Generations Bancorp NY, Inc. (GBNY) is a diversified financial institution that has been serving the Finger Lakes region of New York State for over 150 years. Headquartered in Seneca Falls, the company's roots trace back to 1870 when it was first established as The Seneca Falls Savings Bank. Throughout its long history, Generations Bancorp has evolved and adapted to meet the changing needs of its local community, while maintaining a steadfast commitment to its core values of integrity, reliability, and community support.
Company Background and Evolution
In 2020, Generations Bancorp underwent a significant transformation when it converted from a mutual holding company structure to a fully public stock holding company. This transition marked a new chapter in the company's growth, allowing it to access additional capital and resources to further expand its reach and service offerings. The company successfully raised $13.15 million through its initial public offering, selling 1.48 million shares and providing valuable capital to support its growth and operations. As part of this conversion, the company changed its name to Generations Bancorp NY, Inc. Today, Generations Bancorp operates through its wholly-owned subsidiary, Generations Bank, which serves both consumer and commercial customers across its network of retail branches and a limited-purpose commercial bank subsidiary.
Business Model and Diversification
The company's diverse business model has been a key driver of its success over the years. Generations Bank's community banking franchise provides a wide range of traditional banking products and services, including lending, deposit-taking, and mortgage banking. In addition, the bank operates a limited-purpose commercial bank subsidiary, Generations Commercial Bank, which enables local municipalities to deposit public funds in accordance with New York State law. This diversification has helped Generations Bancorp weather various economic cycles and remain a steadfast fixture in the communities it serves.
Generations Bancorp operates through three primary business segments: community banking, insurance agency (until its sale in 2023), and a limited-purpose commercial bank.
The community banking segment forms the core of GBNY's operations, providing financial services to consumers and businesses primarily in the Finger Lakes Region and Orleans County of New York State. This segment offers various types of loans, accepts deposits, provides mortgage banking, and offers other traditional banking services. The major revenue sources for this segment include net interest income and service fees on deposit accounts.
In the first half of 2024, the community banking segment reported a net interest income of $3.58 million, a decrease of 23.5% compared to the same period in 2023. This decline was driven by a 78-basis point decrease in the net interest margin to 2.04%, as the cost of interest-bearing liabilities increased faster than the yield on interest-earning assets. The provision for credit losses for this segment was $602,000, up from $330,000 in the prior year period, primarily due to higher loss rates in the auto and recreational vehicle loan portfolios.
Noninterest income for the community banking segment decreased 26.1% to $903,000, largely due to the loss of revenue from the sale of the Generations Agency insurance business in 2023. Noninterest expenses decreased 5.9% to $5.87 million, as a reduction in compensation and benefits costs was partially offset by higher professional services and other expenses.
The insurance agency segment, operated through the Bank's wholly-owned subsidiary Generations Agency, offered insurance coverage to businesses and individuals in the Finger Lakes Region until its sale in 2023. The primary revenue source was commissions. Pursuant to a Management Agreement effective April 1, 2022, personnel and office support charges were assumed by Northwoods Corporation. On June 1, 2023, Generations Agency's book of business was sold to Northwoods.
The commercial banking segment is a New York State-chartered limited-purpose bank formed to enable local municipalities, primarily within the Finger Lakes Region and Northwest New York State, to deposit public funds. The major revenue source for this segment is net interest income. In the first half of 2024, the commercial banking segment contributed $185,000 in net interest income and $143,000 in pre-tax income. This segment's assets totaled $10.9 million at June 30, 2024, representing 2.7% of GBNY's consolidated assets.
COVID-19 Impact and Response
Despite the challenges posed by the COVID-19 pandemic, Generations Bancorp has demonstrated its resilience and adaptability. The company quickly implemented measures to support its employees and customers, including enhanced cleaning protocols, remote work arrangements, and loan deferment programs. While the pandemic did have an impact on the company's financial performance, Generations Bancorp has continued to navigate the evolving landscape and maintain its commitment to its stakeholders.
Financials
In the latest quarter ended June 30, 2024, Generations Bancorp reported a net loss of $1.39 million, compared to a net loss of $318,000 in the prior-year period. The increase in net loss was primarily driven by a $997,000 decrease in net interest income and a $461,000 decrease in noninterest income, partially offset by a $343,000 increase in income tax benefit and a $319,000 decrease in noninterest expense.
For the most recent fiscal year (2023), Generations Bancorp reported revenue of $9.45 million and a net loss of $1.57 million. The company's operating cash flow (OCF) for 2023 was $2.04 million, while free cash flow (FCF) stood at $1.67 million.
In the most recent quarter (Q2 2024), the company reported revenue of $1.834 million, a net loss of $841,000, OCF of $1.578 million, and FCF of $1.558 million. Compared to the same quarter in the previous year (Q2 2023), revenue decreased by 14.0%, primarily due to the sale of the company's insurance agency business. The net loss increased from $166,000 to $841,000, representing a 406.6% increase in net loss. This was primarily due to a 16.5% decrease in net interest income, a 41.4% decrease in noninterest income, and a 128.5% increase in provision for credit losses, partially offset by a 465.2% increase in income tax benefit. OCF decreased 25.2% and FCF decreased 30.1% year-over-year, primarily due to the decrease in net income.
Asset Quality and Liquidity
The company's asset quality metrics have also been a point of focus, with non-performing assets representing 0.78% of total assets as of June 30, 2024, down from 0.88% at the end of 2023. The allowance for credit losses stood at 1.02% of total loans, up from 0.93% at the end of the previous year, as the company continued to proactively manage its credit risk.
In terms of liquidity, Generations Bancorp reported a debt-to-equity ratio of 0.60 as of the latest reporting period. The company held $9.83 million in cash and cash equivalents, with additional liquidity available through credit lines. This includes an available credit line of $41.50 million with the Federal Home Loan Bank (FHLB) and $20.50 million with other financial institutions. The company's current ratio and quick ratio both stood at 0.65, indicating its ability to meet short-term obligations.
Future Outlook and Strategic Initiatives
Looking ahead, Generations Bancorp remains committed to its strategic initiatives, which include the ongoing expansion of its commercial lending platform, the continued growth of its residential mortgage and consumer lending operations, and the further development of its digital banking capabilities. The company has also taken steps to strengthen its risk management and compliance frameworks, as evidenced by the recent written agreement with the Office of the Comptroller of the Currency.
The banking industry has faced headwinds in recent years due to a low interest rate environment, increased competition from fintech firms, and regulatory changes. Industry experts expect modest loan and deposit growth, as well as compressed net interest margins, to continue in the near-term.
It's worth noting that Generations Bancorp has announced plans to voluntarily delist from the Nasdaq exchange and deregister with the SEC, with the last trading day on Nasdaq expected to be October 4, 2024. Following the delisting, the company's common stock is expected to be quoted on the OTC market. This move is likely aimed at reducing compliance costs and administrative burdens associated with being a publicly traded company on a major exchange.
Conclusion
Despite the challenges it has faced, Generations Bancorp's long-standing history, diversified business model, and commitment to its local communities position the company well for the future. As the company navigates the evolving financial landscape, investors will be closely watching its ability to balance growth, risk management, and shareholder value creation.
In recent years, Generations Bancorp has faced various financial challenges and milestones. In 2019, the company encountered an impairment charge of $300,000 related to capital assets but was able to offset this with a substantial gain of $987,000 on the sale of securities. More recently, in 2022, the company had to extinguish $792,000 in goodwill related to the sale of its insurance agency subsidiary, Generations Agency, Inc., which impacted its financial results for that year.
The sale of the insurance agency business in 2023 has had a noticeable impact on the company's financial performance, contributing to the decrease in noninterest income. However, this move allows Generations Bancorp to focus more intently on its core community banking operations, which have been the foundation of the organization since its inception over 150 years ago.
As Generations Bancorp continues to adapt to the changing financial landscape and navigate challenges such as compressed net interest margins and increased regulatory scrutiny, its deep roots in the Finger Lakes region and diversified business model provide a solid foundation for future growth and stability. The company's upcoming transition to the OTC market will be a significant change, and stakeholders will be keen to see how this move affects the company's operations and financial performance in the coming years.