Business Overview and History
Generations Bancorp NY, Inc. (OTCQX: GBNY) is a multi-faceted financial institution with a rich history rooted in serving the Finger Lakes Region of New York State. As the holding company for Generations Bank, the organization has evolved over the decades, navigating industry changes and economic landscapes to maintain its position as a trusted community banking partner.
Generations Bancorp NY, Inc. was originally organized in August 2020 as part of the Seneca-Cayuga Bancorp, Inc. conversion from a mutual holding company structure to a fully public stock holding company structure. Prior to the conversion, Generations Bank was the wholly owned subsidiary of Seneca-Cayuga, and The Seneca Falls Savings Bank, MHC owned 60.1% of Seneca-Cayuga's common stock. In January 2021, Generations Bancorp NY, Inc. sold 1.48 million shares of its common stock in an initial public offering, raising gross proceeds of $14.8 million and net proceeds of $13.2 million. The offering included 109,450 shares issued to the ESOP representing the ownership interest of the MHC. The exchange ratio of previously held shares by public shareholders of Seneca-Cayuga was 1.00 as applied in the conversion offering.
Generations Bank, the primary operating subsidiary, was founded in 1870 and has operated continuously since then, serving customers in the northern Finger Lakes Region. The bank maintains its executive offices and main retail location in Seneca Falls, New York, with additional retail offices located throughout the region. The bank's business primarily consists of accepting deposits from customers within its market area and investing those funds in loans secured by one- to four-family residential real estate, commercial real estate, business or personal assets, and investment securities.
Over the years, the company has faced various challenges, including the 2008 financial crisis. During this time, the company worked to maintain a strong capital position and manage risk in its loan portfolio. The company was also impacted by changing regulations, such as the Dodd-Frank Act, which required it to adapt its operations and compliance practices. Despite these challenges, the company has remained focused on serving its local community and supporting the economic growth of the Finger Lakes Region. The company has continued to invest in technology and expand its suite of products and services to meet the evolving needs of its customers.
In 2019, the company began purchasing automobile loans originated in the Northeastern United States, and in 2020, it started purchasing modular home loans originated throughout the United States. This geographical diversification has helped the company manage risk and expand its loan portfolio. Additionally, in 2022, the company began purchasing one- to four-family, owner-occupied residential real estate loans from a third-party originator, primarily located in Cayuga, Ontario, Orleans, and Seneca counties.
Generations Bancorp NY, Inc. also operates a wholly owned subsidiary, Generations Commercial Bank, a New York State-chartered limited-purpose commercial bank formed to enable local municipalities to deposit public funds with the bank in accordance with existing New York State municipal law.
Business Segments
Generations Bancorp NY, Inc. operates through two primary business segments: community banking and commercial banking.
The community banking segment provides financial services to consumers and businesses primarily in the Finger Lakes Region and Orleans County of New York State. Major revenue sources for this segment include net interest income and service fees on deposit accounts. Key products and services offered include various loan types, deposit accounts, mortgage banking, and other traditional banking services.
On the loan side, the community banking segment originates residential mortgages, commercial real estate loans, commercial business loans, and a variety of consumer loans including home equity, manufactured homes, automobiles, student loans, recreational vehicles, and other consumer loans. Loan origination and servicing is a significant driver of revenue and profitability for this segment.
The deposit products offered include noninterest-bearing demand deposits, interest-bearing demand deposits, money market accounts, savings accounts, and certificates of deposit. Growing the bank's deposit base, particularly lower-cost core deposits, is an important focus area as it helps fund loan growth and improve the net interest margin.
The community banking segment generated net interest income of $1.78 million and $3.58 million for the three and six months ended June 30, 2024, respectively. Provision for loan losses was $377,000 and $602,000 for the same periods, reflecting the segment's credit risk profile. Noninterest income was $462,000 and $903,000, derived primarily from service charges, fees, and mortgage banking activities.
The commercial banking segment is a New York State chartered limited-purpose commercial bank formed to enable local municipalities, primarily within the Finger Lakes Region and Northwest New York State, to deposit public funds with the bank in accordance with existing New York state municipal law. The major revenue source for this segment is net interest income.
This segment generated net interest income of $91,000 and $185,000 for the three and six months ended June 30, 2024, respectively. As a specialized municipal deposit taking institution, the commercial banking segment has a much narrower focus and product offering compared to the broader community banking operations.
Financial Performance and Ratios
Over the past three years, Generations Bancorp NY, Inc. has demonstrated a mixed financial performance. In 2020, the company reported net income of $1.75 million, with an annual revenue of $12.49 million and annual operating cash flow of $998,000. The company's free cash flow for the year was $767,000.
In 2021, the company's net income decreased to $1.41 million, while annual revenue remained relatively stable at $12.61 million. The company's annual operating cash flow increased to $3.40 million, and its free cash flow was $2.98 million.
However, in 2022, the company's financial performance took a turn, with a net income of $1.09 million and annual revenue of $11.39 million. The company's annual operating cash flow increased to $4.35 million, and its free cash flow was $3.89 million.
As of the latest available financial information in the company's 2024 10-Q/10-K filing, Generations Bancorp NY, Inc. reported a net loss of $1.39 million for the six-month period ended June 30, 2024. The company's quarterly revenue for the same period was $8.83 million, with quarterly operating cash flow of $481,000 and quarterly free cash flow of -$1.68 million.
For the most recent quarter, the company reported revenue of $1.83 million and a net loss of $841,000. The decrease in revenue and net income for the most recent quarter was primarily due to decreased mortgage banking income and insurance commissions from the sale of the company's insurance agency business in June 2023.
Financials
The company's financial ratios have also been mixed, with a current ratio of 0.65, a quick ratio of 0.65, and a cash ratio of 0.26 as of June 30, 2024. The company's debt-to-equity ratio stands at 0.60, and its interest coverage ratio is -0.24.
Liquidity
The company's liquidity position, as reflected in its cash ratio of 0.26, indicates that it may face challenges in meeting short-term obligations with its most liquid assets. This situation underscores the importance of the company's efforts to improve its financial performance and address regulatory concerns.
As of June 30, 2024, GBNY had $21.32 million in long-term borrowings and $3.44 million in advances from borrowers for taxes and insurance. The company also has a $20.50 million line of credit available with other financial institutions, of which no amounts were outstanding as of June 30, 2024.
Challenges and Regulatory Oversight
Generations Bancorp NY, Inc. has faced several challenges in recent years, including increased regulatory oversight and the impact of the COVID-19 pandemic.
In July 2024, the company's wholly owned subsidiary, Generations Bank, entered into a written agreement with the Office of the Comptroller of the Currency (OCC), the bank's primary regulator. The agreement requires the bank to take various actions, including establishing a compliance committee, preparing a strategic plan, and developing risk management programs for liquidity and interest rate risk. This agreement may result in increased non-interest expenses as the company works to comply with the requirements.
The pandemic also had a significant impact on the company's operations and financial performance. The company experienced increased loan delinquencies and credit losses, particularly in its consumer loan portfolio, which includes automobile, recreational vehicle, and manufactured home loans. The company's provision for credit losses increased from $330,000 in 2023 to $602,000 in the first half of 2024.
Geographic Markets
Generations Bancorp NY, Inc. primarily operates in the Finger Lakes Region and Orleans County of New York State. The company does not have significant operations outside of this geographic area. This focus on a specific region allows the company to maintain strong community ties and leverage local market knowledge, but it also exposes the company to regional economic fluctuations.
Guidance and Outlook
In response to the challenges faced, Generations Bancorp NY, Inc. has taken several actions to improve its financial performance and address regulatory concerns. The company has reduced its workforce, with the previous President and Chief Executive Officer departing, and has implemented cost-saving measures.
Additionally, the company has announced plans to freeze its defined benefit pension plans, which is expected to result in an increase in the net periodic pension income from $978,000 in 2023 to $1.10 million in 2024.
Despite the recent challenges, the company remains committed to its community banking model and is focused on identifying growth opportunities within its existing market and through further geographic diversification of its loan portfolio. The company's management team is actively working to address the regulatory requirements outlined in the OCC agreement and is confident in the bank's ability to return to profitability in the long term.
Conclusion
Generations Bancorp NY, Inc. is a resilient community bank with a long history of serving the Finger Lakes Region of New York State. While the company has faced some recent challenges, including increased regulatory oversight and the impact of the COVID-19 pandemic, it remains committed to its core mission and is taking steps to improve its financial performance and address the regulatory concerns.
The company's geographical diversification efforts, cost-saving measures, and plans to address the OCC agreement suggest that Generations Bancorp NY, Inc. is positioning itself for a return to growth and profitability in the coming years. The company's two business segments, community banking and commercial banking, provide diversified financial services to retail, commercial, and municipal customers within its regional footprint, offering a solid foundation for future growth.
Investors will want to closely monitor the company's progress in executing its strategic initiatives, navigating the regulatory landscape, and improving its financial performance in the coming quarters. The company's ability to adapt to changing market conditions, address regulatory requirements, and capitalize on its strong community presence will be crucial factors in determining its long-term success.