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, 2006
                                       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 Incorporation or Organization)    (I.R.S. 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:     Common Stock, par value $.01 per share
                                 ---------------------------------------
                                 Name of Exchange on which Registered:
                                        Nasdaq Capital Market

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

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.   [X]

     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,  2007,  there were 2,970,819 shares issued and 2,483,532
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 June 30, 2006, as reported by the Nasdaq Capital Market was
approximately $10,708,298.  Revenues for the years 2005 and 2006 were less than
$25 million.  The Company will file its annual and quarterly reports in 2007 as
a Small Business Issuer.

                      DOCUMENTS INCORPORATED BY REFERENCE:

<PAGE>

<TABLE>
<CAPTION>

                                             TABLE OF CONTENTS

                                         FORM 10-K ANNUAL REPORT
                                            FOR THE YEAR ENDED
                                            DECEMBER 31, 2006
                                         PATHFINDER BANCORP, INC.
                                                                            Page
PART I

<S>       <C>       <C>

          Item 1.   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        13
                      Stockholder Matters and Issuer Purchases of
                      Equity Securities
          Item 6.   Selected Financial Data                                   15
          Item 7.   Management's Discussion and Analysis of Financial         16
                      Condition and Results of Operations
          Item 7A.  Quantitative and Qualitative Disclosures about            34
                      Market Risk
          Item 8.   Financial Statements and Supplementary Data               37
          Item 9.   Changes In and Disagreements With Accountants on          70
                      Accounting and Financial Disclosure
          Item 9A.  Controls and Procedures                                   70
          Item 9B.  Other Information                                         70

PART III
          Item 10.  Directors, Executive Officers and Corporate Governance    71
          Item 11.  Executive Compensation                                    71
          Item 12.  Security Ownership of Certain Beneficial Owners and       71
                      Management and Related Stockholder Matters
          Item 13.  Certain Relationships and Related Transactions, and       71
                      Director Independence
          Item 14.  Principal Accountant Fees and Services                    71

PART IV
          Item 15.  Exhibits and Financial Statement Schedules                72

</TABLE>

<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, 2006, the Mutual Holding Company held 1,583,239 shares of Common
Stock  and  the  public  held  883,093  shares  of  Common  Stock (the "Minority
Shareholders").  At December 31, 2006, Pathfinder Bancorp, Inc. had total assets
of  $301.4 million, total deposits of $245.6 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 customer-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, 2006, $158.2 million,
or  78%  of  the  Bank's total loan portfolio consisted of loans secured by real
estate,  of  which  $117.7  million,  or  74%,  were  loans  secured  by one- to
four-family  residences  and  $40.5  million, or 26%, were secured by commercial
real  estate.  Additionally,  $18.0 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  $23.0  and $3.2 million, respectively, or 13%, 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.

In  April  1999,  the  Bank  established  Pathfinder  REIT,  Inc.  as the Bank's
wholly-owned  real  estate  investment  trust subsidiary.  At December 31, 2006,
Pathfinder  REIT,  Inc.  held  $26.5  million  in mortgages and mortgage related
assets.  Recent  legislation  proposed  by  the  New  York State legislature may
significantly  impact  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.

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<PAGE>

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  title 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.

On  April  23,  2006,  Alliance  Bank N.A. announced it had reached a definitive
agreement  to  merge  with  the  parent  company  of Oswego County National Bank
(OCNB).  OCNB,  formerly,  Oswego  County Savings Bank has been domiciled in the
city  of  Oswego  since  its  founding  in  1870  and has been the primary local
competitor  for  Pathfinder  Bank.  In management's view, the absorption of OCNB
into  Alliance  Bank,  a  $900  million bank headquartered in Syracuse, NY, will
provide  both  challenges  and  opportunities for Pathfinder Bank. The challenge
will  be  the  ability  of a larger competitor to more actively and aggressively
market within the primary business area of Pathfinder Bank. Opportunities exist,
as  management  believes  that  it's unique competencies and differentiators are
more closely matched by a locally domiciled bank, than one headquartered outside
our  primary  market area. Opportunities may exist to garner additional business
opportunities  with  the  traditional customer base of OCNB which is more apt to
conduct  its  business  with  a  local  bank.

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 Deposit  Insurance Fund
("DIF  ").  The  DIF  is  a  merger  of  the Bank Insurance Fund ("BIF") and the
Savings  Association  Insurance  Fund  ("SAIF").  This merger was made effective
March  31,  2006.  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

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<PAGE>

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.

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 DIF, 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.

The Federal Deposit Insurance Reform Act of 2005 was signed into law on February
8, 2006, and gives the FDIC increased flexibility in assessing premiums on banks
and  savings  associations, including the Bank, to pay for deposit insurance and
in  managing  its deposit insurance reserves.  The reform legislation provides a
credit  to  all  insured  institutions,  based  on  the  amount of their insured
deposits  at  year-end  1996,  to offset the premiums that they may be assessed:
combines  the  BIF  and  SAIF  to form a single Deposit Insurance Fund; increase
deposit insurance to $250,000 for Individual Retirement Accounts; and authorizes
inflation-based  increases in deposit insurance on other accounts every 5 years,
beginning  in  2001.  In connection with the reform act of 2005, the Company has
received  communication  from the FDIC disclosing how insurance premiums will be
calculated  for  2007  and  forward,  as  well  as  the preliminary statement of
one-time assessment credit.  Management estimates that this one time credit will
offset  premiums assessed, beginning in July 2007, for a period of approximately
18-21  months.

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

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<PAGE>

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
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  undertaken  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% or more, has a Tier I risk-based capital ratio of 6%
or more, has a Tier I leverage capital ratio of 5% 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% or more, a Tier I risk-based capital
ratio  of 4% or more and a Tier I leverage capital ratio of 4% or more (3% 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%, a Tier I risk-based capital ratio that is less than 4% or a Tier I
leverage  capital  ratio  that is less than 4% (3% under certain circumstances);
(iv) "significantly undercapitalized" if it has a total risk-based capital ratio
that  is less than 6%, a Tier I risk-based capital ratio that is less than 3% or
a  Tier  I  leverage  capital  ratio  that  is less than 3%; and (v) "critically
undercapitalized"  if  it has a ratio of tangible equity to total assets that is
equal  to  or  less  than  2%.  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.

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<PAGE>

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
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  unimpaired  capital  and  unimpaired  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;

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                                        5
<PAGE>

(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
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.

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                                        6
<PAGE>

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
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,  2006, 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  "satisfactory."

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

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                                        7
<PAGE>

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
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 Officer 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 requirements with the year ending December 31, 2007
under  the provisions of Section 404 of the Sarbanes-Oxley Act. Recently revised
dates  for  compliance  with  Section 404 have given non-accelerated filers some
relief  by  extending  the  date  for  compliance  with  auditor  attestation
requirements  to  the  year ending December 31, 2008. 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,  Compensation  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.

The  Company's  Annual  Report  on  Form  10-K  may be accessed on the Company's
website  at  www.pathfinderbank.com.
             ----------------------

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.

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                                        8
<PAGE>

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
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. New York State has examined fiscal year-end tax returns
through  2000.  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.

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

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                                        9
<PAGE>

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, 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 would 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.

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                                       10
<PAGE>

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.

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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                                       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, 2006.  The aggregate net book
value  of  the  Bank's  premises  and equipment was $7.6 million at December 31,
2006.  For additional information regarding the Bank's properties, see Note 7 to
Notes  to  Consolidated  Financial  Statements.

<TABLE>
<CAPTION>

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

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

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

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

Lacona Branch                         2002       Owned
1897 Hardwood 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  $21,000
     (2)  The building  is  owned;  the  underlying  land  is  leased  with  an
          annual  rent  of  $27,000

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 2006 to a vote of
the Company's shareholders.

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                                       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 Capital
Market  under  the  symbol  "PBHC".  There were 499 shareholders of record as of
March  9,  2007.  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>

                                        DIVIDEND
QUARTER ENDED:         HIGH      LOW        PAID
-----------------------------------------------

<S>                 <C>      <C>      <C>
December 31, 2006   $16.000  $13.037  $  0.1025
September 30, 2006   14.370   11.700     0.1025
June 30, 2006        13.070   11.750     0.1025
March 31, 2006       14.130   11.000     0.1025
-----------------------------------------------
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
</TABLE>

PERFORMANCE  GRAPH

Set  forth  hereunder  is  a performance graph comparing (a) the total return on
the  Common Stock for the period beginning on December 31, 2001 through December
31,  2006,  (b)  the  cumulative  total  return on stocks included in the Nasdaq
Composite  Index over such period, and (c) the yearly cumulative total return on
stocks  included  in  the  SNL  Thrift  Index  over  such period. The cumulative
total  return  on  the  Common  Stock  was  computed  assuming  the reinvestment
of  cash  dividends  during  the  fiscal  year.

     There can be no assurance that the Common Stock's performance will continue
in the future with the same or similar trend depicted in the graph.  The Company
will  not  make  or  endorse  any  predictions  as  to future stock performance.

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                                       13
<PAGE>

                               [GRAPHIC OMITED]

<TABLE>
<CAPTION>

                                            Period Ending
                         -----------------------------------------------------------
<S>                      <C>       <C>       <C>       <C>       <C>       <C>
------------------------------------------------------------------------------------
Index                    12/31/01  12/31/02  12/31/03  12/31/04  12/31/05  12/31/06
Pathfinder Bancorp, Inc    100.00    113.55    146.14    135.86    108.18    111.48
NASDAQ Composite           100.00     68.76    103.67    113.16    115.57    127.58
SNL Thrift Index           100.00    119.29    168.88    188.16    194.80    227.07
</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, 2006 and
September  30,  2006.  During  2007, Pathfinder Bancorp, M.H.C. expects to waive
two  quarterly  dividends.

--------------------------------------------------------------------------------
                                       14
<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  Corp.

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>
                                                  2006       2005       2004       2003       2002
-----------------------------------------------------------------------------------------------------
<S>                                             <C>        <C>        <C>        <C>        <C>
YEAR END (In thousands)
Total assets                                    $301,382   $296,948   $302,037   $277,940   $279,056
Loans receivable, net                            201,713    187,889    185,125    187,002    179,001
Deposits                                         245,585    236,377    236,672    206,894    204,522
Equity                                            20,850     20,928     21,826     21,785     23,230

FOR THE YEAR (In thousands)
Net interest income                             $  8,326   $  8,742   $  8,905   $  9,337   $  8,789
Noninterest income                                 2,635      2,040      3,047      2,608      2,094
Core noninterest income (a)                        2,416      2,333      1,996      1,740      1,511
Noninterest expense                                9,668     10,060      9,307      9,094      7,964
Net income                                         1,028        462      1,405      1,652      1,156

PER SHARE
Net income (basic)                              $   0.42   $   0.19   $   0.58   $   0.68   $   0.45
Book value                                          8.45       8.50       8.91       8.96       8.90
Tangible book value (b)                             6.82       6.77       7.04       7.03       7.02
Cash dividends declared                            0.410      0.410      0.405       0.40       0.30

RATIOS
Return on average assets                            0.34%      0.15%      0.47%      0.59%      0.45%
Return on average equity                            4.86       2.16       6.45       7.61       5.01
Return on average tangible equity (b)               6.04       2.72       8.17       9.77       7.03
Average equity to average assets                    7.03       6.95       7.29       7.77       8.94
Dividend payout ratio (c)                          66.73     147.84      47.54      39.41      36.76
Allowance for loan losses to loans receivable       0.74       0.89       0.98       0.91       0.82
Net interest rate spread                            2.92       3.07       3.22       3.53       3.47
Noninterest income to average assets                0.87       0.66       1.02       0.93       0.81
Core noninterest income to average assets (a)       0.80       0.76       0.67       0.62       0.59
Noninterest expense to average assets               3.21       3.28       3.12       3.26       3.09
Efficiency ratio (d)                               88.19      93.30      77.87      76.13      73.18
</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.

--------------------------------------------------------------------------------
                                       15
<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 Corp. represent
wholly  owned subsidiaries of Pathfinder Bank.  At December 31, 2006, Pathfinder
Bancorp,  M.H.C,  the  Company's mutual holding company parent, whose activities
are  not  included  in  the MD&A, held 64.2% of the Company's outstanding common
stock  and  the  public  held  35.8%.

On  March 22, 2007, the Company entered into a trust preferred issuance for $5.0
million,  adjustable  quarterly  at a spread over LIBOR.  The Company intends to
use  all  the  proceeds from the issuance to retire its existing trust preferred
obligation  on  June  27th,  2007,  at  its  first  call  date.

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.

--------------------------------------------------------------------------------
                                       16
<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, 2006, 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 consolidated
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

The  Company opened a full service branch in Central Square, New York in June of
2005.  Total  deposits  for this branch were $11.0 million at December 31, 2006,
as  compared  to  $6.3  million  at  December  31, 2005.  Total deposits for the
Company  increased 4%, to $245.6 million at December 31, 2006, while the average
balance  of  deposits  decreased  $1.5 million to $238.4 million at December 31,
2006.  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  2007.

Total  assets increased 2%, primarily in the loan portfolio and interest-earning
deposits.  The  loan portfolio increased 7% as net growth in the commercial real
estate,  commercial  and  consumer  loan  portfolios  was  partially offset by a
decrease  in  the residential real estate portfolio.  Asset quality continued to

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

improve  during  2006.  The  ratio  of  nonperforming assets to total assets was
0.58% at December 31, 2006 compared to 0.82% in the prior year.  The improvement
in  asset  quality  is attributable to the enhancement of collection procedures.
The  Company  expects  to  concentrate  on  continued  commercial  mortgage  and
commercial  loan  portfolio  growth  during  2007.

Net  income  for  2006  was  $1.0  million,  or  $0.42 per share, as compared to
$462,000,  or  $0.19  per  share,  in  2005.  An  improvement  in asset quality,
increased  service  charges  on  deposit  accounts,  a  reduction in noninterest
expenses  and  an  increase in net gains on investment securities contributed to
the  increase  in  net  income  from  2005.  Net  interest  margin  compression
negatively  impacted  earnings  during  2006.

The  Company  experienced  net interest margin compression to 3.10% in 2006 from
3.21%  in  2005.  Net  interest income decreased 5% to $8.3 million for the year
ended  December  31,  2006.  Beginning  in  June  2004,  the Federal Reserve has
increased  its  target  for  federal  funds  rate  numerous  times.  While these
short-term  market  interest  rates  have increased, longer-term market interest
rates have remained relatively unchanged.  This "flattening" of the market yield
curve  has  had  a negative impact on the Company's interest rate spread and net
interest  margin to date.  If short-term interest rates continue to rise, and if
rates  on  deposits  and  borrowings continue to reprice upwards faster than the
rates on longer-term loans and investments, the Bank will continue to experience
compression of its net interest rate spread and net interest margin, which would
result  in  a  negative  impact on the Company's profitability.  The Company has
implemented  an  asset/liability  management  strategy  to  address  the current
interest  rate  environment,  including  the  growth  of the more rate sensitive
commercial  real  estate  and  commercial  loan  portfolio,  and increasing core
deposit  relationships  and  strategies to mitigate the rising cost of deposits.

The  Company's  efforts  to  enhance  other income during 2006 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  6% increase in service charges on deposit accounts during 2006.
The  Company  continues to explore cost saving strategies to minimize the growth
of  operating  expenses.  The  Company's  efforts  resulted  in  a  reduction in
noninterest  expense of $392,000, or 3.9%, when comparing current year operating
expense  levels  to  the prior year.  The expense reductions were achieved while
operating  the  new  Central  Square  branch  for  a  full  year  in  2006.

RESULTS  OF  OPERATIONS

Net income for 2006 was $1.0 million, an increase of $566,000, or 123%, compared
to net income of $462,000 for 2005.  Basic earnings per share increased to $0.42
per share for the year ended December 31, 2006 from $0.19 per share for the year
ended  December  31,  2005.  Return on average equity increased to 4.86% in 2006
from  2.16%  in  2005.

Net  interest  income,  on  a  tax  equivalent basis, decreased $467,000, or 5%,
primarily  resulting  from  interest  rate  spread  compression  as shorter term
funding  sources are repricing into higher rates faster than longer term assets.
Provision for loan losses at December 31, 2006 decreased 93% reflecting improved
asset  quality  during 2006 and fewer charge-offs.  The Company experienced a 4%
increase  in  noninterest  income,  exclusive  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  and  commercial loan fees.  Noninterest
expense  decreased  4%  due  to  a  reduction  in  personnel  expense, decreased
professional  and  other  services  and  other  expenses.

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.

Net  interest  income,  on a tax-equivalent basis, decreased $467,000, or 5%, to
$8.5 million for the year ended December 31, 2006, as compared to the year ended
December  31,  2005.  The  Company's  net  interest margin for 2006 decreased to

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

3.10%  from  3.21% in 2005.  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  decreased  $5.4  million,  or  2%, during 2006 and the
average  balance  of  interest-bearing liabilities decreased by $6.7 million, or
3%.  The  decrease  in  the  average  balance  of  interest-bearing  liabilities
primarily  resulted  from a $3.8 million, or 9%, decrease in the average balance
of  borrowed  funds and a $2.9 million, or 1% decrease in the average balance of
deposits.  Interest income, on a tax-equivalent basis, increased $720,000 during
2006,  as  the  yield on interest earning assets increased to 5.86% in 2006 from
5.49%  in 2005.  Interest expense on deposits increased $1.2 million, or 27%, as
the  cost  of deposits rose to 2.52% in 2006 from 1.96% in 2005.  In addition to
the  increase  in  the  cost  of  deposits,  interest expense on borrowings also
increased  by  $19,000,  or  1%,  from  the  prior  year.

In  comparison,  net  interest  income  decreased  $106,000,  or  1%,  on  a
tax-equivalent  basis,  from  2004 to 2005.  The decrease in net interest income
was  comprised of an increase in interest expense of $783,000, or 14%, partially
offset by an increase in interest income of $677,000, or 5%. The average balance
of interest-earning assets grew $8.2 million during 2005 and the average balance
of  interest-bearing liabilities increased by $7.8 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.

--------------------------------------------------------------------------------
                                       19
<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>
                                                              For the Years Ended December 31,
                                           -------------------------------------------------------------
                                                        2006                              2005
                                           -------------------------------------------------------------
                                                                   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              $119,417   $   6,876     5.76%  $121,875   $  7,092    5.82%
  Real estate loans commercial                 35,076       2,705     7.71%    29,385      2,181    7.42%
  Commercial loans                             19,961       1,574     7.88%    17,563      1,135    6.46%
  Consumer loans                               20,153       1,641     8.14%    19,257      1,418    7.36%
  Taxable investment securities                66,788       2,656     3.97%    74,496      2,728    3.66%
  Tax-exempt investment securities             10,240         482     4.70%    13,202        681    5.16%
  Interest-earning deposits                     1,779          92     5.12%     3,041         71    2.33%
--------------------------------------------------------------------------------------------------------
    Total interest-earning assets            $273,414   $  16,026     5.86%  $278,819   $ 15,306    5.49%
Noninterest-earning assets:
  Other assets                                 31,600                          31,455
  Allowance for loan losses                    (1,661)                         (1,835)
  Net unrealized losses
    on available for sale securities           (2,142)                         (1,307)
--------------------------------------------------------------------------------------------------------
    Total  Assets                            $301,211                        $307,132
========================================================================================================
Interest-bearing liabilities:
  NOW accounts                               $ 21,094   $     102     0.48%  $ 19,877   $    107    0.54%
  Money management accounts                    13,318         110     0.83%    16,096        138    0.86%
  MMDA accounts                                20,608         786     3.81%    25,284        697    2.76%
  Savings and club accounts                    58,997         266     0.45%    65,558        291    0.44%
  Time deposits                               103,596       4,223     4.08%    93,732      3,086    3.29%
  Junior subordinated debentures                5,155         448     8.57%     5,155        351    6.72%
  Borrowings                                   33,589       1,608     4.79%    37,348      1,686    4.51%
--------------------------------------------------------------------------------------------------------
    Total Interest-bearing liabilities       $256,357   $   7,543     2.94%  $263,050   $  6,356    2.42%
--------------------------------------------------------------------------------------------------------
Noninterest-bearing liabilities:
  Demand deposits                              20,745                          19,324
  Other liabilities                             2,943                           3,416
--------------------------------------------------------------------------------------------------------
    Total liabilities                         280,045                         285,790
--------------------------------------------------------------------------------------------------------
Shareholders' equity                           21,166                          21,342
    Total liabilities & shareholders' equity $301,211                        $307,132
========================================================================================================
Net interest income                                     $   8,483                       $  8,950
Net interest rate spread                                              2.92%                         3.07%
Net interest margin                                                   3.10%                         3.21%
--------------------------------------------------------------------------------------------------------
Ratio of average interest-earning assets
  to average interest-bearing liabilities                           106.65%                       105.99%
--------------------------------------------------------------------------------------------------------
</TABLE>

<TABLE>
<CAPTION>
                                                         2004
                                           ------------------------------
                                                                 Average
                                            Average               Yield/
(Dollars in thousands)                      Balance   Interest     Cost
-------------------------------------------------------------------------
                                 <S>        <C>        <C>       <C>
Interest-earning assets:
  Real estate loans residential              $124,734   $  7,491     6.01%
  Real estate loans commercial                 30,958      2,254     7.28%
  Commercial loans                             16,060        901     5.61%
  Consumer loans                               17,427      1,194     6.85%
  Taxable investment securities                65,480      2,220     3.39%
  Tax-exempt investment securities              8,603        488     5.67%
  Interest-earning deposits                     7,338         81     1.10%
-------------------------------------------------------------------------
    Total interest-earning assets            $270,600   $ 14,629     5.41%
Noninterest-earning assets:
  Other assets                                 30,236
  Allowance for loan losses                    (1,792)
  Net unrealized gains
    on available for sale securities             (515)
-------------------------------------------------------------------------
    Total  Assets                            $298,529
=========================================================================
Interest-bearing liabilities:
  NOW accounts                               $ 20,808   $    135     0.65%
  Money management accounts                    14,459        167     1.15%
  MMDA accounts                                26,316        400     1.52%
  Savings and club accounts                    68,046        453     0.67%
  Time deposits                                82,769      2,484     3.00%
  Junior subordinated debentures                5,155        251     4.80%
  Borrowings                                   37,674      1,683     4.47%
-------------------------------------------------------------------------
    Total Interest-bearing liabilities       $255,227   $  5,573     2.18%
-------------------------------------------------------------------------
Noninterest-bearing liabilities:
  Demand deposits                              17,974
  Other liabilities                             3,556
-------------------------------------------------------------------------
    Total liabilities                         276,757
-------------------------------------------------------------------------
Shareholders' equity                           21,772
    Total liabilities & shareholders' equity $298,529
=========================================================================
Net interest income                                     $  9,056
Net interest rate spread                                             3.22%
Net interest margin                                                  3.35%
-------------------------------------------------------------------------
Ratio of average interest-earning assets
  to average interest-bearing liabilities                          106.02%
-------------------------------------------------------------------------
</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  $720,000,  or  5%.  Average  loans  increased 3% in 2006, with yields

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

increasing  29 basis points to 6.58%. The Company's average residential mortgage
loan  portfolio  decreased  $2.5 million, or 2%, when comparing the year 2006 to
2005.  The  average yield on the residential mortgage loan portfolio decreased 6
basis  points  to  5.76%  in 2006 from 5.82% in 2005. An increase in the average
balance  of consumer loans of $896,000, or 5%, resulted from an increase in home
equity  loans.  The average yield increased 78 basis points, to 8.14% from 7.36%
in  2005,  primarily resulting from the increase in home equity loans, which are
based on the Bank's prime rate. Average commercial loans increased 14% while the
tax-equivalent  yield  increased  143  basis points to 7.89% in 2006 compared to
6.46%,  in  2005.

Average  loans  decreased $1.1 million in 2005, with average yields increasing 3
basis  points  to 6.29%.  The interest income on loans decreased $14,000 in 2005
compared  to  2004.  For  the  comparable  periods, average residential mortgage
loans  decreased  $2.9  million,  or  2%  and  average commercial mortgage loans
decreased  by  $1.6  million,  or  5%.  These decreases were partially offset by
increases  in  average  consumer  loans  of  $1.8  million,  or  11% and average
commercial  loans  of  $1.5  million,  or  9%.

Interest  income on investment securities decreased 8% from 2005, resulting from
a  decrease  in  the  average  balance  of  investment  securities  (taxable and
tax-exempt)  by  $10.7  million,  or  12%,  to  $77.0 million in 2006 from $87.7
million  in  2005.  The decrease in the average balance of investment securities
is  primarily  the  result  of  cash  flows  generated  from  security portfolio
maturities, amortization and sales being utilized to fund loan portfolio growth.
The  tax-equivalent  yield increased 19 basis points to 4.08% in 2006 from 3.89%
in  2005.

Average  investment  securities  (taxable  and  tax-exempt) in 2005 increased by
$13.6  million,  with  an  increase  in  tax-equivalent  interest  income  from
investments  of  $701,000, or 26%, compared to 2004.  The average tax-equivalent
yield  of the portfolio rose 23 basis points, to 3.89% from 3.66%.  The increase
in  the  average  balance  of  investment  securities  and  the  increase in the
tax-equivalent  yield resulted from security portfolio acquisitions required for
municipal  deposit  collateralization  occurring  at  yields  in  excess  of the
existing  average  portfolio  yield.

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 $1.2
million,  or  19%,  in 2006, when compared to 2005.  The increase in the cost of
funds  resulted  from  an  increase  in  the  average  cost  of interest-bearing
liabilities of 52 basis points, to 2.94% in 2006 from 2.42% at 2005, offset by a
$6.7  million  decrease  in  the average balance of interest-bearing liabilities
during  2006.  The  average  cost of deposits increased 56 basis points to 2.52%
during  2006  from 1.96% for 2005.  The increase in the cost of average deposits
resulted from rising short-term interest rates, combined with a shift from lower
cost  savings  products  to  the higher cost time deposits.  The average cost of
MMDA accounts increased 105 basis points and the cost of time deposits increased
79  basis  points.  The  average  balance  of deposits decreased $2.9 million to
$217.6 million at 2006 from $220.5 million at 2005.  The decrease in the average
balance  of deposits primarily resulted from a $5.9 million, or 20%, decrease in
the  average balance of municipal deposits, offset by an increase in the average
balance  of retail deposits resulting primarily from inflows into the new branch
in  Central  Square.  The  cost  of junior subordinated debentures increased 185
basis  points,  increasing  interest  expense  by  $97,000.

Interest  expense  increased  $783,000,  or  14%, in 2005 compared to 2004.  The
average  cost of interest-bearing liabilities rose 24 basis points during the 12
months  ended  December  31,  2005.

--------------------------------------------------------------------------------
                                       21
<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>
                                               FOR THE YEARS ENDED DECEMBER 31,
                                 ------------------------------------------------------
                                         2006 VS. 2005              2005 VS. 2004
                                 ------------------------------------------------------
                                 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      $(143)  $  (73)  $ (216)    $(168)  $(231)   $(399)
  Real estate loans commercial         436       88      524      (116)     43      (73)
  Commercial loans                     167      272      439        89     145      234
  Consumer loans                        68      155      223       131      93      224
  Taxable investment securities       (296)     224      (72)      322     186      508
  Tax-exempt investment securities    (143)     (56)    (199)      240     (47)     193
  Interest-earning deposits            (39)      60       21       (65)     55      (10)
---------------------------------------------------------------------------------------
    Total interest income               50      670      720       433     244      677
---------------------------------------------------------------------------------------

INTEREST EXPENSE:

  NOW  accounts                          7      (12)      (5)      (6)     (22)     (28)
  Money management accounts            (23)      (5)     (28)     (14)     (15)     (29)
  MMDA accounts                       (145)     234       89       39      258      297
  Savings and club accounts            (31)       6      (25)     (16)    (146)    (162)
  Time deposits                        346      791    1,137      348      254      602
  Junior subordinated debentures         -       97       97        -      100      100
  Borrowings                          (177)      99      (78)     (13)      16        3
---------------------------------------------------------------------------------------
    Total interest expense             (23)   1,210    1,187      338      445      783
---------------------------------------------------------------------------------------
Net change in net interest income    $  73   $ (540)  $ (467)    $ 95    $(201)   $(106)
=======================================================================================
</TABLE>

--------------------------------------------------------------------------------
                                       22
<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)                                                         2006     2005     2004
---------------------------------------------------------------------------------------------
<S>                                                                  <C>      <C>      <C>
Service charges on deposit accounts                                  $1,391   $1,318   $  967
Loan servicing fees                                                     224      215      256
Increase in the value of bank owned life insurance                      225      218      175
Debit card interchange fees                                             189      147      119
Other charges, commissions and fees                                     387      435      479
---------------------------------------------------------------------------------------------
Core noninterest income                                              $2,416   $2,333   $1,996
Net gains (losses) on sales and impairment of investment securities     299     (205)     772
Net (losses) gains on sales of loans and foreclosed real estate         (80)     (88)     279
---------------------------------------------------------------------------------------------
Total noninterest income                                             $2,635   $2,040   $3,047
=============================================================================================
</TABLE>

Noninterest  income in 2006 increased 29%, when compared to 2005, as a result of
a  4%  increase  in  core noninterest income and a 174% increase in the non-core
items,  net  gains (losses) 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 6% as deposit related charges were increased to be
more  in  line  with  local  competition  and  the  number  of  deposit accounts
increased,  creating  a  higher volume of fee-generating transactions, including
overdrafts, nonsufficient funds, debit cards and ATM transactions.  The value of
bank  owned life insurance increased 3%. Loan servicing fees increased 4% due to
a  reduction  in  the  amortization  of  mortgage  servicing rights, offset by a
decrease  in  late  charges  on mortgage and commercial loans and a reduction in
internal  mortgage  legal  fees  collected as outside sources were used for loan
closings.  Investment  security  gains  increased $504,000, when compared to the
2005  period  resulting primarily from the recording of a long-term capital gain
in  the  fourth  quarter  of  2006  and  an impairment reserve of $193,000 being
recognized  on  equity security holdings during 2005 that did not recur in 2006.
Net  losses  on  the sale of loans/ foreclosed real estate decreased $8,000 when
compared  to  the  prior  year.

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.  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 increases 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.

--------------------------------------------------------------------------------
                                       23
<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)                                             2006     2005     2004
---------------------------------------------------------------------------------
<S>                               <C>     <C>      <C>
Salaries and employee benefits                           $5,007  $ 5,123  $4,798
Building occupancy                                        1,203    1,178   1,169
Data processing expenses                                  1,278    1,262     981
Professional and other services                             615      782     682
Amortization of intangible asset                            223      223     223
Other expenses                                            1,342    1,492   1,454
---------------------------------------------------------------------------------
Total noninterest expense                                $9,668  $10,060  $9,307
=================================================================================
</TABLE>

Noninterest  expenses decreased $392,000, or 4%, for the year ended December 31,
2006 when compared to 2005.  Salaries and employee benefits decreased 2% in 2006
primarily due to personnel realignments made in the fourth quarter of 2005 and a
reduction  in  stock  based  compensation.  This  reduction was offset by normal
salary  merit  increases,  incentive  compensation  and  lower  deferred payroll
expense  due  to  fewer mortgage loan originations in 2006.  The 21% decrease in
professional  and other expenses was primarily due to outside consulting charges
for  performance  management,  a  process  improvement  program,  and  strategic
planning  projects  in  2005. This decrease was offset by 2006 expenses incurred
for  the  on-going  SOX 404 process review, the creation of a new general ledger
cost  center  accounting  program,  economic impact studies and a direct mailing
campaign  to attract new deposit customers.   The 10% decrease in other expenses
primarily resulted from a reduction in audits and exams, dues and membership and
FDIC  assessments.  Additionally,  ORE expenses were lower in conjunction with a
reduction  in  the  number  of  properties held during 2006.  Mortgage recording
taxes  were  lower  than  2005  in direct correlation to the decreased volume of
residential  mortgage  originations.  The  2%  increase in building occupancy is
primarily  due  to  a full year's operation of the new Central Square branch and
increased  lease  expense  on  properties.  The  1%  increase in data processing
expenses  during  2006 related to increases in annual maintenance expense on our
core  processing  system,  depreciation  expenses  and  third  party  processing
charges.  This  increase  was offset by a reduction in ATM processing charges as
the  number  of  offsite  ATM  machines  decreased.

Noninterest  expenses increased $753,000, or 8%, for the year 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 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 the
number  of 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.

INCOME  TAX  EXPENSE

In  2006,  the  Company  reported  income tax expense of $242,000 compared to an
income  tax  provision  of  $51,000  in  2005.  The  income  tax expense in 2006
resulted  from  an increase in pretax income of $859,000, while income earned on
tax-exempt investment securities decreased.  The effective tax rate increased to

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

19%  in  2006  compared  to  a tax benefit of (12)% in 2005. The increase in the
effective  tax  rate resulted primarily from an increase in the level of pre-tax
income,  combined  with  a  reduction  in tax-exempt investment security income.
The  Company  has reduced its tax 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 $553,000 to a $(51,000) tax benefit for the year
ended December 31, 2005 when compared to the prior year.  The decrease in income
tax  expense  reflected  lower  pre-tax  income  during the year.  The Company's
effective  tax  rate  at  2005  was  (12%)  compared  to  26%  in  2004.

CHANGES  IN  FINANCIAL  CONDITION

INVESTMENT  SECURITIES

The  investment  portfolio represents 23% 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 and
interest  rate risk strategies of the Company.  All of the Company's investments
are  classified  as  available  for  sale.  The  Company  invests  in 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  alternative  loan  products.

Investment  securities decreased $11.8 million, to $64.2 million at December 31,
2006  from  $76.0  million  at  December  31,  2005.  The decrease in investment
securities  was  primarily attributable to the sale of lower yielding investment
securities in the fourth quarter of 2005, and first and fourth quarters of 2006.
In  comparison,  investment  securities  decreased $793,000, or 1%, from 2004 to
2005.  The  decrease  in investment securities was primarily attributable to the
sale  of  lower  yielding  investment  securities in the fourth quarter of 2005.

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)                                      2006      2005     2004
----------------------------------------------------------------------------
<S>                                              <C>       <C>       <C>
INVESTMENT SECURITIES:
  US Treasury and agencies                       $19,966   $20,713   $21,609
  State and political subdivisions                 5,870    11,177     8,881
  Corporate                                        5,575     5,936     5,919
  Mortgage-backed                                 25,481    31,565    32,213
  Equity securities and FHLB stock                 2,406     2,626     2,800
  Mutual funds                                     6,336     6,177     5,935
----------------------------------------------------------------------------
                                                  65,634    78,194    77,357
Unrealized loss on available for sale portfolio   (1,415)   (2,150)     (520)
----------------------------------------------------------------------------
    Total investments in securities              $64,219   $76,044   $76,837
============================================================================
</TABLE>

                                       25
<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,  2006. 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
                                           ----------------------------------------------------------------------
<S>                                      <C>        <C>          <C>         <C>         <C>         <C>
                                                    ANNUALIZED                ANNUALIZED               ANNUALIZED
                                         AMORTIZED    WEIGHTED     AMORTIZED    WEIGHTED    AMORTIZED    WEIGHTED
(Dollars in thousands)                        COST   AVG YIELD          COST   AVG YIELD         COST   AVG YIELD
-----------------------------------------------------------------------------------------------------------------
DEBT INVESTMENT SECURITIES:
  US Treasury and agencies               $   4,107       4.14%      $ 11,794       4.30%      $ 4,065      4.68%
  State and political subdivisions             505       2.94%         3,248       3.46%        2,117      3.87%
  Corporate                                    200       7.00%         2,246       4.72%          989      4.75%
-----------------------------------------------------------------------------------------------------------------
    Total                                $   4,812       4.13%        17,288       4.20%      $ 7,171      4.45%
-----------------------------------------------------------------------------------------------------------------
EQUITY AND MORTGAGE-BACKED SECURITIES:
  Mutual funds                           $   6,336       2.50%      $      -          -      $      -         -
  Mortgage-backed                                -          -          6,559       4.11%        4,244      4.99%
  Equity securities and FHLB stock           2,406       5.63%             -          -             -         -
-----------------------------------------------------------------------------------------------------------------
    Total                                $   8,742       3.36%      $  6,559       3.87%      $ 4,244      4.99%
-----------------------------------------------------------------------------------------------------------------
   Total investment securities           $  13,554       3.64%      $ 23,847       4.17%      $11,415      4.65%
=================================================================================================================
</TABLE>

<TABLE>
<CAPTION>
                                            MORE THAN TEN YEARS         TOTAL INVESTMENT SECURITIES
                                           ---------------------------------------------------------
<S>                                      <C>        <C>          <C>         <C>         <C>
                                                    ANNUALIZED                          ANNUALIZED
                                         AMORTIZED    WEIGHTED     AMORTIZED     FAIR     WEIGHTED
(Dollars in thousands)                        COST   AVG YIELD          COST    VALUE    AVG YIELD
----------------------------------------------------------------------------------------------------
DEBT INVESTMENT SECURITIES:
  US Treasury and agencies               $       -          -       $ 19,966   $19,409     4.34%
  State and political subdivisions               -          -          5,870     5,791     3.57%
  Corporate                                  2,140       5.31%         5,575     5,514     5.03%
-------------------------------------------------------------------------------------------------
    Total                                $   2,140       5.31%      $ 31,411   $30,714     4.32%
-------------------------------------------------------------------------------------------------

EQUITY AND MORTGAGE-BACKED SECURITIES:
  Mutual funds                           $       -          -       $  6,336   $ 6,112     2.50%
  Mortgage-backed                           14,678       4.64%        25,481    24,896     4.56%
  Equity securities and FHLB stock               -          -          2,406     2,497     5.63%
-------------------------------------------------------------------------------------------------
    Total                                $  14,678       4.52%        34,223    33,505     4.26%
-------------------------------------------------------------------------------------------------
   Total investment securities           $  16,818       4.73%      $ 65,634   $64,219     4.29%
=================================================================================================
</TABLE>

The  above noted yield information does not give effect to changes in fair value
that  are  reflected  in  the  changes  to  consolidated  shareholders'  equity.

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

LOANS  RECEIVABLE

Loans  receivable  represent 74% 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  11%  of the total loan portfolio.  At December 31, 2006, 78% of
the Company's total loan portfolio consisted of loans secured by real estate, of
which  20%  consisted  of  commercial  real  estate  loans.

<TABLE>
<CAPTION>
                                                    DECEMBER 31,
                             ------------------------------------------------=
(In thousands)                   2006      2005      2004      2003      2002
------------------------------------------------------------------------------
<S>                          <C>       <C>       <C>       <C>       <C>
Residential real estate (1)  $118,494  $119,707  $123,898  $128,989  $123,178
Commercial real estate         40,501    31,845    29,874    31,278    32,657
Commercial loans               23,001    18,334    16,834    15,090    13,196
Consumer loans                 21,213    19,682    18,505    16,880    15,068
------------------------------------------------------------------------------
 Total loans receivable      $203,209  $189,568  $189,111  $192,237  $184,099
==============================================================================
</TABLE>

(1)  Includes  loans  held  for  sale.

The  following  table  shows  the amount of loans outstanding as of December 31,
2006 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                $ 9,962    $22,721      $ 7,818    $ 40,501
  Construction                               33        153        1,974       2,160
  Residential real estate                46,263     65,941        4,130     116,334
-----------------------------------------------------------------------------------
                                         56,258     88,815       13,922     158,995
-----------------------------------------------------------------------------------
  Commercial                             16,763      4,531        1,707      23,001
  Consumer                                9,504      5,188        6,521      21,213
-----------------------------------------------------------------------------------
    Total loans                         $85,525    $98,534      $22,150    $203,209
===================================================================================
INTEREST RATES:
  Fixed                                  14,129     62,119       12,260      88,508
  Variable                               68,396     36,415        9,890     114,701
-----------------------------------------------------------------------------------
    Total Loans                         $85,525    $98,534      $22,150    $203,209
===================================================================================
</TABLE>

Total  loans  receivable  increased  7%  when  compared  to the prior year.  The
commercial  real  estate, commercial loan and consumer loan portfolios increased
$8.7  million,  $4.7  million  and  $1.5 million, respectively. The increases in
these  portfolios  were  partially  offset by a decrease in the residential real
estate  loans  of  $1.2  million.  By  comparison,  loans  receivable  increased
$457,000,  in  2005  from  2004.

Residential  real  estate loans decreased $1.3 million, or 1%, during 2006.  The
residential  real  estate  portfolio consists of 57% in fixed-rate mortgages and
43%  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

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

of $6.0 million and a $3.0 million decrease in 30-year fixed rate loans held for
sale,  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 $8.7 million, or 27%, from the prior year
as  new loan products and relationships were added to the portfolio.  Commercial
real  estate  loans  increased  $2.0  million,  or  7%,  during  2005.

Commercial  loans,  including  loans  to  municipalities, increased 25% over the
prior  year  to  $23.0 million at December 31, 2006.  The increase in commercial
loans  resulted  primarily  from  a  $4.4  million net increase from new lending
relationships and new loan products.  In comparison, commercial loans, including
municipal  loans,  increased  9%  during  2005.

Consumer  loans,  which  include  second  mortgage  loans,  home equity lines of
credit,  direct  installment  and  revolving credit loans, increased 8% to $21.2
million  at  December  31, 2006.  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 at
competitive market rates.  Management feels these loans are an attractive use of
funds  and  will continue to promote home equity products in 2007.  During 2005,
consumer  loans  increased  $1.2  million,  or  6%,  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)                           2006      2005     2004     2003    2002
-------------------------------------------------------------------------------------------
<S>                                             <C>     <C>       <C>     <C>      <C>>
NONACCRUAL LOANS:
  Commercial real estate and commercial          $  481    $  757   $  776   $1,677   $  603
  Consumer                                          125        89      122      172      166
  Real estate - construction                          -         -        -      270        -
                mortgage                            566       834      953      873      942
--------------------------------------------------------------------------------------------
 Total nonaccrual loans                          $1,172    $1,680   $1,851   $2,992   $1,711
--------------------------------------------------------------------------------------------
   Total non-performing loans                    $1,172    $1,680   $1,851   $2,992   $1,711
--------------------------------------------------------------------------------------------
Foreclosed real estate                              471       743      798      202    1,396
--------------------------------------------------------------------------------------------
   Total non-performing assets                   $1,643    $2,423   $2,649   $3,194   $3,107
--------------------------------------------------------------------------------------------
Non-performing loans to total loans                0.57%     0.89%    0.98%    1.59%    0.95%

Non-performing assets to total assets              0.54%     0.82%    0.88%    1.15%    1.11%
--------------------------------------------------------------------------------------------
Interest income that would have been recorded
   under the original terms of the loans         $   53    $   34   $   64   $   75   $  141
--------------------------------------------------------------------------------------------
</TABLE>
--------------------------------------------------------------------------------
                                       28
<PAGE>

The  asset  quality  of  the  Company's loan portfolio has improved during 2006.
Residential  delinquencies  declined  by  32%  during  2006 and 14% during 2005,
resulting  from  the  institution  of a more stringent collection policy.  Total
nonperforming  assets  (nonperforming  loans  and  foreclosed  real  estate)  at
December  31,  2006  were  0.54%  of  total assets as compared to 0.82% of total
assets  at  December  31,  2005.  Total nonperforming loans (past due 90 days or
more)  decreased  $508,000,  or  30%, during 2006 and decreased 11% during 2005.
Total  delinquent  loans  (those  30 days or more delinquent) as a percentage of
total  loans  were  2.05% at December 31, 2006 compared to 2.03% at December 31,
2005.  Approximately  44%  of  the Company's nonperforming loans at December 31,
2006  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.  At December
31,  2006 and 2005, the Company had $98,000 and $2.5 million in loans which were
deemed  to  be  impaired,  having  valuation  allowances of $24,000 and $90,000,
respectively.  Of the prior year impaired loan balance, $2.3 million represented
one  commercial  credit  relationship  which  was  paid  in  full  during  2006.

Management  has  identified  additional  potential  problem  loans totaling $2.3
million  as of December 31, 2006. These loans have been internally classified as
substandard or lower, yet are not currently considered past due or in nonaccrual
status. Management  has identified potential credit problems which may result in
the  borrower not being able to comply with the current loan repayment terms and
which  may  result  in  it  being  included  in  subsequent  past due reporting.
Management  believes  that  the current allowance for loan losses is adequate to
cover  probable  credit  losses  in  the  current  loan  portfolio.

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,  2006.

The  allowance  for  loan  losses  was $1.5 million at December 31, 2006, an 11%
decrease  from December 31, 2005.  The allowance for loan losses as a percentage
of  total  loans decreased to 0.74% at December 31, 2006 from 0.89% in the prior
year.  Net  loan  charge-offs  were $206,000 during 2006 compared to $459,000 in

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

2005.  The majority of the current year charge-off activity is the result of the
write  down  of portions of two commercial lending relationships.  The continued
improvement  in  the  overall  loan  portfolio asset quality resulted in reduced
current  year  provisioning  and  lower  allowance  coverage  ratios.

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>
                                          2006             2005               2004               2003               2002
                                   ---------------------------------------------------------------------------------------------
                                            % 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   $   985     31.3%  $ 1,282     26.5%  $ 1,483     24.7%  $ 1,218     24.1%  $ 1,042     24.9%
Consumer loans                         339     10.4%      289     10.4%      270      9.8%      120      8.8%      136      8.2%
Residential real estate                172     58.3%      108     63.1%       74     65.5%      377     67.1%      303     66.9%
--------------------------------------------------------------------------------------------------------------------------------
  Total                            $ 1,496    100.0%  $ 1,679    100.0%  $ 1,827    100.0%  $ 1,715    100.0%  $ 1,481    100.0%
=================================================================================================================================
</TABLE>

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

<TABLE>
<CAPTION>

(Dollars in thousands)                          2006     2005     2004     2003      2002
-------------------------------------------------------------------------------------------
<S>                                            <C>      <C>      <C>      <C>      <C>
BALANCE AT BEGINNING OF YEAR                   $1,679   $1,827   $1,715   $1,481   $ 1,679
 Allowance acquired in branch purchase              -        -        -        -        57
 Provisions charged to operating expenses          23      311      738      598     1,375
-------------------------------------------------------------------------------------------
 RECOVERIES OF LOANS PREVIOUSLY CHARGED-OFF:
   Commercial real estate and loans                 -       25       41        3        26
   Consumer                                        18       14       20       17         6
   Residential real estate                          4       10        -       17         -
-------------------------------------------------------------------------------------------
 Total recoveries                                  22       49       61       37        32
-------------------------------------------------------------------------------------------
 LOANS CHARGED OFF:
   Commercial real estate and loans              (114)    (284)    (439)    (128)   (1,285)
   Consumer                                       (89)    (137)    (126)    (189)     (291)
   Residential real estate                        (25)     (87)    (122)     (84)      (86)
-------------------------------------------------------------------------------------------
   Total charged-off                             (228)    (508)    (687)    (401)   (1,662)
-------------------------------------------------------------------------------------------
   Net charge-offs                               (206)    (459)    (626)    (364)   (1,630)
-------------------------------------------------------------------------------------------
Balance at end of year                         $1,496   $1,679   $1,827   $1,715   $ 1,481
===========================================================================================
Net charge-offs to average loans outstanding     0.11%    0.24%    0.33%    0.19%     0.92%
Allowance for loan losses to year-end loans      0.74%    0.89%    0.98%    0.91%     0.82%
===========================================================================================
</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 and
money  market  deposit  accounts, savings and time deposits. During 2006, 57% of
the Company's average deposit base of $238.4 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  $26.5 million in municipal deposits in 2006, primarily concentrated
in  money  market  deposit  accounts.

Average  deposits  decreased  $1.5  million,  or 1%, when compared to 2005.  The
decrease in average deposits primarily related to a $3.1 million decrease in the
average  balance of municipal deposits, offset by an increase in retail deposits
of  $1.6  million.  The  new  branch in Central Square added $6.8 million to the

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

average  balance  of  retail  deposits  since  its  opening in June of 2005.  In
comparison,  average  deposits increased $9.5 million, or 4%, from 2004 to 2005.
Deposit  growth in 2005 resulted from the growth both in retail and in municipal
deposits.

The  Company's  average  deposit  mix  in 2006, as compared to 2005, reflected a
shift  from  savings and club deposits to time deposits.   The Company's average
demand  deposits,  interest  and  noninterest  bearing, represented 18% of total
average  deposits,  compared  to  16%  at  2005.  The  Company's  MMDA  accounts
represented  9%  of total deposits, down 2 percentage points for the same period
in  2005. The Company's time deposit accounts represented 43% of total deposits,
up  4  percentage  points from the same period in 2005. The Company promotes its
MMDA  and time deposit accounts 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,
                            ----------------------------------------------------------------------------------
                                      2006                        2005                        2004
--------------------------------------------------------------------------------------------------------------
                                       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          $ 20,745     -      8.7%    $ 19,324     -     8.1%    $ 17,974       -     7.8%
NOW accounts                  21,094  0.48%     8.9%      19,877  0.54%    8.3%      20,808    0.65%    9.0%
Money management accounts     13,318  0.83%     5.5%      16,096  0.86%    6.7%      14,459    1.15%    6.3%
MMDA accounts                 20,608  3.81%     8.7%      25,284  2.76%   10.5%      26,316    1.52%   11.4%
Savings and club accounts     58,997  0.45%    24.8%      65,558  0.44%   27.3%      68,046    0.67%   29.6%
Time deposits                103,596  4.08%    43.4%      93,732  3.29%   39.1%      82,769    3.00%   35.9%
--------------------------------------------------------------------------------------------------------------
Total average deposits      $238,358  2.52%  100.00%    $239,871  1.96% 100.00%    $230,372    1.71% 100.00%
==============================================================================================================
</TABLE>

At December 31, 2006, time deposits in excess of $100,000 totaled $32.8 million,
or 32%, of time deposits and 14% of total deposits.  At December 31, 2005, these
deposits  totaled  $24.0  million,  or  26%  of  time  deposits and 10% of total
deposits.

The  following  table indicates the amount of the Bank's certificates of deposit
of  $100,000  or more sorted by time remaining until maturity as of December 31,
2006:

<TABLE>
<CAPTION>

(In thousands)
-------------------------------------------------------
<S>                                            <C>
REMAINING MATURITY:
 Three months or less                           $ 9,336
 Three through six months                         5,943
 Six through twelve months                       10,177
 Over twelve months                               7,320
-------------------------------------------------------
   Total                                        $32,776
=======================================================
</TABLE>
--------------------------------------------------------------------------------
                                       31
<PAGE>

BORROWINGS

Short-term  borrowings  are  comprised  primarily  of  advances  and  overnight
borrowing  at  the  FHLBNY.  There  were no short-term borrowings outstanding at
December  31,  2006,  as  compared  to  $2.0  million  at  December  31,  2005.

Information  regarding  short-term  borrowings  during 2006, 2005 and 2004 is as
follows:

<TABLE>
<CAPTION>

 (Dollars in thousands)                         2006      2005     2004
-------------------------------------------------------------------------
<S>                                          <C>       <C>       <C>
Maximum outstanding at any month end         $15,000   $15,000    $3,100
Average amount outstanding during the year     5,321     5,692     1,400
Average interest rate during the year           4.99%     3.57%     1.31%
========================================================================
</TABLE>

Long-term  borrowed funds consist of advances and repurchase agreements from the
FHLBNY  and  junior  subordinated  debentures.  Long-term borrowed funds totaled
$31.5  million at December 31, 2006 as compared to $34.5 million at December 31,
2005.

CAPITAL

Shareholders'  equity  decreased  $78,000 to $20.9 million at December 31, 2006.
The  Company  added  $1.0 million to retained earnings through net income, which
was  offset  by  cash  dividends  returned  to  its  shareholders  of  $686,000.
Accumulated  other  comprehensive  loss  increased  $485,000  to $1.8 million at
December  31,  2006, resulting from the adoption of SFAS No. 158 on December 31,
2006, which resulted in $921,000 of accumulated other comprehensive loss, offset
by  unrealized  gains on securities available for sale, net of tax, of $436,000.
Additional  paid  in  capital  increased  $65,000  due  to the exercise of stock
options  during  2006.

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, 2006 and
December  31,  2006.

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, 2006, 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.

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

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
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, 2006, 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, 2006:

<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                    $ 85,445  $ 22,809  $  7,519  $ 3,699  $119,472
  Junior subordinated debentures          -         -         -    5,155     5,155
  Borrowings                         11,350    10,010     5,000        -    26,360
  Operating leases                       63       130       117       63       373
  Payments under benefit plans          330       743       779   10,155    12,007
----------------------------------------------------------------------------------
Total                              $ 97,188  $ 33,692  $ 13,415  $19,072  $163,367
==================================================================================
</TABLE>

Despite  the  fact  that  the  junior subordinated note is not contractually due
until  2032,  we  expect  to  call  the note in 2007 and replace it with a newly
originated junior subordinated note with a lower carrying cost. 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,  2006,  the Company had $26.9 million in
outstanding  commitments  to  extend  credit and standby letters of credit.  See
Note  15  in  the  accompanying  financial  statements.

--------------------------------------------------------------------------------
                                       33
<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  11 times, 25 basis points each time to 5.25% 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 36-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  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 IRR, 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 IRR 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 IRR.  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,

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

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

The  following  table  measures  the  Company's  IRR  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 IRR exposure and quantifies those changes against guidelines
set  by  the  Board  of  Directors  as  part  of  the Company's IRR policy.  The
Company's  current  IRR  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             7.14%        -15.85%         -33.55%
200             8.13%        -10.42%         -22.59%
100             9.10%         -5.14%         -11.30%
0              10.03%          - --            ----
-100           10.53%          2.52%           7.31%
-200           10.49%          2.12%           8.73%
-300           10.14%          0.15%           6.79%
</TABLE>

--------------------------------------------------------------------------------
                                       35
<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  IRR  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,
2006:

<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    TOTAL
----------------------------------------------------------------------------------------------------------------------------------
<S>                                                    <C>         <C>        <C>       <C>       <C>        <C>         <C>
INTEREST-EARNING ASSETS:
  Interest earning deposits                              $  6,655   $      -   $     -   $     -   $      -   $       -   $  6,655
  Investment securities and FHLB stock                     19,177     16,044    14,714     8,342      5,721         221     64,219
  Loans receivable                                         46,230     36,295    67,419    31,115     18,614       3,536    203,209
----------------------------------------------------------------------------------------------------------------------------------
   Total interest-earning assets                         $ 72,062   $ 52,339   $82,133   $39,457   $ 24,335   $   3,757   $274,083
----------------------------------------------------------------------------------------------------------------------------------
INTEREST-BEARING LIABILITIES:
  Transaction deposit accounts (1)                       $  8,269   $ 24,809   $17,041   $     -   $      -   $       -   $ 50,119
  Savings deposits (1)                                      1,068      7,655    11,900     9,143     12,670      12,976     55,412
  Certificates of deposit                                  27,761     57,684    22,809     7,519      3,699           -    119,472
  Borrowings                                                4,350      7,000    10,010     5,000          -           -     26,360
  Junior subordinated debentures                                -          -         -         -          -       5,155      5,155
----------------------------------------------------------------------------------------------------------------------------------
     Total interest-bearing liabilities                  $ 41,448   $ 97,148   $61,760   $21,662   $ 16,369   $  18,131   $256,518
==================================================================================================================================

Interest-earning assets less interest-
  bearing liabilities ("interest rate sensitivity gap")  $ 30,614   $(44,809)  $20,373   $17,795   $  7,966   $ (14,374)
------------------------------------------------------------------------------------------------------------------------
Cumulative excess (deficiency) of interest-
  sensitive assets over interest-sensitive liabilities   $ 30,614   $(14,198)  $ 6,178   $23,973   $ 31,939   $  17,565
------------------------------------------------------------------------------------------------------------------------
Interest sensitivity gap to total assets                   10.16%     -14.87%     6.76%     5.90%      2.64%      -4.77%
------------------------------------------------------------------------------------------------------------------------
Cumulative interest sensitivity gap to total assets        10.16%      -4.71%     2.05%     7.95%     10.60%       5.83%
------------------------------------------------------------------------------------------------------------------------
Ratio of interest-earning assets to interest-
  bearing liabilities                                     173.86%      53.88%   132.99%   182.15%    148.67%      20.72%
Cumulative ratio of interest-earning assets to
  interest-bearing liabilities                            173.86%      89.76%   103.08%   110.80%    113.40%     106.85%
------------------------------------------------------------------------------------------------------------------------
</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

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

ITEM  8:  FINANCIAL  STATEMENTS  AND  SUPPLEMENTARY  DATA

INDEX  TO  CONSOLIDATED  FINANCIAL  STATEMENTS
PATHFINDER  BANCORP,  INC
                                                                           Page
                                                                           ----

Report of Independent Registered Public Accounting Firm                    38
Consolidated Statements of Condition                                       39
Consolidated Statements of Income                                          40
Consolidated Statements of Changes in Shareholders' Equity                 41
Consolidated Statements of Cash Flows                                      42
Notes to Consolidated Financial Statements                                 43

--------------------------------------------------------------------------------
                                       37
<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, 2006 and 2005, 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,
2006.  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, 2006 and 2005, and the results
of  their  operations  and  their  cash flows for each of the three years in the
period  ended  December  31,  2006,  in  conformity  with  accounting principles
generally  accepted  in  the  United  States  of  America.

     As  discussed  in  Note  11  to  the consolidated financial statements, the
Company  changed  its  method  of accounting for its defined benefit pension and
postretirement  benefit  plans  in  2006.


                                   /s/  BEARD  MILLER  COMPANY  LLP

Beard Miller Company LLP
Harrisburg, Pennsylvania
March 27, 2007

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

CONSOLIDATED STATEMENTS OF CONDITION
<TABLE>
<CAPTION>

                                                                                      DECEMBER 31,
                                                                                  ------------------
(In thousands, except share data)                                                    2006       2005
----------------------------------------------------------------------------------------------------
<S>                                                                            <C>        <C>
ASSETS:
  Cash and due from banks                                                        $  7,068   $  7,309
  Interest earning deposits                                                         6,655        586
----------------------------------------------------------------------------------------------------
      Total cash and cash equivalents                                              13,723      7,895
  Investment securities, at fair value                                             62,640     74,239
  Federal Home Loan Bank stock, at cost                                             1,579      1,805
  Loans                                                                           203,209    189,568
  Less: Allowance for loan losses                                                   1,496      1,679
----------------------------------------------------------------------------------------------------
      Loans receivable, net                                                       201,713    187,889
  Premises and equipment, net                                                       7,597      8,020
  Accrued interest receivable                                                       1,694      1,678
  Foreclosed real estate                                                              471        743
  Goodwill                                                                          3,840      3,840
  Intangible asset, net                                                               181        404
  Bank owned life insurance                                                         6,212      5,987
  Other assets                                                                      1,732      4,448
----------------------------------------------------------------------------------------------------
      Total assets                                                               $301,382   $296,948
====================================================================================================

LIABILITIES AND SHAREHOLDERS' EQUITY:
  Deposits:
   Interest-bearing                                                              $225,003   $216,136
   Noninterest-bearing                                                             20,582     20,241
----------------------------------------------------------------------------------------------------
      Total deposits                                                              245,585    236,377
  Short-term borrowings                                                                 -      2,000
  Long-term borrowings                                                             26,360     29,360
  Junior subordinated debentures                                                    5,155      5,155
  Other liabilities                                                                 3,432      3,128
----------------------------------------------------------------------------------------------------
      Total liabilities                                                           280,532    276,020
  Shareholders' equity:
    Preferred stock, authorized shares 1,000,000; no shares issued or outstanding
    Common stock, par value $.01; authorized 10,000,000 shares;
      2,953,619 and 2,950,419 shares issued; and 2,466,332 and
      2,463,132 shares outstanding, respectively                                       29         29
  Additional paid-in-capital                                                        7,786      7,721
  Retained earnings                                                                21,307     20,965
  Accumulated other comprehensive loss                                             (1,770)    (1,285)
  Treasury Stock, at cost; 487,287 shares                                          (6,502)    (6,502)
----------------------------------------------------------------------------------------------------
      Total shareholders' equity                                                   20,850     20,928
----------------------------------------------------------------------------------------------------
      Total liabilities and shareholders' equity                                 $301,382   $296,948
====================================================================================================
</TABLE>

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

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

CONSOLIDATED STATEMENTS OF INCOME

<TABLE>
<CAPTION>
                                                                                          YEARS ENDED DECEMBER 31,
                                                                                      -----------------------------
(In thousands, except per share data)                                                      2006      2005     2004
-------------------------------------------------------------------------------------------------------------------
<S>                                                                                 <C>         <C>       <C>
INTEREST AND DIVIDEND INCOME:
  Loans, including fees                                                                $ 12,764   $11,794   $11,815
  Debt securities:
   Taxable                                                                                2,364     2,481     2,075
   Tax-exempt                                                                               357       505       362
  Dividends                                                                                 292       247       145
  Other                                                                                      92        71        81
-------------------------------------------------------------------------------------------------------------------
      Total interest income                                                              15,869    15,098    14,478
-------------------------------------------------------------------------------------------------------------------
INTEREST EXPENSE:
  Interest on deposits                                                                    5,487     4,319     3,639
  Interest on short-term borrowings                                                         265       204        17
  Interest on long-term borrowings                                                        1,791     1,833     1,917
-------------------------------------------------------------------------------------------------------------------
      Total interest expense                                                              7,543     6,356     5,573
-------------------------------------------------------------------------------------------------------------------
         Net interest income                                                              8,326     8,742     8,905
PROVISION FOR LOAN LOSSES                                                                    23       311       738
-------------------------------------------------------------------------------------------------------------------
         Net interest income after provision for loan losses                              8,303     8,431     8,167
-------------------------------------------------------------------------------------------------------------------
NONINTEREST INCOME:
  Service charges on deposit accounts                                                     1,391     1,318       967
  Increase in value of bank owned life insurance                                            225       218       175
  Loan servicing fees                                                                       224       215       256
  Net gains (losses) on sales and impairment of investment securities                       299      (205)      772
  Net (losses) gains on sales of loans and foreclosed real estate                           (80)      (88)      279
  Debit card interchange fees                                                               189       147       119
  Other charges, commissions and fees                                                       387       435       479
-------------------------------------------------------------------------------------------------------------------
      Total noninterest income                                                            2,635     2,040     3,047
-------------------------------------------------------------------------------------------------------------------
NONINTEREST EXPENSE:
  Salaries and employee benefits                                                          5,007     5,123     4,798
  Building occupancy                                                                      1,203     1,178     1,169
  Data processing expenses                                                                1,278     1,262       981
  Professional and other services                                                           615       782       682
  Amortization of intangible asset                                                          223       223       223
  Other expenses                                                                          1,342     1,492     1,454
-------------------------------------------------------------------------------------------------------------------
      Total noninterest expenses                                                          9,668    10,060     9,307
-------------------------------------------------------------------------------------------------------------------
Income before income taxes                                                                1,270       411     1,907
Provision (Benefit) for income taxes                                                        242       (51)      502
-------------------------------------------------------------------------------------------------------------------
Net income                                                                              $ 1,028   $   462   $ 1,405
===================================================================================================================
Net income per share - basic                                                            $  0.42   $  0.19   $  0.58
-------------------------------------------------------------------------------------------------------------------
Net income per share - diluted                                                          $  0.41   $  0.19   $  0.57
-------------------------------------------------------------------------------------------------------------------
Dividends per share                                                                     $  0.41   $  0.41   $ 0.405
===================================================================================================================
</TABLE>

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

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

<TABLE>
<CAPTION>

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY

                                                                                        ACCUMULATED
                                                             ADDITIONAL                      OTHER       UNEARNED
                                         COMMON STOCK ISSUED  PAID-IN       RETAINED    COMPREHENSIVE      ESOP
                                         -------------------
(In thousands, except share data)        SHARES      AMOUNT    CAPITAL      EARNINGS    INCOME (LOSS)     SHARES
---------------------------------------------------------------------------------------------------------------------
<S>                                      <C>                  <C>       <C>        <C>              <C>
BALANCE, JANUARY 1, 2004               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 options 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 loss, net of tax
    Unrealized net losses on securities                                                       (978)

TOTAL COMPREHENSIVE LOSS


ESOP shares earned                                                 55                                         33
Stock options exercised                  13,000          -        213
Dividends declared ($.41 per share)                                            (683)
---------------------------------------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 2005            2,950,419    $    29   $  7,721      $ 20,965        $(1,285)        $   -
====================================================================================================================
Comprehensive income:
Net income                                                                    1,028
  Other comprehensive income, net of tax
    Unrealized net gains on securities                                                         436

TOTAL COMPREHENSIVE INCOME


Adjustment to initially apply FASB
      Statement No. 158, net of tax                                                           (921)
Stock options exercised, including       3,200           -         65
      $42 tax benefit
Dividends declared ($.41 per share)                                            (686)
---------------------------------------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 2006           2,953,619     $    29   $  7,786      $ 21,307        $(1,770)        $   -
====================================================================================================================

                                         TREASURY
(In thousands, except share data)          STOCK     TOTAL
-----------------------------------------------------------
<S>                                      <C>       <C>
BALANCE, JANUARY 1, 2004                 $(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 options exercised                                140
Dividends declared ($.405 per share)                  (668)
-----------------------------------------------------------
BALANCE, DECEMBER 31, 2004               $(6,502)  $21,826
===========================================================
Comprehensive loss:
Net income                                             462
  Other comprehensive loss, net of tax
    Unrealized net losses on securities               (978)
                                                   --------
TOTAL COMPREHENSIVE LOSS                              (516)

ESOP shares earned                                      88
Stock options exercised                                213
Dividends declared ($.41 per share)                   (683)
-----------------------------------------------------------
BALANCE, DECEMBER 31, 2005               $(6,502)  $20,928
===========================================================
Comprehensive income:
Net income                                           1,028
  Other comprehensive income, net of tax
    Unrealized net gains on securities                 436
                                                    -------
TOTAL COMPREHENSIVE INCOME                           1,464


Adjustment to initially apply FASB
      Statement No. 158, net of tax                   (921)
Stock options exercised, including                      65
      $42 tax benefit
Dividends declared ($.41 per share)                   (686)
-----------------------------------------------------------
BALANCE, DECEMBER 31, 2006               $(6,502)  $20,850
===========================================================
</TABLE>

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

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

<TABLE>
<CAPTION>

CONSOLIDATED STATEMENTS OF CASH FLOWS
                                                                                                      YEARS ENDED DECEMBER 31,
                                                                                                 ------------------------------
(In thousands)                                                                                      2006       2005       2004
-------------------------------------------------------------------------------------------------------------------------------
<S>                                                                                             <C>        <C>        <C>
OPERATING ACTIVITIES:
 Net Income                                                                                     $  1,028   $    462   $  1,405
 Adjustments to reconcile net income to net cash provided by operating activities:
   Provision for loan losses                                                                          23        311        738
   ESOP shares earned                                                                                  -         88        133
   Deferred income tax expense                                                                       (67)       109        502
   Proceeds from sale of loans                                                                     1,739      8,795     12,440
   Originations of loans held-for-sale                                                            (1,715)         -    (10,884)
   Realized losses (gains) on sales of:
     Foreclosed real estate                                                                          104         23        (84)
     Loans                                                                                           (24)        65       (195)
     Premises and equipment                                                                          (13)         -          -
     Available-for-sale investment securities                                                       (299)       205       (772)
   Depreciation                                                                                      754        697        590
   Amortization of intangible asset                                                                  223        223        223
   Amortization of deferred financing costs                                                           30         30         30
   Amortization of mortgage servicing rights                                                          95        123        158
   Increase in value of bank owned life insurance                                                   (225)      (218)      (175)
   Net amortization of premiums and discounts on investment securities                               162        364        358
   Increase in interest receivable                                                                   (16)      (173)      (231)
   Net change in other assets and liabilities                                                        646       (482)    (1,855)
-------------------------------------------------------------------------------------------------------------------------------
       Net cash provided by operating activities                                                   2,445     10,622      2,381
-------------------------------------------------------------------------------------------------------------------------------
INVESTING ACTIVITIES:
 Purchase of investment securities available-for-sale                                            (13,030)   (19,758)   (35,512)
 Net redemption (purchase) of Federal Home Loan Bank stock                                           226        (37)       280
 Proceeds from maturities and principal reductions of investment securities available-for-sale    19,528     15,361      9,897
 Proceeds from sale:
    Available-for-sale investment securities                                                       5,973      3,027      6,904
    Real estate acquired through foreclosure                                                         504        770        382
    Premises and equipment                                                                           146          -          -
 Purchase of bank owned life insurance                                                                 -          -     (1,100)
 Net (increase) decrease in loans                                                                (13,087)   (10,514)       245
 Purchase of premises and equipment                                                                 (464)    (1,137)    (1,520)
-------------------------------------------------------------------------------------------------------------------------------
       Net cash used in investing activities                                                        (204)   (12,288)   (20,424)
-------------------------------------------------------------------------------------------------------------------------------
FINANCING ACTIVITIES:
 Net (decrease) increase in demand deposits, NOW accounts, saving accounts,
  money market deposit accounts, MMDA accounts, escrow deposits                                  (14,109)   (12,066)    28,441
 Net increase in time deposits                                                                    23,317     11,772      1,337
 Net (repayments on) proceeds from short-term borrowings                                          (2,000)     1,000     (1,100)
 Payments on long-term borrowings                                                                 (3,000)   (10,000)    (4,500)
 Proceeds from long-term borrowings                                                                    -      5,000          -
 Proceeds from exercise of stock options                                                              23        213        140
 Tax benefit upon exercise of stock options                                                           42          -          -
 Cash dividends                                                                                     (686)      (683)      (664)
-------------------------------------------------------------------------------------------------------------------------------
       Net cash provided by (used in) financing activities                                         3,587     (4,764)    23,654
-------------------------------------------------------------------------------------------------------------------------------
       Increase (decrease) in cash and cash equivalents                                            5,828     (6,430)     5,611
-------------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at beginning of period                                                   7,895     14,325      8,714
-------------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of period                                                      $ 13,723   $  7,895   $ 14,325
-------------------------------------------------------------------------------------------------------------------------------
CASH PAID DURING THE PERIOD FOR:
 Interest                                                                                       $  7,543   $  6,338   $  5,639
 Income taxes paid                                                                                     5         95        312
NON-CASH INVESTING ACTIVITY:
 Conversion of Holding Company advance to loan receivable                                          1,096          -          -
 Transfer of loans to foreclosed real estate                                                         336        738        894
 Transfer of loans to loans held-for-sale                                                              -      6,701          -
</TABLE>

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

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

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE  1:  SUMMARY  OF  SIGNIFICANT  ACCOUNTING  POLICIES

NATURE  OF  OPERATIONS

The  accompanying  consolidated  financial  statements  include  the accounts of
Pathfinder  Bancorp,  Inc.  (the  "Company")  and  its  wholly owned subsidiary,
Pathfinder  Bank  (the  "Bank").  The  Bank  has  three  wholly  owned operating
subsidiaries,  Pathfinder Commercial Bank, Whispering Oaks Development Corp. 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  64.2%  of the outstanding common stock of the Company.  Salaries,
employee  benefits  and rent approximating $127,000, $135,000 and $130,000, were
allocated  from  the Company to Pathfinder Bancorp, M.H.C. during 2006, 2005 and
2004,  respectively.  As  of  December  31, 2006, the Bank had a loan receivable
from  the  Holding  Company  of  $1,096,000.

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.

--------------------------------------------------------------------------------
                                       43
<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
$300,000,  $249,000 and $224,000 for the years ended December 31, 2006, 2005 and
2004,  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.  There were no forward commitments
outstanding  as  of  December  31,  2006  and  2005.

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.

--------------------------------------------------------------------------------
                                       44
<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.

--------------------------------------------------------------------------------
                                       45
<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 40 years for premises and 10 years
for  equipment.  Maintenance  and  repairs  are charged to operating expenses as
incurred.  The  asset  cost  and  accumulated  depreciation are removed from the
accounts  for  assets sold or retired and any resulting gain or loss is included
in  the  determination  of  income.

FORECLOSED  REAL  ESTATE

Properties  acquired through foreclosure, or by deed in lieu of foreclosure, are
carried  at  the  lower of the Bank's recorded investment or at their fair value
less  estimated  disposal  costs.  Fair  value  is determined based on a current
appraisal  and  inspection.  Costs  incurred  in  connection  with preparing the
foreclosed  real  estate for disposition are capitalized to the extent that they
enhance  the  overall  fair  value of the property. Write downs of, and expenses
related to, foreclosed real estate holdings included in noninterest expense were
$111,000,  $155,000  and  $85,000  in  2006,  2005  and  2004,  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.

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

STOCK-BASED  COMPENSATION

Prior  to  2006,  the  Company  accounted for stock-based compensation issued to
directors  and  employees  using  the  intrinsic value method in accordance with
Accounting  Principles  Board  Opinion  No.  25, "Accounting for Stock Issued to
Employees"  (APB  25).  This  method  required  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 did not
recognize  compensation expense related to stock option awards because the stock
options  generally  had  fixed  terms  and exercise prices that were equal to or
greater  than  the  fair  value of the Company's common stock at the grant date.
Effective  January  1,  2006, the Company adopted Financial Accounting Standards
Board  (FASB)  Statement  No. 123(R), Share-Based Payment, ("SFAS 123(R)"). SFAS
123(R)  requires  compensation costs related to share-based payment transactions
to  be recognized in the income statement (with limited exceptions). The Company
is  using  the modified prospective method based on the grant-date fair value of
the  stock-based compensation issued. Compensation costs are recognized over the
period  that  an employee provides service in exchange for the award.  As of the
date  of  adoption  of SFAS 123(R), the Company's options were fully granted and
vested,  and  accordingly,  there  was  no  impact to the Company's consolidated
financial  position  or  results  of operations.  No options were granted during
2006,  2005  and  2004.

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  2006,  the  Company  adopted SFAS 158, which required the recognition of the
under  funded  status  of  pension and other postretirement benefit plans on the
consolidated  statements  of condition.  Under SFAS 158, gains and losses, prior
service  costs  and  credits, and any remaining transition amounts under SFAS 87
and SFAS 106 that have not yet been recognized through net periodic benefit cost
will  be  recognized  in  accumulated  other  comprehensive  income,  net of tax
effects,  until  they  are  amortized  as  a  component  of  net  periodic cost.

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.

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 consolidated financial
statements  at  currently  enacted  income tax rates applicable to the period in
which  the  deferred  tax  assets and liabilities are expected to be realized or
settled.

EARNINGS  PER  SHARE

Basic  earnings  per  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.

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

OTHER  COMPREHENSIVE  (LOSS)  INCOME

Accounting  principles  generally  accepted  in  the  United  States of America,
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 shareholders' equity section of the consolidated statements of
condition,  such  items,  along with net income, are components of comprehensive
income.  The adoption of SFAS 158 created a new component of other comprehensive
income  in  2006.  The  under  funded status of pension and other postretirement
benefits  is  now  presented in the statement of condition through this account.

The  components of other comprehensive (loss) income and related tax effects are
as  follows:


<TABLE>
<CAPTION>
                                                  FOR THE YEARS ENDED DECEMBER 31,
                                                 ----------------------------------
(In thousands)                                        2006       2005       2004
------------------------------------------------------------------------------------
<S>                                              <C>        <C>        <C>
Gross change in unrealized gains (losses) on
 securities available for sale                   $   1,034    $(1,835)  $  (843)
Reclassification adjustment for (gains) losses
 included in net income                               (299)       205      (772)
------------------------------------------------------------------------------------

                                                       735     (1,630)   (1,615)
Tax effect                                            (299)       652       646
------------------------------------------------------------------------------------
Net of tax amount                                $     436    $  (978)  $  (969)
====================================================================================
</TABLE>

The  components  of  accumulated  other  comprehensive  loss, net of related tax
effects,  at  December  31,  are  as  follows:

<TABLE>
<CAPTION>

(In thousands)                                         2006      2005
------------------------------------------------------------------------
<S>                                                  <C>       <C>
Unrealized losses on available for sale securities   $  (849)  $(1,285)
Unrecognized pension and other postretirement
   benefit losses                                       (921)        -
------------------------------------------------------------------------
                                                     $(1,770)  $(1,285)
========================================================================
</TABLE>

RECLASSIFICATIONS

Certain amounts in the 2005 and 2004 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  February  2006,  the  Financial  Accounting Standards Board ("FASB"), issued
Statement  of  Financial  Accounting  Standards  (SFAS), No. 155, Accounting for
Certain  Hybrid  Financial  Instruments  ("SFAS  155").  SFAS  155  amends  FASB
Statement  No.  133  and  FASB  Statement  No.  140,  and improves the financial
reporting  of  certain hybrid financial instruments by requiring more consistent
accounting  that  eliminates  exemptions  and  provides  a means to simplify the
accounting  for  these  instruments.  Specifically,  SFAS  155  allows financial
instruments  that  have  embedded  derivatives  to  be  accounted for as a whole
(eliminating  the  need to bifurcate the derivative from its host) if the holder
elects to account for the whole instrument on a fair value basis. The Company is
required  to adopt the provisions of SFAS 155, as applicable, beginning in 2007.
Management does not believe the adoption of SFAS 155 will have a material impact
on  the  Company's  consolidated  financial  position and results of operations.

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

In  March  2006,  the  FASB  issued  SFAS  No. 156, Accounting for Servicing of
Financial  Assets -An Amendment of FASB Statement No. 140 ("SFAS 156"). SFAS 156
requires  that  all  separately  recognized  servicing  assets  and  servicing
liabilities  be  initially measured at fair value, if practicable. The statement
permits,  but  does  not require, the subsequent measurement of servicing assets
and  servicing  liabilities at fair value. SFAS 156 is effective for the Company
beginning  in  2007.  The Company does not believe that the adoption of SFAS 156
will  have  a  significant  effect  on  its  consolidated  financial statements.

In  July  2006,  the  FASB  issued  FASB  Interpretation No. 48, "Accounting for
Uncertainty  in  Income Taxes-an interpretation of FASB Statement No. 109" ("FIN
48"),  which  clarifies  the  accounting  for uncertainty in tax positions. This
Interpretation  requires  that companies recognize in their financial statements
the  impact of a tax position, if that position is more likely than not of being
sustained  on  audit,  based  on  the  technical  merits  of  the  position. The
provisions of FIN 48 are effective for fiscal years beginning after December 15,
2006,  with the cumulative effect of the change in accounting principle recorded
as  an adjustment to opening retained earnings. Management does not believe that
the  adoption  of  FIN  48  will  have  a significant effect on its consolidated
financial  statements.

In September 2006, the FASB issued SFAS No. 157, Fair Value Measurements, ("SFAS
157") which defines fair value, establishes a framework for measuring fair value
under  GAAP,  and  expands  disclosures  about fair value measurements. SFAS 157
applies  to  other  accounting  pronouncements that require or permit fair value
measurements.  The new guidance is effective for financial statements issued for
fiscal  years  beginning after November 15, 2007, and for interim periods within
those fiscal years. We are currently evaluating the potential impact, if any, of
the  adoption  of  SFAS  157  on our consolidated financial position, results of
operations  and  cash  flows.

On September 13, 2006, the Securities and Exchange Commission "SEC" issued Staff
Accounting  Bulletin No. 108 ("SAB 108"). SAB 108 provides interpretive guidance
on  how  the  effects  of  the carryover or reversal of prior year misstatements
should be considered in quantifying a potential current year misstatement. Prior
to  SAB  108,  companies  might  evaluate the materiality of financial statement
misstatements  using either the income statement or balance sheet approach, with
the  income  statement  approach  focusing  on  new  misstatements  added in the
current  year,  and the balance sheet approach focusing on the cumulative amount
of  misstatement  present in a company's balance sheet. Misstatements that would
be  material  under  one  approach  could  be viewed as immaterial under another
approach,  and  not  be  corrected.  SAB  108  now  requires that companies view
financial  statement misstatements as material if they are material according to
either  the income statement or balance sheet approach. The Company has analyzed
SAB 108 and determined that, upon adoption in the fourth quarter of 2006, it had
no  impact  on  the  reported  results  of  operations  or  financial condition.

In  February  2007,  the  FASB  issued  SFAS  No. 159, The Fair Value Option for
Financial  Assets  and  Financial  Liabilities  - Including an Amendment of FASB
Statement  No.  115,  ("SFAS 159"). This standard permits an entity to choose to
measure  many  financial instruments and certain other items at fair value. Most
of  the provisions in SFAS 159 are elective; however, the amendment to SFAS 115,
Accounting for Certain Investments in Debt and Equity Securities, applies to all
entities  with  available-for-sale  and  trading  securities.  The FASB's stated
objective  in  issuing  this  standard  is  as  follows:  "to  improve financial
reporting  by  providing entities with the opportunity to mitigate volatility in
reported earnings caused by measuring related assets and liabilities differently
without  having  to  apply complex hedge accounting provisions."  The fair value
option  established  by  SFAS  159  permits  all  entities  to choose to measure
eligible items at fair value at specified election dates. A business entity will
report  unrealized gains and losses on items for which the fair value option has
been  elected  in  earnings  at  each  subsequent reporting date. The fair value
option: (a) may be applied instrument by instrument, with a few exceptions, such
as  investments otherwise accounted for by the equity method; (b) is irrevocable
(unless  a  new  election  date  occurs);  and  (c)  is  applied  only to entire
instruments  and  not to portions of instruments.  SFAS 159 is effective for the
Company  as of January 1, 2008, unless early adoption is elected. The Company is
currently  analyzing  the effects of this interpretation but does not expect its
implementation  will  have  a  significant  impact  on  the  Company's financial
condition  or  results  of  operations.

--------------------------------------------------------------------------------
                                       49
<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, 2006
                                       ------------------------------------------------------
                                                           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               $ 19,966         $    -        $  (557)    $ 19,409
  State and political subdivisions          5,870              -            (79)       5,791
  Corporate                                 5,575             18            (79)       5,514
  Mortgage-backed                          25,481             53           (638)      24,896
--------------------------------------------------------------------------------------------
    Total                                  56,892             71         (1,353)      55,610
--------------------------------------------------------------------------------------------
 Equity investments                         7,163             91           (224)       7,030
--------------------------------------------------------------------------------------------
Total investment securities              $ 64,055         $  162        $(1,577)    $ 62,640
============================================================================================

                                                            DECEMBER 31, 2005
                                       ---------------------------------------------------
                                                           GROSS        GROSS    ESTIMATED
                                       AMORTIZED      UNREALIZED    UNREALIZED        FAIR
(In thousands)                              COST           GAINS        LOSSES       VALUE
--------------------------------------------------------------------------------------------
 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
============================================================================================
</TABLE>

Gross  gains  of  $325,000,  $190,000  and  $828,000  for  2006,  2005 and 2004,
respectively  and  gross  losses of $26,000, $395,000 and $56,000 for 2006, 2005
and  2004, respectively were realized on sales and calls of securities.  The tax
expense  related  to  net  gains on investment securities was $117,000 for 2006.
The  tax  benefit  related  to  net  losses on investment securities in 2005 was
$80,000.  Tax expense related to net gains on investment securities was $301,000
for  2004.

Investment  securities  with  a  carrying  value of approximately $35,441,000 at
December  31,  2006  were pledged to collateralize certain deposit and borrowing
arrangements.

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

The  amortized cost and estimated fair value of debt investments at December 31,
2006  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>
<S>                                      <C>         <C>
                                          AMORTIZED    ESTIMATED
 (In thousands)                                COST   FAIR VALUE
-----------------------------------------------------------------
Due in one year or less                  $    4,812  $     4,774
Due after one year through five years        17,288       16,841
Due after five years through ten years        7,171        6,971
Due after ten years                           2,140        2,128
Mortgage-backed securities                   25,481       24,896
----------------------------------------------------------------
  Totals                                 $   56,892  $    55,610
================================================================
</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, 2006
                                         ----------------------------------------------------------------------
                                         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           $  (1)      $1,996      $  (556)       $17,413      $ (557)   $19,409
State and political subdivision securities     (1)         439          (78)         5,218         (79)     5,657
Corporate securities                            -            -          (79)         3,887         (79)     3,887
Mortgage-backed securities                     (1)         198         (637)        22,525        (638)    22,723
Equity investment securities                 (136)       2,747          (88)         3,366        (224)     6,113
-----------------------------------------------------------------------------------------------------------------
                                            $(139)      $5,380      $(1,438)       $52,409     $(1,577)   $57,789
=================================================================================================================
</TABLE>

<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     $  (640)       $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        (592)        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>

The  Company reviews its securities portfolio for potential impairment issues at
least  quarterly.  No  impairment losses were recorded during 2006.  The Company
recognized  an  impairment charge of $196,000 during 2005 in connection with one
marketable  equity  security  holding.  No  impairment losses were recognized in
2004.

At December 31, 2006 53 mortgage-backed and 31 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 their
carrying  amount  and  a majority had unrealized losses totaling less than 3% of
their  carrying  amount.  The  Company  has  the  intent and ability to hold the
individual  securities  to  maturity  or  market  price  recovery.

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

At  December  31,  2006,  19  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 4% of carrying value and a majority had unrealized
losses  totaling less than 2% of carrying value.  The Company has the intent and
ability  to hold the individual securities to maturity or market price recovery.

At  December  31, 2006, 2 equity securities had unrealized losses.  One of these
securities is a mutual fund backed by short-term adjustable rate mortgage-backed
securities  and  has  an unrealized loss of 3% of carrying 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
investment  is  not  considered  to  be  other-than-temporarily  impaired.

NOTE  4:  LOANS

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

<TABLE>
<CAPTION>

(In thousands)                        2006       2005
------------------------------------------------------
<S>                             <C>        <C>
REAL ESTATE MORTGAGES:
  Conventional                    $115,588   $116,423
  Construction                       2,160      2,607
  Commercial                        40,501     31,845
------------------------------------------------------
                                   158,249    150,875
------------------------------------------------------
OTHER LOANS:
  Consumer                           3,248      3,363
  Home Equity/Second Mortgage       17,965     16,319
  Lease financing                      623        334
  Commercial                        19,890     14,741
  Municipal loans                    2,488      3,259
-----------------------------------------------------
                                    44,214     38,016
------------------------------------------------------
  Total loans                      202,463    188,891
------------------------------------------------------
  Net deferred loan costs              746        677
  Less allowance for loan losses    (1,496)    (1,679)
-----------------------------------------------------
Loans receivable, net             $201,713   $187,889
======================================================
</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.

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

The  following  represents  the  activity  associated with loans to officers and
directors  and  their affiliated entities during the fiscal year ending December
31,  2006:

<TABLE>
<CAPTION>

(In  thousands)
---------------------------------------
<S>                           <C>
Balance at beginning of year  $ 5,581
Originations                      398
Principal payments             (1,278)
---------------------------------------
Balance at end of year        $ 4,701
=======================================
</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)                  2006     2005     2004
--------------------------------------------------------
<S>                           <C>      <C>      <C>
Balance at beginning of year  $1,679   $1,827   $1,715
Recoveries credited               22       49       61
Provision for loan losses         23      311      738
Loans charged-off               (228)    (508)    (687)
-------------------------------------------------------
Balance at end of year        $1,496   $1,679   $1,827
=======================================================
</TABLE>

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

<TABLE>
<CAPTION>
(In thousands)                                   2006      2005     2004
-------------------------------------------------------------------------
<S>                                            <C>       <C>      <C>
Impaired loans without a valuation allowance   $    -    $    -    $    -
Impaired loans with a valuation allowance          98     2,452     3,110
-------------------------------------------------------------------------
Total impaired loans                           $   98    $2,452    $3,110
-------------------------------------------------------------------------
Valuation allowance related to impaired loans  $   24    $   90    $  760
-------------------------------------------------------------------------
Average investment in impaired loans           $   91    $2,856    $3,611
-------------------------------------------------------------------------
Interest income recognized on impaired loans   $    1    $  175    $  153
-------------------------------------------------------------------------
Interest income recognized on a cash basis on
  impaired loans                               $    -    $    -    $    -
-------------------------------------------------------------------------
</TABLE>

The amount of loans on which the Company has ceased accruing interest aggregated
approximately  $1,172,000  and  $1,680,000  at  December  31,  2006  and  2005,
respectively.  There  were  no  loans  past  due  ninety  days or more and still
accruing  interest  at  December  31,  2006  or  2005.

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  $53,100,000,  $56,300,000 and $53,000,000 at
December  31,  2006,  2005  and  2004,  respectively.

The balance of capitalized servicing rights included in other assets at December
31,  2006  and  2005,  was  $65,000  and  $146,000,  respectively.

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

The  following  summarizes  mortgage-servicing rights capitalized and amortized:

<TABLE>
<CAPTION>

 (In thousands)                          2006   2005   2004
------------------------------------------------------------
<S>                                     <C>    <C>    <C>

Mortgage servicing rights capitalized   $  14  $  70  $  99
Mortgage servicing rights amortized     $  95  $ 123  $ 158
============================================================
</TABLE>

NOTE  7:  PREMISES  AND  EQUIPMENT

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

<TABLE>
<CAPTION>
<S>                                <C>       <C>
(In thousands)                        2006     2005
---------------------------------------------------
Land                               $ 1,226  $ 1,150
Buildings                            6,458    6,590
Furniture, fixture and equipment     6,401    6,120
Construction in progress               130      119
---------------------------------------------------
                                   $14,215  $13,979
Less: Accumulated depreciation       6,618    5,959
---------------------------------------------------
                                   $ 7,597  $ 8,020
===================================================
</TABLE>

The  Company  has  entered into certain contractual arrangements associated with
renovations  being  made  to  one  of its branches drive thru facilities.  Total
estimated  project  costs  are  $427,000, with an anticipated completion date of
June  2007.

NOTE  8:  GOODWILL  AND  INTANGIBLE  ASSETS

A  summary  of  intangible  assets  is  as  follows:

<TABLE>
<CAPTION>
                                       2006                         2005
                          -------------------------------------------------------
                             GROSS                        GROSS
                          CARRYING      ACCUMULATED     CARRYING      ACCUMULATED
(In thousands)              AMOUNT     AMORTIZATION       AMOUNT     AMORTIZATION
<S>                       <C>        <C>               <C>         <C>
----------------------------------------------------------------------------------
  Core deposit intangible  $ 1,111       $  (930)      $ 1,111         $ (707)
</TABLE>

Amortization  expense  related to core deposit intangibles is estimated to total
$181,000 for the year ending December 31, 2007. 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>
<S>                                  <C>       <C>
 (In thousands)                          2006      2005
-------------------------------------------------------
Savings accounts                     $ 52,506  $ 60,176
Time accounts                          86,696    72,121
Time accounts over $100,000            32,776    24,034
Money management accounts              12,630    14,685
MMDA accounts                          17,615    24,324
Demand deposit interest-bearing        19,875    18,259
Demand deposit noninterest-bearing     20,582    20,241
Mortgage escrow funds                   2,905     2,537
-------------------------------------------------------
                                     $245,585  $236,377
=======================================================
</TABLE>

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

At  December  31, 2006 the scheduled maturities of time deposits are as follows:

<TABLE>
<CAPTION>
<S>                 <C>
(In thousands)
------------------
YEAR OF MATURITY:
2007                $ 85,445
2008                  15,011
2009                   7,798
2010                   3,491
2011                   4,028
Thereafter             3,699
----------------------------
                    $119,472
============================
</TABLE>

NOTE  10:  BORROWED  FUNDS

The  composition  of  borrowings  at  December  31  is  as  follows:

<TABLE>
<CAPTION>
<S>                                        <C>      <C>
 (In thousands)                              2006       2005
--------------------------------------------------------------
SHORT-TERM FHLB ADVANCES:
  FHLB Advances                           $     -    $ 2,000
--------------------------------------------------------------
     Total short-term borrowings          $     -    $ 2,000
==============================================================
LONG-TERM:
  FHLB Repurchase agreements              $ 2,400    $ 3,400
  FHLB advances                            23,960     25,960
--------------------------------------------------------------
     Total long-term borrowings           $26,360    $29,360
==============================================================
</TABLE>

The  principal  balance,  interest  rate and maturity of the above borrowings at
December  31,  2006  is  as  follows:

<TABLE>
<CAPTION>
<S>                                  <C>                 <C>
TERM                                   PRINCIPAL           RATES
----------------------------------------------------------------
(Dollars in thousands)
Long-term:
  Repurchase agreements (due in 2009)       2,400  5.56% -5.76%
---------------------------------------------------------------
  Advances with FHLB
   due within 1 year                       11,350   3.00%-5.04%
   due within 2 years                       6,610   2.67%-5.98%
   due within 3 years                       1,000         6.00%
   due within 4 years                       5,000         4.39%
---------------------------------------------------------------
     Total advances with FHLB             $23,960
---------------------------------------------------------------
     Total long-term borrowings           $26,360
===============================================================
</TABLE>

The  repurchase  agreements  with  the  Federal  Home  Loan  Bank  ("FHLB")  are
collateralized  by  certain  investment  securities  having  a carrying value of
$2,661,000 at December 31, 2006.  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 2006 approximated 5.21%.  At December 31,
2006,  $30,393,000  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 $69,547,000 and FHLB stock
with  a  carrying  value  of $1,579,000 have been pledged by the Company under a
blanket  collateral  agreement  to  secure the Company's line of credit and term
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 2006.  Investment
securities  with  a  carrying  value  of  $6,104,000  at  December  31,  2006
collateralize  the  line  of  credit.

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

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 Corporation 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% (8.82% at
December  31,  2006  and  7.97%  at  December  31,  2005)  with a five-year call
provision.  The  Company  guarantees  all  of  these  securities.

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

On  March  22,  2007,  the  Company  entered  into a trust preferred issuance of
$5,000,000,  adjustable quarterly at a 1.65% spread over the 3-month LIBOR rate.
The Company intends to use the proceeds from the issuance to retire its existing
trust  preferred  obligation  which  is  callable  in  June  of  2007.

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.

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

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

<TABLE>
<CAPTION>
                                                  PENSION BENEFITS POSTRETIREMENT BENEFITS
                                                  ----------------------------------------
(In thousands)                                        2006     2005       2006       2005
------------------------------------------------------------------------------------------
<S>                                               <C>      <C>      <C>     <C>
CHANGE IN BENEFIT OBLIGATIONS:
  Benefit obligation at beginning of year           $4,361   $3,745      $ 354     $ 309
  Service cost                                         193      151          2         2
  Interest cost                                        252      229         20        18
  Actuarial (loss) gain                               (203)     378        (10)       46
  Plan participants' contributions                       -        -          -         6
  Benefits paid                                       (164)    (142)       (20)      (27)
------------------------------------------------------------------------------------------
Benefit obligations at end of year                  $4,439   $4,361      $ 346     $ 354
------------------------------------------------------------------------------------------
CHANGE IN PLAN ASSETS:
  Fair value of plan assets at beginning of year    $4,070   $3,154      $   -     $   -
  Actual return on plan assets                         297      388          -         -
  Plan participants' contributions                       -        -          -         6
  Benefits paid                                       (164)    (142)       (20)      (27)
  Employer contributions                               135      670         20        21
------------------------------------------------------------------------------------------
Fair value of plan assets at end of year            $4,338   $4,070      $   -     $   -
------------------------------------------------------------------------------------------
COMPONENTS OF PREPAID/(ACCRUED) BENEFIT (COST):
  Unfunded status                                   $ (101)  $ (291)     $(346)    $(354)
  Unrecognized transition obligation                     -        -          -       115
  Unrecognized actuarial net loss                        -    1,656          -        34
------------------------------------------------------------------------------------------
Prepaid/(accrued) benefit/(cost)                    $ (101)  $1,365      $(346)    $(205)
==========================================================================================
</TABLE>

The  accumulated  benefit obligation for the defined benefit plan was $3,710,000
and  $3,602,000  at  December  31,  2006  and  2005,  respectively.

The  significant  assumptions  used in determining the benefit obligations as of
December  31,  2006,  2005  and  2004  are  as  follows:

<TABLE>
<CAPTION>
                                                    PENSION BENEFITS  POSTRETIREMENT BENEFITS
                                                  -------------------------------------------
                                                   2006   2005  2004    2006    2005   2004
---------------------------------------------------------------------------------------------
<S>                                               <C>    <C>    <C>     <C>     <C>    <C>
---------------------------------------------------------------------------------------------
Weighted average discount rate                    6.25%  5.88%  6.25%   6.25%  5.88%  6.25%
Expected long term rate of return on plan assets  9.00%  9.00%  9.00%             -      -
Rate of increase in future compensation levels    3.00%  3.00%  3.50%             -      -
=============================================================================================
</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  9.0%  and  9.5%,
respectively.  The rates were assumed to decrease gradually to 3.75% in 2012 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                                $   23           $ (22)
Effect on post retirement benefit obligation           9              (8)
============================================================================
</TABLE>

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

The  composition  of  the  net  periodic  benefit  plan cost for the years ended
December  31,  2006,  2005  and  2004  is  as  follows:

<TABLE>
<CAPTION>
                                          PENSION BENEFITS   POSTRETIREMENT BENEFITS
------------------------------------------------------------------------------------
(In thousands)                          2006    2005    2004    2006   2005    2004
------------------------------------------------------------------------------------
<S>                                    <C>     <C>     <C>     <C>    <C>  <C>
Service cost                           $ 193   $ 151   $ 155     $ 2    $ 2     $ 2
Interest cost                            252     229     207      20     18      19
Amortization of transition obligation      -       -       -      18     19      18
Amortization of gains and losses         110      96      94       -      -       -
Expected return on plan assets          (368)   (285)   (254)      -      -       -
------------------------------------------------------------------------------------
Net periodic benefit plan cost         $ 187   $ 191   $ 202     $40    $39     $39
====================================================================================
</TABLE>

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

<TABLE>
<CAPTION>
                                                    PENSION BENEFITS   POSTRETIREMENT BENEFITS
----------------------------------------------------------------------------------------------
<S>                                               <C>    <C>    <C>    <C>      <C>     <C>
                                                  2006   2005   2004    2006    2005     2004
----------------------------------------------------------------------------------------------
Weighted average discount rate                    6.25%  5.88%  6.25%   6.25%   5.88%    6.25%
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%  3.50%              -        -
==============================================================================================
</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  are  as  follows:

<TABLE>
<CAPTION>

ASSET CATEGORY     2006   2005
-------------------------------
<S>                <C>    <C>
Equity securities    73%    72%
Debt securities      27%    28%
-------------------------------
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  under  funded  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 under funded, 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
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.

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

For  the  fiscal  year  ending December 31, 2007, the Bank expects to contribute
approximately  $190,000  to  the  Plan.

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


<TABLE>
<CAPTION>

<S>                         <C>
YEARS ENDING DECEMBER 31:
----------------------------------
(In thousands)
2007                        $  146
2008                           145
2009                           149
2010                           154
2011                           161
Years 2012 - 2016            1,075
==================================
</TABLE>

On  September  29,  2006, the Financial Accounting Standards Board "FASB" issued
SFAS  No.  158,  Employers'  Accounting  for  Defined  Benefit Pension and Other
Postretirement  Plans ("SFAS 158"), which amends SFAS 87 and SFAS 106 to require
recognition  of  the  overfunded  or  underfunded  status  of  pension and other
postretirement  benefit  plans  on  the balance sheet. Under SFAS 158, gains and
losses,  prior  service  costs and credits, and any remaining transition amounts
under  SFAS  87  and  SFAS  106  that  have  not yet been recognized through net
periodic  benefit  cost  will  be  recognized in accumulated other comprehensive
income,  net  of  tax  effects,  until  they are amortized as a component of net
periodic  cost.  The measurement date - the date at which the benefit obligation
and  plan assets are measured - is required to be the company's fiscal year end.
SFAS  158 is effective for publicly-held companies for fiscal years ending after
December  15,  2006,  except  for  the  measurement  date  provisions, which are
effective  for  fiscal  years  ending  after  December 15, 2008. The Company has
adopted  SFAS 158 on December 31, 2006.  The effect of the implementation was to
increase  accumulated  other  comprehensive  loss  by  $921,000  (net of related
deferred  tax  effect  of $614,000), decrease prepaid pension cost by $1,414,000
and  increase  accrued  post  retirement  benefit  by  $121,000.

In  2007,  it  is  estimated  that  $87,000  will  be amortized from accumulated
comprehensive  loss  into  the net periodic cost for the defined benefit pension
plan.

The  Company  also offers a 401(k) plan to its employees.  Contributions to this
plan  by  the  Company  were  $148,000, $145,000 and  $92,000 for 2006, 2005 and
2004,  respectively.

The  Company  maintains  optional deferred compensation plans for its directors,
and  certain  executive  officers, whereby fees and income normally received are
deferred and paid by the Company based upon a payment schedule commencing at age
65  and  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, 2006 and 2005,
other liabilities include approximately $1,556,000 and $1,412,000, respectively,
relating  to  deferred compensation. Deferred compensation expense for the years
ended  December  31,  2006,  2005  and  2004 amounted to approximately $240,000,
$211,000  and  $185,000,  respectively.

The  Company  has  a  supplemental  executive retirement plan for the benefit of
certain  executive  officers.  At  December 31, 2006 and 2005, other liabilities
include  approximately  $396,000  and  $424,000  accrued  under  these  plans.
Compensation  expense  includes  approximately  $51,000,  $56,000  and  $53,000
relating  to the supplemental executive retirement plan for 2006, 2005 and 2004,
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,  2006  and  2005, the cash value of these policies was
$6,212,000  and  $5,987,000,  respectively.

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

NOTE  12:  STOCK  BASED  COMPENSATION  PLANS

In  February  1997,  the  Board of Directors approved an option plan and granted
options  thereunder  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.

Activity  in  the  Stock  Option  Plan  is  as  follows:

<TABLE>
<CAPTION>
                                                           WEIGHTED
                                         OPTIONS            AVERAGE        OPTIONS
(Shares in thousands)                OUTSTANDING     EXERCISE PRICE    EXERCISABLE
----------------------------------------------------------------------------------
<S>                                <C>               <C>                 <C>
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                                    (16)             6.58
----------------------------------------------------------------------------------
Outstanding at December 31, 2005            41          $   7.41           41
   Exercised                                (4)             7.35
   Expired                                   -                 -
----------------------------------------------------------------------------------
Outstanding at December 31, 2006            37           $  7.53           37
==================================================================================
</TABLE>

The  aggregate  intrinsic  value  of a stock option represents the total pre-tax
intrinsic  value (the amount by which the current market value of the underlying
stock exceeds the exercise price of the option) that would have been received by
the  option  holders  had all option holders exercised their options on December
31,  2006.  This  amount  changes  based  on  changes in the market value of the
Company's  stock.  At  December  31,  2006, the aggregate intrinsic value of all
outstanding  and  exercisable  stock  options  approximated  $206,000.

The  total  intrinsic  value of stock options exercised during 2006 approximated
$22,600.

Information  pertaining  to  options  outstanding  at  December  31,  2006 is as
follows:

<TABLE>
<CAPTION>

                                        OPTIONS  OUTSTANDING  AND  EXERCISABLE
-------------------------------------------------------------------------------------
                                                                           WEIGHTED
                                                       WEIGHTED AVERAGE     AVERAGE
                             EXERCISE         NUMBER          REMAINING    EXERCISE
                                PRICE    OUTSTANDING   CONTRACTUAL LIFE       PRICE
-------------------------------------------------------------------------------------
<S>                          <C>       <C>           <C>               <C>
                              $ 6.58        17,200         .07 years         $6.58
                              $ 8.34        20,150         4.5 years         $8.34
------------------------------------------------------------------------------------
 Outstanding at end of year                 37,350         2.5 years         $7.53
====================================================================================
</TABLE>

No  new options have been granted since July 2001.  All outstanding options were
fully  vested  as  of  July  2003.

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

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

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  recorded 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. All
shares  were  earned  at  December  31, 2005, therefore, no compensation expense
related  to  the ESOP was recorded in 2006. ESOP compensation expense, including
cash  dividends  received  on unearned shares, approximated $88,000 and $133,000
for  the  years  ended  December 31, 2005 and 2004, respectively.   Total earned
shares  at  December  31, 2006 and 2005  were 92,574.  Unearned ESOP shares were
not  considered  outstanding  for  purposes  of  computing  earnings  per share.

NOTE 13: Income Taxes

The  provision for income tax expense (benefit) for the years ended December 31,
is  as  follows:

<TABLE>
<CAPTION>

<S>              <C>     <C>     <C>
 (In thousands)   2006    2005    2004
--------------------------------------
Current          $ 309   $(160)  $   -
Deferred           (67)    109     502
--------------------------------------
                 $ 242   $ (51)  $ 502
======================================
</TABLE>

The  provision  for  income  taxes  includes  the  following:

<TABLE>
<CAPTION>
<S>                            <C>     <C>     <C>
 (In thousands)                 2006    2005    2004
-----------------------------------------------------
Federal Income Tax             $ 267   $ (29)  $ 520
New York State Franchise Tax     (25)    (22)    (18)
-----------------------------------------------------
                               $ 242   $ (51)  $ 502
=====================================================
</TABLE>

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

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

<TABLE>
<CAPTION>
 (In thousands)                                  2006      2005
----------------------------------------------------------------
<S>                                          <C>       <C>
ASSETS:
 Deferred compensation                        $   760   $   715
 Allowance for loan losses                        583       654
 Postretirement benefits                           88        82
 Prepaid pension                                   85         -
 Mortgage recording tax credit carryforward       364       361
 Investment securities                            566       865
 Other                                            142       121
----------------------------------------------------------------
                                              $ 2,588   $ 2,798
----------------------------------------------------------------
LIABILITIES:
 Prepaid pension                                    -      (532)
 Depreciation                                    (573)     (647)
 Accretion                                        (38)      (37)
 Loan origination fees                           (289)     (250)
 Intangible assets                               (536)     (432)
 Prepaid expenses                                 (83)      (79)
----------------------------------------------------------------
                                              $(1,519)  $(1,977)
----------------------------------------------------------------
    Net deferred tax asset                    $ 1,069   $   821
================================================================
</TABLE>

Realization  of  deferred  tax assets is dependent upon the generation of future
taxable  income  or  the existence of sufficient taxable income within the carry
back  period.  A  valuation  allowance is provided when its more likely than not
that  some portion, or all of the deferred tax assets, will not be realized.  In
assessing the need for a valuation allowance, management considers the scheduled
reversal of the deferred tax liabilities, the level of historical taxable income
and  the  projected future level of taxable income over the periods in which the
temporary  differences  comprising  the  deferred tax assets will be deductible.
Based  on  its  assessment, management determined that no valuation allowance is
necessary.

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>
                                            2006    2005    2004
-----------------------------------------------------------------
<S>                                       <C>     <C>      <C>
Federal statutory income tax rate          34.0%    34.0%  34.0%
State tax                                  (1.3)    (3.0)  (0.9)
Tax-exempt interest income, net of TEFRA  (11.1)   (44.8)  (6.0)
Increase in value of life insurance        (5.3)   (18.1)  (3.1)
Other                                       2.8     19.5    2.3
-----------------------------------------------------------------
Effective income tax rate                  19.1%  (12.4)%  26.3%
=================================================================
</TABLE>

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

NOTE  14:  EARNINGS  PER  SHARE

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

<TABLE>
<CAPTION>
(In thousands, except per share data)   EARNINGS   SHARES   EPS
---------------------------------------------------------------
<S>                                    <C>        <C>     <C>
2006 Net Income                        $   1,028
   Basic EPS                               1,028   2,464  $0.42
   Effect of dilutive securities
    Stock options                              -      19
---------------------------------------------------------------
   Diluted EPS                         $   1,028   2,483  $0.41
---------------------------------------------------------------
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
===============================================================
</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.

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

At  December  31,  2006  and  2005,  the  following  financial  instruments were
outstanding  whose  contract  amounts  represent  credit  risk:

<TABLE>
<CAPTION>
                                                       CONTRACT AMOUNT
                                                      ----------------
(In thousands)                                           2006     2005
----------------------------------------------------------------------
<S>                                          <C>               <C>
Commitments to grant loans                   $          9,388  $ 6,371
Unfunded commitments under lines of credit             17,260   12,361
Standby letters of credit                                 271      798
======================================================================
</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.
Loan  commitments  outstanding  at  December  31, 2006 with fixed interest rates
amounted to approximately $6.2 million. Loan commitments, including unused lines
of  credit,  outstanding  at  December  31,  2006  with  variable interest rates
amounted  to  approximately  $20.4  million.  These outstanding loan commitments
carry  current  market  rates.

Unfunded commitments under standby letters of credit, revolving credit lines and
overdraft  protection  agreements are commitments for possible future extensions
of credit to existing customers.  These lines of credit usually do not contain a
specified  maturity  date and may not be drawn upon to the total extent to which
the  Company  is  committed.

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,  2006  and 2005 for guarantees under standby letters of credit issued is not
material.

The  Company leases land and leasehold improvements under agreements that expire
in  various  years with renewal options over the next 30 years.  Rental expense,
included  in  operating  expenses,  amounted  to $62,000, $42,000 and $41,000 in
2006,  2005 and 2004, respectively.  In October 2002, the Company entered into a
land  lease  with one of its directors on an arms-length basis. In January 2006,
the  Company entered into a lease with Pathfinder Bancorp, MHC, for the use of a
training  facility.  This  lease was also executed on an arms-length basis.  The
rent expense paid to the related parties during 2006, 2005 and 2004 was $42,000,
$23,000  and  $21,000,  respectively. Approximate minimum rental commitments for
the  noncancelable  operating  leases  are  as  follows:

<TABLE>
<CAPTION>

YEARS ENDING DECEMBER 31:
-----------------------------------
(In thousands)
-----------------------------------
<S>                            <C>
2007                           $ 63
2008                             65
2009                             65
2010                             65
2011                             52
Thereafter                       63
-----------------------------------
Total minimum lease payments   $373
===================================
</TABLE>

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

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
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.  During 2006, the Company paid cash dividends totaling $325,000 to
the Holding Company. For the second and fourth quarters ending June 30, 2006 and
December 31, 2006, respectively, the Holding Company waived the right to receive
its  portion  of  the  cash dividends declared on June 28, 2006 and December 28,
2006,  respectively,  which totaled $325,000.  During 2005 and 2004, the Holding
Company  waived  dividends  totaling  $325,000  and  $320,000,  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  $2,823,000  as  of  December  31, 2006.
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  Bank  is subject to various regulatory capital requirements administered by
the  federal  banking agencies. Failure to meet minimum capital requirements can
initiate  certain  mandatory  and  possibly  additional discretionary actions by
regulators  that,  if  undertaken,  could  have  a direct material effect on the
Company's  financial  statements.  Under  capital  adequacy  guidelines  and the
regulatory  framework  for prompt corrective action, the Bank must meet specific
capital  guidelines  that  involve  quantitative  measures  of 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, 2006, that the Bank meets all
capital  adequacy  requirements  to  which  it  is  subject.

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

As  of  December  31, 2006, 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 Bank's actual capital amounts and ratios as of
December  31,  2006  and  2005  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
------------------------------------------------------------------------------------------------------
<S>                                            <C>      <C>    <C>      <C>          <C>      <C>
AS OF DECEMBER 31, 2006:
BANK
  Total Core Capital (to Risk-Weighted Assets)  $24,676   12.9%    $15,297    8.0%     $19,121  10.0%
  Tier 1 Capital (to Risk-Weighted Assets)      $23,180   12.1%    $ 7,648    4.0%     $11,472   6.0%
  Tier 1 Capital (to Average Assets)            $23,180    7.7%    $11,987    4.0%     $14,984   5.0%
======================================================================================================
AS OF DECEMBER 31, 2005:
BANK
  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%
======================================================================================================
</TABLE>

The Bank is required to maintain average balances on hand or with the Federal
Reserve Bank.  At December 31, 2006 and 2005, these reserve balances amounted to
$1,856,000 and $1,608,000, 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
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:

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

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.

--------------------------------------------------------------------------------
                                       67
<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>
                                          2006                     2005
                                 ------------------------------------------------
                                 CARRYING     ESTIMATED    CARRYING     ESTIMATED
(Dollars in thousands)            AMOUNTS   FAIR VALUES     AMOUNTS   FAIR VALUES
---------------------------------------------------------------------------------
<S>                              <C>        <C>           <C>        <C>
FINANCIAL ASSETS:
Cash and cash equivalents         $ 13,723     $  13,723   $  7,895     $   7,895
Investment securities               62,640        62,640     74,239        74,239
Net Loans                          201,713       200,555    187,889       189,598
Federal Home Loan Bank Stock         1,579         1,579      1,805         1,805
Accrued interest receivable          1,694         1,694      1,678         1,678
Mortgage servicing rights               65            65        146           146
---------------------------------------------------------------------------------
FINANCIAL LIABILITIES:
Deposits                          $245,585     $ 246,236   $236,377     $ 236,552
Borrowed funds                      26,360        26,173     31,360        33,883
Junior subordinated debentures       5,155         5,155      5,155         5,155
Accrued interest payable               161           161        161           161
---------------------------------------------------------------------------------
OFF-BALANCE SHEET INSTRUMENTS:
Standby letter of credit          $      -     $       -   $      -     $       -
Commitments to extend credit             -             -          -             -
---------------------------------------------------------------------------------
</TABLE>

NOTE  19:  PARENT  COMPANY  -  FINANCIAL  INFORMATION

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

<TABLE>
<CAPTION>

STATEMENTS OF CONDITION                              2006     2005
------------------------------------------------------------------
<S>                                              <C>      <C>
(In thousands)
ASSETS
  Cash                                            $   100  $   245
  Investments                                          24       19
  Investment in subsidiary                         25,529   24,530
  Investment in non-bank subsidiary                   155      155
  Due from subsidiaries                                 -    1,042
  Other assets                                        317      207
-------------------------------------------------------------------
    Total assets                                  $26,125  $26,198
===================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
  Accrued liabilities                                 120      115
  Junior subordinated debentures                    5,155    5,155
  Shareholders' equity                             20,850   20,928
-------------------------------------------------------------------
     Total liabilities and shareholders' equity   $26,125  $26,198
===================================================================
</TABLE>

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

<TABLE>
<CAPTION>

STATEMENTS OF INCOME                                        2006      2005      2004
-------------------------------------------------------------------------------------
<S>                                                   <C>       <C>       <C>
(In thousands)
Interest income                                         $    20   $    14   $     9
Interest expense                                            450       352       259
------------------------------------------------------------------------------------
Net interest expense                                       (430)     (338)     (250)
Operating expense                                           (96)      (92)     (130)
Realized gain on sale of investment securities                6         -       330
Amortization of deferred financing costs                    (30)      (30)      (30)
------------------------------------------------------------------------------------
Loss before tax benefit and equity in
  undistributed net income of subsidiaries                 (550)     (460)      (80)
Tax benefit                                                  94       128        20
------------------------------------------------------------------------------------
Loss before equity in undistributed net
  income of subsidiaries                                   (456)     (332)      (60)
Equity in undistributed net income of subsidiaries        1,484       794     1,465
------------------------------------------------------------------------------------
  Net income                                            $ 1,028   $   462   $ 1,405
====================================================================================

STATEMENTS OF CASH FLOWS                                   2006      2005      2004
-----------------------------------------------------------------------------------
(In thousands)
OPERATING ACTIVITIES
  Net Income                                            $ 1,028   $   462   $ 1,405
  Equity in undistributed earnings of subsidiaries       (1,484)     (794)   (1,465)
  Realized gain on sale of investment securities             (6)        -      (330)
  ESOP shares earned                                          -        88       133
  Amortization of deferred financing costs                   30        30        30
  Other operating activities                                908      (987)     (304)
------------------------------------------------------------------------------------
     Net cash provided by (used in) operating activities    505    (1,201)     (531)
------------------------------------------------------------------------------------
INVESTING ACTIVITIES
  Proceeds from loan to subsidiary                            -        41        56
  Dividends receivable                                        -       911         8
  Purchase of investments                                   (24)      (18)        -
  Proceeds from sale of investments                          24         -       430
-------------------------------------------------------------------------------------
     Net cash provided by investing activities                -       934       494
-------------------------------------------------------------------------------------
FINANCING ACTIVITIES
  Proceeds from exercise of stock options                    23       213       140
  Tax benefit upon exercise of stock options                 42         -         -
  Cash dividends                                           (686)     (683)     (664)
------------------------------------------------------------------------------------
     Net used in financing activities                      (621)     (470)     (524)
------------------------------------------------------------------------------------
     Decrease in cash and cash equivalents                 (145)     (737)     (561)
  Cash and cash equivalents at beginning of year            245       982     1,543
------------------------------------------------------------------------------------
  Cash and cash equivalents  at end of year             $   100   $   245   $   982
====================================================================================
</TABLE>

--------------------------------------------------------------------------------
                                       69
<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

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                                       70
<PAGE>

PART  III

ITEM  10:  DIRECTORS,  EXECUTIVE  OFFICERS  AND  CORPORATE  GOVERNANCE

(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,  2006

<TABLE>
<CAPTION>

<S>                  <C>  <C>
NAME                 AGE  POSITIONS HELD WITH THE COMPANY
Thomas W. Schneider   45  President and Chief Executive Officer
James A. Dowd, CPA    39  Senior Vice President, Chief Financial Officer
Edward A. Mervine     50  Senior Vice President, General Counsel
Melissa A. Miller     49  Senior Vice President, Chief Operating Officer
Ronald Tascarella     48  Senior Vice President, Chief Credit Officer
</TABLE>

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,  AND  DIRECTOR
INDEPENDENCE

The  information  required  by  this  item  is  set  forth  under  the  caption
"Transactions  with  Certain  Related Persons" 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.

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                                       71
<PAGE>

PART  IV

ITEM  15.  EXHIBITS,  FINANCIAL  STATEMENT  SCHEDULES,  AND  REPORTS ON FORM 8-K

(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  Current  Report  on  Form  8-K  dated  June  25,  2001)

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)

10.7 Change  of  Control  Agreement  between  the  Bank  and  Ronald  Tascarella

10.8 Change  of  Control  Agreement  between  the  Bank  and  James  A.  Dowd

10.9 Change  of  Control  Agreement  between  the  Bank  and  Melissa  A. Miller

14   Code of  Ethics (Incorported by reference to the Company's Annual Report on
     Form  10-K  for  the  year  ended  December  31,  2003)

21   Subsidiaries  of  Company

                                       72
<PAGE>

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

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                                       73
<PAGE>


EXHIBIT 10.7

                            PATHFINDER BANCORP, INC.
                                 PATHFINDER BANK
                           CHANGE IN CONTROL AGREEMENT


     This Agreement is made effective as of the 19th day of  December, 2006, by
and between Pathfinder Bank (the "Bank"), a New York chartered stock savings
bank, with its principal administrative office at 214 West First Street, Oswego,
New York 13126-2547, jointly with Pathfinder Bancorp, Inc, the sole stockholder
of the Bank, and Ronald Tascarella (the "Executive").  Any reference to
"Company" herein shall mean Pathfinder Bancorp, Inc. or any successor thereto.
Any reference to "Employer" herein shall mean both the Bank and the Company or
any successors thereto

     WHEREAS, the Executive is employed by the Employer; and

     WHEREAS, the Employer desires to provide Executive with certain benefits in
the event of a Change in Control of the Employer, as hereinafter defined:

     NOW, THEREFORE, in consideration of the mutual covenants herein contained,
and upon the other terms and conditions hereinafter provided, the parties hereby
agree as follows:

1.     CHANGE IN CONTROL DEFINED

     For purposes of this Agreement, a "Change in Control" of the Bank or
Company shall mean a Change in Control of a nature that (i) would be required to
be reported in response to Item 5.01 of the current report on Form 8-K, as in
effect on the date hereof, pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 (the "Exchange Act"); or (ii) results in a Change in
Control of the Bank or the Company within the meaning of the Home Owners Loan
Act, as amended, and applicable rules and regulations promulgated there under,
as in effect at the time of the Change in Control (collectively, the "HOLA"); or
(iii) without limitation such a Change in Control shall be deemed to have
occurred at such time as (a) any "person" (as the term is used in Sections 13(d)
and 14(d) of the Exchange Act) is or becomes the "beneficial owner" (as defined
in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of
the Company representing 25% or more of the combined voting power of Company's
outstanding securities except for any securities purchased by the Employer's
employee stock ownership plan or trust; or (b) individuals who constitute the
Company's Board of Directors on the date hereof (the "Incumbent Board") cease
for any reason to constitute at least a majority thereof, provided that any
person becoming a director subsequent to the date hereof whose election was
approved by a vote of at least three-quarters of the directors comprising the
Incumbent Board, or whose nomination for election by the Company's stockholders
was approved by the same Nominating Committee serving under an Incumbent Board,
shall be, for purposes of this clause (b), considered as though he were a member
of the Incumbent Board; or (c) a plan of reorganization, merger, consolidation,
sale of all or substantially all the assets of the Bank or the Company or
similar transaction in which the Bank or Company is not the surviving
institution occurs; or (d) a proxy statement soliciting proxies from
stockholders of the Company, by someone other than the current management of the
Company, seeking stockholder approval of a plan of reorganization, merger or
consolidation of the Company or similar transaction with one or more
corporations or financial institutions, and as a result such proxy solicitation
a plan of reorganization, merger consolidation or similar transaction involving
the Company is approved by the requisite vote of the Company's stockholders; or
(e) a tender offer is made for 25% or more of the voting securities of the
Company and the shareholders owning beneficially or of record 25% or more of the
outstanding securities of the Company have tendered or offered to sell their
shares pursuant to such tender offer and such tendered shares have been accepted
by the tender offeror.  Notwithstanding anything to the contrary herein, a
"Change in Control" of the Bank or the Company shall not be deemed to have
occurred in the event of a conversion of Pathfinder Bancorp, MHC to stock
holding company form.

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                                       74
<PAGE>

2.     BENEFITS DUE EXECUTIVE IN THE EVENT OF CHANGE IN CONTROL

     If any of the events described in Section 1 hereof constituting a Change in
Control have occurred, Executive shall be entitled to the benefits provided in
paragraphs (a), (b), (c), (d) and (e) of this Section 2 upon his dismissal from
employment within twelve (12) months of the Change in Control ("Dismissal").
(Notwithstanding any other provision of this Agreement, a voluntary termination
by the Executive shall not be deemed a "Dismissal")

     (a)     Upon the occurrence of a Change in Control followed by the
Executive's Dismissal, the Employer shall pay Executive, or in the event of his
subsequent death, his beneficiary or beneficiaries, or his estate, as the case
may be, as severance pay or liquidated damages, or both, a sum equal to his most
recent annual base salary, including bonuses and any other cash compensation
paid to the Executive within the most recent twelve (12) month period.  Such
Payment shall be made by the Employer on the Date of Dismissal.

     (b)     Upon the occurrence of a Change in Control followed by the
Executive's Dismissal of employment, the Employer will cause to be continued
life, medical, dental and disability coverage substantially identical to the
coverage maintained by the Employer for Executive prior to his Dismissal.   Such
coverage and payments shall cease upon the expiration of twelve (12) months.

     (c)     Upon the occurrence of a Change in Control, Executive shall become
fully vested in and entitled to all benefits granted to him pursuant to any
Stock Option Plan of the Bank or Company.

     (d)     Upon the occurrence of a Change in Control, Executive shall become
fully vested in and entitled to all benefits granted to him pursuant to
Supplemental Executive Retirement Plan of the Bank or Company, applicable to
him, if any.

     (e)     Upon the occurrence of a Change in Control, the Executive shall
become fully vested in and entitled to all benefits awarded to him under the
Bank's or the Company's Recognition and Retention Plan or any restricted stock
plan in effect.

     (f)     Notwithstanding the preceding paragraphs of this Section 2, in the
event that:

          (i)     the aggregate payments or benefits to be made or afforded to
Executive under said paragraphs (the "Termination Benefits") would be deemed to
include an "excess parachute payment" under Section 280G of the Internal Revenue
Code or any successor thereto, and

          (ii)     if such Termination Benefits were reduced to an amount (the
"Non-Triggering Amount"), the value of which is one dollar ($1.00) less than an
amount equal to the total amount of payments permissible under Section 280G of
the Internal Revenue Code or any successor thereto, then the Termination
Benefits to be paid to Executive shall be so reduced so as to be a
Non-Triggering Amount.

     (g)     Notwithstanding the foregoing, there will be no reduction in the
Payment otherwise payable to Executive during any period during which Executive
is incapable of performing his duties hereunder by reason of disability.

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                                       75
<PAGE>

3.     TERMINATION FOR CAUSE

     The term "Termination for Cause" shall mean termination because of the
Executive's personal dishonesty, incompetence, willful misconduct, any breach of
fiduciary duty involving personal profit, intentional failure to perform stated
duties, willful violation of any law, rule, or regulation (other than traffic
violations or similar offenses) or final cease-and-desist order, or material
breach of any provision of this Agreement.  In determining incompetence, the
acts or omissions shall be measured against standards generally prevailing in
the financial services industry.  For purposes of this paragraph, no act or
failure to act on the part of Executive shall be considered "willful" unless
done, or omitted to be done, by the Executive not in good faith and without
reasonable belief that the Executive's action or omission was in the best
interest of the Employer.  Notwithstanding the foregoing, Executive shall not be
deemed to have been Terminated for Cause unless and until there shall have been
delivered to him a copy of a resolution duly adopted by the affirmative vote of
not less than three-fourths of the members of the Boards of Directors of the
Company and the Bank at a meeting of said Boards called and held for that
purpose (after reasonable notice to Executive and an opportunity for him,
together with counsel, to be heard before the Boards), finding that in the good
faith opinion of the Boards, Executive was guilty of conduct justifying
Termination for Cause and specifying the particulars thereof in detail.
Notwithstanding any provision in paragraph 2, the Executive shall not have the
right to receive Termination Benefits for any period after Termination for
Cause.

4.     NO ATTACHMENT

     (a)     Except as required by law, no right to receive payments under this
Agreement shall be subject to anticipation, commutation, alienation, sale,
assignment, encumbrance, charge, pledge, or hypothecation, or to execution,
attachment, levy, or similar process or assignment by operation of law, and any
attempt, voluntary or involuntary, to affect any such action shall be null,
void, and of no effect.

     (b)     This Agreement shall be binding upon, and inure to the benefit of,
Executive and the Employer and their respective successors and assigns.

5.     MODIFICATION AND WAIVER

     (a)     This Agreement may not be modified or amended except by an
instrument in writing signed by the parties hereto.

     (b)     No term or condition of this Agreement shall be deemed to have been
waived, nor shall there be any estoppel against the enforcement of any provision
of this Agreement, except by written instrument of the party charged with such
waiver or estoppel.  No such written waiver shall be deemed a continuing waiver
unless specifically stated therein, and each such waiver shall operate only as
to the specific term or condition waived and shall not constitute a waiver of
such term or condition for the future as to any act other than that specifically
waived.

6.     SEVERABILITY

     If, for any reason, any provision of this Agreement, or any part of any
provision, is held invalid, such invalidity shall not affect any other provision
of this Agreement or any part of such provision not held so invalid, and each
such other provision and part thereof shall to the full extent consistent with
law continue in full force and effect.

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                                       76
<PAGE>

7.     EMPLOYMENT AT WILL

     Except for the limited benefits granted herein, nothing in this Agreement
shall be construed to create an employment contract and the parties acknowledge
that the Executive's employment remains "at will".

8.     AGREEMENT TERM

     The initial "Agreement Term" shall begin on the date this agreement is
executed and shall continue through December 31, 2007.  As of December 31, 2007,
and as of each December 31st thereafter, the agreement term shall extend
automatically for one year unless the Bank gives notice to the executive prior
to the date of such extension that the agreement term will not be extended.
Notwithstanding the foregoing, if a change in control occurs during the
agreement term, the agreement term shall continue through and terminate on the
first anniversary of the date on which the change in control occurs.

9.     PROPRIETARY INFORMATION

The parties agree to the protection of the Bank's proprietary information as
follows:

(a)     Nondisclosure of Confidential Information

(i)     Access.  The Executive acknowledges that employment with the Bank
necessarily involves exposure to, familiarity with, and opportunity to learn
highly sensitive, confidential and proprietary information of the Bank and its
subsidiaries, which may include information about products and services,
markets, customers and prospective customers, vendors and suppliers,
miscellaneous business relationships, investment products, pricing, billing and
collection procedures, proprietary software and other intellectual property,
financial and accounting data, personnel and compensation, data processing and
communications, technical data, marketing strategies, research and development
of new or improved products and services, and know-how regarding the business of
the Bank and its products and services (collectively referred to herein as
"Confidential Information")

(ii)     Valuable Asset.  The Executive further acknowledges that the
Confidential Information is a valuable, special, and unique asset of the Bank,
such that the unauthorized disclosure or use by persons or entities outside the
Bank would cause irreparable damage to the business of the Bank.  Accordingly,
the Executive agrees that during and after the Executive's employment with the
Bank, until the Confidential Information becomes publicly known, the Executive
shall not directly or indirectly disclose to any person or entity, use for any
purpose or permit the exploitation, copying or summarizing of, any Confidential
Information of the Bank, except as specifically required in the proper
performance of his duties for the Bank.

(iii)      Duties.  The Executive agrees to take all appropriate action, whether
by instruction, agreement or otherwise, to endure the protection,
confidentiality and security of the Confidential Information and to satisfy his
obligations under this Agreement.  Prior to lecturing or publishing articles
which reference to Bank and its business, the Executive will provide to an
officer of the Bank a copy of the material to be presented for the Bank to
review and approve in order to ensure that no Confidential Information is
disclosed.

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                                       77
<PAGE>

(iv)     Confidential Relationship.  The Bank considers its Confidential
Information to constitute "trade secrets" which are protected from unauthorized
disclosure under applicable law.  However, whether or not the Confidential
Information constitutes trade secrets, the Executive acknowledges and agrees
that the Confidential Information is protected from unauthorized disclosure or
use due to his covenants under this Section 9 and his fiduciary duties as an
executive of the Bank.

(v)     Return of Documents.  The Executive acknowledges and agrees that the
Confidential Information is and at all times shall remain the sole and exclusive
property of the Bank.  Upon the termination of his employment with the Bank or
upon request by the Bank, the Executive will promptly return to the Bank in good
condition all documents, data and records of any kind, whether in hardcopy or
electronic form, which contain any Confidential Information, including any and
all copies thereof, as well as all materials furnished to or acquired by the
Executive during the course of the Executive's employment with the Bank.

(b)     Enforcement.  For purposes of this Section 9, the term "Bank" shall
include the Bank and the Company and all of their subsidiaries.  Each such
entity shall be an intended third party beneficiary of this Agreement and shall
have the right to enforce the provisions of this Agreement against the Executive
individually or collectively with any one or more of the other subsidiaries.

(c)     Equitable Relief.  The Executive acknowledges and agreed that, by reason
of the sensitive nature of the Confidential Information of the Bank referred to
in this Agreement, in addition to recovery of damages and any other legal relief
to which the Bank may be entitled in the event of the Executive's violation of
this Agreement, the Bank shall also be entitled to equitable relief, including
such injunctive relief as may be necessary to protect the interests of the Bank
in such Confidential Information and as may be necessary to specifically enforce
the Executive's obligations under this Agreement.


10.     HEADINGS FOR REFERENCE ONLY

     The headings of sections and paragraphs herein are included solely for
convenience of reference and shall not control the meaning or interpretation of
any of the provisions of this Agreement.

11.     GOVERNING LAW

     This Agreement shall be governed by the laws of the State of New York, but
only to the extent not superseded by federal law.

12.     ARBITRATION

     Any dispute or controversy arising under or in connection with this
Agreement shall be settled exclusively by arbitration in accordance with the
rules of the American Arbitration Association then in effect.  Judgment may be
entered on the arbitrator's award in any court having jurisdiction.

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                                       78
<PAGE>

13.     SUCCESSOR TO THE EMPLOYER

     The Employer shall require any successor or assignee, whether direct or
indirect, by purchase, merger, consolidation or otherwise, to all or
substantially all the business or assets of the Bank or the Company, expressly
and unconditionally to assume and agree to perform the Employer's obligations
under this Agreement, in the same manner and to the same extent that the
Employer would be required to perform if no such succession or assignment had
taken place.



                                   SIGNATURES


     IN WITNESS WHEREOF, the Employer has caused this Agreement to be executed
and its seal to be affixed hereunto by its duly authorized officer, and
Executive has signed this Agreement, on the day and date first above written.

ATTEST:                              PATHFINDER BANK


________________            By: _________________________________
Secretary                   Thomas W. Schneider
                            President and Chief Executive Officer


ATTEST:                              PATHFINDER BANCORP, INC.

________________            By: _________________________________
Secretary                   Thomas W. Schneider
                            President and Chief Executive Officer


WITNESS:                              EXECUTIVE

________________            By: __________________________________

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                                       79
<PAGE>

EXHIBIT 10.8

                            PATHFINDER BANCORP, INC.
                                 PATHFINDER BANK
                           CHANGE IN CONTROL AGREEMENT


     This  Agreement  is made effective as of the 19th day of December, 2006, by
and  between  Pathfinder  Bank  (the "Bank"), a New York chartered stock savings
bank, with its principal administrative office at 214 West First Street, Oswego,
New  York 13126-2547, jointly with Pathfinder Bancorp, Inc, the sole stockholder
of  the  Bank,  and  James A. Dowd (the "Executive"). Any reference to "Company"
herein  shall  mean  Pathfinder  Bancorp,  Inc.  or  any  successor thereto. Any
reference  to  "Employer" herein shall mean both the Bank and the Company or any
successors  thereto

     WHEREAS,  the  Executive  is  employed  by  the  Employer;  and

     WHEREAS, the Employer desires to provide Executive with certain benefits in
the  event  of  a  Change  in  Control  of the Employer, as hereinafter defined:

     NOW,  THEREFORE, in consideration of the mutual covenants herein contained,
and upon the other terms and conditions hereinafter provided, the parties hereby
agree  as  follows:

     1.  CHANGE  IN  CONTROL  DEFINED

     For  purposes  of  this  Agreement,  a  "Change  in Control" of the Bank or
Company shall mean a Change in Control of a nature that (i) would be required to
be  reported  in  response to Item 5.01 of the current report on Form 8-K, as in
effect  on  the  date  hereof, pursuant to Section 13 or 15(d) of the Securities
Exchange  Act  of  1934  (the  "Exchange  Act");  or (ii) results in a Change in
Control  of  the  Bank or the Company within the meaning of the Home Owners Loan
Act,  as  amended, and applicable rules and regulations promulgated there under,
as in effect at the time of the Change in Control (collectively, the "HOLA"); or
(iii)  without  limitation  such  a  Change  in  Control shall be deemed to have
occurred at such time as (a) any "person" (as the term is used in Sections 13(d)
and  14(d) of the Exchange Act) is or becomes the "beneficial owner" (as defined
in  Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of
the  Company  representing 25% or more of the combined voting power of Company's
outstanding  securities  except  for  any securities purchased by the Employer's
employee  stock  ownership  plan or trust; or (b) individuals who constitute the
Company's  Board  of  Directors on the date hereof (the "Incumbent Board") cease
for  any  reason  to  constitute  at least a majority thereof, provided that any
person  becoming  a  director  subsequent  to the date hereof whose election was
approved  by  a  vote of at least three-quarters of the directors comprising the
Incumbent  Board, or whose nomination for election by the Company's stockholders
was  approved by the same Nominating Committee serving under an Incumbent Board,
shall be, for purposes of this clause (b), considered as though he were a member
of  the Incumbent Board; or (c) a plan of reorganization, merger, consolidation,
sale  of  all  or  substantially  all  the  assets of the Bank or the Company or
similar  transaction  in  which  the  Bank  or  Company  is  not  the  surviving
institution  occurs;  or  (d)  a  proxy  statement  soliciting  proxies  from
stockholders of the Company, by someone other than the current management of the
Company,  seeking  stockholder  approval  of a plan of reorganization, merger or
consolidation  of  the  Company  or  similar  transaction  with  one  or  more
corporations  or financial institutions, and as a result such proxy solicitation
a  plan of reorganization, merger consolidation or similar transaction involving
the  Company is approved by the requisite vote of the Company's stockholders; or
(e)  a  tender  offer  is  made  for 25% or more of the voting securities of the
Company and the shareholders owning beneficially or of record 25% or more of the
outstanding  securities  of  the  Company have tendered or offered to sell their
shares pursuant to such tender offer and such tendered shares have been accepted
by  the  tender  offeror.  Notwithstanding  anything  to  the contrary herein, a
"Change  in  Control"  of  the  Bank  or the Company shall not be deemed to have
occurred  in  the  event  of  a  conversion  of Pathfinder Bancorp, MHC to stock
holding  company  form.

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                                       80
<PAGE>

2.     BENEFITS DUE EXECUTIVE IN THE EVENT OF CHANGE IN CONTROL

     If any of the events described in Section 1 hereof constituting a Change in
Control have occurred, Executive shall be entitled to the benefits provided in
paragraphs (a), (b), (c), (d) and (e) of this Section 2 upon his dismissal from
employment within twelve (12) months of the Change in Control ("Dismissal").
(Notwithstanding any other provision of this Agreement, a voluntary termination
by the Executive shall not be deemed a "Dismissal")

     (a)     Upon the occurrence of a Change in Control followed by the
Executive's Dismissal, the Employer shall pay Executive, or in the event of his
subsequent death, his beneficiary or beneficiaries, or his estate, as the case
may be, as severance pay or liquidated damages, or both, a sum equal to his most
recent annual base salary, including bonuses and any other cash compensation
paid to the Executive within the most recent twelve (12) month period.  Such
Payment shall be made by the Employer on the Date of Dismissal.

     (b)     Upon the occurrence of a Change in Control followed by the
Executive's Dismissal of employment, the Employer will cause to be continued
life, medical, dental and disability coverage substantially identical to the
coverage maintained by the Employer for Executive prior to his Dismissal.   Such
coverage and payments shall cease upon the expiration of twelve (12) months.

     (c)     Upon the occurrence of a Change in Control, Executive shall become
fully vested in and entitled to all benefits granted to him pursuant to any
Stock Option Plan of the Bank or Company.

     (d)     Upon the occurrence of a Change in Control, Executive shall become
fully vested in and entitled to all benefits granted to him pursuant to
Supplemental Executive Retirement Plan of the Bank or Company , applicable to
him, if any.

     (e)     Upon the occurrence of a Change in Control, the Executive shall
become fully vested in and entitled to all benefits awarded to him under the
Bank's or the Company's Recognition and Retention Plan or any restricted stock
plan in effect.

     (f)     Notwithstanding the preceding paragraphs of this Section 2, in the
event that:

          (i)     the aggregate payments or benefits to be made or afforded to
Executive under said paragraphs (the "Termination Benefits") would be deemed to
include an "excess parachute payment" under Section 280G of the Internal Revenue
Code or any successor thereto, and

          (ii)     if such Termination Benefits were reduced to an amount (the
"Non-Triggering Amount"), the value of which is one dollar ($1.00) less than an
amount equal to the total amount of payments permissible under Section 280G of
the Internal Revenue Code or any successor thereto, then the Termination
Benefits to be paid to Executive shall be so reduced so as to be a
Non-Triggering Amount.

     (g)     Notwithstanding the foregoing, there will be no reduction in the
Payment otherwise payable to Executive during any period during which Executive
is incapable of performing his duties hereunder by reason of disability.

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                                       81
<PAGE>

3.     TERMINATION FOR CAUSE

     The term "Termination for Cause" shall mean termination because of the
Executive's personal dishonesty, incompetence, willful misconduct, any breach of
fiduciary duty involving personal profit, intentional failure to perform stated
duties, willful violation of any law, rule, or regulation (other than traffic
violations or similar offenses) or final cease-and-desist order, or material
breach of any provision of this Agreement.  In determining incompetence, the
acts or omissions shall be measured against standards generally prevailing in
the financial services industry.  For purposes of this paragraph, no act or
failure to act on the part of Executive shall be considered "willful" unless
done, or omitted to be done, by the Executive not in good faith and without
reasonable belief that the Executive's action or omission was in the best
interest of the Employer.  Notwithstanding the foregoing, Executive shall not be
deemed to have been Terminated for Cause unless and until there shall have been
delivered to him a copy of a resolution duly adopted by the affirmative vote of
not less than three-fourths of the members of the Boards of Directors of the
Company and the Bank at a meeting of said Boards called and held for that
purpose (after reasonable notice to Executive and an opportunity for him,
together with counsel, to be heard before the Boards), finding that in the good
faith opinion of the Boards, Executive was guilty of conduct justifying
Termination for Cause and specifying the particulars thereof in detail.
Notwithstanding any provision in paragraph 2, the Executive shall not have the
right to receive Termination Benefits for any period after Termination for
Cause.

4.     NO ATTACHMENT

     (a)     Except as required by law, no right to receive payments under this
Agreement shall be subject to anticipation, commutation, alienation, sale,
assignment, encumbrance, charge, pledge, or hypothecation, or to execution,
attachment, levy, or similar process or assignment by operation of law, and any
attempt, voluntary or involuntary, to affect any such action shall be null,
void, and of no effect.

     (b)     This Agreement shall be binding upon, and inure to the benefit of,
Executive and the Employer and their respective successors and assigns.

5.     MODIFICATION AND WAIVER

     (a)     This Agreement may not be modified or amended except by an
instrument in writing signed by the parties hereto.

     (b)     No term or condition of this Agreement shall be deemed to have been
waived, nor shall there be any estoppel against the enforcement of any provision
of this Agreement, except by written instrument of the party charged with such
waiver or estoppel.  No such written waiver shall be deemed a continuing waiver
unless specifically stated therein, and each such waiver shall operate only as
to the specific term or condition waived and shall not constitute a waiver of
such term or condition for the future as to any act other than that specifically
waived.

6.     SEVERABILITY

     If, for any reason, any provision of this Agreement, or any part of any
provision, is held invalid, such invalidity shall not affect any other provision
of this Agreement or any part of such provision not held so invalid, and each
such other provision and part thereof shall to the full extent consistent with
law continue in full force and effect.

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                                       82
<PAGE>

7.     EMPLOYMENT AT WILL

     Except for the limited benefits granted herein, nothing in this Agreement
shall be construed to create an employment contract and the parties acknowledge
that the Executive's employment remains "at will".

8.     AGREEMENT TERM

     The initial "Agreement Term" shall begin on the date this agreement is
executed and shall continue through December 31, 2007.  As of December 31, 2007,
and as of each December 31st thereafter, the agreement term shall extend
automatically for one year unless the Bank gives notice to the executive prior
to the date of such extension that the agreement term will not be extended.
Notwithstanding the foregoing, if a change in control occurs during the
agreement term, the agreement term shall continue through and terminate on the
first anniversary of the date on which the change in control occurs.

9.     PROPRIETARY INFORMATION

The  parties  agree  to  the protection of the Bank's proprietary information as
follows:

(a)     Nondisclosure of Confidential Information

(i) Access. The Executive acknowledges that employment with the Bank necessarily
involves  exposure  to,  familiarity  with,  and  opportunity  to  learn  highly
sensitive,  confidential  and  proprietary  information  of  the  Bank  and  its
subsidiaries,  which  may  include  information  about  products  and  services,
markets,  customers  and  prospective  customers,  vendors  and  suppliers,
miscellaneous  business relationships, investment products, pricing, billing and
collection  procedures,  proprietary  software  and other intellectual property,
financial  and  accounting data, personnel and compensation, data processing and
communications,  technical  data, marketing strategies, research and development
of new or improved products and services, and know-how regarding the business of
the  Bank  and  its  products  and  services (collectively referred to herein as
"Confidential  Information")

(ii)     Valuable Asset.  The Executive further acknowledges that the
Confidential Information is a valuable, special, and unique asset of the Bank,
such that the unauthorized disclosure or use by persons or entities outside the
Bank would cause irreparable damage to the business of the Bank.  Accordingly,
the Executive agrees that during and after the Executive's employment with the
Bank, until the Confidential Information becomes publicly known, the Executive
shall not directly or indirectly disclose to any person or entity, use for any
purpose or permit the exploitation, copying or summarizing of, any Confidential
Information of the Bank, except as specifically required in the proper
performance of his duties for the Bank.

(iii)      Duties.  The Executive agrees to take all appropriate action, whether
by instruction, agreement or otherwise, to endure the protection,
confidentiality and security of the Confidential Information and to satisfy his
obligations under this Agreement.  Prior to lecturing or publishing articles
which reference to Bank and its business, the Executive will provide to an
officer of the Bank a copy of the material to be presented for the Bank to
review and approve in order to ensure that no Confidential Information is
disclosed.

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                                       83
<PAGE>

(iv)     Confidential Relationship.  The Bank considers its Confidential
Information to constitute "trade secrets" which are protected from unauthorized
disclosure under applicable law.  However, whether or not the Confidential
Information constitutes trade secrets, the Executive acknowledges and agrees
that the Confidential Information is protected from unauthorized disclosure or
use due to his covenants under this Section 9 and his fiduciary duties as an
executive of the Bank.

(v)     Return of Documents.  The Executive acknowledges and agrees that the
Confidential Information is and at all times shall remain the sole and exclusive
property of the Bank.  Upon the termination of his employment with the Bank or
upon request by the Bank, the Executive will promptly return to the Bank in good
condition all documents, data and records of any kind, whether in hardcopy or
electronic form, which contain any Confidential Information, including any and
all copies thereof, as well as all materials furnished to or acquired by the
Executive during the course of the Executive's employment with the Bank.

(b)     Enforcement.  For purposes of this Section 9, the term "Bank" shall
include the Bank and the Company and all of their subsidiaries.  Each such
entity shall be an intended third party beneficiary of this Agreement and shall
have the right to enforce the provisions of this Agreement against the Executive
individually or collectively with any one or more of the other subsidiaries.

(c)     Equitable Relief.  The Executive acknowledges and agreed that, by reason
of the sensitive nature of the Confidential Information of the Bank referred to
in this Agreement, in addition to recovery of damages and any other legal relief
to which the Bank may be entitled in the event of the Executive's violation of
this Agreement, the Bank shall also be entitled to equitable relief, including
such injunctive relief as may be necessary to protect the interests of the Bank
in such Confidential Information and as may be necessary to specifically enforce
the Executive's obligations under this Agreement.


10.     HEADINGS FOR REFERENCE ONLY

     The headings of sections and paragraphs herein are included solely for
convenience of reference and shall not control the meaning or interpretation of
any of the provisions of this Agreement.

11.     GOVERNING LAW

     This Agreement shall be governed by the laws of the State of New York, but
only to the extent not superseded by federal law.

12.     ARBITRATION

     Any dispute or controversy arising under or in connection with this
Agreement shall be settled exclusively by arbitration in accordance with the
rules of the American Arbitration Association then in effect.  Judgment may be
entered on the arbitrator's award in any court having jurisdiction.

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                                       84
<PAGE>

13.     SUCCESSOR TO THE EMPLOYER

     The Employer shall require any successor or assignee, whether direct or
indirect, by purchase, merger, consolidation or otherwise, to all or
substantially all the business or assets of the Bank or the Company, expressly
and unconditionally to assume and agree to perform the Employer's obligations
under this Agreement, in the same manner and to the same extent that the
Employer would be required to perform if no such succession or assignment had
taken place.



                                   SIGNATURES


     IN WITNESS WHEREOF, the Employer has caused this Agreement to be executed
and its seal to be affixed hereunto by its duly authorized officer, and
Executive has signed this Agreement, on the day and date first above written.

ATTEST:                              PATHFINDER BANK


________________            By: _________________________________
Secretary                   Thomas W. Schneider
                            President and Chief Executive Officer


ATTEST:                              PATHFINDER BANCORP, INC.

________________            By: _________________________________
Secretary                   Thomas W. Schneider
                            President and Chief Executive Officer


WITNESS:                              EXECUTIVE

________________            By: __________________________________

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                                       85
<PAGE>

EXHIBIT 10.9
                            PATHFINDER BANCORP, INC.
                                 PATHFINDER BANK
                           CHANGE IN CONTROL AGREEMENT


     This Agreement is made effective as of the  19th day of December, 2006, by
and between Pathfinder Bank (the "Bank"), a New York chartered stock savings
bank, with its principal administrative office at 214 West First Street, Oswego,
New York 13126-2547, jointly with Pathfinder Bancorp, Inc, the sole stockholder
of the Bank, and Melissa A. Miller (the "Executive").  Any reference to
"Company" herein shall mean Pathfinder Bancorp, Inc. or any successor thereto.
Any reference to "Employer" herein shall mean both the Bank and the Company or
any successors thereto

     WHEREAS, the Executive is employed by the Employer; and

     WHEREAS, the Employer desires to provide Executive with certain benefits in
the event of a Change in Control of the Employer, as hereinafter defined:

     NOW, THEREFORE, in consideration of the mutual covenants herein contained,
and upon the other terms and conditions hereinafter provided, the parties hereby
agree as follows:

1.     CHANGE IN CONTROL DEFINED

     For purposes of this Agreement, a "Change in Control" of the Bank or
Company shall mean a Change in Control of a nature that (i) would be required to
be reported in response to Item 5.01 of the current report on Form 8-K, as in
effect on the date hereof, pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 (the "Exchange Act"); or (ii) results in a Change in
Control of the Bank or the Company within the meaning of the Home Owners Loan
Act, as amended, and applicable rules and regulations promulgated thereunder, as
in effect at the time of the Change in Control (collectively, the "HOLA"); or
(iii) without limitation such a Change in Control shall be deemed to have
occurred at such time as (a) any "person" (as the term is used in Sections 13(d)
and 14(d) of the Exchange Act) is or becomes the "beneficial owner" (as defined
in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of
the Company representing 25% or more of the combined voting power of Company's
outstanding securities except for any securities purchased by the Employer's
employee stock ownership plan or trust; or (b) individuals who constitute the
Company's Board of Directors on the date hereof (the "Incumbent Board") cease
for any reason to constitute at least a majority thereof, provided that any
person becoming a director subsequent to the date hereof whose election was
approved by a vote of at least three-quarters of the directors comprising the
Incumbent Board, or whose nomination for election by the Company's stockholders
was approved by the same Nominating Committee serving under an Incumbent Board,
shall be, for purposes of this clause (b), considered as though he were a member
of the Incumbent Board; or (c) a plan of reorganization, merger, consolidation,
sale of all or substantially all the assets of the Bank or the Company or
similar transaction in which the Bank or Company is not the surviving
institution occurs; or (d) a proxy statement soliciting proxies from
stockholders of the Company, by someone other than the current management of the
Company, seeking stockholder approval of a plan of reorganization, merger or
consolidation of the Company or similar transaction with one or more
corporations or financial institutions, and as a result such proxy solicitation
a plan of reorganization, merger consolidation or similar transaction involving
the Company is approved by the requisite vote of the Company's stockholders; or
(e) a tender offer is made for 25% or more of the voting securities of the
Company and the shareholders owning beneficially or of record 25% or more of the
outstanding securities of the Company have tendered or offered to sell their
shares pursuant to such tender offer and such tendered shares have been accepted
by the tender offeror.  Notwithstanding anything to the contrary herein, a
"Change in Control" of the Bank or the Company shall not be deemed to have
occurred in the event of a conversion of Pathfinder Bancorp, MHC to stock
holding company form.

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                                       86
<PAGE>

2.     BENEFITS DUE EXECUTIVE IN THE EVENT OF CHANGE IN CONTROL

     If any of the events described in Section 1 hereof constituting a Change in
Control have occurred, Executive shall be entitled to the benefits provided in
paragraphs (a), (b), (c), (d) and (e) of this Section 2 upon his dismissal from
employment within twelve (12) months of the Change in Control ("Dismissal").
(Notwithstanding any other provision of this Agreement, a voluntary termination
by the Executive shall not be deemed a "Dismissal")

     (a)     Upon the occurrence of a Change in Control followed by the
Executive's Dismissal, the Employer shall pay Executive, or in the event of his
subsequent death, his beneficiary or beneficiaries, or his estate, as the case
may be, as severance pay or liquidated damages, or both, a sum equal to his most
recent annual base salary, including bonuses and any other cash compensation
paid to the Executive within the most recent twelve (12) month period.  Such
Payment shall be made by the Employer on the Date of Dismissal.

     (b)     Upon the occurrence of a Change in Control followed by the
Executive's Dismissal of employment, the Employer will cause to be continued
life, medical, dental and disability coverage substantially identical to the
coverage maintained by the Employer for Executive prior to his Dismissal.   Such
coverage and payments shall cease upon the expiration of twelve (12) months.

     (c)     Upon the occurrence of a Change in Control, Executive shall become
fully vested in and entitled to all benefits granted to him pursuant to any
Stock Option Plan of the Bank or Company.

     (d)     Upon the occurrence of a Change in Control, Executive shall become
fully vested in and entitled to all benefits granted to him pursuant to
Supplemental Executive Retirement Plan of the Bank or Company , applicable to
him, if any.

     (e)     Upon the occurrence of a Change in Control, the Executive shall
become fully vested in and entitled to all benefits awarded to him under the
Bank's or the Company's Recognition and Retention Plan or any restricted stock
plan in effect.

     (f)     Notwithstanding the preceding paragraphs of this Section 2, in the
event that:

          (i)     the aggregate payments or benefits to be made or afforded to
Executive under said paragraphs (the "Termination Benefits") would be deemed to
include an "excess parachute payment" under Section 280G of the Internal Revenue
Code or any successor thereto, and

          (ii)     if such Termination Benefits were reduced to an amount (the
"Non-Triggering Amount"), the value of which is one dollar ($1.00) less than an
amount equal to the total amount of payments permissible under Section 280G of
the Internal Revenue Code or any successor thereto, then the Termination
Benefits to be paid to Executive shall be so reduced so as to be a
Non-Triggering Amount.

     (g)     Notwithstanding the foregoing, there will be no reduction in the
Payment otherwise payable to Executive during any period during which Executive
is incapable of performing his duties hereunder by reason of disability.

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                                       87
<PAGE>

3.     TERMINATION FOR CAUSE

     The term "Termination for Cause" shall mean termination because of the
Executive's personal dishonesty, incompetence, willful misconduct, any breach of
fiduciary duty involving personal profit, intentional failure to perform stated
duties, willful violation of any law, rule, or regulation (other than traffic
violations or similar offenses) or final cease-and-desist order, or material
breach of any provision of this Agreement.  In determining incompetence, the
acts or omissions shall be measured against standards generally prevailing in
the financial services industry.  For purposes of this paragraph, no act or
failure to act on the part of Executive shall be considered "willful" unless
done, or omitted to be done, by the Executive not in good faith and without
reasonable belief that the Executive's action or omission was in the best
interest of the Employer.  Notwithstanding the foregoing, Executive shall not be
deemed to have been Terminated for Cause unless and until there shall have been
delivered to him a copy of a resolution duly adopted by the affirmative vote of
not less than three-fourths of the members of the Boards of Directors of the
Company and the Bank at a meeting of said Boards called and held for that
purpose (after reasonable notice to Executive and an opportunity for him,
together with counsel, to be heard before the Boards), finding that in the good
faith opinion of the Boards, Executive was guilty of conduct justifying
Termination for Cause and specifying the particulars thereof in detail.
Notwithstanding any provision in paragraph 2, the Executive shall not have the
right to receive Termination Benefits for any period after Termination for
Cause.

4.     NO ATTACHMENT

     (a)     Except as required by law, no right to receive payments under this
Agreement shall be subject to anticipation, commutation, alienation, sale,
assignment, encumbrance, charge, pledge, or hypothecation, or to execution,
attachment, levy, or similar process or assignment by operation of law, and any
attempt, voluntary or involuntary, to affect any such action shall be null,
void, and of no effect.

     (b)     This Agreement shall be binding upon, and inure to the benefit of,
Executive and the Employer and their respective successors and assigns.

5.     MODIFICATION AND WAIVER

     (a)     This Agreement may not be modified or amended except by an
instrument in writing signed by the parties hereto.

     (b)     No term or condition of this Agreement shall be deemed to have been
waived, nor shall there be any estoppel against the enforcement of any provision
of this Agreement, except by written instrument of the party charged with such
waiver or estoppel.  No such written waiver shall be deemed a continuing waiver
unless specifically stated therein, and each such waiver shall operate only as
to the specific term or condition waived and shall not constitute a waiver of
such term or condition for the future as to any act other than that specifically
waived.

6.     SEVERABILITY

     If, for any reason, any provision of this Agreement, or any part of any
provision, is held invalid, such invalidity shall not affect any other provision
of this Agreement or any part of such provision not held so invalid, and each
such other provision and part thereof shall to the full extent consistent with
law continue in full force and effect.

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                                       88
<PAGE>

7.     EMPLOYMENT AT WILL

     Except for the limited benefits granted herein, nothing in this Agreement
shall be construed to create an employment contract and the parties acknowledge
that the Executive's employment remains "at will".

8.     AGREEMENT TERM

     The initial "Agreement Term" shall begin on the date this agreement is
executed and shall continue through December 31, 2007.  As of December 31, 2007,
and as of each December 31st thereafter, the agreement term shall extend
automatically for one year unless the Bank gives notice to the executive prior
to the date of such extension that the agreement term will not be extended.
Notwithstanding the foregoing, if a change in control occurs during the
agreement term, the agreement term shall continue through and terminate on the
first anniversary of the date on which the change in control occurs.

9.     PROPRIETARY INFORMATION

The parties agree to the protection of the Bank's proprietary information as
follows:

(a)     Nondisclosure of Confidential Information

(i)     Access.  The Executive acknowledges that employment with the Bank
necessarily involves exposure to, familiarity with, and opportunity to learn
highly sensitive, confidential and proprietary information of the Bank and its
subsidiaries, which may include information about products and services,
markets, customers and prospective customers, vendors and suppliers,
miscellaneous business relationships, investment products, pricing, billing and
collection procedures, proprietary software and other intellectual property,
financial and accounting data, personnel and compensation, data processing and
communications, technical data, marketing strategies, research and development
of new or improved products and services, and know-how regarding the business of
the Bank and its products and services (collectively referred to herein as
"Confidential Information")

(ii)     Valuable Asset.  The Executive further acknowledges that the
Confidential Information is a valuable, special, and unique asset of the Bank,
such that the unauthorized disclosure or use by persons or entities outside the
Bank would cause irreparable damage to the business of the Bank.  Accordingly,
the Executive agrees that during and after the Executive's employment with the
Bank, until the Confidential Information becomes publicly known, the Executive
shall not directly or indirectly disclose to any person or entity, use for any
purpose or permit the exploitation, copying or summarizing of, any Confidential
Information of the Bank, except as specifically required in the proper
performance of his duties for the Bank.

(iii)      Duties.  The Executive agrees to take all appropriate action, whether
by instruction, agreement or otherwise, to endure the protection,
confidentiality and security of the Confidential Information and to satisfy his
obligations under this Agreement.  Prior to lecturing or publishing articles
which reference to Bank and its business, the Executive will provide to an
officer of the Bank a copy of the material to be presented for the Bank to
review and approve in order to ensure that no Confidential Information is
disclosed.

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                                       89
<PAGE>

(iv)     Confidential Relationship.  The Bank considers its Confidential
Information to constitute "trade secrets" which are protected from unauthorized
disclosure under applicable law.  However, whether or not the Confidential
Information constitutes trade secrets, the Executive acknowledges and agrees
that the Confidential Information is protected from unauthorized disclosure or
use due to his covenants under this Section 9 and his fiduciary duties as an
executive of the Bank.

(v)     Return of Documents.  The Executive acknowledges and agrees that the
Confidential Information is and at all times shall remain the sole and exclusive
property of the Bank.  Upon the termination of his employment with the Bank or
upon request by the Bank, the Executive will promptly return to the Bank in good
condition all documents, data and records of any kind, whether in hardcopy or
electronic form, which contain any Confidential Information, including any and
all copies thereof, as well as all materials furnished to or acquired by the
Executive during the course of the Executive's employment with the Bank.

(b)     Enforcement.  For purposes of this Section 9, the term "Bank" shall
include the Bank and the Company and all of their subsidiaries.  Each such
entity shall be an intended third party beneficiary of this Agreement and shall
have the right to enforce the provisions of this Agreement against the Executive
individually or collectively with any one or more of the other subsidiaries.

(c)     Equitable Relief.  The Executive acknowledges and agreed that, by reason
of the sensitive nature of the Confidential Information of the Bank referred to
in this Agreement, in addition to recovery of damages and any other legal relief
to which the Bank may be entitled in the event of the Executive's violation of
this Agreement, the Bank shall also be entitled to equitable relief, including
such injunctive relief as may be necessary to protect the interests of the Bank
in such Confidential Information and as may be necessary to specifically enforce
the Executive's obligations under this Agreement.


10.     HEADINGS FOR REFERENCE ONLY

     The headings of sections and paragraphs herein are included solely for
convenience of reference and shall not control the meaning or interpretation of
any of the provisions of this Agreement.

11.     GOVERNING LAW

     This Agreement shall be governed by the laws of the State of New York, but
only to the extent not superseded by federal law.

12.     ARBITRATION

     Any dispute or controversy arising under or in connection with this
Agreement shall be settled exclusively by arbitration in accordance with the
rules of the American Arbitration Association then in effect.  Judgment may be
entered on the arbitrator's award in any court having jurisdiction.

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                                       90
<PAGE>


13.     SUCCESSOR TO THE EMPLOYER

     The Employer shall require any successor or assignee, whether direct or
indirect, by purchase, merger, consolidation or otherwise, to all or
substantially all the business or assets of the Bank or the Company, expressly
and unconditionally to assume and agree to perform the Employer's obligations
under this Agreement, in the same manner and to the same extent that the
Employer would be required to perform if no such succession or assignment had
taken place.



                                   SIGNATURES


     IN WITNESS WHEREOF, the Employer has caused this Agreement to be executed
and its seal to be affixed hereunto by its duly authorized officer, and
Executive has signed this Agreement, on the day and date first above written.

ATTEST:                              PATHFINDER BANK


________________            By: _________________________________
Secretary                   Thomas W. Schneider
                            President and Chief Executive Officer


ATTEST:                              PATHFINDER BANCORP, INC.

________________            By: _________________________________
Secretary                   Thomas W. Schneider
                            President and Chief Executive Officer


WITNESS:                              EXECUTIVE

________________            By: __________________________________


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                                       91
<PAGE>

EXHIBIT  21:  SUBSIDIARIES  OF  THE  COMPANY

Company                         Percent  Owned
-----------------------------------------------
Pathfinder  Bank  (1)                 100%
Pathfinder  Statutory  Trust          100%

(1)  Pathfinder  Commercial  Bank,  Pathfinder  REIT,  Inc.  and Whispering Oaks
     Development  Corp.  100%  owned  by  Pathfinder  Bank

EXHIBIT  23:  CONSENT  OF  BEARD  MILLER  COMPANY  LLP

            CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM


Pathfinder  Bancorp,  Inc.
Oswego,  New  York



We  hereby  consent  to  the  incorporation  by  reference  in  the Registration
Statement  on Form S-8 (No. 333-53027) of Pathfinder Bancorp, Inc. of our report
dated  March  27, 2007, relating to the consolidated financial statements  which
appears  in  this  Annual  Report  on  Form  10-K.


                                             /s/  BEARD MILLER  COMPANY  LLP


Beard  Miller  Company  LLP
Harrisburg,  Pennsylvania
March  27,  2007

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                                       92
<PAGE>

EXHIBIT  31.1:  RULE  13A-14(A) / 15D-14(A) CERTIFICATION OF THE CHIEF EXECUTIVE
OFFICER


Certification  of  Chief  Executive  Officer

Pursuant  to  Section  302  of  the  Sarbanes-Oxley  Act  of  2002


I,  Thomas  W.  Schneider,  President and Chief Executive Officer, certify that:


1.  I have reviewed this annual report on Form 10-K of Pathfinder Bancorp, Inc.;

2.   Based on my knowledge, this report does not contain any untrue statement of
     a  material  fact  or  omit  to state a material fact necessary to make the
     statements  made, in light of the circumstances under which such statements
     were  made,  not  misleading  with  respect  to  the period covered by this
     report;

3.   Based on  my  knowledge,  the  financial  statements,  and  other financial
     information  included  in  this  report,  fairly  present  in  all material
     respects  the  financial condition, results of operations and cash flows of
     the  registrant  as  of,  and  for,  the  periods presented in this report;

4.   The registrant's  other  certifying  officers  and  I  are  responsible for
     establishing and maintaining disclosure controls and procedures (as defined
     in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:

     (a)  Designed  such  disclosure  controls  and  procedures,  or caused such
          disclosure  controls  and  procedures  to  be  designed  under  our
          supervision,  to  ensure  that  material  information  relating to the
          registrant,  including its consolidated subsidiaries, is made known to
          us  by others within those entities, particularly during the period in
          which  this  report  is  being  prepared;
     (b)  Evaluated  the  effectiveness  of  the  registrant's  disclosure
          controls  and  procedures and presented in this report our conclusions
          about  the effectiveness of the disclosure controls and procedures, as
          of  the  end  of the  period  covered  by  this  report based on such
          evaluation;  and
     (c)  Disclosed  in  this  report  any  change  in the registrant's internal
          control over financial reporting that occurred during the registrant's
          most  recent fiscal quarter (the registrant's fourth fiscal quarter in
          the  case  of  an  annual  report) that has materially affected, or is
          reasonably  likely  to  materially  affect,  the registrant's internal
          control  over  financial  reporting;  and

5.   The registrant's  other  certifying  officer and I have disclosed, based on
     our most recent evaluation of internal control over financial reporting, to
     the registrant's auditors and the audit committee of the registrant's board
     of  directors:

     (a)  All significant  deficiencies  and  material  weaknesses  in  the
          design or operation of internal control over financial reporting which
          are  reasonably likely to adversely affect the registrant's ability to
          record,  process,  summarize  and  report  financial  information; and
     (b)  Any fraud,  whether  or  not  material,  that  involves  management or
          other  employees  who  have  a  significant  role  in the registrant's
          internal  control  over  financial  reporting.


March  30,  2007                  /s/  Thomas  W.  Schneider
                                  Thomas  W.  Schneider
                                  President  and  Chief  Executive  Officer

--------------------------------------------------------------------------------
                                       93
<PAGE>

EXHIBIT  31.2:  RULE  13A-14(A) / 15D-14(A) CERTIFICATION OF THE CHIEF FINANCIAL
OFFICER

Certification  of  Chief  Financial  Officer

Pursuant  to  Section  302  of  the  Sarbanes-Oxley  Act  of  2002

I,  James  A.  Dowd,  Senior Vice President and Chief Financial Officer, certify
that:

1.  I have reviewed this annual report on Form 10-K of Pathfinder Bancorp, Inc.;

2.   Based on my knowledge, this report does not contain any untrue statement of
     a  material  fact  or  omit  to state a material fact necessary to make the
     statements  made, in light of the circumstances under which such statements
     were  made,  not  misleading  with  respect  to  the period covered by this
     report;

3.   Based on  my  knowledge,  the  financial  statements,  and  other financial
     information  included  in  this  report,  fairly  present  in  all material
     respects  the  financial condition, results of operations and cash flows of
     the  registrant  as  of,  and  for,  the  periods presented in this report;

4.   The registrant's  other  certifying  officers  and  I  are  responsible for
     establishing and maintaining disclosure controls and procedures (as defined
     in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:

     (a)  Designed  such  disclosure  controls  and  procedures,  or caused such
          disclosure  controls  and  procedures  to  be  designed  under  our
          supervision,  to  ensure  that  material  information  relating to the
          registrant,  including its consolidated subsidiaries, is made known to
          us  by others within those entities, particularly during the period in
          which  this  report  is  being  prepared;
     (b)  Evaluated  the  effectiveness  of  the  registrant's  disclosure
          controls  and  procedures and presented in this report our conclusions
          about  the effectiveness of the disclosure controls and procedures, as
          of  the  end  of  the  period  covered  by  this  report based on such
          evaluation;  and
     (c)  Disclosed  in  this  report  any  change  in the registrant's internal
          control over financial reporting that occurred during the registrant's
          most  recent fiscal quarter (the registrant's fourth fiscal quarter in
          the  case  of  an  annual  report) that has materially affected, or is
          reasonably  likely  to  materially  affect,  the registrant's internal
          control  over  financial  reporting;  and

5.   The registrant's  other  certifying  officer and I have disclosed, based on
     our most recent evaluation of internal control over financial reporting, to
     the registrant's auditors and the audit committee of the registrant's board
     of  directors:

     (a)  All significant  deficiencies  and  material  weaknesses  in  the
          design or operation of internal control over financial reporting which
          are  reasonably likely to adversely affect the registrant's ability to
          record,  process,  summarize  and  report  financial  information; and
     (b)  Any fraud,  whether  or  not  material,  that  involves  management or
          other  employees  who  have  a  significant  role  in the registrant's
          internal  control  over  financial  reporting.

March  30,  2007                       /s/  James  A.  Dowd
                                       James  A.  Dowd
                                       Senior  Vice  President  and
                                       Chief  Financial  Officer
--------------------------------------------------------------------------------

                                       94
<PAGE>

EXHIBIT  32.1  SECTION  1350  CERTIFICATION  OF  THE  CHIEF  EXECUTIVE AND CHIEF
FINANCIAL  OFFICER

Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section
906  of  the  Sarbanes-Oxley  Act  of  2002


Thomas  W.  Schneider, President and Chief Executive Officer, and James A. Dowd,
Senior  Vice  President  and Chief Financial Officer of Pathfinder Bancorp, Inc.
(the  "Company"), each certify in his capacity as an officer of the Company that
he has reviewed the Annual Report of the Company on Form 10-K for the year ended
December  31,  2006  and  that  to  the  best  of  his  knowledge:

1.   the report  fully  complies  with the requirements of Sections 13(a) of the
     Securities  Exchange  Act  of  1934;  and

2.   the information  contained  in  the report fairly presents, in all material
     respects, the financial condition and results of operations of the Company.

The  purpose  of  this  statement is solely to comply with Title 18, Chapter 63,
Section  1350  of  the  United  States  Code,  as  amended by Section 906 of the
Sarbanes-Oxley  Act  of  2002.


March  30,  2007                 /s/  Thomas  W.  Schneider
                                 Thomas  W.  Schneider
                                 President  and  Chief  Executive  Officer


March  30,  2007                 /s/  James  A.  Dowd
                                 James  A.  Dowd
                                 Senior  Vice  President  and
                                 Chief  Financial  Officer

                                       95
<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.



                                             Pathfinder  Bancorp,  Inc.
<TABLE>
<CAPTION>
                                                <S>   <C>
March  30,  2007                                  By:    /s/  Thomas  W.  Schneider
                                                         Thomas  W.  Schneider
                                                         President  and  Chief
                                                          Executive Officer
</TABLE>

Pursuant to the requirements of the Securities Exchange 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.

<TABLE>
<CAPTION>

                                            <S>    <C>
                                                  By:    /s/ Janette Resnick,
                                                         Janette Resnick,
                                                         Chairman of the Board
                                                         Date:  March 30, 2007
</TABLE>
<TABLE>
<CAPTION>
 <S>   <C>                                      <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, 2007                             Date:  March 30, 2007

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, 2007                             Date:  March 30, 2007

By:    /s/ Bruce E. Manwaring                     By:    /s/ Corte J. Spencer
       Bruce E. Manwaring, Director                      Corte J. Spencer, Director
Date:  March 30, 2007                             Date:  March 30, 2007

By:    /s/ L. William Nelson, Jr.                 By:    /s/ Lloyd Stemple
       L. William Nelson, Jr. Director                   Lloyd Stemple, Director
Date:  March 30, 2007                             Date:  March 30, 2007

By:    /s/ Steven W. Thomas
       Steven W. Thomas, Director
Date:  March 30, 2007
</TABLE>