Generations Bancorp NY Inc

What they do

The company operates as a federally chartered savings institution through its bank subsidiaries, focusing on consumer and business banking. It originates and purchases one- to four-family residential real estate loans, automobile loans, and manufactured home loans, and funds these assets primarily with core deposits.

Revenue drivers

• Net interest income — Earned on loans and investments, primarily one- to four-family residential real estate loans (52.4% of total loans at December 31, 2023) and automobile, recreational vehicle, and manufactured home loans (29.3% of total loans).
• Noninterest income — Consists primarily of banking fees and service charges, insurance commissions, unrealized gains on equity securities, gains on sales of available-for-sale securities, and income from bank owned life insurance.
• Purchased loan programs — The bank buys loans from third-party originators, including automobile and manufactured home loans, which generate interest income; in 2023 it purchased $13.7 million of automobile, recreational vehicle, and manufactured home loans (down from $24.1 million in 2022).

Recent performance

For the six months ended June 30, 2024, total revenue was approximately $684,000, based on quarterly revenues of $317,000 in Q1 and $367,000 in Q2. The company reported a net loss of $1.6 million for the full year 2023, with diluted EPS of -$0.72. At June 30, 2024, total assets were $401.8 million, total liabilities $366.2 million, and shareholder equity $35.5 million. Core deposits decreased $25.5 million, or 12.0%, in 2023, as customers shifted to higher-yielding certificates of deposit.

Strategy

Management aims to grow interest income by purchasing one- to four-family residential real estate loans and, to a lesser extent, automobile loans. The bank is focused on increasing core deposits and reducing reliance on wholesale funds to lower interest expense. It plans no purchases of recreational vehicle loans in 2024, after reducing such purchases to zero in 2023. Marketing efforts for checking accounts continue through digital, print, and outdoor advertising.

Risks

• Regulatory agreement — On July 22, 2024, Generations Bank entered into a written agreement with the OCC that requires establishing a Compliance Committee and preparing written progress reports, among other provisions.
• Credit risk from purchased loans — A significant portion of the consumer loan portfolio is purchased from third-party originators and secured by collateral outside the bank's market area, including automobile, recreational vehicle, and manufactured home loans.
• Net losses and declining revenue — The company reported a net loss of $1.6 million in 2023 and annual revenue has declined from $2.7 million in 2019 to $1.9 million in 2023.
• Deposit mix and interest rate sensitivity — Core deposits decreased 12.0% in 2023 as customers moved funds into higher-yielding certificates of deposit, which could increase funding costs and reduce net interest margin.

Outlook

Management's stated strategy is to focus on purchasing one- to four-family residential real estate loans and automobile loans in 2024, while increasing core deposits and managing balance sheet growth. The company does not plan any purchases of recreational vehicle loans in 2024. The OCC agreement will require ongoing compliance efforts and reporting.