I believe that this message is pretty clear:
3356 2019-12-17 19:31:45.556 debug3: Bad permissions. Try removing permissions for user: VM-EPM\username2 (S-1-5-21-3826319457-1004635287-1909893433-1001) on file C:/Users/username1/.ssh/authorized_keys.
No other user except for the user himself/herself (username1) - and administrator - can have write permissions to the authorized_keys file.
The easiest thing to solve this is to login as username1, delete the file and recreate it.
See also the section "Setting up SSH public key authentication" in my article on Windows OpenSSH.