------------------------------------------------------------------
                                     Page 9
<PAGE>

unexpected,  prolonged  change  in  market  interest rates could have a material
adverse  effect  on the Company's financial condition and results of operations.
See  Item  7A,  "Quantitative  and  Qualitative  Disclosures  About Market Risk"
located elsewhere in this report for further discussion related to the Company's
management  of  interest  rate  risk.

ALLOWANCE FOR LOAN LOSSES MAY BE INSUFFICIENT

The  Company's loan customers may not repay their loans according to their terms
and  the  collateral  securing the payment of these loans may be insufficient to
assure  repayment.  The  Company  may  experience significant loan losses, which
would  have  a  material  adverse  effect  on earnings. Management makes various
assumptions  and  judgments  about  the  collectibility  of  the loan portfolio,
including the creditworthiness of borrowers and the value of the real estate and
other  assets  serving  as  collateral  for  the  repayment  of  loans.

The  Company  maintains  an allowance for loan losses in an attempt to cover any
loan losses inherent in the portfolio. In determining the size of the allowance,
management  relies on an analysis of the loan portfolio based on historical loss
experience,  volume  and  types  of  loans, trends in classification, volume and
trends in delinquencies and non-accruals, national and local economic conditions
and  other  pertinent  information.  If  those  assumptions  are  incorrect, the
allowance  may not be sufficient to cover future loan losses and adjustments may
be  necessary to allow for different economic conditions or adverse developments
in  the  loan  portfolio.  In addition, regulatory agencies review the Company's
allowance  for  loan  losses and may require additions to the allowance based on
their  judgment  about  information  available  to  them  at  the  time of their
examination. An increase in the Company's allowance for loan losses could reduce
its  earnings.

EXTENSIVE REGULATION AND SUPERVISION

The  Company,  primarily  through its principal subsidiaries Pathfinder Bank and
Pathfinder  Commercial  Bank  and  certain  non-bank subsidiaries, is subject to
extensive  federal and state regulation and supervision. Banking regulations are
primarily intended to protect depositors' funds, federal deposit insurance funds
and  the  banking  system as a whole, not shareholders. These regulations affect
the  Company's  lending  practices,  capital  structure,  investment  practices,
dividend policy and growth, among other things. The Company is also subject to a
number of federal laws, which, among other things, require it to lend to various
sectors  of the economy and population, and establish and maintain comprehensive
programs relating to anti-money laundering and customer identification. Congress
and federal regulatory agencies continually review banking laws, regulations and
policies  for  possible  changes. Changes to statutes, regulations or regulatory
policies,  including  changes  in  interpretation or implementation of statutes,
regulations  or  policies,  could  affect  the  Company  in  substantial  and
unpredictable  ways. Such changes could subject the Company to additional costs,
limit  the types of financial services and products it may offer and/or increase
the  ability  of  non-banks  to offer competing financial services and products,
among  other  things. Failure to comply with laws, regulations or policies could
result  in  sanctions  by  regulatory  agencies,  civil  money  penalties and/or
reputation  damage,  which could have a material adverse effect on the Company's
business,  financial  condition  and  results  of  operations.  The  Company's
compliance  with  certain of these laws will be considered by banking regulators
when  reviewing  bank  merger  and  bank holding company acquisitions. While the
Company  has  policies  and  procedures designed to prevent any such violations,
there  can  be  no  assurance  that  such  violations  will  not  occur. See the
"Regulation  and  Supervision"  section  in  Item  1,  "Business" and Note 17 to
consolidated  financial statements included in Item 8, "Financial Statements and
Supplementary  Data",  which  are  located  elsewhere  in  this  report.

LOCAL MARKET ECONOMIES

The  Company's business is concentrated in Oswego and parts of Onondaga counties
of  New  York  State.  The  economy  in  the  Company's  market  area  is
manufacturing-oriented and dependent on the State University of New York College
at Oswego.  As a result, its financial condition, results of operations and cash
flows  are subject to changes if there are changes in the economic conditions in
these  areas. A prolonged period of economic recession or other adverse economic
conditions  in  one  or  both of these areas could have a negative impact on the
Company. The Company can provide no assurance that conditions in its market area
economies  will  not deteriorate in the future and that such deterioration would
not  have  a  material  adverse  effect  on  the  Company.

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                                   Page 10
<PAGE>

COMPETITION  IN  THE  FINANCIAL  SERVICES  INDUSTRY

The  Company faces substantial competition in all areas of its operations from a
variety  of  different  competitors,  many of which are larger and may have more
financial  resources.  The  Company  competes  with other providers of financial
services  such  as  other  bank holding companies, commercial and savings banks,
savings  and  loan  associations,  credit unions, money market and mutual funds,
mortgage  companies,  title  agencies, asset managers, insurance companies and a
growing  list  of  other  local,  regional and national institutions which offer
financial  services.  If  the  Company is unable to compete effectively, it will
lose market share and income generated from loans, deposits, and other financial
products  will  decline.

ITEM 1B:  UNRESOLVED STAFF COMMENTS

None

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                                   Page 11
<PAGE>

ITEM 2: PROPERTIES

The  Bank  conducts  its business through its main office located in Oswego, New
York,  and  six  full  service  branch  offices  located  in Oswego County.  The
following  table  sets  forth certain information concerning the main office and
each  branch  office  of  the Bank at December 31, 2005.  The aggregate net book
value  of  the  Bank's  premises  and equipment was $8.0 million at December 31,
2005.  For additional information regarding the Bank's properties, see Note 7 to
Notes  to  Financial  Statements

<TABLE>
<CAPTION>
<S>                              <C>           <C>
LOCATION                         OPENING DATE  OWNED/LEASED
--------------------------------------------------------------------------------
Main Office                              1874  Owned
214 West First Street
Oswego, New York  13126

Plaza Branch                             1989  Owned (1)
Route 104, Ames Plaza
Oswego, New York  13126

Mexico Branch                            1978  Owned
Norman & Main Streets
Mexico, New York  13114

Oswego East Branch                       1994  Owned
34 East Bridge Street
Oswego, New York  13126

Lacona Branch                            2002  Owned
1897 Harwood Drive
Lacona, New York 13083

Fulton Branch                            2003  Owned (2)
5 West First Street South
Fulton, New York  13069

Central Square Branch                    2005  Owned
3025 East Ave
Central Square, New York  13036
</TABLE>
--------------------------------------------------------------------------------

(1)  The  building  is  owned;  the  underlying  land  is  leased with an annual
     rent  of  $19,000
(2)  The building is owned; the underlying land is leased
     with an annual rent of $23,000

ITEM  3:  LEGAL  PROCEEDINGS

There  are  various  claims  and  lawsuits  to which the Company is periodically
involved  incident to the Company's business.  In the opinion of management such
claims and lawsuits in the aggregate are not expected to have a material adverse
impact  on  the  Company's  consolidated  financial  condition  and  results  of
operations.

ITEM  4:  SUBMISSION  OF  MATTERS  TO  A  VOTE  OF  SECURITY  HOLDERS

No matters were submitted during the fourth quarter of fiscal 2005 to a vote of
the Company's shareholders.
--------------------------------------------------------------------------------
                                   Page 12
<PAGE>

PART II

ITEM  5:  MARKET  FOR REGISTRANT'S COMMON STOCK, RELATED SECURITY HOLDER MATTERS
AND  ISSUER  PURCHASES  OF  EQUITY  SECURITIES

Pathfinder  Bancorp, Inc.'s common stock currently trades on the Nasdaq SmallCap
market  under  the  symbol  "PBHC".  There were 415 shareholders of record as of
March  3,  2006.  The  following  table  sets forth the high and low closing bid
prices  and  dividends paid per share of common stock for the periods indicated:

<TABLE>
<CAPTION>

<S>                 <C>      <C>      <C>
                                       DIVIDEND
QUARTER ENDED:        HIGH     LOW         PAID
-----------------------------------------------
December 31, 2005   $15.050  $12.360  $  0.1025
September 30, 2005   15.250   13.050     0.1025
June 30, 2005        18.000   14.250     0.1025
March 31, 2005       17.950   16.250     0.1025
-----------------------------------------------
December 31, 2004   $18.500  $16.250  $  0.1025
September 30, 2004   16.630   14.770     0.1025
June 30, 2004        19.070   15.050      0.100
March 31, 2004       20.999   17.010      0.100
-----------------------------------------------
</TABLE>

DIVIDENDS AND DIVIDEND HISTORY

The Company has historically paid regular quarterly cash dividends on its common
stock,  and  the Board of Directors presently intends to continue the payment of
regular  quarterly  cash dividends, subject to the need for those funds for debt
service and other purposes.  Payment of dividends on the common stock is subject
to  determination and declaration by the Board of Directors and will depend upon
a  number  of factors, including capital requirements, regulatory limitations on
the  payment  of  dividends,  Pathfinder  Bank  and  its subsidiaries results of
operations  and  financial  condition,  tax considerations, and general economic
conditions.  The  Company's  mutual holding company, Pathfinder Bancorp, M.H.C.,
may  elect  to  waive  or  receive  dividends  each  time the Company declares a
dividend.  The  election  to  waive  the  dividend  receipt  requires  prior
non-objection  of  the Office of Thrift Supervision.  Pathfinder Bancorp, M.H.C.
elected  to  waive  its  dividend  for  the  quarters  ended  March 31, 2005 and
September  30,  2005.  During  2006, Pathfinder Bancorp, M.H.C. expects to waive
two  quarterly  dividends.

--------------------------------------------------------------------------------
                                   Page 13
<PAGE>

ITEM  6:  SELECTED  FINANCIAL  DATA

Pathfinder  Bancorp,  Inc.  ("the  Company") is the parent company of Pathfinder
Bank  and  Pathfinder  Statutory  Trust  I.  Pathfinder Bank has three operating
subsidiaries  - Pathfinder Commercial Bank, Pathfinder REIT Inc., and Whispering
Oaks Development, Inc.

The  following selected consolidated financial data sets forth certain financial
highlights  of  the  Company  and  should  be  read  in  conjunction  with  the
consolidated  financial  statements  and  related  notes,  and the "Management's
Discussion  and  Analysis  of  Financial  Condition  and  Results of Operations"
included  elsewhere  in  this  annual  report  on  Form  10-K.

<TABLE>
<CAPTION>
<S>                                             <C>        <C>        <C>        <C>        <C>
                                                    2005       2004       2003       2002       2001
-----------------------------------------------------------------------------------------------------
YEAR END (In thousands)
Total assets                                    $296,948   $302,037   $277,940   $279,056   $244,514
Loans receivable, net                            187,889    185,125    187,002    179,001    162,588
Deposits                                         236,377    236,672    206,894    204,522    169,589
Equity                                            20,928     21,826     21,785     23,230     22,185
FOR THE YEAR (In thousands)
Net interest income                             $  8,742   $  8,905   $  9,337   $  8,789   $  7,853
Noninterest income                                 2,040      3,047      2,608      2,094      1,864
Core noninterest income (a)                        2,333      1,996      1,740      1,511      1,355
Noninterest expense                               10,060      9,307      9,094      7,964      6,863
Net income                                           462      1,405      1,652      1,156      1,602
PER SHARE
Net income (basic)                              $   0.19   $   0.58   $   0.68   $   0.45   $   0.62
Book value                                          8.50       8.91       8.96       8.90       8.64
Tangible book value (b)                             6.77       7.04       7.03       7.02       7.63
Cash dividends declared                            0.410      0.405       0.40       0.30       0.26
RATIOS
Return on average assets                            0.15%      0.47%      0.59%      0.45%      0.68%
Return on average equity                            2.16       6.45       7.61       5.01       7.34
Return on average tangible equity (b)               2.72       8.17       9.77       7.03       8.29
Average equity to average assets                    6.95       7.29       7.77       8.94       9.22
Dividend payout ratio (c)                         147.84      47.54      39.41      36.76      28.37
Allowance for loan losses to loans receivable       0.89       0.98       0.91       0.82       1.03
Net interest rate spread                            3.07       3.22       3.53       3.47       3.35
Noninterest income to average assets                0.66       1.02       0.93       0.81       0.79
Core noninterest income to average assets (a)       0.76       0.67       0.62       0.59       0.57
Noninterest expense to average assets               3.28       3.12       3.26       3.09       2.90
Efficiency ratio (d)                               93.30      77.87      76.13      73.18      70.61
</TABLE>

     (a)  Core  noninterest  income  excludes  net  (losses)  gains on sales and
          impairment of investment securities and net (losses) gains on sales of
          loans and foreclosed real estate.

     (b)  Tangible equity excludes intangible assets.

     (c)  The  dividend  payout  ratio  is  calculated  using dividends declared
          and  not  waived  by  the  Company's  mutual  holding  company parent,
          Pathfinder Bancorp, M.H.C., divided by net income.

     (d)  The  efficiency  ratio  is  calculated  as noninterest expense divided
          by the sum of net interest income and noninterest income.

--------------------------------------------------------------------------------
                                   Page 14
<PAGE>

ITEM  7: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF  OPERATIONS

INTRODUCTION

Throughout  the  Management's  Discussion  and  Analysis ("MD&A") the term, "the
Company",  refers  to  the  consolidated  entity  of  Pathfinder  Bancorp,  Inc.
Pathfinder  Bank  and Pathfinder Statutory Trust I are wholly owned subsidiaries
of  Pathfinder  Bancorp,  Inc.,  however,  Pathfinder  Statutory  Trust  I  is
deconsolidated  for  reporting  purposes  (see  Note 10).  Pathfinder Commercial
Bank,  Pathfinder  REIT,  Inc.  and  Whispering Oaks Development, Inc. represent
wholly  owned subsidiaries of Pathfinder Bank.  At December 31, 2005, Pathfinder
Bancorp,  M.H.C,  the  Company's mutual holding company parent, whose activities
are  not  included  in  the MD&A, held 64.3% of the Company's outstanding common
stock  and  the  public  held  35.7%.

When  used in this Annual Report the words or phrases "will likely result", "are
expected  to",  "will  continue",  "is  anticipated",  "estimate",  "project" or
similar  expression are intended to identify "forward-looking statements" within
the  meaning  of  the  Private  Securities  Litigation Reform Act of 1995.  Such
statements  are  subject  to  certain  risks and uncertainties, including, among
other  things,  changes  in  economic  conditions  in the Company's market area,
changes  in  policies  by  regulatory  agencies, fluctuations in interest rates,
demand for loans in the Company's market areas and competition, that could cause
actual results to differ materially from historical earnings and those presently
anticipated  or  projected.  The  Company wishes to caution readers not to place
undue  reliance  on  any such forward-looking statements, which speak only as of
the  date  made.  The  Company  wishes to advise readers that the factors listed
above  could  affect  the  Company's  financial  performance and could cause the
Company's  actual  results  for  future  periods  to  differ materially from any
opinions  or  statements expressed with respect to future periods in any current
statements.

The  Company  does  not  undertake, and specifically declines any obligation, to
publicly  release  the  results  of  any  revisions,  which  may  be made to any
forward-looking  statements to reflect events or circumstances after the date of
such  statements  or  to  reflect the occurrence of anticipated or unanticipated
events.

The  Company's business strategy is to operate as a well-capitalized, profitable
and  independent  community bank dedicated to providing value-added products and
services  to our customers.  Generally, the Company has sought to implement this
strategy  by  emphasizing  retail  deposits  as  its primary source of funds and
maintaining  a  substantial part of its assets in locally-originated residential
first  mortgage  loans,  loans to business enterprises operating in its markets,
and  in  investment  securities.  Specifically,  the Company's business strategy
incorporates  the  following  elements:  (i)  operating  as  an  independent
community-oriented  financial institution; (ii) maintaining capital in excess of
regulatory  requirements;  (iii)  emphasizing  investment  in one-to-four family
residential mortgage loans, loans to small businesses and investment securities;
and  (iv)  maintaining  a  strong  retail  deposit  base.

The  Company's  net  income  is  primarily dependent on its net interest income,
which  is  the  difference  between interest income earned on its investments in
mortgage  and  other loans, investment securities and other assets, and its cost
of  funds  consisting  of  interest  paid on deposits and other borrowings.  The
Company's  net income also is affected by its provision for loan losses, as well
as  by  the  amount  of  noninterest income, including income from fees, service
charges and servicing rights, net gains and losses on sales of securities, loans
and  foreclosed  real  estate,  and  noninterest  expense  such  as  employee
compensation  and benefits, occupancy and equipment costs, data processing costs
and  income  taxes.  Earnings  of the Company also are affected significantly by
general  economic  and  competitive  conditions,  particularly changes in market
interest rates, government policies and actions of regulatory authorities, which
events  are beyond the control of the Company.  In particular, the general level
of  market  rates  tends  to  be  highly  cyclical.

--------------------------------------------------------------------------------
                                   Page 15
<PAGE>

APPLICATION  OF  CRITICAL  ACCOUNTING  POLICIES

The  Company's 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 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 followed by the Company 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 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 determination of the allowance for loan losses to
be  the accounting area that requires the most subjective and complex judgments,
and  as  such  could  be the most subject to revision as new information becomes
available.

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  and 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.  The  loan portfolio also represents the largest asset type
on  the  consolidated  balance  sheet.  Note  1  to  the  consolidated financial
statements  describes  the  methodology used to determine the allowance for loan
losses,  and  a  discussion  of the factors driving changes in the amount of the
allowance  for  loan  losses  is  included  in  this  report.

The  Company  carries  all  of  its  security investments at fair value with any
unrealized gains or losses reported net of tax as an adjustment to shareholders'
equity.  Based on management's assessment, at December 31, 2005, the Company did
not  hold  any security that had a fair value decline that is currently expected
to be other than temporary.  Consequently, any declines in a specific security's
fair  value  below  amortized  cost  have  not  been  provided for in the income
statement.  The  Company's  ability to fully realize the value of its investment
in  various securities, including corporate debt securities, is dependent on the
underlying  creditworthiness  of  the  issuing  organization.

EXECUTIVE  SUMMARY

During  2005,  the  Company  focused  on  expanding its branch network in Oswego
County  by  opening a full service branch in Central Square, New York in June of
2005.  Total deposits for the new branch at December 31, 2005 were $6.3 million.
Total  deposits for the Company remained relatively consistent at $236.4 million
at  December  31,  2005  while  the  average  balance of deposits increased $8.1
million  to  $220.5  million  at  2005.  The  Company  will continue to focus on
building  its  market  share  in Central Square and developing more core deposit
relationships  in  its  existing  markets  during  2006.

Total  assets decreased 2%, primarily in the investment securities portfolio and
interest-earning deposits.  The loan portfolio increased 1% as net growth in the
commercial  real  estate, commercial and consumer loan portfolios were partially
offset  by  a  decrease in the residential real estate portfolio.  Asset quality

--------------------------------------------------------------------------------
                                   Page 16
<PAGE>

continued  to  improve  during  2006.  Nonperforming  assets to total assets was
0.81% at December 31, 2005 compared to 0.88% in the prior year.  The improvement
in asset quality is attributable to the enhancement of collection procedures and
the  resolution  through  foreclosure  and  charge-off of two commercial lending
relationships.  The  Company  expects  to  concentrate  on  continued commercial
mortgage  and  commercial  loan  growth  during  2006.

Net  income  for  2005  was  $462,000,  or  $0.19 per share, as compared to $1.4
million,  or  $0.58  per  share,  in  2004.  Net interest margin compression; an
impairment  charge  and  strategic  losses  taken  in  the investment securities
portfolio;  the  additional  costs  of  operating  a  new  branch; and personnel
restructuring  charges impacted earnings negatively during 2005.  An improvement
in  asset  quality  and  an  increase  in  service  charges  on deposit accounts
partially  offset  these  charges  to  income.

The  Company  experienced  net interest margin compression to 3.21% in 2005 from
3.35%  in  2004.  Net  interest income decreased 2% to $8.7 million for the year
ended  December  31,  2005.  The  Company  expects  continued  pressure  on core
earnings  as  short-term rates are anticipated to continue to rise and long-term
rates  are  expected  to  remain  relatively  unchanged.  This  interest  rate
environment  impacts  the Company's liability sensitive balance sheet negatively
as  deposits  and  borrowings  reprice  more  rapidly  than loans and investment
securities.  The  Company has implemented an asset/liability management strategy
to  combat  the  current  interest rate environment including the growth of more
rate  sensitive commercial real estate and commercial loan portfolio, increasing
core  deposit  relationships  and  strategies  to  mitigate  the  rising cost of
deposits.

The Company's efforts to enhance other interest income during 2005 by increasing
the  customer  deposit  base  and  increasing  overdraft,  returned  check  and
non-sufficient  fund  charges  to  be  more  reflective  with  local competition
resulted  in  a 36% increase in service charges on deposit accounts during 2005.
The  Company  opened  a  new branch in Central Square, New York in June of 2005.
The  branch  successfully  gathered  $6.3 million in deposits in the first seven
months.  The  Company  will  continue  to  focus  on growing our market share in
Central  Square.  Salaries  and  employee  benefits and building occupancy costs
increased  primarily  from  the  addition of the new branch combined with fourth
quarter  personnel realignment costs.  The Company expects salaries and benefits
and  building occupancy to increase, as a full year of Central Square operations
will  be  reflected  in  2006.   The  Company  continues  to explore cost saving
strategies  to  minimize  the  growth  of  other  operating  expenses.

RESULTS  OF  OPERATIONS

Net  income  for  2005 was $462,000, a decrease of $943,000, or 67%, compared to
net  income  of  $1.4  million  for 2004.  Basic earnings per share decreased to
$0.19  per  share  for the year ended December 31, 2005 from $0.58 per share for
the  year  ended  December  31, 2004.  Return on average equity decreased 67% to
2.16%  in  2005  from  6.45%  in  2004.

Net  interest  income,  on  a  tax  equivalent basis, decreased $106,000, or 1%,
primarily  resulting  from interest rate spread compression as shorter term cost
of  funds  are  repricing  at  higher  rates  faster  than  longer  term assets.
Provision for loan losses at December 31, 2005 decreased 58% reflecting improved
asset  quality  during  2005,  combined  with  slower  loan growth.  The Company
experienced  a 16% increase in other income, net of securities gains and losses,
primarily  attributable  to  increased  deposit  levels  and the related service
charges  associated  with  checking  accounts,  combined with an increase in the
value  of bank owned life insurance.  Operating expenses increased 8% due to the
hiring of additional staff and related operating costs at the new Central Square
branch,  which  opened  in  June  of  2005, along with increased data processing
expenses  and  an  increase  in  professional  and  other  services.

NET  INTEREST  INCOME

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

--------------------------------------------------------------------------------
                                   Page 17
<PAGE>

Net  interest  income,  on a tax-equivalent basis, decreased $106,000, or 1%, to
$9.0 million for the year ended December 31, 2005, as compared to the year ended
December  31,  2004.  The  Company's  net  interest margin for 2005 decreased to
3.21%  from  3.35% in 2004.  The decrease in net interest income is attributable
to  increased  costs of interest-bearing liabilities and was partially offset by
an  increase  in  the  yields on interest earning assets. The average balance of
interest-earning  assets  grew  $8.2 million, or 3%, during 2005 and the average
balance  of  interest-bearing  deposits  increased  by $8.1 million, or 4%.  The
increase  in  the  average  balance  of  interest-bearing  liabilities primarily
resulted  from  an  increase  in  the  average  balance  of retail and municipal
deposits.  As  a  result,  interest income, on a tax-equivalent basis, increased
$677,000  during 2005.  Interest expense on deposits increased $680,000, or 19%,
as  the  cost of deposits rose to 1.96% in 2005 from 1.71% in 2004.  In addition
to  the  increase  in  the cost of deposits, interest expense on borrowings also
increased  by  $103,000,  or  5%,  from  the  prior  year.

In  comparison,  net  interest  income  decreased  $375,000,  or  4%,  on  a
tax-equivalent  basis,  from  2003 to 2004.  The decrease in net interest income
was  comprised  of  a  decrease in interest income of $751,000, or 5%, partially
offset by a decrease in interest expense of $375,000, or 6%. The average balance
of  interest-earning  assets  grew  $14.6  million  during  2004 and the average
balance  of  interest-bearing deposits increased by $20.7 million.  The increase
in  the  average balance of interest-bearing liabilities primarily resulted from
attracting  new  municipal deposit customers.  The decrease in the average yield
on  interest-earning  assets  by  60  basis  points  resulted  from the downward
repricing  of loans from refinancing and originations in the lower interest rate
environment  and the purchase of $35.6 million in investment securities at lower
yields  than  the  existing  portfolio.

--------------------------------------------------------------------------------
                                   Page 18
<PAGE>

AVERAGE  BALANCES  AND  RATES

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%. 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.  Non-accrual  loans  have  been  included  in  interest-earning assets for
purposes of these calculations.

<TABLE>
<CAPTION>
                                                         2005                         2004
--------------------------------------------------------------------------------------------------------
                                                                 Average                         Average
                                            Average              Yield /    Average               Yield/
(Dollars in thousands)                      Balance   Interest     Cost     Balance   Interest     Cost
--------------------------------------------------------------------------------------------------------
                                           <S>        <C>        <C>       <C>        <C>        <C>       <C>
Interest-earning assets:
Real estate loans residential              $121,875   $   7,092     5.82%  $124,734   $   7,491     6.01%
Real estate loans commercial                 29,385       2,181     7.42%    30,958       2,254     7.28%
Commercial loans                             17,563       1,135     6.46%    16,060         901     5.61%
Consumer loans                               19,257       1,418     7.36%    17,427       1,194     6.85%
Taxable investment securities                74,496       2,728     3.66%    65,480       2,220     3.39%
Tax-exempt investment securities             13,202         681     5.16%     8,603         488     5.67%
Interest-earning deposits                     3,041          71     2.33%     7,338          81     1.10%
--------------------------------------------------------------------------------------------------------
Total interest-earning assets              $278,819   $  15,306     5.49%  $270,600   $  14,629     5.41%
Noninterest-earning assets:
Other assets                                 31,455                          30,236
Allowance for loan losses                    (1,835)                         (1,792)
 Net unrealized gains
  on available for sale securities           (1,307)                           (515)
--------------------------------------------------------------------------------------------------------
Total  Assets                              $307,132                        $298,529
=========================================================================================================
Interest-bearing liabilities:
NOW accounts                               $ 19,877   $     107     0.54%  $ 20,808   $     135     0.65%
Money management accounts                    41,380         835     2.02%    40,775         567     1.39%
Savings and club accounts                    65,558         291     0.44%    68,046         453     0.67%
Time deposits                                93,732       3,086     3.29%    82,769       2,484     3.00%
Junior subordinated debentures                5,155         351     6.72%     5,155         251     4.80%
Borrowings                                   37,348       1,686     4.51%    37,674       1,683     4.47%
--------------------------------------------------------------------------------------------------------
Total Interest-bearing liabilities         $263,050   $   6,356     2.42%  $255,227   $   5,573     2.18%
--------------------------------------------------------------------------------------------------------
Noninterest-bearing liabilities:
Demand deposits                              19,324                          17,974
Other liabilities                             3,416                           3,556
------------------------------------------------------------------------------------
Total liabilities                           285,790                         276,757
------------------------------------------------------------------------------------
Shareholders' equity                         21,342                          21,772
------------------------------------------------------------------------------------
Total liabilities & shareholders' equity   $307,132                        $298,529
====================================================================================
Net interest income                                   $   8,950                       $   9,056
Net interest rate spread                                            3.07%                           3.22%
Net interest margin                                                 3.21%                           3.35%
---------------------------------------------------------------------------------------------------------
Ratio of average interest-earning assets
to average interest-bearing liabilities                           105.99%                         106.02%
---------------------------------------------------------------------------------------------------------
</TABLE>

<TABLE>
<CAPTION>

                                                        2003
------------------------------------------------------------------------
                                                                 Average
                                            Average               Yield/
(Dollars in thousands)                      Balance   Interest     Cost
------------------------------------------------------------------------
                                           <S>        <C>        <C>
Interest-earning assets:
Real estate loans residential              $129,687   $   8,346     6.44%
Real estate loans commercial                 31,122       2,480     7.97%
Commercial loans                             14,181         798     6.37%
Consumer loans                               15,787       1,225     7.76%
Taxable investment securities                54,115       2,193     4.05%
Tax-exempt investment securities              7,869         305     3.87%
Interest-earning deposits                     3,252          33     0.99%
------------------------------------------------------------------------
Total interest-earning assets              $256,013   $  15,380     6.01%
Noninterest-earning assets:
Other assets                                 24,859
Allowance for loan losses                    (1,591)
 Net unrealized gains
  on available for sale securities               52
------------------------------------------------------------------------
Total  Assets                              $279,333
=========================================================================
Interest-bearing liabilities:
NOW accounts                               $ 17,663   $     140     0.79%
Money management accounts                    21,788         248     1.14%
Savings and club accounts                    66,481         511     0.77%
Time deposits                                85,751       2,852     3.33%
Junior subordinated debentures                5,000         236     4.66%
Borrowings                                   43,490       1,961     4.51%
-------------------------------------------------------------------------
Total Interest-bearing liabilities         $240,173   $   5,948     2.48%
-------------------------------------------------------------------------
Noninterest-bearing liabilities:
Demand deposits                              16,345
Other liabilities                             1,098
------------------------------------------------------------------------
Total liabilities                           257,616
------------------------------------------------------------------------
Shareholders' equity                         21,717
------------------------------------------------------------------------
Total liabilities & shareholders' equity   $279,333
=========================================================================
Net interest income                                   $   9,432
Net interest rate spread                                            3.53%
Net interest margin                                                 3.68%
-------------------------------------------------------------------------
Ratio of average interest-earning assets
to average interest-bearing liabilities                           106.60%
=========================================================================
</TABLE>

INTEREST  INCOME

Changes  in  interest  income are derived as a result of the volume of loans and
securities,  as measured by changes in the respective average balance and by the
related  yields  on  those  balances.  Interest income on a tax-equivalent basis
increased  $67,000,  or  5%.  Average  loans  decreased  1% in 2005, with yields
increasing  3  basis  points to 6.29% The Company's average residential mortgage
loan  portfolio  decreased  $2.9 million, or 2%, when comparing the year 2005 to

--------------------------------------------------------------------------------
                                   Page 19
<PAGE>

2004.  The average yield on the residential mortgage loan portfolio decreased 19
basis  points  to  5.82%  in  2005  from  6.01%  in  2004.  The $20.2 million in
residential  mortgage  originations  were  made at lower rates than the weighted
average  yield of the existing portfolio.  An increase in the average balance of
consumer loans of $1.8 million, or 11%, resulted from an increase in home equity
loans. The average yield increased 51 basis points, to 7.36% from 6.85% in 2004,
primarily-  resulting from the increase in home equity loans, which are based on
the  Bank's  prime  rate.  Average  commercial  loans  increased  9%  while  the
tax-equivalent  yield  increased  85  basis  points to 6.46% in 2005 compared to
5.61%,  in  2004.  Increases  in the average balance of residential real estate,
consumer  and  commercial loan portfolios were partially offset by a decrease in
the  average balance of commercial real estate portfolio of $1.6 million, or 5%.

Average  loans  decreased $1.6 million in 2004, with average yields declining 48
basis  points to 6.26%.  The interest income on loans decreased $1.0 million, or
8%,  in  2004 compared to 2003.  For the comparable periods, average residential
mortgage  loans  decreased $5.0 million, or 4%, average consumer loans increased
$1.6 million, or 10%, partially offset by a decrease in average commercial loans
by  $1.9 million, or 13%, and a decrease in average commercial mortgage loans by
$164,000,  or 1%.  Loans were originated at lower rates than in the prior period
and  a  large  volume of existing mortgages had their rates modified downward or
were  refinanced  at  lower  rates.

Interest income on investment securities increased 26% from 2005, resulting from
an  increase  in  the  average  balance  of  investment  securities (taxable and
tax-exempt)  by  $13.6  million,  or  18%,  to  $87.7 million in 2005 from $74.1
million in 2004.  The tax-equivalent yield increased 23 basis points to 3.89% in
2005  from  3.66% in 2004 resulting primarily from the purchase of $23.4 million
in  investment  securities  during  2005  at  higher  yields  than  the existing
investment  portfolio  combined  with the sale of $4.3 million in lower yielding
investment  securities  from  the  portfolio  in  the  fourth  quarter  of 2005.

Average  investment  securities  (taxable  and  tax-exempt) in 2004 increased by
$12.1  million,  with  an  increase  in  tax-equivalent  interest  income  from
investments  of  $210,000,  or 8%, compared to 2003.  The average tax-equivalent
yield  of  the  portfolio  declined  37  basis points, to 3.66% from 4.03%.  The
increase in the average balance of investment securities and the decrease in the
tax-equivalent yield resulted from the significant investment purchases at lower
yields  than  the  existing  investment  portfolio.

INTEREST  EXPENSE

Changes  in  interest  expense are derived as a result of the volume of deposits
and  borrowings as measured by changes in the respective average balances and by
the  related  interest  costs  on  those  balances.  Interest  expense increased
$783,000,  or  14%, in 2005, when compared to 2004.  The increase in the cost of
funds  resulted  from  an  increase  in  the  average  cost  of interest-bearing
liabilities  of  24  basis points, to 2.42% in 2005 from 2.18% at 2004, combined
with  a  $7.8  million  increase  in  the  average  balance  of interest-bearing
liabilities during 2005.  The average cost of deposits increased 25 basis points
to  1.96%  during 2005 from 1.71% for 2004.  The increase in the cost of average
deposits  resulted  from  rising short-term interest rates.  The average cost of
money  management  accounts  increased  63  basis  points  and  the cost of time
deposits  increased  29 basis points.  The average balance of deposits increased
$8.1  million  to  $220.5  million  at  2005  from  $212.4 million at 2004.  The
increase  in  the  average  balance  of  deposits primarily resulted from a $2.9
million,  or  11%,  increase  in  average  balance  of municipal deposits as the
Company  continues  to  garner  new relationships and an increase in the average
balance  of  retail  deposits resulting primarily from the new branch in Central
Square.  The  cost of junior subordinated debentures increased 192 basis points,
increasing  interest  expense  by  $100,000.

Interest  expense  decreased  $375,000,  or  6%,  in 2004 compared to 2003.  The
average cost of interest bearing liabilities declined 30 basis points during the
12  months  ended  December  31,  2004.

--------------------------------------------------------------------------------
                                   Page 20
<PAGE>

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
changing  the  volume  or  amount of these assets and liabilities. The following
table  represents  the  extent to which changes in interest rates and changes in
the  volume  of  interest-earning  assets  and interest-bearing liabilities have
affected  the  Company's interest income and interest expense during the periods
indicated. Information is provided in each category with respect to: (i) changes
attributable  to  changes in volume (change in volume multiplied by prior rate);
(ii)  changes  attributable  to  changes  in rate (changes in rate multiplied by
prior  volume);  and  (iii) total increase or decrease.  Changes attributable to
both  rate  and  volume  have  been  allocated  ratably.

<TABLE>
<CAPTION>
                                             YEARS ENDED DECEMBER 31,
------------------------------------------------------------------------------------
                                        2005 VS. 2004            2004 VS. 2003
------------------------------------------------------------------------------------
                               INCREASE/(DECREASE) DUE TO INCREASE/(DECREASE) DUE TO
------------------------------------------------------------------------------------
                                                    TOTAL                     TOTAL
                                                  INCREASE                  INCREASE
In thousands)                     VOLUME  RATE  (DECREASE) VOLUME   RATE  (DECREASE)
------------------------------------------------------------------------------------
<S>                                <C>     <C>     <C>     <C>     <C>       <C>
INTEREST INCOME:
Real estate loans residential      $(168)  $(231)  $(399)  $(311)  $  (544)  $(855)
Real estate loans commercial        (116)     43     (73)    (13)     (213)   (226)
Commercial loans                      89     145     234      81        22     103
Consumer loans                       131      93     224     120      (151)    (31)
Taxable investment securities        322     186     508     417      (390)     27
Tax-exempt investment securities     240     (47)    193      31       152     183
Interest-earning deposits            (65)     55     (10)     45         3      48
------------------------------------------------------------------------------------
Total interest income                433     244     677     370    (1,121)   (751)
------------------------------------------------------------------------------------
INTEREST EXPENSE:
NOW  accounts                         (6)    (22)    (28)     22       (27)     (5)
Money management accounts              8     260     268     255        64     319
Savings and club accounts            (16)   (146)   (162)     12       (70)    (58)
Time deposits                        348     254     602     (96)     (272)   (368)
Junior subordinated debentures         -     100     100       8         7      15
Borrowings                           (13)     16       3    (262)      (16)   (278)
------------------------------------------------------------------------------------
Total interest expense               321     462     783     (61)     (314)   (375)
-----------------------------------------------------------------------------------
Net change in net interest income  $ 112   $(218)  $(106)  $ 431   $  (807)  $(376)
===================================================================================
</TABLE>

--------------------------------------------------------------------------------
                                   Page 21
<PAGE>

NONINTEREST  INCOME

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

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

<TABLE>
<CAPTION>
                                                               FOR THE YEARS ENDED DECEMBER 31,
                                                               -------------------------------
(In thousands)                                                         2005     2004    2003
---------------------------------------------------------------------------------------------
<S>                                                                   <C>      <C>     <C>
Service charges on deposit accounts                                   $1,318   $  967  $  818
---------------------------------------------------------------------------------------------
Loan servicing fees                                                      215      256     282
Increase in the value of bank owned life insurance                       218      175     171
Other charges, commissions and fees                                      582      598     469
Core noninterest income                                               $2,333   $1,996  $1,740
---------------------------------------------------------------------------------------------
Net (losses) gains on sales and impairment of investment securities     (205)     772     542
Net (losses) gains on sales of loans and foreclosed real estate          (88)     279     326
---------------------------------------------------------------------------------------------
Total noninterest income                                              $2,040   $3,047  $2,608
=============================================================================================
</TABLE>

Noninterest  income in 2005 decreased 33%, when compared to 2004, as a result of
a  17%  increase  in core noninterest income and a 128% decrease in the non-core
items,  net  (losses) gains on sales and impairment of investment securities and
net  (losses)  gains  on  sales  of  loans  and foreclosed real estate.  Service
charges  on  deposit  accounts  increased  36% as the number of deposit accounts
increased,  a  full  year's  effect  of a fee enhancement program, increased ATM
usage  fees  and  increased internet banking usage. The value of bank owned life
insurance  increased  25%.  These  reductions  in  core  noninterest income were
offset by a decrease in loan servicing fees of 16%, primarily due to a reduction
in  fees associated with mortgage and commercial loan late charges, and internal
mortgage  legal  fees.  Investment  security  losses  increased  $977,000,  when
compared  to  the  2004  period resulting primarily from net gains recognized in
prior  years  combined  with  a $193,000 impairment loss recognized on an equity
security  and fourth quarter investment portfolio restructurings.  Net losses on
the sale of loans/foreclosed real estate increased $367,000 when compared to the
prior  year,  as  a result of a $215,000 reduction in the gain recognized on the
sale  of  loans to the secondary market as the volume of loans sold decreased by
25%,  combined  with  adjustments  made  to the Fannie Mae custodial accounts to
cover  additional  interest  due  caused  by early pay offs of sold and serviced
loans.  Additionally,  a  $74,000  gain  was recognized in 2004 on the remaining
building  lots  held  by  Whispering  Oaks  Development,  Inc.

Noninterest income in 2004 increased 17%, compared to 2003, as a result of a 10%
increase  in  core  noninterest income and a 42% increase in the non-core items,
net gains on sales and impairment of investment securities.  The increase in the
number  of  deposit  accounts  and the introduction of new services to customers
primarily  accounted  for  the  $149,000  increase in service charges on deposit
accounts  when  compared  to  2003.  A  $129,000  increase  in  other  charges,
commissions and fees primarily resulted from recording $54,000 in New York State
grant  income  associated  with  a  company  wide Leadership Training initiative
program,  along  with  increased foreign ATM usage fees and fees associated with
the  company's  Visa debit card.  Net gains on the sale of loans/foreclosed real
estate  decreased  $47,000, or 14%, resulting primarily from a $40,000 reduction
in  the  gain  recognized  on  the  sale of loans to the secondary market as the
volume  of  loans  sold  decreased  47%.  Investment  security  gains  increased
$230,000,  or  42%,  when  compared to the 2003 period.  Investment security net
gains  were  recorded  on  the  sale  of  equity  and corporate debt securities.

--------------------------------------------------------------------------------
                                   Page 22
<PAGE>

NONINTEREST  EXPENSE

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

<TABLE>
<CAPTION>
                                FOR THE YEARS ENDED DECEMBER 31,
                                ---------------------------------
(In thousands)                        2005       2004       2003
------------------------------------------------------------------
<S>                                <C>        <C>        <C>
Salaries and employee benefits     $ 5,123     $4,798     $4,455
Building occupancy                   1,178      1,169      1,159
Data processing expenses             1,226        981        868
Professional and other services        818        682        770
Amortization of intangible asset       223        223        223
Other expenses                       1,492      1,454      1,619
------------------------------------------------------------------
Total noninterest expense          $10,060     $9,307     $9,094
==================================================================
</TABLE>

Noninterest expenses increased $753,000, or 8%, for the 12 months ended December
31,  2005 when compared to 2004.  Salaries and employee benefits increased 7% in
2005  primarily  resulting from incremental salary raises, the staffing of a new
Central  Square  branch  and fourth quarter personnel realignment costs.  The 1%
increase  in  building  occupancy  is  primarily due to the operation of the new
Central  Square branch for 7 months of 2005. The 25% increase in data processing
expenses  during  2005 related to increased depreciation expense, an increase in
internet  banking  expense  due  to  increased  volume of users, increased check
processing  charges  due  to  an increase in deposit accounts, and the increased
annual  maintenance  expense  on  our  core processing system.  Professional and
other  services  increased 20% due to outside consulting charges for performance
management,  a  process  improvement  program,  and strategic planning projects,
along with increased advertising fees for the new Central Square branch.  The 3%
increase  in  other  operating  expenses during 2005 resulted primarily from the
charge off of losses on ATM transactions and bad checks, additional ORE expenses
associated  with  taxes and maintenance of properties, the write off of property
and  equipment at our former Fulton Branch, as well as an increase in audits and
exams.  These  expenses  were  offset  by  decreases  in postage expense, office
supply  expense and lower mortgage recording taxes due to decreased loan volume.

Noninterest expenses increased $213,000, or 2%, for the 12 months ended December
31,  2004 when compared to 2003.  Salaries and employee benefits increased 8% in
2004  primarily  resulting  from  incremental  salary raises and promotions, the
hiring  of  a  Human Resource Manager and increased pension and health insurance
costs.  The  13%  increase  in  data  processing expenses during 2004 related to
additional depreciation costs associated with a full year's operation of the new
Fulton  branch,  combined  with  a  15%  increase  in  internet  banking  usage,
additional check processing charges due to a 5% increase in customer volume from
a  checking  account  acquisition program, and additional ATM processing charges
related  to  the  installation  of  a  new ATM machine and products and supplies
resulting  from the increase in customer volume. Professional and other services
decreased 11% due to a reduction in legal fees relating to a foreclosed property
in  2003  not  recurring in 2004, and a reduction in mortgage consulting fees as
in-house  personnel  were  used  to perform work that was originally contracted.
These  reductions  were offset by an increase in consulting fees associated with
the  checking  account  acquisition  program  and  expenses  associated  with  a
leadership  training  program.  Corresponding  grant  income  recorded  in other
income  offset  the  leadership  training program expenses.  The 10% decrease in
other  operating expenses during 2004 resulted primarily from a $164,000 expense
relating  to  personnel  realignment  in  2003.

INCOME  TAX  EXPENSE

In  2005,  the  Company  reported  an  income tax benefit of $51,000 compared to
income tax expense of $502,000 in 2004.  The income tax benefit in 2005 resulted
from the reduction in pretax income while income earned on tax-exempt investment
securities  and  bank-owned  life  insurance  increased.  The effective tax rate
decreased  to  (12)%  in  2005  compared  to  26%  in 2004.  The decrease in the
effective  tax  rate  resulted primarily from an increase in tax-exempt interest
income  in proportion to total taxable income.   The Company has reduced its tax

--------------------------------------------------------------------------------
                                   Page 23
<PAGE>

rate  from  the  statutory  rate  primarily  through the ownership of tax-exempt
investment  securities,  bank  owned  life  insurance  and  other  tax  saving
strategies.  Enactment  of  proposed state tax legislation regarding Real Estate
Investment  Trusts  would  increase  the  state  tax  rate  for  the  Company.

Income tax expense decreased $99,000 to $502,000 for the year ended December 31,
2004  as  compared  to  $601,000  in the prior year.  The decrease in income tax
expense reflected lower pre-tax income during the year.  The Company's effective
tax  rate  remained  at  26%  in  2004  and  27%  in  2003.

CHANGES  IN  FINANCIAL  CONDITION

INVESTMENT  SECURITIES

The  investment  portfolio represents 29% of the Company's earning assets and is
designed  to  generate  a  favorable  rate  of  return consistent with safety of
principal while assisting the Company in meeting the liquidity needs of the loan
and deposit operations and managing the Company's interest rate risk strategies.
All  of  the  Company's  investments  are classified as available for sale.  The
Company invests in investment securities consisting primarily of mortgage-backed
securities, securities issued by United States Government agencies and sponsored
enterprises,  state  and municipal obligations, mutual funds, equity securities,
investment  grade  corporate  debt  instruments,  and common stock issued by the
Federal  Home  Loan  Bank  of New York (FHLBNY).  By investing in these types of
assets,  the  Company reduces the credit risk of its asset base, but must accept
lower  yields  than would typically be available on commercial real estate loans
and  multi-family  real  estate  loans.

Investment  securities decreased $793,000, to $76.0 million at December 31, 2005
from  $76.8 million at December 31, 2004.  The decrease in investment securities
was  primarily  attributable to the sale of lower yielding investment securities
in  the  fourth  quarter  of 2005.   This decrease was offset by acquisitions of
investment  securities  to  collateralize  municipal  deposits.  In  comparison,
investment  securities  increased $17.2 million, or 29%, from 2003 to 2004.  The
increase  in investment securities was primarily attributable to the acquisition
of  investment  securities  to  collateralize  municipal  deposit  accounts.

The  following  table  sets forth the carrying value of the Company's investment
portfolio  at  the  dates  indicated.

<TABLE>
<CAPTION>
                                                                        AT DECEMBER 31,
                                                                 ---------------------------
(In thousands)                                                       2005      2004     2003
--------------------------------------------------------------------------------------------
<S>                                                      <C>                <C>       <C>
INVESTMENT SECURITIES:
  US Treasury and agencies                                       $ 20,713   $21,609   $ 6,354
  State and political subdivisions                                 11,177     8,881     7,359
  Corporate                                                         5,936     5,919     6,421
  Mortgage-backed                                                  31,565    32,213    29,734
  Equity securities and FHLB stock                                  2,626     2,800     2,932
  Mutual funds                                                      6,177     5,935     5,712
---------------------------------------------------------------------------------------------
                                                                   78,194    77,357    58,512
Unrealized (loss) gain on available for sale portfolio             (2,150)     (520)    1,095
---------------------------------------------------------------------------------------------
    Total investments in securities                              $ 76,044   $76,837   $59,607
=============================================================================================
</TABLE>

-------------------------------------------------------------------------------
                                   Page 24
<PAGE>

The  following  table  sets forth the scheduled maturities, amortized cost, fair
values  and  average  yields for the Company's investment securities at December
31,  2005. Yield is calculated on the amortized cost to maturity and adjusted to
a  fully  tax-equivalent  basis.

<TABLE>
<CAPTION>
                                           ONE YEAR OR LESS   ONE TO FIVE YEARS    FIVE TO TEN YEARS
----------------------------------------------------------------------------------------------------
                                                  ANNUALIZED          ANNUALIZED           ANNUALIZED
                                         AMORTIZED WEIGHTED  AMORTIZED WEIGHTED  AMORTIZED  WEIGHTED
(Dollars in thousands)                     COST    AVG YIELD    COST   AVG YIELD   COST     AVG YIELD
----------------------------------------------------------------------------------------------------
<S>                                      <C>      <C>        <C>       <C>       <C>       <C>
DEBT INVESTMENT SECURITIES:
US Treasury and agencies                $  2,649     1.82%    $10,966    3.31%     $ 7,098    4.18%
State and political subdivisions              40     3.89%      2,763    3.04%       3,770    3.50%
Corporate                                    350     6.85%      2,450    4.50%         988    4.93%
----------------------------------------------------------------------------------------------------
Total                                   $  3,039     2.43%    $16,179    3.44%     $11,856    4.03%
----------------------------------------------------------------------------------------------------
EQUITY AND MORTGAGE-BACKED SECURITIES:
Mutual funds                            $  6,177     1.94%    $     -       -      $     -       -
Mortgage-backed                                -        -       3,915    3.87%       8,434    4.00%
Equity securities and FHLB stock           2,627     4.49%          -       -            -       -
----------------------------------------------------------------------------------------------------
Total                                      8,804     2.70%      3,915    3.87%     $ 8,434    4.00%
----------------------------------------------------------------------------------------------------
Total investment securities             $ 11,843     2.63%    $20,094    3.53%     $20,290    4.02%
===================================================================================================
</TABLE>

<TABLE>
<CAPTION>
                                          MORE THAN TEN YEARS   TOTAL INVESTMENT SECURITIES
--------------------------------------------------------------------------------------------
                                                    ANNUALIZED                    ANNUALIZED
                                         AMORTIZED   WEIGHTED   AMORTIZED   FAIR    WEIGHTED
(Dollars in thousands)                     COST     AVG YIELD      COST     VALUE  AVG YIELD
--------------------------------------------------------------------------------------------
<S>                                      <C>        <C>         <C>         <C>    <C>
DEBT INVESTMENT SECURITIES:
US Treasury and agencies                $      -        -      $ 20,713    $19,967    3.42%
State and political subdivisions           4,604     3.97%       11,177     10,980    3.58%
Corporate                                  2,148     5.31%        5,936      5,854    5.00%
--------------------------------------------------------------------------------------------
Total                                 $    6,752     4.37%       37,826    $36,801    3.71%
-------------------------------------------------------------------------------------------
EQUITY AND MORTGAGE-BACKED SECURITIES:
Mutual funds                                   -        -         6,177    $ 5,895    1.94%
Mortgage-backed                           19,216     4.52%       31,565     30,718    4.30%
Equity securities and FHLB stock               -        -         2,626      2,630    5.08%
--------------------------------------------------------------------------------------------
Total                                     19,216     4.52%       40,368     39,243    3.99%
--------------------------------------------------------------------------------------------
Total investment securities               25,968     4.49%       78,194    $76,044    3.86%
============================================================================================
</TABLE>

-------------------------------------------------------------------------------
                                   Page 25
<PAGE>

LOANS  RECEIVABLE

Loans  receivable  represent 71% of the Company's earning assets and account for
the  greatest  portion  of  total  interest  income.  The  Company  emphasizes
residential  real  estate  financing  and  anticipates a continued commitment to
financing  the  purchase or improvement of residential real estate in its market
area.  The  Company  also  extends  credit  to businesses within its marketplace
secured  by  commercial  real  estate,  equipment,  inventories  and  accounts
receivable.  It  is  anticipated  that  small  business  lending  in the form of
mortgages,  term  loans,  leases,  and  lines  of  credit  will provide the most
opportunity for balance sheet and revenue growth over the near term.  Commercial
loans  comprise  10%  of the total loan portfolio.  At December 31, 2005, 89% of
the Company's total loan portfolio consisted of loans secured by real estate, of
which  17%  consisted  of  commercial  real  estate  loans.

<TABLE>
<CAPTION>
                                              December 31,
-----------------------------------------------------------------------------
(In thousands)                 2005      2004      2003      2002      2001
-----------------------------------------------------------------------------
<S>                          <C>       <C>       <C>       <C>       <C>
Residential real estate (1)  $119,707  $123,898  $128,989  $123,178  $112,110
Commercial real estate         31,845    29,874    31,278    32,657    30,455
Commercial loans               18,334    16,834    15,090    13,196    14,358
Consumer loans                 19,682    18,505    16,880    15,068    12,615
-----------------------------------------------------------------------------
                             $189,568  $189,111  $192,237  $184,099  $169,538
=============================================================================
</TABLE>
(1)  Includes  loans  held  for  sale.

The  following  table  shows  the amount of loans outstanding as of December 31,
2005 which, based on remaining scheduled repayments of principal, are due in the
periods  indicated.  Demand loans having no stated schedule of repayments and no
stated  maturity,  and  overdrafts are reported as one year or less.  Adjustable
and  floating  rate loans are included in the period on which interest rates are
next  scheduled  to  adjust  rather  than the period in which they contractually
mature,  and  fixed  rate  loans  are  included in the period in which the final
contractual  repayment  is  due.

<TABLE>
<CAPTION>
                          Due Under   Due 1-5   Due Over
(In thousands)             One Year    Years   Five Years   Total
---------------------------------------------------------------------
<S>                       <C>         <C>       <C>          <C>
Real estate:
Commercial real estate       $ 8,691   $15,067  $ 8,087  $ 31,845
Construction                      40       185    2,382     2,607
Residential real estate      $39,319    48,640   29,141   117,100
---------------------------------------------------------------------
                             $48,050   $63,892  $39,610  $151,552
---------------------------------------------------------------------
Commercial                    10,576     7,701       57    18,334
Consumer                      10,148     4,900    4,634    19,682
---------------------------------------------------------------------
Total loans                  $68,774   $76,493  $44,301  $189,568
=====================================================================
Interest rates:
Fixed                         18,024    49,993   37,279   105,296
Variable                      50,750    26,500    7,022    84,272
---------------------------------------------------------------------
Total Loans                  $68,774   $76,493  $44,301  $189,568
=====================================================================
</TABLE>

Total loans receivable remained relatively consistent when compared to the prior
year.  The  commercial real estate, commercial loan and consumer loan portfolios
increased  $2.0  million,  $1.5  million  and  $1.2  million,  respectively. The
increases  in  these  portfolios  were  partially  offset  by  a decrease in the
residential  real estate loans of $4.2 million.  By comparison, loans receivable
decreased  $3.1  million,  or  2%,  in 2004 from 2003.  The decrease of the loan
portfolio  from  2003  to  2004  is  primarily  attributable  to the decrease in
residential  and  commercial  mortgages  as  amortization, prepayments and sales
outpaced  loan  originations  of  $29.3  million  during 2004.  Decreases in the
mortgage  portfolios  when  comparing  2004 to 2003, were partially offset by an
increase in municipal loans and consumer loans.  The growth in the consumer loan
portfolio  is  primarily  home  equity  loan  originations.

--------------------------------------------------------------------------------
                                   Page 26
<PAGE>

Residential  real  estate loans decreased $4.2 million, or 3%, during 2005.  The
residential  real  estate  portfolio consists of 58% in fixed-rate mortgages and
42%  in  adjustable-rate mortgages.  The decrease in the residential real estate
portfolio  is  principally due to a net decrease in 15-year fixed rate mortgages
of $5.1 million and a $2.1 million decrease in 30-year fixed rate loans held for
sale, partially offset by an increase in the adjustable rate mortgage portfolio.
The  increase  in the adjustable rate mortgage portfolio primarily resulted from
an  increase  in  customer  demand  for  the  Company's  hybrid  adjustable rate
mortgages ("ARM"s).  Hybrid ARMs have rates that are fixed for an initial period
(principally  3,  5, 7 or 10 years) and then convert to one-year adjustable rate
mortgages.

Commercial  real estate loans increased $2.0 million, or 7%, from the prior year
as  new loan products were added to the portfolio.  Commercial real estate loans
decreased  $1.4  million,  or  4%,  during  2004.

Commercial loans, including loans to municipalities, increased 9% over the prior
year  to  $18.3  million at December 31, 2005.  The increase in commercial loans
resulted primarily from a $1.8 million net increase in small business loans.  In
comparison,  commercial  loans,  including municipal loans, increased 12% during
2004  primarily  due  to  the  origination  of  municipal  loans.

Consumer  loans,  which  include  second  mortgage  loans,  home equity lines of
credit,  direct  installment  and  revolving credit loans, increased 6% to $19.7
million  at  December  31, 2005.  The increase resulted from an increase in home
equity  lines of credit and second mortgage loans.  The Company has promoted its
home  equity  products  by offering the customer loans with no closing costs and
competitive market rates.  Management feels these loans are an attractive use of
funds  and  will continue to promote home equity products in 2006.  During 2004,
consumer  loans  increased  $1.6  million,  or  10%, resulting primarily from an
increase  in  home  equity  products.

NONPERFORMING  LOANS  AND  ASSETS

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

<TABLE>
<CAPTION>
                                                                       DECEMBER 31,
----------------------------------------------------------------------------------------------
(Dollars in thousands)                                2005     2004     2003     2002     2001
----------------------------------------------------------------------------------------------
<S>                                                 <C>      <C>      <C>      <C>      <C>
Nonaccrual loans:
Commercial real estate and commercial              $  757   $  776   $1,677   $  603   $  488
Consumer                                               89      122      172      166       56
Real estate - construction                              -        -      270        -        -
              Mortgage                                834      953      873      942    1,576
----------------------------------------------------------------------------------------------
Total nonaccrual loans                             $1,680   $1,851   $2,992   $1,711   $2,120
Loans past due 90 days or more and still accruing       -        -        -        -        -
----------------------------------------------------------------------------------------------
Total non-performing loans                         $1,680   $1,851   $2,992   $1,711   $2,120
Foreclosed real estate                                743      798      202    1,396      632
----------------------------------------------------------------------------------------------
Total non-performing assets                        $2,423   $2,649   $3,194   $3,107   $2,752
----------------------------------------------------------------------------------------------
Non-performing loans to total loans                  0.89%    0.98%    1.59%    0.95%    1.30%
Non-performing assets to total assets                0.82%    0.88%    1.15%    1.11%    1.13%
----------------------------------------------------------------------------------------------
Interest income received on nonaccrual loans            -        -        -        -        -
----------------------------------------------------------------------------------------------
Interest income that would have been recorded
under the original terms of the loans              $   34   $   64   $   75   $  141   $  118
----------------------------------------------------------------------------------------------
</TABLE>

--------------------------------------------------------------------------------
                                   Page 27
<PAGE>

The  asset  quality  of  the  Company's loan portfolio has improved during 2005.
Residential  and  consumer  delinquencies continue to decline by 14% during 2005
and  18%  during  2004,  resulting  from  the  institution  of  a more stringent
collection  policy.  Total  nonperforming  assets  (nonperforming  loans  and
foreclosed  real  estate)  at  December  31,  2005 were 0.81% of total assets as
compared  to  0.88%  of  total assets at December 31, 2004.  Total nonperforming
loans  (past  due  90  days or more) decreased $196,000, or 11%, during 2005 and
decreased  38%  during  2004.  Total  delinquent  loans  (those  30 days or more
delinquent)  as  a  percentage  of  total  loans were 2.03% at December 31, 2005
compared  to  1.93%  at  December  31, 2004.  Approximately 43% of the Company's
nonperforming  loans at December 31, 2005 are secured by residential real estate
with  loss  potential  expected  to be manageable within the allocated reserves.

The  Company  generally  places  a loan on nonaccrual status and ceases accruing
interest  when loan payment performance is deemed unsatisfactory and the loan is
past  due 90 days or more.  The Company considers a loan impaired when, based on
current  information  and events, it is probable that the Company will be unable
to  collect  the scheduled payments of principal and interest when due according
to  the  contractual  terms  of  the  loan.

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 fair
value  of  the  collateral.  The  Company  used  the fair value of collateral to
measure  impairment  on commercial and commercial real estate loans in 2005.  At
December 31, 2005, the Company had $2.5 million in loans which were deemed to be
impaired having a valuation allowance of $90,000.  Of the impaired loan balance,
$2.3 million represents one commercial credit relationship that was restructured
during  2004.  A  $63,000  impairment  reserve is recorded on this relationship.
The  customer  has  been making payments according to the restructured terms and
its  financial  position  has  improved  significantly.

ALLOWANCE  FOR  LOAN  LOSSES

The  allowance  for  loan  losses  is  a  reserve established through charges to
expense  in  the  form  of  a  provision  for  loan  losses  and reduced by loan
charge-offs  net  of recoveries. Allowance for loan losses represents the amount
available  for  probable  credit  losses  in  the  Company's  loan  portfolio as
estimated  by  management.  The  Company  maintains an allowance for loan losses
based  upon  a  monthly  evaluation  of  known  and  inherent  risks in the loan
portfolio,  which  includes a review of the balances and composition of the loan
portfolio as well as analyzing the level of delinquencies in each segment of the
loan portfolio. The Company uses a general allocation method for the residential
real  estate and the consumer loan pools based upon a methodology that uses loss
factors  applied  to  loan  balances  and  reflects  actual  loss  experience,
delinquency  trends  and  current  economic  conditions.  The  Company  reviews
individually, commercial real estate and commercial loans greater than $150,000,
that  are  not  accruing interest and risk rated under the Company's risk rating
system,  as  special  mention, substandard, doubtful or loss to determine if the
loans  are  impaired.  If  loans  are  determined  to  be  impaired, the Company
establishes a specific reserve allocation. The specific allocation is determined
based  on  the most recent valuation of the loan's collateral and the customer's
ability  to  pay. For all other commercial real estate and commercial loans, the
Company  uses  the general allocation method that establishes a reserve for each
risk  rating  category. The general allocation method for commercial real estate
and  commercial  loans  considers  the  same  factors  that  are considered when
evaluating  residential  real  estate and consumer loan pools. The allowance for
loan  losses  reflects  management's  best  estimate  of probable loan losses at
December 31, 2005.

The  allowance  for  loans  losses  was $1.7 million at December 31, 2005, an 8%
decrease from December 31, 2004.  The allowance for loans losses as a percentage
of  total  loans decreased to 0.89% at December 31, 2005 from 0.98% in the prior
year.  Net  loan  charge-offs  were $459,000 during 2005 compared to $626,000 in
2004.  The  Company  experienced  a  higher  level  of  charge-offs  during 2004
resulting  from  the  charge-off  of  portions  of  three  commercial  lending
relationships.

--------------------------------------------------------------------------------
                                   Page 28
<PAGE>

The  following table sets forth the analysis of the allowance for loan losses at
or  for  the  periods  indicated.

<TABLE>
<CAPTION>
                                        2005          2004           2003            2002            2001
----------------------------------------------------------------------------------------------------------------
                                         % GROSS         % GROSS        % GROSS         % GROSS          % GROSS
Dollars in thousands)             AMOUNT  LOANS  AMOUNT   LOANS  AMOUNT   LOANS  AMOUNT   LOANS   AMOUNT  LOANS
----------------------------------------------------------------------------------------------------------------
<S>                               <C>     <C>     <C>     <C>     <C>     <C>     <C>     <C>     <C>     <C>
Commercial real estate and loans  $1,282   26.5%  $1,483   24.7%  $1,218   24.1%  $1,042   24.9%  $1,083   26.5%
Consumer loans                       289   10.4%     270    9.8%     120    8.8%     136    8.2%     100    7.4%
Residential real estate              108   63.1%      74   65.5%     377   67.1%     303   66.9%     496   66.1%
----------------------------------------------------------------------------------------------------------------
Total                             $1,679  100.0%  $1,827  100.0%  $1,715  100.0%  $1,481  100.0%  $1,679  100.0%
================================================================================================================
</TABLE>

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

<TABLE>
<CAPTION>
(Dollars in thousands)                          2005     2004     2003      2002     2001
-------------------------------------------------------------------------------------------
<S>                                            <C>      <C>      <C>      <C>       <C>
BALANCE AT BEGINNING OF YEAR                    $1,827   $1,715   $1,481   $ 1,679   $1,274
 Allowance acquired in branch purchase               -        -        -        57        -
 Provisions charged to operating expenses          311      738      598     1,375      708
-------------------------------------------------------------------------------------------
RECOVERIES OF LOANS PREVIOUSLY CHARGED-OFF:
 Commercial real estate and loans                   25       41        3        26       53
 Consumer                                           14       20       17         6        9
 Residential real estate                            10        -       17         -        -
-------------------------------------------------------------------------------------------
 Total recoveries                                   49       61       37        32       62
-------------------------------------------------------------------------------------------
LOANS CHARGED OFF:
 Commercial real estate and loans                 (284)    (439)    (128)   (1,285)     (72)
 Consumer                                         (137)    (126)    (189)     (291)    (184)
 Residential real estate                           (87)    (122)     (84)      (86)    (109)
-------------------------------------------------------------------------------------------
  Total charged-off                               (508)    (687)    (401)   (1,662)    (365)
-------------------------------------------------------------------------------------------
 Net charge-offs                                  (459)    (626)    (364)   (1,630)    (303)
-------------------------------------------------------------------------------------------
Balance at end of year                          $1,679   $1,827   $1,715   $ 1,481   $1,679
===========================================================================================
Net charge-offs to average loans outstanding     0.24%    0.33%    0.19%     0.92%    0.19%
Allowance for loan losses to year-end loans      0.89%    0.98%    0.91%     0.82%    1.03%
===========================================================================================
</TABLE>

DEPOSITS

The  Company's  deposit  base  is  drawn  from seven full-service offices in its
market  area.  The  deposit  base  consists of demand deposits, money management
accounts,  savings  and time deposits. During 2005, 61% of the Company's average
deposit  base  of  $239.9 million consisted of core deposits.  Core deposits are
considered to be more stable and provide the Company with a lower cost source of
funds.  The  Company  will  continue to emphasize retail deposits by maintaining
its  network  of full service offices and providing depositors with a full range
of  deposit  product  offerings.  Pathfinder  Commercial Bank will seek business
growth  by  focusing  on  its  local identification and service excellence.  The
Commercial Bank had an average balance of $31.0 million in municipal deposits in
2005,  primarily  concentrated  in  money  market  demand  accounts.

Average  deposits  increased  $9.5  million,  or 4%, when compared to 2004.  The
increase in average deposits primarily related to a $2.9 million increase in the
average  balance  of  municipal  deposits  combined  with  an increase in retail
deposits.  The  new  branch  in Central Square added $3.1 million to the average
balance  of  retail  deposits  since  its  opening June of 2005.  In comparison,
average  deposits  from  2003  to  2004 increased $22.3 million, or 11%. Deposit
growth  in  2004  resulted  from  the  growth  both  in  retail and in municipal
deposits.  The Commercial Bank increased the number of municipal customers to 20

--------------------------------------------------------------------------------
                                   Page 29
<PAGE>

in  2004  from  11  in  2003.  The  new  municipal  customers  account  balances
represented $20.2 million of the $30.0 million in municipal deposits outstanding
at  December  31,  2004.

The  Company's  average  deposit  mix  in 2005, as compared to 2004, reflected a
slight  shift  from  savings and club deposits to time deposits.   The Company's
average  demand  deposits,  interest and noninterest bearing, represented 16% of
total  average  deposits,  which  was comparable with 2004.  The Company's money
management  accounts  represented 17% of total deposits, down 1 percentage point
for  the same period in 2004.  The Company promotes its money management account
by  offering  competitive  rates  to  retain existing and attract new customers.

The average amount of deposits, average rate paid and percentage of deposits are
summarized  below  for  the  years  indicated.

<TABLE>
<CAPTION>
                                                    FOR  THE YEARS ENDED DECEMBER 31,
-------------------------------------------------------------------------------------------------------
                                       2005                   2004                       2003
-------------------------------------------------------------------------------------------------------
                                       AVG   PERCENT           AVG   PERCENT             AVG    PERCENT
                              AVG     RATE     OF       AVG    RATE     OF       AVG     RATE       OF
(Dollars in thousands)      BALANCE   PAID  DEPOSITS  BALANCE  PAID  DEPOSITS  BALANCE   PAID   DEPOSITS
<S>                         <C>       <C>    <C>        <C>       <C>    <C>        <C>       <C>    <C>
-------------------------------------------------------------------------------------------------------
Noninterest bearing
   demand accounts          $ 19,324     -    8.06%  $ 17,974     -    7.80%   $ 16,345     -     7.86%
NOW accounts                  19,877  0.54%   8.29%    20,808  0.65%   9.03%     17,663  0.79%    8.49%
Money management accounts     41,380  2.02%  17.25%    40,775  1.39%  17.70%     21,788  1.14%   10.47%
Savings and club accounts     65,558  0.44%  27.33%    68,046  0.67%  29.54%     66,481  0.77%   31.96%
Time deposits                 93,732  3.29%  39.07%    82,769  3.00%  35.93%     85,751  3.33%   41.22%
-------------------------------------------------------------------------------------------------------
Total average deposits      $239,871  1.96% 100.00%  $230,372  1.71% 100.00%   $208,028  1.96%  100.00%
=======================================================================================================
</TABLE>

At December 31, 2005, time deposits in excess of $100,000 totaled $24.0 million,
or 26%, of time deposits and 10% of total deposits.  At December 31, 2004, these
deposits  totaled  $18.3  million,  or  22%  of  time  deposits  and 8% of total
deposits.

The  following  table indicates the amount of the Bank's certificates of deposit
of  $100,000  or  more  time  remaining  until maturity as of December 31, 2005:

<TABLE>
<CAPTION>
                       CERTIFICATES OF
                         DEPOSIT OF
In thousands)          $100,000 OR MORE
---------------------------------------
REMAINING MATURITY:
<S>                        <C>
Three Months or less       $ 6,868
Three through Six months     2,765
Six through twelve months    3,886
Over twelve months          10,515
--------------------------------------
    Total                  $24,034
======================================
</TABLE>

--------------------------------------------------------------------------------
                                   Page 30
<PAGE>

BORROWINGS

Short-term  borrowings  are  comprised  primarily  of  advances  and  overnight
borrowing  at  the  FHLBNY.  There  were  $2.0  million in short-term borrowings
outstanding  at  December  31,  2005  as  compared  to  $1.0  million  in  2004.

Information  regarding  short-term  borrowings  during 2005, 2004 and 2003 is as
follows:

<TABLE>
<CAPTION>
 (Dollars in thousands)                        2005     2004      2003
------------------------------------------------------------------------
<S>                                          <C>       <C>      <C>
Maximum outstanding at any month end         $15,000   $3,100   $12,000
Average amount outstanding during the year     5,692    1,400     2,660
Average interest rate during the year           3.57%    1.31%     1.17%
------------------------------------------------------------------------
</TABLE>

Long-term  borrowed funds consist of advances and repurchase agreements from the
FHLBNY  and  junior  subordinated  debentures.  Long-term borrowed funds totaled
$34.5  million at December 31, 2005 as compared to $39.5 million at December 31,
2004.

CAPITAL

Shareholders'  equity  decreased $898,000 to $20.9 million at December 31, 2005.
The  Company  added  $462,000 to retained earnings through net income, which was
more  than  offset  by  cash dividends returned to its shareholders of $686,000.
Other  comprehensive  loss  increased  $978,000  to $1.3 million at December 31,
2005.  Additional  paid  in  capital  increased  $268,000 due to the exercise of
stock  options  and  the  allocation  of  employee  stock ownership plan shares.

The  Company's mutual holding company parent, Pathfinder Bancorp, M.H.C., waived
its  right  to  receive  the  dividend  for the quarters ended June 30, 2005 and
December  31,  2005.

Risk-based capital provides the basis for which all banks are evaluated in terms
of  capital  adequacy.  Capital  adequacy  is  evaluated primarily by the use of
ratios  which  measure  capital  against  total assets, as well as against total
assets  that  are weighted based on defined risk characteristics.  The Company's
goal  is to maintain a strong capital position, consistent with the risk profile
of  its  subsidiary banks that supports growth and expansion activities while at
the  same time exceeding regulatory standards.  At December 31, 2005, Pathfinder
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%.  See Note 17 in the accompanying
financial  statements  for  the  Company's  and  the  Bank's  ratios.

LIQUIDITY

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

The Company's liquidity has been enhanced by its membership in the FHLBNY, whose
competitive  advance  programs  and  lines  of credit provide the Company with a

--------------------------------------------------------------------------------
                                   Page 31
<PAGE>

safe,  reliable  and  convenient  source  of  funds.  A  significant decrease in
deposits  in the future could result in the Company having to seek other sources
of  funds  for  liquidity  purposes.  Such  sources  could  include, but are not
limited  to, additional borrowings, trust preferred security offerings, 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.

The  Asset  Liability  Management Committee (ALCO) of the Company is responsible
for  implementing  the  policies  and  guidelines for the maintenance of prudent
levels of liquidity.  As of December 31, 2005, the Company is in compliance with
its  policy  guidelines  with  regard  to  liquidity.

AGGREGATE  CONTRACTUAL  OBLIGATIONS

The  following table represents the Company's on and off-balance sheet aggregate
contractual  obligations  to  make  future  payments  as  of  December 31, 2005:

<TABLE>
<CAPTION>
                                            OVER 1    OVER 3
                                  1 YEAR      TO        TO     OVER 5
(In thousands)                   OR LESS   3 YEARS   5 YEARS    YEARS    TOTAL
--------------------------------------------------------------------------------
<S>                              <C>       <C>       <C>       <C>      <C>
Time deposits                    $ 51,724  $ 30,173  $  7,690  $ 6,568  $ 96,155
Junior subordinated debentures          -         -         -    5,155     5,155
Borrowings                          5,000    17,960     8,400        -    31,360
Operating leases                       47        98       102      115       362
Payments under benefit plans          305       697       752    9,181    10,935
--------------------------------------------------------------------------------
Total                            $ 57,075  $ 48,928  $ 16,944  $21,020  $143,967
================================================================================
</TABLE>

In  addition,  the  Company,  in  the  conduct  of ordinary business operations,
routinely  enters  into  contracts  for  services.  These  contracts may require
payment  for  services to be provided in the future and may also contain penalty
clauses  for  the early termination of the contract.  Management is not aware of
any  additional commitments or contingent liabilities, which may have a material
adverse  impact  on  the  liquidity  or  capital  resources  of  the  Company.

OFF-BALANCE  SHEET  ARRANGEMENTS

The  Company  is also party to financial instruments with off-balance sheet risk
in  the  normal course of business to meet the financing needs of its customers.
These  financial  instruments  include  commitments to extend credit and standby
letters  of  credit.  At  December  31,  2005,  the Company had $19.5 million in
outstanding  commitments  to  extend  credit and standby letters of credit.  See
Note  15  in  the  accompanying  financial  statements.

--------------------------------------------------------------------------------
                                   Page 32
<PAGE>

ITEM  7A:  QUANTITATIVE  AND  QUALITATIVE  DISCLOSURES  ABOUT  MARKET  RISK

The  Company's  risk  of  loss arising from adverse changes in the fair value of
financial  instruments,  or  market risk, is composed primarily of interest rate
risk.  The  management  of  interest rate sensitivity seeks to avoid fluctuating
net  interest  margins  and  to  provide  consistent net interest income through
periods  of  changing  interest  rates.  The  Company  has  an  Asset-Liability
Management  Committee  (ALCO)  which is responsible for establishing policies to
limit  exposure  to interest rate risk, and to ensure procedures are established
to  monitor  compliance  with those policies. Those procedures include reviewing
the  Company's  asset  and  liability  policies,  setting  prices  and  terms on
rate-sensitive  products,  and  monitoring  and measuring the impact of interest
rate  changes  on  the  Company's  earnings and capital.  The Company's Board of
Directors  reviews  the  guidelines  established  by  the  ALCO.

Since  December  of  2004,  the  Federal Reserve has increased short-term target
rates  8  times, 25 basis points each time to 4.50% from 2.50%. During this time
frame longer-term interest rates have remained relatively unchanged resulting in
a  flattening  and  inversion  of the yield curve.  The short-term interest rate
increases  have  caused  continued net interest margin compression as short-term
deposits  and  borrowings  on  the  Company's  liability sensitive balance sheet
reprice  into  the  current  rate  environment while security purchases and loan
originations  and  refinances  were  being done at the stable longer-term rates.
During the past 24-month period of rising short-term interest rates, the Company
has  continued  to  practice conservative balance sheet management strategies by
attempting  to  extend  the  maturities  of  its  rate sensitive liabilities and
shorten  the  maturity  or  repricing  term  of its rate sensitive assets.  This
conservative balance sheet management strategy has resulted in additional margin
pressure  and  reduction  in  net  interest  income  during the prior two years.
Management  believes  this balance sheet strategy best positions the Company and
lessens  its  risk  against  future  interest  rate  fluctuations.

The  primary objective of the Company's asset/liability management process is to
maximize  earnings  and return on capital within acceptable levels of risk.  The
Company does not believe it is possible to reliably predict future interest rate
movements,  and  it  seeks  to  maintain  an  appropriate  process  and  set  of
measurement  tools  that  enable it to identify and quantify sources of interest
rate  risk  ("IRR") in varying rate environments.  The primary tools used by the
Company  in  managing  rate  risk  are income simulation and net portfolio value
modeling  techniques.

Interest  rate risk can result from timing differences in the maturity/repricing
of  an  institution's  assets,  liabilities and off balance sheet contracts; the
effect of embedded options, such as loan prepayments, interest rate caps/floors,
and  deposit  withdrawals;  and  the  difference  in the behavior of the various
lending  and  funding  rates,  sometimes  referred  to  as  basis  risk.

Given  the  potential  types and differing related characteristics of IRR, it is
important  that  the  company  maintain  an  appropriate  process  and  set  of
measurement tools that enable it to identify and quantify its primary sources of
IRR.  The  Company  also recognizes that effective management of IRR includes an
understanding  of  when  potential  adverse  changes in interest rates will flow
through  its income statements.  Accordingly, the Company not only looks at a 12
month horizon when managing its exposure to IRR, it also considers a longer-term
strategic  horizon.

It  is  the  Company's  objective  to manage its exposure to interest rate risk,
understanding  that  it  is  in  the  business  of  taking  on rate risk and the
elimination  of  such  risk  is  not  possible.  It  is  also understood that as
exposure  to  interest  rate risk is reduced, it may also result in net interest
margin  being  reduced.

Management  believes  the modeling and analysis of net interest income (Earnings
at  Risk)  and  net  portfolio  value (Value at Risk) in different interest rate
environments  provides  the  most meaningful measure of interest rate risk.  Net
interest  income  simulation  analysis captures both the potential of all assets
and  liabilities  to mature or reprice and the probability that they will do so.
Net  interest  income  simulation  also  attends  to  the relative interest rate
sensitivities  of  these  items,  and  projects  their behavior over an extended
period  of  time.  Finally, net interest income simulation permits management to
assess the probable effects on the balance sheet not only of changes in interest
rates,  but  also  of proposed strategies for responding to them.  Net portfolio
value represents the fair value of net assets (determined as the market value of

--------------------------------------------------------------------------------
                                   Page 33
<PAGE>

assets  minus  the  market  value  of  liabilities  using a discounted cash flow
technique).

The  following table measures the Company's interest rate risk exposure in terms
of the percentage change in its net interest income and net portfolio value as a
result  of hypothetical changes in 100 basis point increments in market interest
rates.  The  table  quantifies  the  changes  in  net  interest  income  and net
portfolio  value  to parallel shifts in the yield curve.  The column "Percentage
Change  in  Net  Interest Income" measures the change to the next twelve month's
projected  net  interest income, due to parallel shifts in the yield curve.  The
column  "Percentage  Change  in  Net  Portfolio  Value"  measures changes in the
current  fair  value  of  assets and liabilities to parallel shifts in the yield
curve.  The  column  "NPV Capital Ratio" measures the ratio of the fair value of
net  assets  to the fair value of total assets at the base case and in 100 basis
point  incremental  interest  rate  shocks.  The  Company  uses these percentage
changes  as  a means to measure interest rate risk exposure and quantifies those
changes  against  guidelines  set  by  the  Board  of  Directors  as part of the
Company's  Interest  Rate Risk policy.  The Company's current interest rate risk
exposure  is  within  those  guidelines  set  forth.

<TABLE>
<CAPTION>
                      PERCENTAGE      PERCENTAGE
CHANGE IN    NPV       CHANGE IN      CHANGE IN
INTEREST   CAPITAL   NET INTEREST   NET PORTFOLIO
RATES       RATIO       INCOME          VALUE
--------------------------------------------------
<S>        <C>       <C>            <C>
300           8.77%        -12.75%         -27.56%
200           9.63%         -8.36%         -18.54%
100          10.48%         -4.10%          -9.21%
0            11.26%           ---            ----
-100         11.55%          1.18%           4.91%
-200         11.20%         -3.26%           3.60%
-300         10.60%         -8.72%          -0.30%
</TABLE>

--------------------------------------------------------------------------------
                                   Page 34
<PAGE>

An interest rate sensitive asset or liability is one that, within a defined time
period,  either  matures  or  experiences  an  interest rate change in line with
general  market  interest  rates.  Historically,  the  most  common  method  of
estimating  interest  rate  risk  was  to  measure  the  maturity  and repricing
relationships  between  interest-earning assets and interest-bearing liabilities
at  a  specific point in time ("GAP"), typically one year.  Under this method, a
company  is  considered  liability  sensitive  when  the  amount  of  its
interest-bearing  liabilities  exceeds the amount of its interest-earning assets
within  the  one-year  horizon.  However,  assets  and  liabilities with similar
repricing  characteristics  may  not  reprice  at  the  same time or to the same
degree.  As  a result, the Company's GAP does not necessarily predict the impact
of  changes  in  general  levels  of  interest  rates  on  net  interest income.

The  following  table  shows the GAP position for the Company as of December 31,
2005.

<TABLE>
<CAPTION>
                                                                                                                  MORE
                                                         WITHIN     3 TO 12    1 TO 3     3 TO 5     5 TO 10      THAN
(Dollars in thousands)                                  3 MONTHS    MONTHS      YEARS      YEARS      YEARS     10 YEARS
------------------------------------------------------------------------------------------------------------------------
<S>                                                    <C>         <C>        <C>        <C>        <C>        <C>
INTEREST-EARNING ASSETS:
Interest earning deposits                              $     586   $      -   $      -   $      -   $      -   $       -
Investment securities and FHLB stock                      12,744      6,675     18,017     15,071     17,732       5,805
Loans receivable                                          33,355     35,348     46,886     29,098     34,821      10,060
------------------------------------------------------------------------------------------------------------------------
Total interest-earning assets                          $  46,685   $ 42,023   $ 64,903   $ 44,169   $ 52,553   $  15,865
------------------------------------------------------------------------------------------------------------------------
INTEREST-BEARING LIABILITIES:
Transaction deposit accounts (1)                       $   9,450   $ 28,347   $ 19,471   $      -   $      -   $       -
Savings deposits (1)                                         274      6,075     13,513     10,097     14,926      15,284
Certificates of deposit                                   19,333     32,130     30,265      7,858      6,550          19
Borrowings                                                 2,000      3,000     17,960      8,400          -           -
Junior subordinated debentures                             5,155          -          -          -          -           -
------------------------------------------------------------------------------------------------------------------------
Total interest-bearing liabilities                     $  36,212   $ 69,552   $ 81,209   $ 26,355   $ 21,476   $  15,303
------------------------------------------------------------------------------------------------------------------------
Interest-earning assets less interest-
bearing liabilities ("interest rate sensitivity gap")  $  10,473   $(27,529)  $(16,306)  $ 17,814   $ 31,077   $     562
------------------------------------------------------------------------------------------------------------------------
Cumulative excess (deficiency) of interest-
sensitive assets over interest-sensitive liabilities   $  10,473   $(17,056)  $(33,362)  $(15,548)  $ 15,529   $  16,091
------------------------------------------------------------------------------------------------------------------------
Interest sensitivity gap to total assets                    3.53%     -9.27%     -5.49%      6.00%     10.47%       0.19%
------------------------------------------------------------------------------------------------------------------------
Cumulative interest sensitivity gap to total assets         3.53%     -5.74%    -11.23%     -5.24%      5.23%       5.42%
------------------------------------------------------------------------------------------------------------------------
Ratio of interest-earning assets to interest-
bearing liabilities                                       128.92%     60.42%     79.92%    167.59%    244.71%     103.67%
------------------------------------------------------------------------------------------------------------------------
Cumulative ratio of interest-earning assets to
interest-bearing liabilities                              128.92%     83.87%     82.16%     92.71%    106.61%     106.43%
------------------------------------------------------------------------------------------------------------------------

(Dollars in thousands)                                  TOTAL
--------------------------------------------------------------

<S>                                                    <C>
INTEREST-EARNING ASSETS:
Interest earning deposits                              $    586
Investment securities and FHLB stock                     76,044
Loans receivable                                        189,568
---------------------------------------------------------------
Total interest-earning assets                          $266,198
---------------------------------------------------------------
INTEREST-BEARING LIABILITIES:
Transaction deposit accounts (1)                       $ 57,268
Savings deposits (1)                                     60,169
Certificates of deposit                                  96,155
Borrowings                                               31,360
Junior subordinated debentures                            5,155
---------------------------------------------------------------
Total interest-bearing liabilities                     $250,107
---------------------------------------------------------------
Interest-earning assets less interest-
bearing liabilities ("interest rate sensitivity gap")
---------------------------------------------------------------
Cumulative excess (deficiency) of interest-
sensitive assets over interest-sensitive liabilities
---------------------------------------------------------------
Interest sensitivity gap to total assets
---------------------------------------------------------------
Cumulative interest sensitivity gap to total assets
---------------------------------------------------------------
Ratio of interest-earning assets to interest-
bearing liabilities
---------------------------------------------------------------
Cumulative ratio of interest-earning assets to
interest-bearing liabilities
</TABLE>

(1)  The  following  assumptions  have  been  used  when  analyzing non-maturity
     deposits  for  GAP  Table  purposes: 14% of savings deposits are assumed to
     reprice or mature within one year, 22% within 1 to 3 years, 16% within 3 to
     5  years,  and  24%  within each of the remaining time periods. Transaction
     deposits - 66% of the NOW account balances are assumed to reprice or mature
     within  one  year,  and  the  remaining 34% is assumed to reprice or mature
     within  the  1  to 3 year time frame. 100% of the money management accounts
     are assumed to reprice within the first three months

--------------------------------------------------------------------------------
                                   Page 35
<PAGE>

ITEM  8:  FINANCIAL  STATEMENTS  AND  SUPPLEMENTARY  DATA

INDEX  TO  CONSOLIDATED  FINANCIAL  STATEMENTS
PATHFINDER  BANCORP,  INC                                           Page

Report of Independent Registered Public Accounting Firm..............37
Consolidated Statements of Condition.................................38
Consolidated Statements of Income....................................39
Consolidated Statements of Changes in Shareholders' Equity...........40
Consolidated Statements of Cash Flows................................41
Notes to Consolidated Financial Statements...........................42

--------------------------------------------------------------------------------
                                   Page 36
<PAGE>

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM




                               [GRAPHIC OMITED]





To the Board of Directors and Shareholders
Pathfinder Bancorp, Inc.
Oswego, New York

     We  have  audited  the accompanying consolidated statements of condition of
Pathfinder  Bancorp, Inc. and subsidiaries as of December 31, 2005 and 2004, and
the  related  consolidated statements of income, changes in shareholders' equity
and  cash  flows  for  each  of the three years in the period ended December 31,
2005.  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 audits 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  financial  statement presentation. 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, 2005 and 2004, and the results
of  their  operations  and  their  cash flows for each of the three years in the
period  ended  December  31,  2005,  in  conformity  with  accounting principles
generally accepted in the United States of America.

                                   /s/  BEARD  MILLER  COMPANY  LLP

Beard Miller Company LLP
Harrisburg, Pennsylvania
February 3, 2006

--------------------------------------------------------------------------------
                                   Page 37
<PAGE>

CONSOLIDATED STATEMENTS OF CONDITION

<TABLE>
<CAPTION>
                                                                                        DECEMBER 31,
                                                                                ------------------------
(In thousands, except share data)                                                    2005         2004
--------------------------------------------------------------------------------------------------------
<S>                                                                             <C>             <C>
ASSETS:
Cash and due from banks                                                         $       7,309   $  6,741
Interest earning deposits                                                                 586      7,584
--------------------------------------------------------------------------------------------------------
    Total cash and cash equivalents                                                     7,895     14,325
--------------------------------------------------------------------------------------------------------

Investment securities, at fair value                                                   74,239     75,069
Federal Home Loan Bank stock, at cost                                                   1,805      1,768
Mortgage loans held-for-sale                                                                0      2,159
Loans                                                                                 189,568    186,952
   Less: Allowance for loan losses                                                      1,679      1,827
--------------------------------------------------------------------------------------------------------
     Loans receivable, net                                                            187,889    185,125
Premises and equipment, net                                                             8,020      7,580
Accrued interest receivable                                                             1,678      1,505
Foreclosed real estate                                                                    743        798
Goodwill                                                                                3,840      3,840
Intangible asset, net                                                                     404        627
Bank owned life insurance                                                               5,987      5,768
Other assets                                                                            4,448      3,473
--------------------------------------------------------------------------------------------------------
Total assets                                                                    $     296,948   $302,037
========================================================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY:
Deposits:
Interest-bearing                                                                $     216,136   $217,513
Noninterest-bearing                                                                    20,241     19,159
--------------------------------------------------------------------------------------------------------
Total deposits                                                                        236,377    236,672
--------------------------------------------------------------------------------------------------------
Short-term borrowings                                                                   2,000      1,000
Long-term borrowings                                                                   29,360     34,360
Junior subordinated debentures                                                          5,155      5,155
Other liabilities                                                                       3,128      3,024
--------------------------------------------------------------------------------------------------------
Total liabilities                                                                     276,020    280,211

Shareholders' equity:
Preferred stock, authorized shares 1,000,000; no shares issued or outstanding
Common stock, par value $.01; authorized 10,000,000 shares;
2,950,419 and 2,937,419 shares issued; and 2,463,132 and
2,450,132 shares outstanding, respectively.                                                29         29
Additional paid-in-capital                                                              7,721      7,453
Retained earnings                                                                      20,965     21,186
Accumulated other comprehensive loss                                                   (1,285)      (307)
Unearned ESOP shares                                                                        -        (33)
Treasury Stock, at cost; 487,287 shares                                                (6,502)    (6,502)
--------------------------------------------------------------------------------------------------------
Total shareholders' equity                                                             20,928     21,826
--------------------------------------------------------------------------------------------------------
Total liabilities and shareholders' equity                                      $     296,948   $302,037
=======================================================================================================
</TABLE>

The accompanying notes are an integral part of the consolidated financial
statements.

--------------------------------------------------------------------------------
                                   Page 38
<PAGE>

CONSOLIDATED STATEMENTS OF INCOME

<TABLE>
<CAPTION>
                                                                       YEARS ENDED DECEMBER 31,
                                                                      --------------------------
(In thousands, except per share data)                                    2005      2004     2003
-------------------------------------------------------------------------------------------------
INTEREST AND DIVIDEND INCOME:
<S>                                                                   <C>       <C>      <C>
  Loans, including fees                                                $ 11,794   $11,815  $12,833
  Debt securities:
    Taxable                                                               2,481     2,075    2,034
    Tax-exempt                                                              505       362      226
  Dividends                                                                 247       145      159
  Other                                                                      71        81       33
--------------------------------------------------------------------------------------------------
       Total interest income                                             15,098    14,478   15,285
--------------------------------------------------------------------------------------------------
INTEREST EXPENSE:
  Interest on deposits                                                    4,319     3,639    3,751
  Interest on short-term borrowings                                         204        17       31
  Interest on long-term borrowings                                        1,833     1,917    2,166
--------------------------------------------------------------------------------------------------
       Total interest expense                                             6,356     5,573    5,948
--------------------------------------------------------------------------------------------------
          Net interest income                                             8,742     8,905    9,337
PROVISION FOR LOAN LOSSES                                                   311       738      598
--------------------------------------------------------------------------------------------------
          Net interest income after provision for loan losses             8,431     8,167    8,739
--------------------------------------------------------------------------------------------------
NONINTEREST INCOME:
  Service charges on deposit accounts                                     1,318       967      818
  Increase in value of bank owned life insurance                            218       175      171
  Loan servicing fees                                                       215       256      282
  Net (losses) gains on sales and impairment of investment securities      (205)      772      542
  Net (losses) gains on sales of loans and foreclosed real estate           (88)      279      326
  Other charges, commissions & fees                                         582       598      469
--------------------------------------------------------------------------------------------------
       Total other income                                                 2,040     3,047    2,608
--------------------------------------------------------------------------------------------------
NONINTEREST EXPENSE:
  Salaries and employee benefits                                          5,123     4,798    4,455
  Building occupancy                                                      1,178     1,169    1,159
  Data processing expenses                                                1,226       981      868
  Professional and other services                                           818       682      770
  Amortization of intangible asset                                          223       223      223
  Other expenses                                                          2,492     1,454    1,619
--------------------------------------------------------------------------------------------------
       Total other expenses                                              10,060     9,307    9,094
--------------------------------------------------------------------------------------------------
Income before income taxes                                                  411     1,907    2,253
(Benefit)/Provision for income taxes                                        (51)      502      601
--------------------------------------------------------------------------------------------------
Net income                                                                  462   $ 1,405  $ 1,652
==================================================================================================
Net income per share - basic                                           $   0.19   $  0.58  $  0.68
==================================================================================================
Net income per share - diluted                                         $   0.19   $  0.57  $  0.67
==================================================================================================
Dividends per share                                                    $   0.41   $ 0.405  $  0.40
==================================================================================================
</TABLE>

The accompanying notes are an integral part of the consolidated financial
statements.

--------------------------------------------------------------------------------
                                   Page 39
<PAGE>

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY

<TABLE>
<CAPTION>
                                                                                      ACCUMULATED
                                                              ADDITIONAL                 OTHER          UNEARNED
                                         COMMON STOCK ISSUED  PAID-IN    RETAINED     COMPREHENSIVE       ESOP
(In thousands, except per share data)    SHARES     AMOUNT     CAPITAL   EARNINGS      INCOME (LOSS)     SHARES

<S>                                      <C>                  <C>       <C>          <C>              <C>             <C>
BALANCE, DECEMBER 31, 2002               2,914,669  $     29  $     7,114  $       19,448   $         579   $    (124)
---------------------------------------  -------------------  --------  -----------  ---------------  --------------  ----------
Comprehensive income:
Net income                                                                                    1,652
Other comprehensive income, net of tax
Unrealized net gains on securities                                                                               83
TOTAL COMPREHENSIVE INCOME:

ESOP shares earned                                                               76                                          46
Stock option exercised                       4,717         -           35
Treasury stock purchased
Dividends declared ($.40 per share)                                                            (651)
--------------------------------------------------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 2003                         2,919,386  $     29  $     7,225  $       20,449   $         662   $     (78)
---------------------------------------  -------------------  --------  -----------  ---------------  --------------  ----------
Comprehensive income:
---------------------------------------
Net income                                                                                    1,405
Other comprehensive loss, net of tax
Unrealized net losses on securities                                                                            (969)
TOTAL COMPREHENSIVE INCOME:


ESOP shares earned                                                               88                                          45
Stock option exercised                                18,033         -          140
Dividends declared ($.405 per share)                                                           (668)
BALANCE, DECEMBER 31, 2004                         2,937,419  $     29  $     7,453  $       21,186   $        (307)  $     (33)
---------------------------------------  -------------------  --------  -----------  ---------------  --------------  ----------
Comprehensive loss:
---------------------------------------
Net income                                                                                      462
Other comprehensive income, net of tax
Unrealized net gains on securities                                                                             (978)
TOTAL COMPREHENSIVE LOSS:


ESOP shares earned                                                               55                                          33
Stock option exercised                                13,000         -          213
Dividends declared ($.41 per share)                                                            (683)
BALANCE, DECEMBER 31, 2005                         2,950,419  $     29  $     7,721  $       20,965   $      (1,285)  $       -
---------------------------------------  -------------------  --------  -----------  ---------------  --------------  ----------



                                         TREASURY
(In thousands, except per share data)     STOCK     TOTAL
                                                   --------
<S>                                      <C>       <C>
BALANCE, DECEMBER 31, 2002               $(3,815)  $23,231
---------------------------------------  --------  --------
Comprehensive income:
Net income                                           1,652
Other comprehensive income, net of tax
Unrealized net gains on securities                      83
TOTAL COMPREHENSIVE INCOME:                          1,735
                                                   --------

ESOP shares earned                                     122
Stock option exercised                                  35
Treasury stock purchased                  (2,687)   (2,687)
Dividends declared ($.40 per share)                   (651)
BALANCE, DECEMBER 31, 2003               $(6,502)  $21,785
---------------------------------------  --------  --------
Comprehensive income:
---------------------------------------
Net income                                           1,405
Other comprehensive loss, net of tax
Unrealized net losses on securities                   (969)
TOTAL COMPREHENSIVE INCOME:                            436
                                                   --------

ESOP shares earned                                     133
Stock option exercised                                 140
Dividends declared ($.405 per share)                  (668)
BALANCE, DECEMBER 31, 2004               $(6,502)  $21,826
---------------------------------------  --------  --------
Comprehensive loss:
---------------------------------------
Net income                                             462
Other comprehensive income, net of tax
Unrealized net gains on securities                    (978)
TOTAL COMPREHENSIVE LOSS:                             (516)
                                                   --------

ESOP shares earned                                      88
Stock option exercised                                 213
Dividends declared ($.41 per share)                   (683)
BALANCE, DECEMBER 31, 2005               $(6,502)  $20,928
---------------------------------------  --------  --------
</TABLE>

The accompanying notes are an integral part of the consolidated financial
statements.

-------------------------------------------------------------------------------
                                   Page 40
<PAGE>

<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF CASH FLOWS

                                                                                       Years Ended December 31,
                                                                                   -----------------------------
(In thousands)                                                                        2005        2004     2003
----------------------------------------------------------------------------------------------------------------
                                                                                  <S>        <C>        <C>        <C>
OPERATING ACTIVITIES:
 Net Income                                                                       $    462   $  1,405   $  1,652
 Adjustments to reconcile net income to net cash provided by (used in) operating
     activities:
 Provision for loan losses                                                             311        738        598
 ESOP shares earned                                                                     88        133        122
 Deferred income tax expense                                                           107        502        307
 Proceeds from sale of loans                                                         8,795     12,440     23,380
 Originations of loans held-for-sale                                                     -    (10,884)   (23,049)
 Realized losses (gains) on sales of:
 Foreclosed real estate                                                                 23        (84)       (91)
 Loans                                                                                  65       (195)      (235)
 Available-for-sale investment securities                                              205       (772)      (542)
 Depreciation                                                                          697        590        542
 Amortization of intangible asset                                                      223        223        223
 Amortization of deferred financing costs                                               30         30         30
 Amortization of mortgage servicing rights                                             123        158        122
 Increase in value of bank owned life insurance                                       (218)      (175)      (171)
 Net amortization of premiums and discounts on investment securities                   364        358        288
 (Increase) decrease in interest receivable                                           (173)      (231)        61
 Net change in other assets and liabilities                                           (480)    (1,855)       159
-----------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities                                           10,622      2,381      3,396
-----------------------------------------------------------------------------------------------------------------
INVESTING ACTIVITIES:
 Purchase of investment securities available-for-sale and
Federal Home Loan Bank Stock                                                       (23,361)   (35,610)   (25,780)
 Proceeds from maturities and principal reductions of
 investment securities available-for-sale                                           15,361      9,897     19,898
 Proceeds from sale:
 Available-for-sale investment securities                                            6,593      7,282      9,175
 Real estate acquired through foreclosure                                              770        382      1,890
Purchase of bank owned life insurance                                                    -     (1,100)         -
 Net (increase) decrease in loans                                                  (10,514)       245     (9,203)
 Purchase of premises and equipment                                                 (1,137)    (1,520)    (1,571)
-----------------------------------------------------------------------------------------------------------------
Net cash used in investing activities                                              (12,288)   (20,424)    (5,591)
-----------------------------------------------------------------------------------------------------------------
FINANCING ACTIVITIES:
 Net (decrease) increase in demand deposits, NOW accounts, savings accounts,
money management deposit accounts and escrow deposits                              (12,067)    28,441      5,429
 Net increase (decrease) in time deposits                                           11,772      1,337     (3,057)
 Net proceeds from (repayments on) short-term borrowings                             1,000     (1,100)     1,400
 Payments on long-term borrowings                                                  (10,000)    (4,500)    (9,000)
 Proceeds from long-term borrowings                                                  5,000          -      5,700
 Proceeds from exercise of stock options                                               213        140         35
 Cash dividends                                                                       (682)      (664)      (651)
 Treasury stock purchased                                                                -          -     (2,687)
-----------------------------------------------------------------------------------------------------------------
Net cash (used in) provided by  financing activities                                (4,764)    23,654     (2,831)
-----------------------------------------------------------------------------------------------------------------
(Decrease) increase in cash and cash equivalents                                    (6,430)     5,611     (5,026)
Cash and cash equivalents at beginning of period                                    14,325      8,714     13,740
-----------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of period                                        $  7,895   $ 14,325   $  8,714
=================================================================================================================
CASH PAID DURING THE PERIOD FOR:
 Interest                                                                         $  6,338   $  5,639   $  5,991
 Income taxes paid                                                                      95        312        250
NON-CASH INVESTING ACTIVITY:
 Transfer of loans to foreclosed real estate                                           738        894        605
 Transfer of loans to loans held-for-sale                                            6,701          -          -
</TABLE>

The accompanying notes are an integral part of the consolidated financial
statements

-------------------------------------------------------------------------------
                                   Page 41
<PAGE>

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE  1:  SUMMARY  OF  SIGNIFICANT  ACCOUNTING  POLICIES

NATURE  OF  OPERATIONS

The  accompanying  2005  and  2004 consolidated financial statements include the
accounts  of  Pathfinder  Bancorp,  Inc.  (the  "Company")  and its wholly owned
subsidiary,  Pathfinder  Bank  (the  "Bank").  The  2003  consolidated financial
statements  also  include  the  Company's other subsidiary, Pathfinder Statutory
Trust  I (the "Trust").  The Trust was formed in 2002 for the purpose of issuing
mandatorily  redeemable  convertible  securities,  which  are  considered Tier I
capital  under  regulatory  capital  adequacy  requirements.  The  Trust  was
deconsolidated  upon  adoption  of  Financial  Accounting  Standards  Board
Interpretation  No.  46,  "Consolidation  of  Variable  Interest  Entities," and
Interpretation  of  ARB  No 51 (FIN 46), which was revised in December 2003 (See
Note  10).  The  Bank  has three wholly owned operating subsidiaries, Pathfinder
Commercial  Bank, Whispering Oaks Development Inc. and Pathfinder REIT, Inc. All
inter-company  accounts and activity have been eliminated in consolidation.  The
Company has seven full service offices located in Oswego County.  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 investment securities.

Pathfinder  Bancorp,  M.H.C.,  (the  "Holding Company") a mutual holding company
whose  activity  is  not included in the accompanying financial statements, owns
approximately  64.3%  of the outstanding common stock of the Company.  Salaries,
employee  benefits  and rent approximating $135,000, $130,000 and $124,000, were
allocated  from  the Company to Pathfinder Bancorp, M.H.C. during 2005, 2004 and
2003,  respectively.

USE  OF  ESTIMATES  IN  THE  PREPARATION  OF  FINANCIAL  STATEMENTS

The preparation of 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 and the evaluation of
securities  for  other than temporary impairment 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 parts of Onondaga counties of New York State.  Note 3 discusses the types of
securities  that  the Company invests in.  Note 4 discusses the types of lending
that  the  Company  engages  in.  The  Company  does  not  have  any significant
concentrations  to  any  one  industry  or  customer.

--------------------------------------------------------------------------------
                                   Page 42
<PAGE>

ADVERTISING

The  Company  follows the policy of charging the costs of advertising to expense
as  incurred.  Advertising  costs  included  in  other  operating  expenses were
$249,000,  $224,000  and $245,000 for the year ended December 31, 2005, 2004 and
2003,  respectively.

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  available-for-sale.
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. None of the Company's investment securities
have  been  classified  as  trading  or  held-to-maturity  securities.

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
first  call  or  maturity.

The  Company monitors investment securities for impairment on a quarterly basis.
Declines  in  the fair value of investment securities below cost that are deemed
to  be  other-than-temporary  are  reflected in earnings as realized losses.  In
estimating  other-than-temporary impairment losses, management considers (1) the
length  of  time and the extent to which the fair value has been less than cost,
(2)  the  financial condition and near-term prospects of the issuer, and (3) the
intent  and  ability of the Company to retain its investment in the issuer for a
period  of  time sufficient to allow for any anticipated recovery in fair value.

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.  As of December 31, 2005, there were
no  forward  commitments  outstanding.  As of December 31, 2004, the Company had
approximately  $1,000,000  of  mortgage  loan forward commitments outstanding to
hedge  interest  rate  risk  on  certain  committed  and  originated loans.  The
differences between the settlement value of the forward commitments and the fair
value  of  these  commitments  were  not  significant  at  December  31,  2004.

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.

--------------------------------------------------------------------------------
                                   Page 43
<PAGE>

LOANS

The  Company grants mortgage, commercial 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, generally are stated at unpaid principal balances,
less  the  allowance  for loan losses and net deferred loan origination fees and
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.

ALLOWANCE  FOR  LOAN  LOSSES

The  allowance  for  loan  losses is established as losses are estimated to have
occurred  through  a provision for loan losses charged to earnings.  Loan losses
are  charged against the allowance when management believes the uncollectibility
of  a loan balance is confirmed.  Subsequent recoveries, if any, are credited to
the  allowance. The Company periodically evaluates the adequacy of the allowance
for loan losses in order to maintain the allowance at a level that is sufficient
to  absorb  probable  credit losses.  Management's evaluation of the adequacy of
the  allowance is based on a review of the Company's historical loss experience,
known and inherent risks in the loan portfolio and an analysis of the levels and
trends  of  delinquencies  and  charge-offs.  This  evaluation  is  inherently
subjective as it requires estimates that are susceptible to significant revision
as  more  information  becomes  available.

The  allowance consists of specific and general and unallocated components.  The
specific  component  relates  to  loans  that  are  classified as impaired.  For
impaired  loans,  an allowance is established when the discounted cash flows (or
collateral  value or observable market price) of the impaired loan is lower than
the  carrying  value  of that loan.  The general component covers non-classified
loans  and  is  based  on  historical  loss  experience adjusted for qualitative
factors.  An  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.

A loan is considered impaired, based on current information and events, if it is
probable  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.  The  measurement  of  impaired  loans  is  generally  based upon the
present  value of future cash flows discounted at the historical effective rate,
except  that all collateral-dependent loans are measured for impairment based on
fair  values  of  collateral.

Large groups of smaller balance homogeneous loans are collectively evaluated for
impairment.  Accordingly,  the  Company  does not separately identify individual
consumer and residential loans for impairment disclosures, unless such loans are
the  subject  of  a  restructuring  agreement.

INCOME  RECOGNITION  ON  IMPAIRED  AND  NON-ACCRUAL  LOANS

Loans, including impaired loans, are generally classified as non-accrual if they
are  past due as to maturity or payment of principal or interest for a period of
more  than  90  days.  When  a  loan is classified as non-accrual and the future
collectibility of the recorded loan balance is doubtful, collections of interest
and  principal  are  generally  applied as a reduction to principal outstanding.

--------------------------------------------------------------------------------
                                   Page 44
<PAGE>

When  future  collectibility  of the recorded loan balance is expected, interest
income  may  be recognized on a cash basis. In the case where a non-accrual 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 39 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
carried  at  their fair value less estimated disposal costs. Write downs of, and
expenses  related  to,  foreclosed  real estate holdings included in noninterest
expense  were  $155,000,  $85,000  and  $124,000  in  2005,  2004  and  2003,
respectively.

INTANGIBLE  ASSETS

Intangible  assets  represent core deposit intangibles and goodwill arising from
acquisitions.  Core  deposit  intangibles  represent the premium the Company has
paid  for  deposits  acquired  in excess of the cost incurred had the funds been
purchased  in  the capital markets.  Core deposit intangibles are amortized on a
straight-line basis over a period of five years.  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.

MORTGAGE  SERVICING  RIGHTS

Originated  mortgage  servicing  rights  are recorded at their fair value at the
time  of  transfer  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.

--------------------------------------------------------------------------------
                                   Page 45
<PAGE>

STOCK-BASED  COMPENSATION

The  Company  accounts  for  stock  awards issued to directors, officers and key
employees  using  the  intrinsic  value  method  in  accordance  with Accounting
Principles Board Opinion No. 25.  This method requires that compensation expense
be  recognized  to  the  extent  that  the  fair  value of the stock exceeds the
exercise price of the stock award at the grant date.  The Company generally does
not  recognize  compensation  expense  related to stock awards because the stock
awards  generally  have  fixed  terms  and  exercise prices that are equal to or
greater  than  the  fair  value of the Company's common stock at the grant date.

There  is  no  pro  forma  expense reported for 2005 as stock options were fully
vested  during  2003.  Pro  forma  amounts  of net income and earnings per share
under  Statement  of  Financial  Accounting  Standards  No.  123 are as follows:

<TABLE>
<CAPTION>
 (Dollars in thousands)                                                    2003
---------------------------------------------------------------------------------
<S>                                                              <C>     <C>
NET INCOME:
As reported                                                              $  1,652
Total stock-based compensation cost, net of tax, that would
  have been included in the determination of net income if the
  fair value based method had been applied to all awards                       28
---------------------------------------------------------------------------------
Pro forma                                                                $  1,624
=================================================================================

EARNINGS PER SHARE:                                              BASIC   DILUTED
---------------------------------------------------------------------------------
As reported                                                      $ 0.68  $   0.67
Pro forma                                                        $ 0.67  $   0.66
=================================================================================
</TABLE>

The  fair value of these options was estimated at the date of grant in July 2001
using  the  Black-Scholes  options pricing model with the following assumptions:
risk free interest rate - 5.0%; dividend yield - 2.0%; market price volatility -
52.4%.  An  assumed  weighted  average option life of 6 years has been utilized.
For  purposes  of pro forma disclosures, the estimated fair value of the options
is  amortized  to  expense  over  the  options' vesting period.  No options were
granted  during  2005,  2004  and  2003.

RETIREMENT  BENEFITS

The  Company  has  established  tax  qualified  retirement  plans  covering
substantially  all full-time employees and certain part-time employees.  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.  In  addition, 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.

TREASURY  STOCK

Treasury  stock  purchases  are  recorded at cost.  There were no treasury stock
purchases  in  2005  and 2004.  In 2003, the Company purchased 183,114 shares of
treasury stock at an average cost of $14.67 per share, respectively.  160,114 of
the  shares  purchased  by the Company in 2003 related to a privately negotiated
stock  repurchase  from  Jewelcor  Management Inc.  The shares were purchased at
$14.60 per share and represented approximately 6.1% of the Company's outstanding
common  stock as of December 31, 2002.  The privately negotiated transaction was
not part of the share repurchase program in effect for that period.  The Company
believes repurchase programs to be in the best interest of its shareholders as a
method  to  enhance  long-term  shareholder  value.

--------------------------------------------------------------------------------
                                   Page 46
<PAGE>

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 financial statements.
Deferred  tax assets and liabilities are reported in the 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  share  are computed by dividing net income 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 using the treasury
stock  method.

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,  such  as  unrealized  gains  and  losses  on  available-for-sale
securities,  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.

The  components of other comprehensive income (loss) and related tax effects for
the  years  ended:

<TABLE>
<CAPTION>
                                               FOR THE YEARS ENDED DECEMBER 31,
                                              ---------------------------------
(In thousands)                                       2005      2004    2003
-------------------------------------------------------------------------------
<S>                                              <C>       <C>       <C>
Gross change in unrealized gains on
  securities available for sale                  $ (1,835)  $  (843)  $ 681
Reclassification adjustment for (gains) losses
  included in net income                              205      (772)   (542)
----------------------------------------------------------------------------
                                                   (1,630)   (1,615)    139
Tax effect                                            652       646     (56)
----------------------------------------------------------------------------
Net of tax amount                                $   (978)  $  (969)  $  83
============================================================================
</TABLE>

RECLASSIFICATIONS

Certain amounts in the 2004 and 2003 consolidated financial statements have been
reclassified  to  conform  to  the  current  year  presentation.  These
reclassifications  had  no  effect  on  net  income  as  previously  reported.

NOTE  2:  NEW  ACCOUNTING  PRONOUNCEMENTS

In  December  2004,  the  Financial  Accounting  Standards  Board  (FASB) issued
Statement  No.  123(R),  "Share-Based  Payment."  Statement  No.  123(R) revised
Statement No. 123, "Accounting for Stock-Based Compensation," and supersedes APB
Opinion  No.  25,  "Accounting  for  Stock Issued to Employees," and its related
implementation  guidance.  Statement  No. 123(R) will require compensation costs
related  to  share-based  payment transactions to be recognized in the financial
statements  (with  limited exceptions).  The amount of compensation cost will be
measured  based  on  the  grant-date  fair  value  of  the  equity  or liability
instruments  issued.  Compensation  cost will be recognized over the period that
an  employee  provides  service  in  exchange  for  the  award.

On April 14, 2005, the Securities and Exchange Commission ("SEC") adopted a rule
that  amends  the  compliance  dates  for Financial Accounting Standards Board's
Statement of Financial Accounting Standards No. 123 (revised 2004), "Share-Based
Payment"  ("SFAS  No.  123R").  Under the rule, the Company is required to adopt
SFAS  No.  123R in the first annual period beginning after June 15, 2005.  Since

--------------------------------------------------------------------------------
                                   Page 47
<PAGE>

the  Company's  options  are  fully  granted  and  vested,  the Company does not
anticipate  the  adoption  will  have  any  impact on the consolidated financial
statements.

In March 2005, the SEC issued Staff Accounting Bulletin No. 107 ("SAB No. 107"),
"Share-Based  Payment",  providing  guidance  on  option  valuation methods, the
accounting  for  income  tax  effects  of  share-based payment arrangements upon
adoption  of  SFAS  No.  123(R),  and  the disclosures in MD&A subsequent to the
adoption.  The  Company  will  provide  SAB  No.  107  required disclosures upon
adoption  of  SFAS  No.  123(R).

In  January 2003, the FASB's Emerging Issues Task Force (EITF) issued EITF Issue
No. 03-1, "The Meaning of Other-Than-Temporary Impairment and Its Application to
Certain  Investors" ("EITF 03-1"), and in March 2004, the EITF issued an update.
EITF  03-1  addresses  the  meaning  of  other-than-temporary impairment and its
application  to  certain  debt  and  equity  securities.  EITF  03-1 aids in the
determination  of  impairment  of  an  investment  and  gives guidance as to the
measurement  of  impairment  loss  and  the  recognition  and  disclosures  of
other-than-temporary  investments.  EITF 03-1 also provides a model to determine
other-than-temporary impairment using evidence-based judgment about the recovery
of  the  fair value up to the cost of the investment by considering the severity
and  duration  of  the  impairment in relation to the forecasted recovery of the
fair  value.  In  July  2005,  FASB  adopted  the recommendation of its staff to
nullify key parts of EITF 03-1.  The staff's recommendations were to nullify the
guidance  on the determination of whether an investment is impaired as set forth
in  paragraphs 10-18 of Issue 03-1 and not to provide additional guidance on the
meaning  of  other-than-temporary  impairment.  Instead,  the  staff  recommends
entities  recognize  other-than-temporary  impairments  by  applying  existing
accounting  literature  such  as  paragraph  16  of  SFAS  115.

In  July 2005, the FASB issued a proposed interpretation of FAS 109, "Accounting
for  Income  Taxes",  to clarify certain aspects of accounting for uncertain tax
positions,  including issues related to the recognition and measurement of those
tax  positions.  If adopted as proposed, any adjustments required to be recorded
as  a  result  of adopting the interpretation would be reflected as a cumulative
effect  from  a change in accounting principle.  We are currently in the process
of  determining  the impact of adoption of the interpretation as proposed on our
financial  position  and  results  of  operations.

--------------------------------------------------------------------------------
                                   Page 48
<PAGE>

NOTE  3:  INVESTMENT  SECURITIES  -  AVAILABLE-FOR-SALE

The  amortized  cost  and  estimated  fair  value  of  investment securities are
summarized  as  follows:

<TABLE>
<CAPTION>
                                                 DECEMBER 31, 2005
                                   -------------------------------------------
                                                  GROSS       GROSS  ESTIMATED
                                   AMORTIZED UNREALIZED  UNREALIZED       FAIR
(In thousands)                          COST      GAINS      LOSSES      VALUE
<S>                                <C>       <C>         <C>         <C>
------------------------------------------------------------------------------
Bond investment securities:
US Treasury and agencies           $   20,713  $    -     $  (746)    $ 19,967
State and political subdivisions       11,177       2        (199)      10,980
Corporate                               5,936      24        (106)       5,854
Mortgage-backed                        31,565      67        (914)      30,718
------------------------------------------------------------------------------
Total                                  69,391      93      (1,965)      67,519
  Equity investments                    6,998      14        (292)       6,720
------------------------------------------------------------------------------
Total investment securities        $   76,389  $  107     $(2,257)    $ 74,239
==============================================================================

                                                 DECEMBER 31, 2004
                                   -------------------------------------------
                                                  GROSS       GROSS  ESTIMATED
                                   AMORTIZED UNREALIZED  UNREALIZED       FAIR
(In thousands)                          COST      GAINS      LOSSES      VALUE
<S>                                <C>       <C>         <C>         <C>
------------------------------------------------------------------------------
Bond investment securities:
US Treasury and agencies           $   21,609  $    4     $  (401)    $ 21,212
State and political subdivisions        8,881     162         (31)       9,012
Corporate                               5,919      92         (52)       5,959
Mortgage-backed                        32,213      92        (278)      32,027
------------------------------------------------------------------------------
Total                                  68,622     350        (762)      68,210
  Equity investments                    6,967       5        (113)       6,859
------------------------------------------------------------------------------
Total investment securities        $   75,589  $  355     $  (875)    $ 75,069
==============================================================================
</TABLE>

Gross  gains  of  $190,000,  $828,000  and  $581,000  for  2005,  2004 and 2003,
respectively  and  gross  losses of $395,000, $56,000 and $38,000 for 2005, 2004
and  2003, respectively were realized on sales and calls of securities.  The tax
benefit  related  to  net  losses on investment securities was $80,000 for 2005.
Tax  expense  related  to  net  gains  on investment securities was $301,000 and
$211,000  for 2004 and 2003, respectively. The $395,000 loss in 2005 represented
impairment  losses recognized on equity investments and the loss recognized from
the  sale  of  commercial  bank  portfolio  securities.

Investment  securities  with  a  carrying  value of approximately $38,899,000 at
December  31,  2005  were pledged to collateralize certain deposit and borrowing
arrangements.

--------------------------------------------------------------------------------
                                   Page 49
<PAGE>

The  amortized cost and estimated fair value of debt investments at December 31,
2005  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.

<TABLE>
<CAPTION>
                                         AMORTIZED    ESTIMATED
(In thousands)                              COST     FAIR VALUE
----------------------------------------------------------------
<S>                                      <C>         <C>
Due in one year or less                  $    3,039  $     3,008
Due after one year through five years        16,179       15,699
Due after five years through ten years       11,856       11,432
Due after ten years                           6,752        6,662
Mortgage-backed securities                   31,565       30,718
----------------------------------------------------------------
Totals                                   $   69,391  $    67,519
================================================================
</TABLE>

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:

<TABLE>
<CAPTION>
                                                                     DECEMBER 31, 2005
                                          ------------------------------------------------------------------
                                          LESS THAN TWELVE MONTHS   TWELVE MONTHS OR MORE       TOTAL
------------------------------------------------------------------------------------------------------------
                                              UNREALIZED   FAIR      UNREALIZED    FAIR   UNREALIZED   FAIR
(In thousands)                                  LOSSES     VALUE        LOSSES     VALUE     LOSSES    VALUE
------------------------------------------------------------------------------------------------------------
<S>                                          <C>           <C>      <C>           <C>    <C>        <C>
US Treasury and agency securities            $    (106)   $ 4,130    $   (639)   $15,837   $  (746)  $19,967
State and political subdivision securities        (152)     8,872         (47)     1,491      (199)   10,363
Corporate securities                               (35)     1,965         (71)     1,896      (106)    3,861
Mortgage-backed securities                        (322)    13,814        (593)    15,073      (914)   28,887
Equity investment securities                         -          -        (292)     6,135      (292)    6,135
------------------------------------------------------------------------------------------------------------
                                             $    (615)   $28,781    $ (1,642)   $40,432   $(2,257)  $69,213
============================================================================================================
</TABLE>

<TABLE>
<CAPTION>
                                                                     DECEMBER 31, 2004
                                          ------------------------------------------------------------------
                                          LESS THAN TWELVE MONTHS   TWELVE MONTHS OR MORE       TOTAL
------------------------------------------------------------------------------------------------------------
                                              UNREALIZED   FAIR      UNREALIZED    FAIR   UNREALIZED   FAIR
(In thousands)                                  LOSSES     VALUE        LOSSES     VALUE     LOSSES    VALUE
------------------------------------------------------------------------------------------------------------
<S>                                          <C>           <C>      <C>           <C>    <C>        <C>
US Treasury and agency securities            $    (370)   $18,903    $    (31)   $   981   $  (401)  $19,884
State and political subdivision securities         (31)     2,411           -         56       (31)    2,467
Corporate securities                               (11)       976         (41)       936       (52)    1,912
Mortgage-backed securities                        (215)    19,949         (63)     3,301      (278)   23,250
Equity investment securities                       (10)       240        (103)     3,547      (113)    3,787
------------------------------------------------------------------------------------------------------------
                                             $    (637)   $42,479    $   (238)   $ 8,821   $  (875)  $51,300
============================================================================================================
</TABLE>

The  Company  reviews its securities for impairment at least quarterly, and as a
result  of  this  review,  impairment  charges  of $196,000 were recorded during
December  31,  2005.  No  impairment  losses  were  recognized in 2004 and 2003.

At December 31, 2005 59 mortgage-backed and 33 US treasury and agency securities
have  unrealized  losses.  These unrealized losses relate principally to changes
in interest rates subsequent to the acquisition of specific securities.  None of
the  securities in this category had an unrealized loss that exceeded 6% of book
value  and a majority had unrealized losses totaling less than 3% of book value.
The  Company  has  the  intent  and ability to hold the individual securities to
maturity  or  market  price  recovery.

--------------------------------------------------------------------------------
                                   Page 50
<PAGE>

At  December  31,  2005,  32  state  and  political subdivision securities and 4
corporate  securities  have  unrealized  losses.  In  analyzing  the  issuer's
financial  condition,  management  considers  the  industry  analyst's  reports,
financial  performance and projected target prices of investment analysts within
a  one-year  time  frame.  None  of  the  securities  in  this  category  had an
unrealized  loss  that  exceeded  5% of book value and a majority had unrealized
losses  totaling  less  than  2%  of book value.  The Company has the intent and
ability  to hold the individual securities to maturity or market price recovery.

At  December  31, 2005, 3 equity securities had unrealized losses.  One of these
securities is a mutual fund backed by adjustable rate mortgage-backed securities
and  has  an  unrealized  loss  of 3% of book value. The unrealized loss relates
principally  to  changes  in interest rates subsequent to the acquisition of the
mutual  fund.  A 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 billion. A
review  of the underlying securities indicates no individually impaired holdings
and  there  is  no  indication  that  the profitability of these corporations is
impaired  beyond the economic cycle. As such, the decline in market value is not
considered to be other-than-temporarily impaired.  The third equity security has
unrealized  losses  totaling  $10,000,  which  is deemed to be immaterial to the
consolidated  financial  statements.

NOTE  4:  LOANS

Major  classifications  of  loans  at  December  31,  are  as  follows:

<TABLE>
<CAPTION>
 (In thousands)                      2005       2004
----------------------------------------------------
<S>                              <C>        <C>
REAL ESTATE MORTGAGES:
Conventional                     $116,423   $117,608
Construction                        2,607      3,497
Commercial                         31,845     29,874
----------------------------------------------------
                                  150,875    150,979
----------------------------------------------------
OTHER LOANS:
Consumer                            3,363      3,484
Home Equity/2nd Mortgage           16,319     15,021
Lease financing                       334        715
Commercial                         14,741     12,605
Municipal loans                     3,259      3,514
                                   38,016     35,339
----------------------------------------------------
Total loans                       188,891    186,318
----------------------------------------------------
Net deferred loan costs               677        634
Less allowance for loan losses     (1,679)    (1,827)
----------------------------------------------------
Loans receivable, net            $187,889   $185,125
====================================================
</TABLE>

The  Company  grants  mortgage and consumer loans to customers throughout Oswego
and  parts  of  Onondaga  counties.  Although the Company has a diversified loan
portfolio,  a  substantial  portion  of  its  debtor's  ability  to  honor their
contracts  is  dependent  upon the counties' employment and economic conditions.

--------------------------------------------------------------------------------
                                   Page 51
<PAGE>

The  following  represents  the  approximate  activity  associated with loans to
officers  and  directors  during  the  fiscal  year  ending  December  31, 2005:

<TABLE>
<CAPTION>
(In thousands)
---------------------------------------
<S>                            <C>
Balance at beginning of year   $ 4,910
Originations                     3,065
Principal payments              (2,394)
---------------------------------------
Balance at end of year         $ 5,581
=======================================
</TABLE>

NOTE  5:  ALLOWANCE  FOR  LOAN  LOSSES

Changes  in  the  allowance  for loan losses for the year ended December 31, are
summarized  as  follows:

<TABLE>
<CAPTION>
 (In thousands)                 2005     2004     2003
--------------------------------------------------------
<S>                            <C>      <C>      <C>
Balance at beginning of year   $1,827   $1,715   $1,481
Recoveries credited                49       61       37
Provision for loan losses         311      738      598
Loans charged-off                (508)    (687)    (401)
--------------------------------------------------------
Balance at end of year         $1,679   $1,827   $1,715
========================================================
</TABLE>

The  following  is a summary of information pertaining to impaired loans for the
years  ending  December  31,:

<TABLE>
<CAPTION>
(In thousands)                                   2005    2004    2003
----------------------------------------------------------------------
<S>                                             <C>     <C>     <C>
Impaired loans without a valuation allowance    $    -  $    -  $    -
Impaired loans with a valuation allowance        2,452   3,110   3,804
----------------------------------------------------------------------
Total impaired loans                            $2,452  $3,110  $3,804
----------------------------------------------------------------------
Valuation allowance related to impaired loans   $   90  $  760  $  527
----------------------------------------------------------------------
Average investment in impaired loans            $2,856  $3,611  $3,446
----------------------------------------------------------------------
Interest income recognized on impaired loans    $  175  $  153  $  139
----------------------------------------------------------------------
Interest income recognized on a cash basis on
impaired loans                                  $    -  $    -  $   93
----------------------------------------------------------------------
</TABLE>

As  of  December  31,  2005, no additional funds are committed to be advanced in
connection  with  impaired  loans.

The amount of loans on which the Company has ceased accruing interest aggregated
approximately  $1,655,000  and  $1,851,000  at  December  31,  2005  and  2004,
respectively.  There  were  no  loans  past  due  ninety  days or more and still
accruing  interest  at  December  31,  2005  or  2004.

NOTE  6:  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  $56,300,000,  53,000,000  and $47,600,000 at
December  31,  2005,  2004  and  2003,  respectively.

The balance of capitalized servicing rights included in other assets at December
31,  2005  and  2004,  was  $146,000  and  $198,000,  respectively.

--------------------------------------------------------------------------------
                                   Page 52
<PAGE>

The  following  summarizes  mortgage-servicing rights capitalized and amortized:

<TABLE>
<CAPTION>
 (In thousands)                         2005   2004   2003
-----------------------------------------------------------
<S>                                     <C>    <C>    <C>
Mortgage servicing rights capitalized   $  70  $  99  $ 179
Mortgage servicing rights amortized     $ 123  $ 158  $ 122
===========================================================
</TABLE>

NOTE  7:  PREMISES  AND  EQUIPMENT

A  summary  of  premises  and  equipment  at  December  31,  is  as  follows:

<TABLE>
<CAPTION>
(In thousands)                      2005     2004
---------------------------------------------------
<S>                                <C>      <C>
Land                               $ 1,150  $ 1,150
Buildings                            6,590    5,587
Furniture, fixture and equipment     6,120    5,597
Construction in progress               119      508
---------------------------------------------------
                                   $13,979  $12,842
Less: Accumulated depreciation       5,959    5,262
---------------------------------------------------
                                   $ 8,020  $ 7,580
===================================================
</TABLE>

NOTE  8:  GOODWILL  AND  INTANGIBLE  ASSETS

A  summary  of  intangible  assets  is  as  follows:

<TABLE>
<CAPTION>
                                   2005                           2004
---------------------------------------------------------------------------------
<S>                       <C>        <C>             <C>            <C>
                             GROSS                         GROSS
                          CARRYING      ACCUMULATED     CARRYING      ACCUMULATED
 (In thousands)             AMOUNT     AMORTIZATION       AMOUNT     AMORTIZATION
---------------------------------------------------------------------------------
Core deposit intangible   $   1,111  $        (707)  $   1,111  $        (484)
</TABLE>

Amortization  expense  related to core deposit intangibles is estimated to total
$223,000  and  $181,000  for  the  years  ending  December  31,  2006  and 2007,
respectively.  Amortization  of  goodwill  and  the  core  deposit intangible is
deductible  for  tax  purposes.

NOTE  9:  DEPOSITS

A  summary  of  deposits  at  December  31,  is  as  follows:

<TABLE>
<CAPTION>
(In thousands)                         2005      2004
-------------------------------------------------------
<S>                                  <C>       <C>
Savings accounts                     $ 60,176  $ 66,265
Time accounts                          72,121    66,133
Time accounts over $100,000            24,034    18,250
Money management accounts              39,009    44,189
Demand deposit interest-bearing        18,259    20,339
Demand deposit noninterest-bearing     20,241    19,159
Mortgage escrow funds                   2,537     2,337
-------------------------------------------------------
                                     $236,377  $236,672
=======================================================
</TABLE>

--------------------------------------------------------------------------------
                                   Page 53
<PAGE>

At  December 31, 2005, the scheduled maturities of time deposits are as follows:

<TABLE>
<CAPTION>
(In thousands)
----------------------------
YEAR OF MATURITY:
----------------------------
<S>                 <C>
2006                $51,724
2007                 21,221
2008                  8,952
2009                  5,780
2010                  1,910
Thereafter            6,568
---------------------------
                    $96,155
===========================
</TABLE>

NOTE  10:  BORROWED  FUNDS

The  composition  of  borrowings  at  December  31  is  as  follows:

<TABLE>
<CAPTION>
 (In thousands)                2005     2004
----------------------------------------------
<S>                           <C>      <C>
SHORT-TERM FHLB ADVANCES:
FHLB Advances                 $ 2,000  $ 1,000
----------------------------------------------
Total short-term borrowings   $ 2,000  $ 1,000
==============================================
LONG-TERM:
FHLB Repurchase agreements    $ 3,400  $ 3,400
FHLB advances                  25,960   30,960
----------------------------------------------
Total long-term borrowings    $29,360  $34,360
==============================================
</TABLE>

The  principal  balance,  interest  rate and maturity of the above borrowings at
December  31,  2005  is  as  follows:

<TABLE>
<CAPTION>
TERM                                          PRINCIPAL      RATES
----------------------------------------------------------------------
(Dollars in thousands)
<S>                                           <C>         <C>
Short-term advances with FHLB                 $    2,000   3.97%-4.13%
Long-term:
----------------------------------------------------------------------
Repurchase agreements (due in 2006 and 2009)       3,400  5.56% -5.85%
Advances with FHLB
----------------------------------------------------------------------
due within 1 year                                  2,000   4.72%-5.32%
due within 2 years                                11,350   3.00%-5.04%
due within 3 years                                 6,610   2.67%-5.98%
due within 4 years                                 1,000         6.00%
due within 5 years                                 5,000         4.39%
----------------------------------------------------------------------
Total advances with FHLB                      $   25,960
----------------------------------------------------------------------
Total long-term borrowings                    $   29,360
======================================================================
</TABLE>

The  repurchase  agreements  with  the  Federal  Home  Loan  Bank  ("FHLB")  are
collateralized  by  certain  investment  securities  having  a carrying value of
$3,689,000 at December 31, 2005.  The collateral is under the Company's control.
The  line  of  credit  agreement  with  the FHLB is used for liquidity purposes.
Interest  on this line is determined at the time of borrowing.  The average rate
paid  on  the  overnight  line  during 2005 approximated 3.57%.  At December 31,
2005,  $28,725,000  was  available under the line of credit.  In addition to the
overnight line of credit program, the Company also has access to the FHLB's Term
Advance  Program  under which it can borrow at various terms and interest rates.
Residential  mortgage  loans with a carrying value of $84,899,000 and FHLB stock
with  a  carrying  value  of $1,805,000 have been pledged by the Company under a
blanket  collateral  agreement  to  secure the Company's line of credit and term

--------------------------------------------------------------------------------
                                   Page 54
<PAGE>

borrowings.  The  Company  also  maintains  a  $5,000,000  line of credit with a
correspondent  bank.  Interest  on  the  line  is  determined  at  the  time  of
borrowing.  The  Company  did  not  draw  on  the  line during 2005.  Investment
securities  with  a  carrying  value  of  $6,384,000  at  December  31,  2005
collateralize  the  line  of  credit.

The  Company has a non-consolidated subsidiary trust, Pathfinder Statutory Trust
I, of which 100% of the common equity is owned by the Company.  The Trust issued
$5,000,000  of 30 year floating rate Company-obligated pooled capital securities
of  Pathfinder  Statutory  Trust  I.  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 2032 and are treated as Tier 1 capital by the
Federal  Deposit  Insurance  Company  and the Office of Thrift Supervision.  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 plus 3.45% (7.97% at
December  31,  2005  and  6.00%  at  December  31,  2004)  with a five-year call
provision.  The  Company  guarantees  all  of  these  securities.  The  Company
capitalized  $151,000  of  deferred  financing  costs  associated  with the debt
issuance,  which  are  being  amortized on a straight-line basis over the 5-year
period  to  call  date.

The Company's equity interest in the trust subsidiary of $155,000 is reported in
"Other  assets".  For  regulatory  reporting purposes, the Federal Reserve Board
has  indicated  that the preferred securities will continue to qualify as Tier 1
Capital  subject  to  previously specified limitations, until further notice. If
regulators make a determination that Trust Preferred Securities can no longer be
considered in regulatory capital, the securities become callable and the Company
may  redeem  them.

NOTE 11: 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. In addition, the Company provides certain
health  and  life  insurance  benefits  for  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.

The  Company uses an October 1 measurement date for the defined benefit plan and
postretirement  benefit  plan.

--------------------------------------------------------------------------------
                                   Page 55
<PAGE>

The  following  tables  set  forth the changes in the plan's benefit obligation,
fair  value  of  plan assets and prepaid (accrued) benefit (cost) as of December
31:

<TABLE>
<CAPTION>
                                                  PENSION BENEFITS  POSTRETIREMENT BENEFITS
-------------------------------------------------------------------------------------------
(In thousands)                                       2005       2004    2005         2004
-------------------------------------------------------------------------------------------
CHANGE IN BENEFIT OBLIGATIONS:
<S>                                              <C>       <C>       <C>      <C>
Benefit obligation at beginning of year          $  3,745   $  3,382   $ 309       $ 367
Service cost                                          151        155       2           2
Interest cost                                         229        207      18          19
Actuarial gain (loss)                                 378        153      46         (58)
Plan participants' contributions                        -          -       6          12
Benefit paid                                         (142)      (152)    (27)        (33)
-------------------------------------------------------------------------------------------
Benefit obligation at end of year                $  4,361   $  3,745   $ 354       $ 309
-------------------------------------------------------------------------------------------
CHANGE IN PLAN ASSETS:
Fair value of plan assets at beginning of year   $  3,154   $  2,792   $   -       $   -
Actual return on plan assets                          388        236       -           -
Plan participants' contributions                        -          -       6          12
Benefits paid                                        (142)      (152)    (27)        (33)
Employer contributions                                670        278      21          21
-------------------------------------------------------------------------------------------
Fair value of plan assets at end of year         $  4,070   $  3,154   $   -       $   -
-------------------------------------------------------------------------------------------
COMPONENTS OF PREPAID/ACCRUED BENEFIT COST:
Unfunded status                                  $   (291)  $   (591)  $(354)      $(309)
Unrecognized transition obligation                      -          -     115         134
Unrecognized actuarial net loss/(gain)              1,656      1,478      34         (13)
-------------------------------------------------------------------------------------------
Prepaid/(accrued) benefit/(cost)                 $  1,365   $    887   $(205)      $(188)
===========================================================================================
</TABLE>

The  accumulated  benefit obligation for the defined benefit plan was $3,602,000
and  $3,042,000  at  December  31,  2005  and  2004,  respectively.

The  significant  assumptions  used  in determining the benefit obligation as of
December  31,  2005,  2004  and  2003  are  as  follows:

<TABLE>
<CAPTION>
                                                  PENSION BENEFITS   POSTRETIREMENT BENEFITS
                                                  ----------------------------------------------
<S>                                               <C>      <C>       <C>     <C>    <C>    <C>
                                                     2005     2004     2003   2005   2004   2003
------------------------------------------------------------------------------------------------
Weighted average discount rate                      5.88%    6.25%    6.50%   5.88%  6.25%  6.00%
Expected long term rate of return on plan assets    9.00%    9.00%    9.00%      -      -      -
Rate of increase in future compensation levels      3.00%    3.50%    4.00%      -      -      -
================================================================================================
</TABLE>

Assumed  health  care  cost trend rates have a significant effect on the amounts
reported  for the postretirement health care plans. The annual rates of increase
in  the  per  capita  cost of covered medical and prescription drug benefits for
year-end calculations were assumed to be 9.5% and 10.0%, respectively. The rates
were  assumed  to  decrease  gradually to 3.75% in 2011 and remain at that level
thereafter.  A  one-percentage  point change in the health care cost trend rates
would have the following effects:

<TABLE>
<CAPTION>
                                               1 PERCENTAGE    1 PERCENTAGE
                                                   POINT          POINT
(In thousands)                                   INCREASE        DECREASE
----------------------------------------------------------------------------
<S>                                            <C>            <C>
Effect on total of service and interest
cost components                                $          21  $         (20)
Effect on post retirement benefit obligation              15            (11)
============================================================================
</TABLE>

--------------------------------------------------------------------------------
                                   Page 56
<PAGE>

The  composition  of  the  net  periodic  benefit  plan cost for the years ended
December  31,  2005,  2004  and  2003  is  as  follows:

<TABLE>
<CAPTION>
                                            PENSION BENEFITS  POSTRETIREMENT BENEFITS
                                         -------------------------------------------
(In thousands)                            2005     2004   2003    2005   2004   2003
------------------------------------------------------------------------------------
<S>                                     <C>     <C>     <C>     <C>    <C>    <C>
Service cost                            $  151   $ 155   $ 154   $   2  $   2  $   2
Interest cost                              229     207     200      18     19     21
Amortization of transition obligation        -       -       -      19     18     18
Amortization of gains and losses            96      94     106       -      -      1
Expected return on plan assets            (285)   (254)   (227)      -      -      -
------------------------------------------------------------------------------------
Net periodic benefit plan cost          $  191   $ 202   $ 233   $  39  $  39  $  42
====================================================================================
</TABLE>

The  significant  assumptions  used in determining the net periodic benefit plan
cost  for  years  ended  December  31:

<TABLE>
<CAPTION>
                                                     PENSION BENEFITS  POSTRETIREMENT BENEFITS
                                                    ------------------------------------------
                                                     2005   2004   2003  2005   2004   2003
----------------------------------------------------------------------------------------------
<S>                                               <C>     <C>    <C>    <C>    <C>    <C>
Weighted average discount rate                       5.88%  6.25%  6.50%  5.88%  6.25%  6.00%
Expected long term rate of return on plan assets     9.00%  9.00%  9.00%     -      -      -
Rate of increase in future compensation levels       3.00%  3.50%  4.00%     -      -      -
==============================================================================================
</TABLE>

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 5-9.0% and 2-6.0%, 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 is
determined  to  be  9.0%, which is roughly the midpoint of the range of expected
return.

The Company's pension plan weighted-average asset allocations at October 1, the
measurement date, by asset category

<TABLE>
<CAPTION>
ASSET CATEGORY     2005   2004
-------------------------------
<S>                <C>    <C>
Equity securities    72%    69%
Debt securities      28%    31%
-------------------------------
Total               100%   100%
===============================
</TABLE>

Plan  assets  are  invested  in  six  diversified  investment  funds  of the RSI
Retirement  Trust  (the  "Trust"), a no load series open-ended mutual fund.  The
investment  funds  include  four  equity mutual funds and two bond mutual funds,
each  with  its  own  investment objectives, investment strategies and risks, as
detailed  in the Trust's prospectus.  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  "Guidelines").

The  long-term  investment  objective is to be invested 65% in equity securities
(equity  mutual  funds)  and 35% in debt securities (bond mutual funds).  If the
plan  is  underfunded  under  the  Guidelines,  the  bond  fund  portion will be
temporarily  increased  to  50% in order to lessen asset value volatility.  When
the  plan is no longer underfunded, the bond fund portion will be decreased back
to  35%.  Asset  rebalancing  is  performed  at  least  annually,  with  interim
adjustments  made  when  the  investment mix varies more than 5% from the target
(i.e.,  a  10%  target  range).

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

--------------------------------------------------------------------------------
                                   Page 57
<PAGE>

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.

For  the  fiscal  year  ending December 31, 2006, the Bank expects to contribute
approximately  $192,000  to  the  Plan.

The  following  benefit  payments,  which  reflect  expected  future service, as
appropriate,  are  expected  to  be  paid.

<TABLE>
<CAPTION>

YEARS ENDING DECEMBER 31:
--------------------------------
<S>                         <C>
(In thousands)
--------------------------------
2006                        $148
2007                         148
2008                         145
2009                         148
2010                         152
Years 2011 - 2015            981
================================
</TABLE>

The  Company  also offers a 401(k) plan to its employees.  Contributions to this
plan by the Company were $145,000, $92,000 and  $84,000 for 2005, 2004 and 2003,
respectively.

The  Company  maintains  optional  deferred compensation plans for its directors
whereby fees normally received are deferred and paid by the Company based upon a
payment  schedule  commencing  at  age  65  and  continue  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, 2005 and 2004, other liabilities include approximately
$1,412,0000  and  $1,276,000,  respectively,  relating to deferred compensation.
Deferred  compensation  expense  for the years ended December 31, 2005, 2004 and
2003  amounted  to  approximately $211,000, $185,000 and $116,000, respectively.

The  Company  has  a  supplemental  executive retirement plan for the benefit of
certain  executive  officers.  At  December 31, 2005 and 2004, other liabilities
include  approximately  $424,000  and  $449,000  accrued  under  these  plans.
Compensation  expense  includes  approximately  $56,000,  $53,000  and  $68,000
relating  to the supplemental executive retirement plan for 2005, 2004 and 2003,
respectively.

To  fund  the  benefits  under  these  plans, the Company is the owner of single
premium  life insurance policies on participants in the non-qualified retirement
plans.  At  December  31,  2005  and  2004, the cash value of these policies was
$5,987,000  and  $5,768,000,  respectively.

NOTE  12:  STOCK  BASED  COMPENSATION  PLANS

In  February  1997,  the  Board of Directors approved an option plan and granted
options  there  under  with  an  exercise price equal to the market value of the
Company's  shares  at  the  date  of  grant.  Under the Stock Option Plan, up to
132,249  options  have  been authorized for grant of incentive stock options and
nonqualified  stock  options.

In  July 2001, the Board approved the issuance of 38,499 stock options remaining
in  the 1997 Stock Option Plan.  The exercise price is equal to the market value
of the Company's shares at the date of grant ($8.34).  The options granted under
the  issuance have a 10-year term with one-third vesting upon grant date and the
remaining  vesting  and  becoming  exercisable  ratably  over  a  2-year period.

--------------------------------------------------------------------------------
                                   Page 58
<PAGE>

Activity  in  the  Stock  Option  Plan  is  as  follows:

<TABLE>
<CAPTION>
                                                    WEIGHTED
                                     OPTIONS         AVERAGE        SHARES
(Shares in thousands)              OUTSTANDING   EXERCISE PRICE   EXERCISABLE
--------------------------------------------------------------------------------
<S>                                <C>           <C>              <C>
Outstanding at December 31, 2002            93   $          7.27           80
--------------------------------------------------------------------------------
Exercised                                   (5)             7.49
Outstanding at December 31, 2003            88   $          7.25           88
--------------------------------------------------------------------------------
Exercised                                  (18)             7.75
Outstanding at December 31, 2004            70   $          7.12           70
--------------------------------------------------------------------------------
Exercised                                  (13)             6.58
Expired                                    (11)             6.58
Outstanding at December 31, 2005            46   $          7.41           46
--------------------------------------------------------------------------------
</TABLE>

The Bank sponsors an Employee Stock Ownership Plan (ESOP) for employees who have
attained  the  age  of 21 and who have completed a 12 month period of employment
with the Bank during which they worked at least 1,000 hours.  The Bank purchased
92,574 shares of common stock on behalf of the ESOP.  The purchase of the shares
was  funded  by  a  loan from the Company and the unearned shares are pledged as
collateral  for  the  borrowing.  As  the  loan  was  repaid, earned shares were
released  from  collateral  and  allocated  to the participants.  As shares were
earned, the Bank records compensation expense at the average market price of the
shares  during  the  period.  Cash  dividends  received  on unearned shares were
allocated  among  the  participants  and  were reported as compensation expense.
ESOP compensation expense, including cash dividends received on unearned shares,
approximated  $88,000,  $136,000  and  $129,000 for the years ended December 31,
2005,  2004  and 2003, respectively.   Total earned shares at December 31, 2005,
2004  and  2003  were  92,574,  86,998  and 79,367, respectively.  Unearned ESOP
shares  are  not  considered  outstanding for purposes of computing earnings per
share.  All  shares  were  earned  at  December  31,  2005.

NOTE  13:  INCOME  TAXES

The  provision  for income taxes for the years ended December 31, is as follows:

<TABLE>
<CAPTION>
 (In thousands)   2005   2004   2003
-------------------------------------
<S>              <C>     <C>    <C>
Current          $(160)  $   -  $ 294
Deferred           109     502    307
-------------------------------------
                 $ (51)  $ 502  $ 601
=====================================
</TABLE>

The  provision  for  income  taxes  includes  the  following:

<TABLE>
<CAPTION>
 (In thousands)                 2005    2004    2003
-----------------------------------------------------
<S>                            <C>     <C>     <C>
Federal Income Tax             $ (29)  $ 520   $ 631
New York State Franchise Tax     (22)    (18)    (30)
-----------------------------------------------------
                               $ (51)  $ 502   $ 601
=====================================================
</TABLE>

--------------------------------------------------------------------------------
                                   Page 59
<PAGE>

The components of net deferred tax asset, included in other assets for the years
ended December 31, are as follows:

<TABLE>
<CAPTION>
 (In thousands)                                2005      2004
---------------------------------------------------------------
<S>                                          <C>       <C>
ASSETS:
Deferred compensation                        $   715   $   672
Allowance for loan losses                        654       712
Postretirement benefits                           82        74
Mortgage recording tax credit carryforward       361       304
Investment securities                            865       213
Other                                            121        49
---------------------------------------------------------------
                                             $ 2,798   $ 2,024
===============================================================
LIABILITIES:
Prepaid pension                                 (532)     (345)
Depreciation                                    (647)     (671)
Accretion                                        (37)      (47)
Loan origination fees                           (250)     (236)
Intangible assets                               (432)     (328)
Prepaid expenses                                 (79)     (119)
---------------------------------------------------------------
                                             $(1,977)  $(1,746)
---------------------------------------------------------------
Net deferred tax asset                       $   821   $   278
===============================================================
</TABLE>

The Company has a New York State mortgage recording tax credit that has no carry
forward  limitations.  The Company has determined that no valuation allowance is
necessary  as  it  is  more likely than not deferred tax assets will be realized
through carryback to taxable income in prior years, future reversals of existing
temporary  differences  and  through future taxable income.  A reconciliation of
the  federal  statutory income tax rate to the effective income tax rate for the
years  ended  December  31,  is  as  follows:

<TABLE>
<CAPTION>
                                           2005    2004   2003
---------------------------------------------------------------
<S>                                       <C>      <C>    <C>
Federal statutory income tax rate           34.0%  34.0%  34.0%
State tax                                   (3.0)  (0.9)  (0.6)
Tax-exempt interest income, net of TEFRA   (44.8)  (6.0)  (5.1)
Increase in value of life insurance        (18.1)  (3.1)  (2.6)
Other                                       19.5    2.3    1.0
---------------------------------------------------------------
Effective income tax rate                 (12.4)%  26.3%  26.7%
===============================================================
</TABLE>

--------------------------------------------------------------------------------
                                   Page 60
<PAGE>

The following is a reconciliation of basic to diluted earnings per share for the
years  ended  December  31:

<TABLE>
<CAPTION>
(Dollars in thousands, except per share data)  EARNINGS   SHARES   EPS
-----------------------------------------------------------------------
<S>                                            <C>        <C>     <C>
2005  Net Income                               $     462
Basic EPS                                            462   2,456  $0.19
-----------------------------------------------------------------------
Effect of dilutive securities
Stock options                                          -      25
-----------------------------------------------------------------------
Diluted EPS                                    $     462   2,481  $0.19
-----------------------------------------------------------------------
2004  Net Income                               $   1,405
Basic EPS                                          1,405   2,435  $0.58
-----------------------------------------------------------------------
Effect of dilutive securities
Stock options                                          -      44
-----------------------------------------------------------------------
Diluted EPS                                    $   1,405   2,479  $0.57
-----------------------------------------------------------------------
2003  Net Income                               $   1,652
Basic EPS                                          1,652   2,424  $0.68
-----------------------------------------------------------------------
Effect of dilutive securities
Stock options                                          -      48
-----------------------------------------------------------------------
Diluted EPS                                    $   1,652   2,472  $0.67
=======================================================================
</TABLE>

NOTE  15:  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  commitment  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's  exposure to credit loss is represented by the contractual amount
of  these  commitments.   The  Company  uses  the same credit policies in making
commitments  as  it  does  for  on-balance  sheet  instruments.

--------------------------------------------------------------------------------
                                   Page 61
<PAGE>

At  December  31,  2005  and  2004,  the  following  financial  instruments were
outstanding  whose  contract  amounts  represent  credit  risk:

<TABLE>
<CAPTION>
                                                    CONTRACT AMOUNT
-----------------------------------------------------------------------
(In thousands)                                   2005        2004
-----------------------------------------------------------------------
<S>                                          <C>        <C>
Commitments to grant loans                   $  6,371     $ 5,120
Unfunded commitments under lines of credit     12,361      12,021
Standby letters of credit                         798       1,106
=======================================================================
</TABLE>

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, 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.

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.

Outstanding  letters of credit written are conditional commitments issued by the
Bank  to guarantee the performance of a customer to a third party.  The majority
of  these  standby  letters of credit expire within the next twelve months.  The
credit  risk  involved  in  issuing letters of credit is essentially the same as
that involved in extending other loan commitments.  The Bank requires collateral
supporting  these  letters  of  credit as deemed necessary.  Management believes
that  the  proceeds  obtained  through a liquidation of such collateral would be
sufficient  to  cover  the  maximum potential amount of future payments required
under  the corresponding guarantees.  The amount of the liability as of December
31,  2005  and  2004 or 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  operating  expenses,  amounted  to $42,000, $41,000 and $41,000 in
2005,  2004 and 2003, respectively.  In October 2002, the Company entered into a
land  lease with one of its directors on an arms-length basis.  The rent expense
paid  to  the  related party during 2005, 2004 and 2003 was $23,000, $21,000 and
$21,000,  respectively.  Approximate  minimum  rental  commitments  for  the
noncancelable  operating  leases  are  as  follows:

<TABLE>
<CAPTION>
YEARS ENDING DECEMBER 31:
------------------------------------
<S>                            <C>
(In thousands)
2006                           $ 47
2007                             47
2008                             51
2009                             51
2010                             51
Thereafter                      115
-----------------------------------
Total minimum lease payments   $362
===================================
</TABLE>

NOTE  16:  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 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

--------------------------------------------------------------------------------
                                   Page 62
<PAGE>

to  pay  expenses  or  for  other  allowable  purposes.  The  Office  of  Thrift
Supervision ("OTS") has indicated that (i) the Holding Company shall provide the
OTS  annually  with written notice of its intent to waive its dividends prior to
the  proposed  date  of  the  dividend,  and the OTS 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;  (iii) the Company shall establish a restricted capital account in
the amount of any dividends waived by the Holding Company, and the amount of any
dividend  waived  by the Holding Company shall be available for declaration as a
dividend  solely  to  the  Holding  Company.  During 2005, the Company paid cash
dividends  totaling  $325,000  to the Holding Company. For the second and fourth
quarters  ending  June 30, 2005 and December 31, 2005, respectively, the Holding
Company  waived  the right to receive its portion of the cash dividends declared
on  June  28,  2005 and December 27, 2005, respectively, which totaled $325,000.
The  Company  maintains  a restricted capital account with a $1,532,000 balance,
representing  the  Holding  Company's portion of dividends waived as of December
31,  2005.  During  2004 and 2003, the Holding Company waived dividends totaling
$320,000  and  $317,000,  respectively.

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 17 the circumstances
under  which  the  Bank  may  pay  dividends  are  limited  by federal statutes,
regulations  and  policies.  The  amount  of retained earnings legally available
under  these  regulations  approximated  $1,670,000  as  of  December  31, 2005.
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.

NOTE  17:  REGULATORY  MATTERS

The  Company  (on  a  consolidated  basis)  and  the Bank are 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 Bank's financial statements. Under
capital  adequacy  guidelines and the regulatory framework for prompt corrective
action,  the  Company  and  the  Bank must meet specific capital guidelines that
involve  quantitative  measures  of  the  their 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.  Prompt
corrective  action  provisions  are  not  applicable  to bank holding companies.

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).  Management believes, as of December 31, 2005, that the Bank meets all
capital  adequacy  requirements  to  which  it  is  subject.

--------------------------------------------------------------------------------
                                   Page 63
<PAGE>

As  of  December  31, 2005, 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.  The  Company's  and  the  Bank's actual capital
amounts  and  ratios  as  of December 31, 2005and 2004 are also presented in the
following  table.

<TABLE>
<CAPTION>

                                                                                 "To Be Well
                                                                                 Capitalized"
                                                              For Capital       Under Prompt
                                                  Actual     Adequacy Purposes Corrective Provisions
(Dollars in thousands)                        Amount   Ratio   Amount   Ratio   Amount   Ratio
-----------------------------------------------------------------------------------------------
COMPANY
As of December 31, 2005:
<S>                                           <C>      <C>     <C>      <C>     <C>      <C>
Total Core Capital (to Risk-Weighted Assets)  $24,802   13.5%  $14,706    8.0%  N/A      N/A
Tier 1 Capital (to Risk-Weighted Assets)      $23,123   12.6%  $ 7,353    4.0%  N/A      N/A
Tier 1 Capital (to Average Assets)            $23,123    7.6%  $12,167    4.0%  N/A      N/A
---------------------------------------------------------------------------------------------
BANK
As of December 31, 2005:
Total Core Capital (to Risk-Weighted Assets)  $22,957   12.6%  $14,615    8.0%  $18,269   10.0%
Tier 1 Capital (to Risk-Weighted Assets)      $21,278   11.7%  $ 7,307    4.0%  $10,961    6.0%
Tier 1 Capital (to Average Assets)            $21,278    7.1%  $11,927    4.0%  $14,909    5.0%
-----------------------------------------------------------------------------------------------
COMPANY
As of December 31, 2004:
Total Core Capital (to Risk-Weighted Assets)  $24,493   13.5%  $14,472    8.0%  N/A      N/A
Tier 1 Capital (to Risk-Weighted Assets)      $22,666   12.5%  $ 7,236    4.0%  N/A      N/A
Tier 1 Capital (to Average Assets)            $22,666    7.7%  $11,775    4.0%  N/A      N/A
------------------------------------------------------------------------------------------------
BANK
As of December 31, 2004:
Total Core Capital (to Risk-Weighted Assets)  $22,974   12.8%  $14,416    8.0%  $18,020   10.0%
Tier 1 Capital (to Risk-Weighted Assets)      $21,147   11.7%  $ 7,208    4.0%  $10,812    6.0%
Tier 1 Capital (to Average Assets)            $21,147    7.1%  $11,947    4.0%  $14,934    5.0%
-----------------------------------------------------------------------------------------------
</TABLE>

The Bank is required to maintain average balances on hand or with the Federal
Reserve Bank.  At December 31, 2005 and 2004, these reserve balances amounted to
$1,608,000 and $2,419,000, respectively.

NOTE 18: FAIR VALUES OF FINANCIAL INSTRUMENTS

SFAS  No.  107, "Disclosure About Fair Value of Financial Instruments," requires
disclosure  of  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 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.

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

--------------------------------------------------------------------------------
                                   Page 64
<PAGE>

estimated  fair  value  amounts  have  been  measured  as  of  their  respective
year-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
year-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 approximate fair value.

INVESTMENT  SECURITIES  -  fair  values of securities are based on quoted market
prices, where available.  If quoted market prices are not available, fair values
are  based  on  quoted  market  prices  of  comparable  instruments.

LOANS  AND  MORTGAGE  LOANS HELD-FOR-SALE - for variable rate loans that reprice
frequently and with no significant credit risk, fair values approximate carrying
values.  Fair  values  for  fixed rate loans are estimated using discounted cash
flow  analysis,  using  interest  rates  currently  being offered for loans with
similar  terms  to  borrowers  of  similar  credit  quality.

FEDERAL  HOME  LOAN  BANK STOCK - the carrying amounts reported approximate fair
value.

MORTGAGE  SERVICING  RIGHTS  -  the  carrying  amount  approximates  fair value.

ACCRUED  INTEREST  RECEIVABLE  AND  PAYABLE  -  the  carrying amounts of accrued
interest  receivable  and  payable  approximate  their  fair  values.

DEPOSIT  LIABILITIES  -  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).  Fair
values  for  fixed-rate certificates of deposit are estimated using a discounted
cash  flow  calculation  that  applies interest rates currently being offered on
certificates of deposits to a schedule of aggregated expected monthly maturities
on  time  deposits.

BORROWINGS  -  the fair values for short-term borrowings and junior subordinated
debentures  approximate  the  carrying  amounts.  The  fair values for long-term
borrowings  were  estimated  using  discounted  cash  flow analysis based on the
Company's  current  incremental  borrowing  rates for similar types of borrowing
arrangements.

OFF-BALANCE  SHEET INSTRUMENTS - Fair values for the Company's off-balance sheet
instruments  are  based  on  fees  currently  charged  to  enter  into  similar
agreements,  taking  into  account the remaining terms of the agreements and the
counterparties'  credit  standing.

--------------------------------------------------------------------------------
                                   Page 65
<PAGE>

The  carrying  amounts and fair values of the Company's financial instruments as
of  December  31  are  presented  in  the  following  table:

<TABLE>
<CAPTION>
                                          2005                          2004
---------------------------------------------------------------------------------------
                                 CARRYING    ESTIMATED          CARRYING    ESTIMATED
(Dollars in thousands)            AMOUNTS   FAIR VALUES          AMOUNTS   FAIR VALUES
---------------------------------------------------------------------------------------
<S>                              <C>        <C>               <C>        <C>
FINANCIAL ASSETS:
Cash and cash equivalents        $   7,895  $      7,895        $  14,325  $     14,325
Investment securities               74,239        74,239           75,069        75,069
Mortgage loans held-for-sale             -             -            2,159         2,329
Net Loans                          187,889       189,598          185,125       190,034
Federal Home Loan Bank Stock         1,805         1,805            1,768         1,768
Accrued interest receivable          1,678         1,678            1,505         1,505
Mortgage servicing rights              146           146              198           198
---------------------------------------------------------------------------------------
FINANCIAL LIABILITIES:
Deposits                         $ 236,377  $    236,552        $ 236,672  $    237,410
Borrowed funds                      31,360        33,883           35,360        36,360
Junior subordinated debentures       5,155         5,155            5,155         5,155
Accrued interest payable               161           161              143           143
---------------------------------------------------------------------------------------
OFF-BALANCE SHEET INSTRUMENTS:
Standby letter of credit         $       -  $          -        $       -  $          -
Commitments to extend credit             -             -                -             -
Forward rate lock commitments            -             -                -             -
=======================================================================================
</TABLE>

NOTE  19:  PARENT  COMPANY  -  FINANCIAL  INFORMATION

The  following  represents  the  condensed  financial  information of Pathfinder
Bancorp,  Inc.  for  years  ended  December  31:

<TABLE>
<CAPTION>

STATEMENTS OF CONDITION                                 2005      2004
-----------------------------------------------------------------------------
(In thousands)
<S>                                                   <C>       <C>
ASSETS
Cash                                                  $   245   $   982
Investments                                                19         -
Receivable from bank subsidiary                             -        41
Investment in subsidiaries                             24,602    25,698
Due from subsidiaries                                   1,125       240
Other assets                                              207       243
---------------------------------------------------------------------------
Total assets                                          $26,198   $27,204
===========================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
Accrued liabilities                                       115       223
Junior subordinated debentures                          5,155     5,155
Shareholders' equity                                   20,928    21,826
---------------------------------------------------------------------------
Total liabilities and shareholders' equity            $26,198   $27,204
===========================================================================

--------------------------------------------------------------------------------
                                   Page 66
<PAGE>

STATEMENTS OF INCOME                                     2005      2004      2003
----------------------------------------------------------------------------------
(In thousands)
Interest income                                       $    14   $     9   $    16
Interest expense                                          352       259       243
----------------------------------------------------------------------------------
Net interest expense                                     (338)     (250)     (227)
Operating expense                                         (92)     (130)     (106)
Realized gain on sale of investment security                -       330       104
Amortization of deferred financing costs                  (30)      (30)      (30)
----------------------------------------------------------------------------------
Loss before tax benefit and equity in
undistributed net income of subsidiaries                 (460)      (80)     (259)
----------------------------------------------------------------------------------
Tax benefit                                               128        20        73
----------------------------------------------------------------------------------
Loss before equity in undistributed net
income of subsidiaries                                   (332)      (60)     (186)
Equity in undistributed net income of subsidiaries        794     1,465     1,837
----------------------------------------------------------------------------------
Net income                                            $   462   $ 1,405   $ 1,652
==================================================================================

STATEMENTS OF CASH FLOWS                                 2005      2004      2003
----------------------------------------------------------------------------------
(In thousands)
OPERATING ACTIVITIES
   Net Income                                         $   462   $ 1,405   $ 1,652
   Equity in undistributed earnings of subsidiaries      (794)   (1,465)   (1,837)
   Realized gain on sale of investment security             -      (330)     (104)
   ESOP shares earned                                      88       133       122
   Amortization of deferred financing costs                30        30        30
   Other operating activities                            (987)     (304)       81
----------------------------------------------------------------------------------
Net cash used in operating activities                  (1,201)     (531)      (56)
----------------------------------------------------------------------------------
INVESTING ACTIVITIES
Proceeds from loan to subsidiary                           41        56        56
 Dividends receivable                                     911         8         7
 Purchase of investments                                  (18)        -         -
 Proceeds from sale of investments                          -       430       154
----------------------------------------------------------------------------------
Net cash provided by investing activities                 934       494       217
----------------------------------------------------------------------------------
FINANCING ACTIVITIES
 Proceeds from exercise of stock options                  213       140        35
 Dividend received from subsidiary                          -         -     1,500
 Cash dividends                                          (683)     (664)     (651)
 Treasury stock purchased                                   -         -    (2,687)
----------------------------------------------------------------------------------
Net used in financing activities                         (470)     (524)   (1,803)
----------------------------------------------------------------------------------
Decrease in cash and cash equivalents                    (737)     (561)   (1,643)
Cash and cash equivalents at beginning of year            982     1,543     3,186
----------------------------------------------------------------------------------
Cash and cash equivalents  at end of year             $   245   $   982   $ 1,543
==================================================================================
</TABLE>

--------------------------------------------------------------------------------
                                   Page 67
<PAGE>

ITEM  9:  CHANGES  IN  AND  DISAGREEMENTS  WITH  ACCOUNTANTS  ON  ACCOUNTING AND
FINANCIAL  DISCLOSURE

None.

ITEM  9A:  CONTROLS  AND  PROCEDURES

Under  the  supervision  and with the participation of the Company's management,
including  our  Chief Executive Officer and Chief Financial Officer, the Company
has  evaluated  the  effectiveness of the design and operation of its disclosure
controls  and  procedures  (as defined in Rule 13a-15(e) and 15d-15(e) under the
Exchange  Act) as of the end of the period covered by this annual report.  Based
upon  that  evaluation,  the Chief Executive Officer and Chief Financial Officer
concluded  that,  as  of  the  end  of  the  period  covered by this report, the
Company's  disclosure  controls  and  procedures  are  effective  to ensure that
information  required  to  be disclosed in the reports that the Company files or
submits  under  the  Securities  Exchange  Act  of  1934 is recorded, processed,
summarized and reported, within the time periods specified in the Securities and
Exchange  Commission's  rules  and  forms.  There  has  been  no  change  in the
Company's  internal  control  over  financial  reporting  during the most recent
fiscal  quarter  that  has  materially  affected,  or  is  reasonable  likely to
materially  affect,  the  Company's  internal  control over financial reporting.

ITEM  9B:  OTHER  INFORMATION

None


PART  III

ITEM  10:  DIRECTORS  AND  EXECUTIVE  OFFICERS  OF  THE  COMPANY

(a)  Information  concerning  the  directors  of  the Company is incorporated by
     reference hereunder in the Company's Proxy Materials for the Annual Meeting
     of Stockholders.

(b)  Set  forth  below  is  information  concerning  the  Executive  Officers of
     the Company at December 31, 2005

<TABLE>
<CAPTION>
<S>                  <C>  <C>
NAME                 AGE  POSITIONS HELD WITH THE COMPANY
Thomas W. Schneider   44  President and Chief Executive Officer
James A. Dowd, CPA    38  Vice President, Chief Financial Officer
Edward A. Mervine     49  Vice President, General Counsel
John F. Devlin        41  Vice President, Senior Commercial Lender
Melissa A. Miller     48  Vice President, Chief Operating Officer
Rhonda Hutchis        47  Vice President, Retail Lending
</TABLE>


--------------------------------------------------------------------------------
                                   Page 68
<PAGE>

ITEM  11:  EXECUTIVE  COMPENSATION

Information  with  respect  to management compensation and transactions required
under  this  item  is incorporated by reference hereunder in the Company's Proxy
Materials  for  the  Annual  Meeting  of  Stockholders  under  the  caption
"Compensation".

ITEM  12:  SECURITY  OWNERSHIP  OF  CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED  STOCKHOLDER  MATTERS

The  information  contained  under  the  sections  captioned "Stock Ownership of
Management"  is  incorporated  by reference to the Company's Proxy Materials for
its  Annual  Meeting  of  Stockholders.

ITEM  13:  CERTAIN  RELATIONSHIPS  AND  RELATED  TRANSACTIONS

The  information  required  by this item is set forth under the caption "Certain
Transactions"  in  the  Definitive  Proxy  Materials  for  the Annual Meeting of
Stockholders  and  is  incorporated  herein  by  reference.

ITEM  14:  PRINCIPAL  ACCOUNTANT  FEES  AND  SERVICES

The  information required by this item is set forth under the caption "Audit and
Related  Fees"  in  the  Definitive  Proxy  Materials  for the Annual Meeting of
Stockholders  and  is  incorporated  herein  by  reference.

--------------------------------------------------------------------------------
                                   Page 69
<PAGE>

ITEM  15.     EXHIBITS,  FINANCIAL  STATEMENT  SCHEDULES

(a)(1) Financial  Statements  -  The  Company's  consolidated  financial
     statements,  for the years ended December 31, 2005, 2004 and 2003, together
     with  the Report of Independent Registered Public Accounting Firm are filed
     as  part  of  this  Form 10-K report. See "Item 8: Financial Statements and
     Supplementary  Data."  The  supplemental  financial  information listed and
     appearing  hereafter  should  be  read  in  conjunction  with the financial
     statements included in this report.

(a)(2) Financial  Statement  Schedules  -  All  financial  statement  schedules
     have  been  omitted as the required information is inapplicable or has been
     included in "Item 7: Management Discussion and Analysis."

(b)  Exhibits

3.1  Certificate  of  Incorporation  of  Pathfinder  Bancorp, Inc. (Incorporated
     herein  by reference to the Company's Current Report on Form 8-K dated June
     25, 2001)

3.2  Bylaws  of  Pathfinder  Bancorp,  Inc.  (Incorporated  herein  by reference
     to the Company's Quarterly Report on Form 10Q dated August 15, 2005)

4    Form  of  Stock  Certificate  of  Pathfinder  Bancorp,  Inc.  (Incorporated
     herein  by reference to the Company's Current Report on Form 8-K dated June
     25, 2001)

10.1 Form  of  Pathfinder  Bank  1997  Stock Option Plan (Incorporated herein by
     reference to the Company's S-8 file no. 333-53027)

10.2 Form  of  Pathfinder  Bank  1997  Recognition  and  Retention  Plan
     (Incorporated by reference to the Company's S-8 file no. 333-53027)

10.3 2003  Executive  Deferred  Compensation  Plan  (Incorporated  by  herein by
     reference  to  the  Company's Quarterly Report on Form 10-Q for the quarter
     ended March 31, 2004 file no. 000-23601)

10.4 2003  Trustee  Deferred  Fee  Plan  (Incorporated by herein by reference to
     the Company's Quarterly Report on Form 10-Q for the quarter ended March 31,
     2004 file no. 000-23601)

10.5 Employment  Agreement  between  the  Bank  and  Thomas  W.  Schneider,
     President  and  Chief  Executive  Officer (Incorporated by reference to the
     Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 2004
     file no. 000-23601)

10.6 Employment  Agreement  between  the  Bank  and Edward A. Mervine, Corporate
     Counsel  (Incorporated  by  reference  to the Company's Quarterly Report on
     Form 10-Q for the quarter ended June 30, 2004 file no. 000-23601)

21   Subsidiaries of Company

23   Consent of Beard Miller Company LLP

31.1 Rule 13a-14(a) / 15d-14(a) Certification of the Chief Executive Officer

31.2 Rule 13a-14(a) / 15d-14(a) Certification of the Chief Financial Officer

32.1 Section  1350  Certification  of  the  Chief Executive and Chief Financial
     Officer

--------------------------------------------------------------------------------
                                   Page 70
<PAGE>

SIGNATURES

Pursuant  to  the  requirements  of Section 13 of the Securities Exchange Act of
1934,  the Company has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.

<TABLE>
<CAPTION>

                                         Pathfinder Bancorp, Inc.
<S>                                    <C>
Date:  March 30, 2006                    By: /s/ Thomas W. Schneider
                                                 Thomas W. Schneider
                                         President and Chief Executive Officer

Pursuant  to the requirement of the Securities Exchange Act of 1934, this report
has  been  signed below by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated.

                                         By: /s/ Janette Resnick
                                             Janette Resnick, Chairman of the Board
                                         Date:  March 30, 2006
</TABLE>
<TABLE>
<CAPTION>

<S>   <C>                                 <C>
By:    /s/ Thomas W. Schneider           By:/s/ Chris R. Burritt
       Thomas W. Schneider, President           Chris R. Burritt, Director
       and Chief Executive Officer
Date:  March 30, 2006                    Date:  March 30, 2006

By:    /s/ James A. Dowd                 By:/s/ George P. Joyce
       James A. Dowd, Vice President,           George P. Joyce, Director
       Chief Financial Officer and
        Trust Officer
Date:  March 30, 2006                    Date:  March 30, 2006

By:    /s/ Bruce E. Manwaring            By:/s/ Corte J. Spencer
       Bruce E. Manwaring, Director             Corte J. Spencer, Director
Date:  March 30, 2006                    Date:  March 30, 2006

By:    /s/ L. William Nelson, Jr.        By:/s/ Chris C. Gagas
       L. William Nelson, Jr. Director          Chris C. Gagas, Director
Date:  March 30, 2006                    Date:  March 30, 2006

By:    /s/ Steven W. Thomas              By:/s/ Lloyd Stemple
       Steven W. Thomas, Director               Lloyd Stemple, Director
Date:  March 30, 2006                    Date:  March 30, 2006

</TABLE>
--------------------------------------------------------------------------------
                                   Page 71