UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K/A
AMENDMENT NO. 1
☒ | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the Fiscal Year Ended December 31, 2020
OR
☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission File Number: 001-39883
Generations Bancorp NY, Inc.
(Exact Name of Registrant as Specified in its Charter)
Maryland |
| 85-3659943 |
(State or other jurisdiction of incorporation or organization) |
| (I.R.S. Employer Identification Number) |
20 East Bayard Street, Seneca Falls, New York |
| 13148 |
(Address of principal executive offices) |
| (Zip code) |
(315) 568-5855
(Registrant’s telephone number including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Trading Symbols | Name of exchange on which registered |
Common Stock, par value $0.01 per share GBNY | The NASDAQ Stock Market LLC |
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 ☒
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act.
Yes ☐ No ☒
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 12 months (or for such shorter period that the registrant was required to file reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer |
| ☐ |
| Accelerated filer |
| ☐ |
Non-accelerated filer |
| ☒ |
| Smaller reporting company |
| ☒ |
Emerging growth company | | ☒ | | | | |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the Registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
There was no outstanding voting common equity of the Registrant as of June 30, 2020. 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 January 13, 2021 ($10.09), the first date of trading in the common stock, was approximately $25.7 million.
As of March 25, 2021 there were 2,551,940 shares outstanding of the registrant’s common stock.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Proxy Statement for the Registrant’s Annual Meeting of Stockholders (Part III).
Generations Bancorp NY, Inc. (the “Company”) is filing this Amendment No. 1 on Form 10-K/A (the “Form 10-K/A”) to its Annual Report on Form 10-K for the year ended December 31, 2020, as filed with the Securities and Exchange Commission on March 29, 2021. The Form 10-K/A is being filed to correct an inadvertent error in the Loan Delinquencies Table appearing on page 20 of the Form 10-K/A. Other than the revisions to this table, the Form 10-K remains unchanged.
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Forward Looking Statements
NOTE ABOUT FORWARD LOOKING STATEMENTS
This Annual Report contains forward-looking statements, which can be identified by the use of words such as “estimate,” “project,” “believe,” “intend,” “anticipate,” “assume,” “plan,” “seek,” “expect,” “will,” “may,” “should,” “indicate,” “would,” “believe,” “contemplate,” “continue,” “target” and words of similar meaning. These forward-looking statements include, but are not limited to:
| ● | Statements of our goals, intentions and expectations; |
| ● | Statements regarding our business plans, prospects, growth and operating strategies; |
| ● | Statements regarding the asset quality of our loan and investment portfolios; and |
| ● | Estimates of our risks and future costs and benefits. |
These forward-looking statements are based on our current beliefs and expectations and are inherently subject to significant business, economic and competitive uncertainties and contingencies, many of which are beyond our control. In addition, these forward-looking statements are subject to assumptions with respect to future business strategies and decisions that are subject to change. We are under no duty to and do not take any obligation to update any forward-looking statements after the date of this Annual Report.
The following factors, among others, could cause actual results to differ materially from the anticipated results or other expectations expressed in the forward-looking statements:
| ● | conditions relating to the Covid-19 pandemic, including the severity and duration of the associated economic slowdown either nationally or in our market area, that are worse than expected; |
| ● | general economic conditions, either nationally or in our market areas, that are worse than expected; |
| ● | changes in the level and direction of loan delinquencies and write-offs and changes in estimates of the adequacy of the allowance for loan losses; |
| ● | government-imposed limitations on our ability to foreclose on or repossess collateral for our loans; |
| ● | government-mandated forbearance programs; |
| ● | the success of our consumer loan portfolio, much of which is purchased from third-party originators, and is secured by collateral outside of our market area, including in particular, automobile, recreational vehicle and manufactured home loans, |
| ● | our ability to access cost-effective funding, including by increasing core deposits and reducing reliance on wholesale funds; |
| ● | fluctuations in real estate values and both residential and commercial real estate market conditions; |
| ● | demand for loans and deposits in our market area; |
| ● | our ability to implement and change our business strategies; |
| ● | the performance and availability of purchased loans; |
| ● | competition among depository and other financial institutions; |
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| ● | inflation and changes in the interest rate environment that reduce our margins and yields, the fair value of financial instruments, or our level of loan originations, or increase the level of defaults, losses and prepayments on loans we have made and make; |
| ● | adverse changes in the securities or secondary mortgage markets; |
| ● | changes in laws or government regulations or policies affecting financial institutions, including changes in regulatory fees and capital requirements, including as a result of Basel III; |
| ● | the impact of the Dodd-Frank Act and the implementing regulations; |
| ● | changes in the quality or composition of our loan or investment portfolios; |
| ● | technological changes that may be more difficult or expensive than expected; |
| ● | the inability of third-party providers to perform as expected, including third-party loan originators; |
| ● | our ability to manage market risk, credit risk and operational risk in the current economic environment; |
| ● | our ability to enter new markets successfully and capitalize on growth opportunities; |
| ● | our ability to successfully integrate into our operations any assets, liabilities, customers, systems and management personnel we may acquire and our ability to realize related revenue synergies and cost savings within expected time frames, and any goodwill charges related thereto; |
| ● | changes in consumer spending, borrowing and savings habits; |
| ● | changes in accounting policies and practices, as may be adopted by the bank regulatory agencies, the Financial Accounting Standards Board, the Securities and Exchange Commission or the Public Company Accounting Oversight Board; |
| ● | our ability to retain key employees; |
| ● | our compensation expense associated with equity allocated or awarded to our employees; and |
| ● | changes in the financial condition, results of operations or future prospects of issuers of securities that we own. |
Because of these and a wide variety of other uncertainties, our actual future results may be materially different from the results indicated by these forward-looking statements.
Given its ongoing and dynamic nature, it is difficult to predict the full impact of the COVID-19 outbreak on the Company’s business. The extent of such impact will depend on future developments, which are highly uncertain, including when COVID-19 can be controlled and abated, the timing of an effective vaccine and whether the gradual reopening of businesses will result in a meaningful increase in economic activity. As the result of the COVID-19 pandemic and the related adverse local and national economic consequences, the Company could be subject to any of the following risks, any of which could have a material, adverse effect on its business, financial condition, liquidity, and results of operations: the demand for the Bank’s products and services may decline, making it difficult to grow assets and income; if the economy is unable to substantially reopen, and high levels of unemployment continue for an extended period of time, loan delinquencies, problem assets, and foreclosures may increase, resulting in increased charges and reduced income; collateral for loans, especially real estate, may decline in value, which could cause loan losses to increase; the Company’s allowance for loan losses may increase if borrowers experience financial difficulties, which will adversely affect the Company’s net income; the net worth and liquidity of loan guarantors may decline, impairing their ability to honor commitments to the Bank; as the result of the decline in the Federal Reserve Board’s target federal funds rate to near 0%, the yield on the Company’s assets may decline to a greater extent than the decline in the Company’s cost of interest-bearing liabilities, reducing its net interest margin and spread and reducing net income; if legislation is enacted or governmental or regulatory action is enacted limiting the amount of ATM fees or surcharges the Bank may receive or on its ability to charge overdraft or other fees, it could adversely impact the Company’s financial results; the Company’s cyber security risks are increased as the result of an increased use of the Bank’s online banking platform and an increase in the number of employees working remotely; and FDIC premiums may increase if the agency experiences additional resolution costs.
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However, this is a period of great uncertainty. The impact of COVID-19 is likely to be felt over the next several quarters particularly as the term of loan modifications expire and borrowers return to a normal debt service schedule as well as the commencement of a repayment schedule for payments that were deferred. As such, significant adjustments to the Allowance for Loan Losses may be required as the full impact of COVID-19 on the Bank’s borrowers becomes known.
The Company’s ability to predict results or the actual effects of its plans or strategies is inherently uncertain. As such, forward-looking statements can be affected by inaccurate assumptions made or by known or unknown risks and uncertainties. Consequently, no forward-looking statement can be guaranteed. Readers are cautioned not to place undue reliance on these forward-looking statements, which reflect conditions only as of the date of this filing. The Company undertakes no obligation to publicly release the result of any revisions which may be made to any forward-looking statements to reflect anticipated or unanticipated events or circumstances occurring after the date of such statements, except as required by the law.
Because of these and other uncertainties, our actual future results may be materially different from the results indicated by these forward-looking statements.
Generations Bancorp NY, Inc.
Generations Bancorp NY, Inc. (“Generations Bancorp”) is a Maryland corporation that was organized in August 2020 as part of the Seneca-Cayuga Bancorp, Inc. (“Seneca-Cayuga”) conversion from the 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 (“MHC”) owned 60.1% of Seneca-Cayuga’s common stock. As part of the Conversion which was consummated on January 12, 2021, Generations Bancorp sold 1,477,575 of its common stock in a stock offering, representing the MHC’s ownership interest in Seneca-Cayuga, for gross offering proceeds of $14.8 million and net proceeds of $13.3 million. In addition, existing shareholders of Seneca-Cayuga, other than the MHC, had their shares of Seneca-Cayuga exchanged for shares of Generations Bancorp pursuant to an exchange ratio. As a result of the Conversion, the MHC and Seneca-Cayuga ceased to exist and Generations Bank became the wholly owned subsidiary of Generations Bancorp
At December 31, 2020, Generations Bancorp had total consolidated assets of $373.0 million, loans net of allowance of $285.6 million, deposits of $309.5 million and stockholders’ equity of $30.0 million.
Generations Bancorp is subject to comprehensive regulation by the Federal Reserve Board.
Generations Bank
Generations Bank is a federal savings bank headquartered in Seneca Falls, New York. We were organized in 1870 and have operated continuously since that time in the northern Finger Lakes region of New York State which is located in the central to northwestern portion of New York State.
We operate from our main office located in Seneca Falls, New York, our eight full-service offices, one drive-through facility and one in-store office located in a Wal-Mart super center, located in Albion, Auburn, Farmington, Geneva, Medina, Phelps, Seneca Falls, Union Springs and Waterloo, New York which are located throughout the northern Finger Lakes region of New York State, which includes parts of Cayuga, Seneca, Wayne, Yates, Ontario and Orleans counties. Our market area for deposits includes the communities in which we maintain our banking office locations, while our primary deposit market area is Seneca County and our primary lending market area is broadly defined as Cayuga, Seneca, Monroe, Ontario and Orleans counties, New York. Our address at our home office is 20 East Bayard Street, Seneca Falls, New York 13148 and the telephone number at our main office is (315) 568-5855.
Our business consists primarily of taking deposits from the general public and, through our commercial bank subsidiary, Generations Commercial Bank, from New York State and County municipalities and agencies, and investing those deposits, together with borrowings and funds generated from operations, in the origination and purchase of one- to four-family residential real estate loans, including home equity loans and lines of credit. We also purchase and originate a substantial amount of consumer loans, including automobile loans, recreational vehicle loans and manufactured home loans. To a lesser extent, we originate commercial real estate and multifamily loans, commercial business loans and residential and commercial construction loans. Most of our one- to four-
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family residential real estate loans are originated to borrowers in our market area. To diversify our loan portfolio more geographically, we purchase loans that have been originated outside of the region, including automobile loans, recreational vehicle loans and manufactured home loans originated in throughout the United States. We also invest in securities, which currently consist primarily of municipal bonds issued by states, local municipalities and schools in the Northeastern United States, and to a far lesser extent mortgage-backed securities issued by U.S. government sponsored entities and Federal Home Loan Bank stock. Additionally, through our subsidiary, Generations Agency, Inc., we provide insurance as well as certain other financial products.
We offer a variety of deposit accounts, including demand accounts, NOW accounts, money market accounts, savings accounts and certificates of deposit accounts. We also utilize advances from the Federal Home Loan Bank for liquidity and for asset/liability management purposes.
In 2018, we formed Generations Commercial Bank, a New York State-chartered limited purpose commercial bank, as a subsidiary of Generations Bank. Generations Commercial Bank opened for business on January 2, 2019 and has the power to receive deposits only to the extent of funds of the United States and the State of New York and their respective agents, authorities and instrumentalities, and local governments as defined in Section 10(a)(1) of the New York General Municipal Law. At December 31, 2020, Generations Commercial Bank held $7.1 million of municipal deposits and subject to funding needs, we expect to continue to use municipal deposits in the future.
In the future we will consider converting Generations Bank to a commercial bank charter. If we were to make such a charter conversion, we would consider the merger of Generations Commercial Bank into Generations Bank.
Generations Bank and Generations Commercial Bank are subject to comprehensive regulation and examination by the Office of the Comptroller of the Currency and the New York State Department of Financial Services (the “Department”), respectively, as their chartering agencies, and by the FDIC, as their deposit insurer.
Generations Bank’s website address is www.mygenbank.com. Information on this website is not and should not be considered a part of this annual report.
Competition
We face significant competition in originating loans and attracting deposits. Our market area and other areas in which we operate have a high concentration of financial institutions, many of which are significantly larger institutions that have greater financial resources than we have, and many of which are our competitors to varying degrees. Our competition for loans comes principally from mortgage brokers and mortgage banking companies, commercial banks, savings banks, the U.S. Government, credit unions, leasing companies, insurance companies, real estate conduits and other companies that provide financial services to businesses and individuals. Our most direct competition for deposits has historically come from commercial banks, savings banks and credit unions. We face additional competition for deposits from online financial institutions and non-depository competitors such as the mutual fund industry, securities and brokerage firms and insurance companies.
Seneca County represents our primary geographic market area for deposits. At June 30, 2020 (the latest date for which information is available), Generations Bank’s deposit market share was 28.0% of total Federal Deposit Insurance Corporation-insured deposits in Seneca County, representing the largest market share of seven institutions with banking offices in Seneca County. This data excludes deposits held by credit unions.
Market Area
We operate from our main office located in Seneca Falls, New York and our eight full-service offices, one drive-through facility and one in-store office located in a Wal-Mart super center, located in Albion, Auburn, Farmington, Geneva, Medina, Phelps, Seneca Falls, Union Springs and Waterloo, New York which are located throughout the northern Finger Lakes region of New York State, which includes parts of Cayuga, Seneca, Wayne, Yates, Ontario and Orleans counties. Our market area for deposits includes the communities in which we maintain our banking office locations, while our primary deposit market area is Seneca County and our primary lending market area is broadly defined as Cayuga, Seneca, Monroe, Ontario and Orleans counties, New York. We primarily
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serve rural, small town and suburban communities located in the northern Finger Lakes region extending from Medina, New York in the West to Auburn, New York in the East. We will, on occasion, originate loans secured by properties located outside of our primary market area. However, to diversity the geographic concentration in our loan portfolio, we purchase a substantial amount of automobile loans, recreational vehicle loans and manufactured home loans secured by collateral from outside of our primary market area.
The northern Finger Lakes region is located in the central to northwestern portion of New York State between the cities of Rochester and Syracuse, New York. Seneca Falls is located six miles south of Interstate 90, the major east-west highway that runs through the state of New York.
Seneca Falls and the surrounding areas include a diverse population of low- and moderate- income neighborhoods as well as middle class and more affluent neighborhoods. The housing consists mainly of single-family residences.
The economy in our market area is stable but we believe has limited industrial development compared to more urban and suburban areas. The economy in our market area is based on a mixture of service, manufacturing, wholesale/retail trade, and state and local government. The employment base is diversified and there is no dependence on one area of the economy for continued employment. Major employers in our market area include several hospitals and healthcare providers, several correctional facilities as well as a number of large manufacturing facilities including ITT Industries. Geneva and Auburn also serve as bedroom communities for nearby Rochester and Syracuse, New York.
Our future growth opportunities will be influenced by the growth and stability of the regional, state and national economies, other demographic trends and the competitive environment. Based on U.S. Census Bureau data and other published statistics, median household income in our market area is somewhat below the national and New York State average. Also, while household income in our market area is continuing to grow, it is growing at rates below the comparable state and national averages.
Our market area is largely rural and has experienced a population decline in recent years. Other than Monroe County which includes Rochester, New York and is more heavily populated, according to the United States Census Bureau, the total populations in July 2019 for Cayuga, Seneca, Ontario and Orleans counties, New York were approximately 76,000, 34,000, 110,000 and 40,000, respectively. Additionally, each of these counties, other than Ontario County (which increased by 1.6%) experienced a population decrease from 2010 through July 2019.
Lending Activities
General. Our principal lending activity has historically been originating and purchasing one- to four-family residential real estate loans, including home equity loans and lines of credit. Since 2008 we have not sold any loans into the secondary market and we do not intend to engage in significant loan sales in the future. We also purchase and originate a substantial amount of consumer loans, including automobile loans, recreational vehicle loans and manufactured home loans. To a lesser extent, we also originate commercial real estate and multifamily loans, commercial business loans and residential construction and commercial construction loans. Since 2008, we have not sold loans that we originate and we do not intend to sell loans in the future.
We believe that originating and purchasing loans other than one- to four-family residential loans allows us to provide more comprehensive financial services to families and businesses within our community as well as increase the average yield in our loan portfolio without, we believe, undue risk, and additionally manage interest rate sensitivity. Moreover, to diversify our loan portfolio more geographically, we purchase loans that have been originated outside of our market area, including automobile loans, recreational vehicle loans and manufactured home loans originated throughout the United States. Subject to market conditions and our asset-liability analysis, in addition to one- to four-family residential real estate loans, we intend to continue to increase our focus on purchases and originations of automobile loans, recreational vehicles loans and manufactured home loans in an effort to diversify our overall loan portfolio and increase the overall yield earned on our loans. We have recently engaged a third-party to assist with our residential mortgage originations and additionally, to supplement these originations, we intend to increase purchases of one- to four-family residential real estate loans.
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Loan Portfolio Composition. The following table sets forth the composition of our loan portfolio by type of loan at the dates indicated.
| | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | |
| | At December 31, | |||||||||||||||||||
| | 2020 | | 2019 | | 2018 | | 2017 | | 2016 | | ||||||||||
|
| Amount |
| Percent |
| Amount |
| Percent |
| Amount |
| Percent |
| Amount |
| Percent |
| Amount |
| Percent | |
| | (Dollars in thousands) | |||||||||||||||||||
Residential: | | | | | | | | | | | | | | | | | | | | | |
One- to four-family | | $ 127,356 | | 46.1% | | $ 138,714 | | 54.0% | | $ 135,849 | | 55.8% | | $ 114,783 | | 52.4% | | $ 106,396 | | 52.2% | |
Construction | | - | | 0.0% | | 828 | | 0.3% | | 930 | | 0.4% | | 577 | | 0.3% | | 269 | | 0.1% | |
Commercial: | | | | | | | | | | | | | | | | | | | | | |
Real estate - nonresidential | | 24,754 | | 9.0% | | 35,696 | | 13.9% | | 35,474 | | 14.6% | | 36,549 | | 16.7% | | 36,310 | | 17.8% | |
Real estate - Multi-family | | 5,125 | | 1.9% | | 5,585 | | 2.2% | | 5,756 | | 2.4% | | 5,731 | | 2.6% | | 787 | | 0.4% | |
Construction | | - | | 0.0% | | 100 | | 0.0% | | 606 | | 0.2% | | 2,803 | | 1.3% | | 5,082 | | 2.5% | |
Other commercial and industrial | | 20,505 | | 7.4% | | 14,432 | | 5.6% | | 17,334 | | 7.1% | | 15,511 | | 7.1% | | 14,170 | | 7.0% | |
Consumer | | | | | | | | | | | | | | | | | | | | | |
Home equity loans and lines of credit | | 11,387 | | 4.1% | | 12,003 | | 4.7% | | 10,596 | | 4.4% | | 7,771 | | 3.6% | | 6,788 | | 3.3% | |
Manufactured homes | | 44,347 | | 16.1% | | 23,769 | | 9.3% | | 18,965 | | 7.8% | | 19,710 | | 9.0% | | 19,834 | | 9.7% | |
Automobile | | 21,469 | | 7.8% | | 21,083 | | 8.2% | | 14,068 | | 5.8% | | 12,604 | | 5.8% | | 11,845 | | 5.8% | |
Student | | 2,259 | | 0.8% | | 2,251 | | 0.9% | | 1,674 | | 0.7% | | 1,252 | | 0.6% | | 855 | | 0.4% | |
Recreational Vehicle | | 14,557 | | 5.3% | | 262 | | 0.1% | | | | | | | | | | | | | |
Other consumer | | 4,271 | | 1.5% | | 2,086 | | 0.8% | | 1,847 | | 0.8% | | 1,361 | | 0.6% | | 1,715 | | 0.8% | |
Total loans receivable | | $ 276,030 | | 100.0% | | $ 256,809 | | 100.0% | | $ 243,099 | | 100.0% | | $ 218,652 | | 100.0% | | $ 204,051 | | 100.0% | |
Less: | | | | | | | | | | | | | | | | | | | | | |
Net deferred loan costs | | 11,787 | | | | 4,895 | | | | 3,031 | | | | 3,069 | | | | 3,335 | | | |
FV credit and yield adjustment | | (356) | | | | (424) | | | | (482) | | | | - | | | | - | | | |
Allowance for losses | | (1,821) | | | | (1,660) | | | | (1,548) | | | | (2,483) | | | | (3,150) | | | |
Total loans receivable, net | | $ 285,640 | | | | $ 259,620 | | | | $ 244,100 | | | | $ 219,238 | | | | $ 204,236 | | | |
Loan Portfolio Maturities. The following table summarizes the scheduled repayments of our loan portfolio at December 31, 2020. Demand loans, loans having no stated repayment schedule or maturity, and overdraft loans are reported as being due in the year ending December 31, 2021. Maturities are based on the final contractual payment date and do not reflect the impact of prepayments and scheduled principal amortization.
| | | | | | | | | | | | |
| | One- to Four- | | Residential | | Commercial | | | | Commercial | | Other Commercial |
|
| Family |
| Construction |
| Real Estate |
| Multifamily |
| Construction |
| and Industrial |
Due During the Years Ending | | (In thousands) | | | | | ||||||
December 31, | | | | | | | | | | | | |
2021 | | $ 30 | | $ - | | $ 706 | | $ - | | $ - | | $ 3,199 |
2022 | | 190 | | - | | 19 | | - | | - | | 5,520 |
2023 | | 452 | | - | | 27 | | - | | - | | 587 |
2024 to 2025 | | 1,188 | | - | | 1,829 | | - | | - | | 2,314 |
2026 to 2030 | | 6,706 | | - | | 2,575 | | - | | - | | 2,727 |
2031 to 2035 | | 17,231 | | - | | 8,965 | | 101 | | - | | 2,856 |
2036 and beyond | | 101,559 | | - | | 10,633 | | 5,024 | | - | | 3,302 |
Total | | $ 127,356 | | $ - | | $ 24,754 | | $ 5,125 | | $ - | | $ 20,505 |
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| | | | | | | | | | | | | | |
| | | | | | | | | | | | | | |
| | Home equity | | Manufactured | | | | | | Recreational | | Other | | |
|
| and LOC |
| Homes |
| Automobile |
| Student |
| Vehicle |
| Consumer |
| Total |
Due During Years Ending | | | | | | | | | | | | | | |
December 31, | | | | | | | | | | | | | | |
2021 | | $ 136 | | $ 87 | | $ 162 | | $ - | | $ - | | $ 41 | | $ 4,361 |
2022 | | 770 | | 15 | | 833 | | 2 | | 8 | | 157 | | 7,514 |
2023 | | 428 | | 96 | | 2,237 | | - | | 5 | | 132 | | 3,964 |
2024 to 2025 | | 1,601 | | 433 | | 12,052 | | 26 | | 157 | | 341 | | 19,941 |
2026 to 2030 | | 7,087 | | 4,795 | | 6,185 | | - | | 441 | | 866 | | 31,382 |
2031 to 2035 | | 1,349 | | 10,112 | | - | | 2,231 | | 6,437 | | 1,495 | | 50,777 |
2036 and beyond | | 16 | | 28,809 | | - | | - | | 7,509 | | 1,239 | | 158,091 |
Total | | $ 11,387 | | $ 44,347 | | $ 21,469 | | $ 2,259 | | $ 14,557 | | $ 4,271 | | $ 276,030 |
Fixed- and Adjustable-Rate Loan Schedule. The following table sets forth the scheduled repayments of fixed- and adjustable-rate loans at December 31, 2020 that are contractually due after December 31, 2021.
| | | | | | |
| | Due After December 31, 2020 | ||||
|
| Fixed |
| Adjustable |
| Total |
| | (In thousands) | ||||
Residential: | | | | | | |
One- to four-family | | $ 120,144 | | $ 7,212 | | 127,356 |
Construction | | | | | | - |
Commercial: | | | | | | |
Real estate - nonresidential | | 5,366 | | 19,388 | | 24,754 |
Real estate - Multi-family | | 59 | | 5,066 | | 5,125 |
Construction | | - | | - | | - |
Other commercial and industrial | | 14,477 | | 6,028 | | 20,505 |
Consumer | | | | | | |
Home equity loans and lines of credit | | 10,339 | | 1,048 | | 11,387 |
Manufactured homes | | 44,347 | | - | | 44,347 |
Automobile | | 21,469 | | - | | 21,469 |
Student | | 2,259 | | - | | 2,259 |
Recreational Vehicle | | 14,557 | | - | | 14,557 |
Other consumer | | 4,252 | | 19 | | 4,271 |
Total loans receivable | | $ 237,269 | | $ 38,761 | | $ 276,030 |
Loan Approval Procedures and Authority. Loan Approval Procedures and Authority. Pursuant to federal law, the aggregate amount of loans that Generations Bank is permitted to make to any one borrower or a group of related borrowers is generally limited to 15% of Generations Bank’s unimpaired capital and surplus (25% if the amount in excess of 15% is secured by “readily marketable collateral” or 30% for certain residential development loans). At December 31, 2020, based on the 15% limitation, Generations Bank’s loans-to-one-borrower limit was $4.4 million. At December 31, 2020, Generations Bank had no borrowers with outstanding balances in excess of this amount. At December 31, 2020, our largest loan outstanding with one borrower was $3.2 million, secured by a motel with furniture and fixtures, and was performing in accordance with its original terms on that date.
Our lending is subject to written underwriting standards and origination procedures. Decisions on loan applications are made on the basis of detailed applications submitted by the prospective borrower, credit histories that we obtain, and property valuations (consistent with our appraisal policy) prepared by outside independent licensed appraisers approved by our board of directors as well as internal evaluations, where permitted by regulations. The loan applications are designed primarily to determine the borrower’s ability to repay the requested loan, and the more significant items on the application are verified through use of credit reports, bank statements and tax returns. For residential mortgage lending, we generally follow underwriting procedures that are consistent with the Federal Home Loan Bank’s Mortgage Finance Partnership Program (MFP) guidelines.
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Under our loan policy, the individual sponsoring an application is responsible for ensuring that all documentation is obtained prior to the submission of the application to an independent underwriter and/or officer for approval. In addition, an underwriting and/or approving officer verifies that the application meets our underwriting guidelines described below. Also, each application file is reviewed to assure its accuracy and completeness. Our quality control process includes reviews of underwriting decisions, appraisals and documentation. We are currently using the services of an independent company to perform the underwriting quality control reviews of residential mortgages.
Our senior officers and chief underwriter have approval authority for one- to four-family residential loans for up to $600,000. One- to four-family residential loans over $600,000 to $750,000 require the approval of Generations Bank’s Chief Executive Officer or its Senior Vice President of Credit Administration. Multifamily, commercial real estate and commercial business loans up to $750,000 require the approval of Generations Bank’s Chief Executive Officer or its Senior Vice President of Credit Administration. Consumer loans to a single related borrower that aggregate over $250,000 to $1.0 million, or non-consumer loans to a single related borrower that aggregate over $750,000 to $1.0 million, require approval by the Chief Executive Officer and Senior Vice President of Credit Administration. Generally, all loans in excess of $1.0 million to our in-house limits need approval of the Lending Committee, which is comprised of the Chief Executive Officer, Chief Financial Officer, the Senior Vice President of Credit Administration and Director of Growth and Profitability and any loan in excess of our in-house limits requires the approval of the full board of directors.
Generally, we require title insurance or abstracts on our mortgage loans as well as fire and extended coverage casualty insurance in amounts at least equal to the principal amount of the loan or the value of improvements on the property, depending on the type of loan. We also require flood insurance to protect the property securing its interest when the property is located in a Special Flood Hazard Area designated by the Federal Emergency Management Agency (FEMA) and is participating in the National Flood Insurance Program.
One- to Four-Family Residential Real Estate Lending. Historically, we have emphasized the origination of one- to four-family residential real estate loans. At December 31, 2020, we had $127.4 million of loans secured by one- to four-family residential real estate, representing 46.1% of our total loan portfolio. We originate both fixed-rate and adjustable-rate residential mortgage loans. At December 31, 2020, the one- to four-family residential mortgage loans held in our portfolio due after December 31, 2021 were comprised of 94.3% fixed-rate loans and 5.7% adjustable-rate loans. At that date, the average outstanding one- to four-family residential real estate loan balance was $88,000 and the largest outstanding residential loan had a principal balance of $487,000. Virtually all of the one- to four-family residential real estate loans we originate are secured by properties located in our market area. Due to consumer demand in the low interest rate environment, in recent years most of our originations are fixed-rate loans secured by one- to four-family residential real estate. See “− Originations, Sales and Purchases of Loans.”
Recently, we engaged a third party to assist in the origination of one- to four-family residential real estate loans. Utilizing a third party to originate these loans will likely result in slightly lower average yields on our one-to four-family residential real estate loans as we will be required to pay the originator a fee at the time of purchase.
We expect to purchase one- to four-family, owner-occupied residential real estate loans from a third-party originator. These loans will adhere to all of our credit, underwriting and loan policy criteria and will be comprised of conventional “conforming loans” and/or our product offerings to low- and moderate-income borrowers and/or to first time home buyers and are expected to be secured by homes located in central and western New York. The purchase price of these loans will be the loan’s principal balance plus a purchase fee based on the loan’s principal balance. The loans will be non-recourse to the seller (except for certain contractual representations) and the contractual agreement will prohibit re-solicitation by the seller for a defined period of time. After purchase, we will provide all servicing and collections activities. The note, collateral and loan documentation will be transferred by assignment. Although we believe that we have procedures in place to review and assess the risks of this third-party vendor relationship, because these parties are not our employees, we assume risks associated with unsatisfactory origination procedures, including compliance with federal, state and local laws.
Our one- to four-family residential real estate loans are generally underwritten according to the Federal Home Loan Bank’s Mortgage Partnership Finance Program (MPF) guidelines and we refer to loans that conform to such guidelines as “conforming loans.” However, since 2008 we have not sold any loans into the secondary market and we do not intend to engage in significant loan sales in the future. We generally originate both fixed-rate and adjustable-rate mortgage loans in amounts up to the maximum
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conforming loan limits as established by the Federal Housing Finance Agency for Fannie Mae. We also originate loans above this lending limit, which are referred to as “jumbo loans.”
Our one- to four-family residential real estate loans typically have terms of up to 30 years, with non-owner occupied loans limited to a maximum term of 20 years. Our adjustable-rate one- to four-family residential real estate loans generally have fixed rates for initial terms of one, three or five years, and adjust thereafter at those intervals at a margin. In recent years, this margin has been between 2.75% and 3.25% over the weekly average yield on U.S. treasury securities adjusted to a constant maturity of one year. The maximum amount by which the interest rate may be increased or decreased is generally 2% per adjustment period and the lifetime interest rate cap is generally 6% over the initial interest rate of the loan. We retain and service all adjustable-rate one- to four-family residential real estate loans that we originate. We make such loans at rates and terms in accordance with market and competitive factors.
Although adjustable-rate mortgage loans may reduce to an extent our vulnerability to changes in market interest rates because they periodically re-price, as interest rates increase, the required payments due from the borrower also increase (subject to rate caps), increasing the potential for default by the borrower. At the same time, the ability of the borrower to repay the loan and the marketability of the underlying collateral may be adversely affected by higher interest rates. Upward adjustments of the contractual interest rate are also limited by the maximum periodic and lifetime rate adjustments permitted by our loan documents. Moreover, the interest rates on most of our adjustable-rate loans do not adjust for up to five years after origination. As a result, the effectiveness of adjustable-rate mortgage loans in compensating for changes in general interest rates may be limited during periods of rapidly rising interest rates. As a result, the effectiveness of adjustable rate mortgage loans may be limited during periods of rapidly rising interest rates. At December 31, 2020, $7.2 million, or 5.7% of our one- to four-family residential loans, had adjustable rates of interest.
We do not offer “interest only” or “balloon” mortgage loans on permanent one- to four-family residential real estate loans (where the borrower pays interest for an initial period, after which the loan converts to a fully amortizing loan or in the case of “balloon” mortgages, the principal balance does not fully amortize over the loan’s term). We also do not offer loans that provide for negative amortization of principal, such as “Option ARM” loans, where the borrower can pay less than the interest owed on the loan, resulting in an increased principal balance during the life of the loan. Generally, we do not offer “subprime loans” on one- to four-family residential real estate loans (i.e., generally loans with credit scores less than 660), except for loans originated with the backing of a state or federal mortgage agency or for sale in the secondary market.
We generally limit the loan-to-value ratios of our owner-occupied one- to four-family residential mortgage loans to 95% of the purchase price or appraised value, whichever is lower. For state and federal agency-backed residential mortgages, loan to value ratios may exceed 95% up to the respective agency’s maximum loan to value limit. Non-owner occupied one- to four-family residential mortgage loans are limited to a 75% loan-to-value ratio.
Our residential mortgage loans customarily include due-on-sale clauses giving us the right to declare the loan immediately due and payable in the event that, among other things, the borrower sells or otherwise disposes of the property subject to the mortgage and the loan is not repaid.
Commercial Real Estate and Multifamily Lending. Our commercial real estate loans are secured primarily by office buildings, hotel and motels, wineries, manufacturing facilities, churches, retail and mixed-use properties, and light industrial properties located in our primary market area. Our multifamily loans are secured primarily by five or more-unit residential buildings. At December 31, 2020, we had $24.8 million in commercial real estate loans and $5.1 million in multifamily real estate loans, representing 9.0% and 1.9% of our total loan portfolio, respectively
Our commercial real estate and multifamily loans generally have a maximum term of 20 years and fixed or adjustable rates based upon indexes from the Federal Home Loan Bank and the Constant Maturity Treasury Bill Index, plus a margin. Most rates adjust annually after a three, five or seven-year initial fixed-rate period. These loans are generally made in amounts of up to 75% of the lesser of the appraised value or the purchase price of the property with a projected debt service coverage ratio of at least 120%.
Appraisals on properties securing commercial real estate and multifamily loans are performed by an independent appraiser with a second review of the completed appraisal by a second independent appraiser and are also reviewed by Generation Bank’s management. Our underwriting procedures include considering the borrower’s expertise and require verification of the borrower’s
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credit history, income and financial statements, banking relationships, references and income projections for the property. Generally, we obtain personal guarantees on these loans.
A commercial real estate or multifamily borrower’s financial information is monitored on an ongoing basis by requiring periodic financial statement updates, payment history reviews and periodic face-to-face meetings with the borrower. We generally require these commercial borrowers to provide annually updated financial statements and federal tax returns. These requirements also apply to the individual guarantors as well as any other business guarantors of our commercial borrowers. We also generally require borrowers with rental investment property to provide an annual report of income and expenses for the property, including a tenant list and copies of leases, as applicable.
At December 31, 2020, our largest commercial real estate relationship had six loans outstanding with an aggregate balance of $3.2 million. These loans were originated in 2016 and are secured by a motel and furniture and equipment. At December 31, 2020, our largest multifamily loan had a balance of $2.7 million and is secured by a 58-unit apartment building in Corning, New York. At December 31, 2020, these loans were performing in accordance with their repayment terms.
Commercial real estate and multifamily loans generally present a higher level of risk than loans secured by one- to four-family residences. This greater risk is due to several factors, including the concentration of principal in a limited number of loans and borrowers, the effects of general economic conditions on income-producing properties and the increased difficulty of evaluating and monitoring these types of loans. Furthermore, the repayment of loans secured by commercial real estate and multifamily real estate is typically dependent upon the successful operation of the related real estate project. If the cash flow from the project is reduced, the borrower’s ability to repay the loan may be impaired. At December 31, 2020 we had eight commercial real estate and multifamily loans with an aggregate principal balance of $1.1 million which were 90 days or more delinquent.
The following tables set forth information regarding our nonresidential real estate loans at December 31, 2020 and December 31, 2019.
| | | | |
2020 | | | | |
Collateral Type | | Number of Loans |
| Balance |
| | | | (In thousands) |
Agricultural | | 1 | | $ 20 |
Auto Dealership | | 2 | | 1,613 |
Church | | 6 | | 1,554 |
Hospitality | | 11 | | 3,610 |
Manufacturing | | 4 | | 239 |
Professional Services Building | | 22 | | 5,116 |
Recreational | | 3 | | 1,734 |
Retail | | 12 | | 3,200 |
Retail Rental | | 21 | | 7,668 |
Total | | 82 | | $ 24,754 |
We consider a number of factors in originating commercial real estate and multifamily loans. We evaluate the qualifications and financial condition of the borrower, including credit history, profitability and expertise, as well as the value and condition of the property securing the loan. When evaluating the qualifications of the borrower, we consider the financial resources of the borrower, the borrower’s experience in owning or managing similar property and the borrower’s payment history with us and other financial institutions. In evaluating the property securing the loan, the factors we consider include the net operating income of the mortgaged property before debt service and depreciation, the ratio of the loan amount to the appraised value of the mortgaged property and the debt service coverage ratio (the ratio of net operating income to debt service). All commercial real estate and multifamily loans are appraised by outside independent appraisers approved by the board of directors. Personal guarantees are generally obtained from the principals of nonresidential and multifamily real estate borrowers.
Commercial Business Loans. We make primarily secured loans to professionals, sole proprietorships and small businesses for commercial, corporate and business purposes. Commercial business loan products include term loans and revolving lines of credit. Such loans are often used for working capital purposes or for purchasing equipment, inventory or furniture. Our commercial business loans are made with either adjustable or fixed rates of interest. Adjustable rates are based on the prime rate, as published in The Wall
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Street Journal, or Federal Home Loan Bank or U.S. Treasury indexes, plus a margin. Fixed-rate commercial business loans are primarily set at a margin above the prime rate or the applicable Federal Home Loan Bank’s amortizing index. At December 31, 2020, $20.5 million, or 7.4% of our total loan portfolio, was comprised of commercial business loans, of which $4.9 million were PPP loans guaranteed by the SBA, described below.
When making commercial business loans, we consider the financial statements of the borrower, the lending history of the borrower, the debt service capabilities of the borrower, the projected cash flows of the business, the value of the collateral, if any, and whether the loan is guaranteed by the principals of the borrower. Commercial business loans are generally secured by accounts receivable, inventory and equipment. Depending on the amount of the loan and the collateral used to secure the loan, commercial loans are made in amounts of up to 80% of the value of the collateral securing the loan.
Commercial business loans generally have a greater credit risk than one- to four-family residential real estate loans. Unlike residential mortgage loans, which generally are made on the basis of the borrower’s ability to make repayment from his or her employment and other income, and which are secured by real property whose value tends to be more easily ascertainable, commercial business loans are of higher risk and typically are made on the basis of the borrower’s ability to make repayment from the cash flow of the borrower’s business. As a result, the availability of funds for the repayment of commercial business loans may be substantially dependent on the success of the business itself and the economy in which it operates (including today’s recessionary economy). Further, the collateral securing the loans may depreciate over time, may be difficult to appraise and may fluctuate in value based on the success of the business. We seek to minimize these risks through our underwriting standards.
At December 31, 2020, our largest commercial business loan relationship was with an automobile dealership with a principal balance of $2.5 million and was secured by real estate, vehicle inventory, furniture, fixtures and equipment. At this date, these loans were performing in accordance with their repayment terms.
The CARES Act established the PPP through the SBA, which allowed us to lend money to small businesses to maintain employee payrolls through the Covid-19 crisis with guarantees from the SBA. Under this program, loan amounts may be forgiven if the borrower maintains employee payrolls and meet certain other requirements. PPP loans have a fixed interest rate of 1.00% and a maturity date of either two or five years. Such loans totaled $4.9 million at December 31, 2020.
Manufactured Home Lending. In recent years, the largest portion of our consumer loan portfolio has been manufactured home loans. These loans are considered consumer loans and not one- to four-family residential real estate loans because they are not secured by the underlying real estate. Since 2006, we have accepted manufactured home loan applications obtained by a third party. The loans are secured by the manufactured homes that are affixed to a third-party leased pad site and are located generally in New York, New Jersey, Pennsylvania, Connecticut and Massachusetts, primarily in retirement communities. The loans are underwritten and approved by Generations Bank underwriters according to our lending policy, which provides for a maximum loan-to-value of 90% and takes into consideration the applicant’s previous credit history and an assessment of the applicant’s ability to make the proposed payments. If home transportation, set-up and insurance costs or origination fees are financed, the loan-to-value may exceed 100%.
If Generations Bank funds the loan, the third party is paid a lump sum referral and servicing fee for each loan. The third-party seller’s servicing is limited to certain collection services in the event the loan becomes delinquent. Generations Bank provides all remaining services. A portion of the fee paid, which is deferred and amortized over the life of the loan, is placed into an escrow account to be used to reimburse the Bank for any losses incurred under the program and for the refund of any unearned fees which result from loan prepayments or foreclosures.
Additionally, in 2019 we began purchasing manufactured home loans from a second vendor. Should we discontinue any of these relationships or otherwise be unable to use these vendors in the future, our ability to acquire manufactured home loans that meet our guidelines may be disrupted. Moreover, because these loans are originated by third-parties which are not our employees, we assume risks associated with unsatisfactory origination procedures, including compliance with federal, state and local laws. Finally, although we believe that we have procedures in place to review and assess the risks of these third-party vendor relationship, one of these relationships is new or “unseasoned,” and the purchased loans have not been outstanding for a sufficient period of time to demonstrate performance and indicate the potential risks in the loan portfolio.
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Our manufactured home loans are typically originated at somewhat higher fixed rates than one- to four-family residential real estate loans and are fully amortizing with contractual maturities generally of up to 20 years. At December 31, 2020, $44.3 million, or 16.1% of our total loan portfolio, were manufactured home loans, and the loss escrow was $3.4 million. At December 31, 2020, one manufactured home loan totaling $43,000 that was 90 days or more delinquent.
Because manufactured home loans may be based on the cost of the manufactured housing as well as improvements and because manufactured homes may decline in value due to wear and tear following their initial sale, the value of the collateral securing a manufactured home loan may be less than the loan balance. As a result, such loans generally carry a higher degree of credit risk and may be more vulnerable to today’s adverse economic conditions than are one- to four-family residential real estate loans.
Automobile Lending. We originate automobile loans through our branch network and also accept automobile applications from automobile dealerships with approved indirect lending agreements with us. Beginning in 2016, we have materially grown our automobile loan portfolio through the purchase of such loans through one loan broker with loans made throughout the Northeast and in 2020 we entered into a relationship with a second auto loan broker and we expect to materially increase purchases of automobile loans in the future. Under the agreements, loan applications are obtained by the auto dealership and forwarded to Generations Bank for consideration. Generations Bank funds the loan if the proposed loan meets our underwriting standards. When considering whether to approve the loan, we review the collateral, the applicant’s credit history and the applicant’s income as compared to all debt payments, including the proposed loan.
Our automobile loans have fixed rates with contractual maturities of up to 84 months, depending upon the age of the vehicle. The maximum loan is limited to 125% of the Manufacturer’s Suggested Retail Price for new vehicles and NADA’s clean retail value for used vehicles. For dealer-referred indirect lending, a fee is paid to the dealership, which is deferred and amortized over the life of the loan, for each loan that is funded, but there are no dealer reserves. At December 31, 2020, we had $21.5 million, or 7.8% of total loans, of automobile loans outstanding. At this date, five automobile loans with an aggregate principal balance of $33,000 were 90 days or more delinquent.
Automobile loans are subject to many of the same risks discussed with respect to other consumer loans, including that the value of the collateral, which tends to depreciate quickly, may become less than the loan amount. Also, such loans are more vulnerable to changes in the overall economy.
Additionally, there are risks associated with the reliance on third parties to originate these loans. Should we discontinue any of these third-party vendor relationships or otherwise be unable to use these vendors in the future, our ability to acquire automobile loans that meet our guidelines may be disrupted. Moreover, because these loans are originated by third-parties which are not our employees, we assume risks associated with unsatisfactory origination procedures, including compliance with federal, state and local laws. Finally, although we believe that we have procedures in place to review and assess the risks of these third-party vendor relationship, one of these relationships is new or “unseasoned,” and the purchased loans have not been outstanding for a sufficient period of time to demonstrate performance and indicate the potential risks in the loan portfolio.
Home Equity Loans and Lines of Credit. We originate fixed-rate home equity loans and both fixed-rate and adjustable-rate home equity lines of credit secured by a lien on the borrower’s residence. Our home equity products are limited to 80% of the property value less any other third-party mortgages. If Generations Bank holds both the first mortgage and second position, home equity loan or lines of credit may be combined and are limited to 90% of the property’s value. We use the same underwriting standards for home equity lines and loans as we use for one- to four-family residential real estate loans. The fixed-rate for home equity loans and lines of credit are generally determined as a percentage over the prime rate. The variable interest rates for home equity lines of credit float at a stated margin over the highest prime rate published in The Wall Street Journal and may not exceed 15.00% over the life of the loan. We currently offer home equity loans with terms of up to 15 years with principal and interest paid monthly from the closing date. The home equity lines provide for an initial revolving draw period of up to 10 years. The outstanding principal balance is then fully repaid in monthly principal and interest payments are calculated on a 15-year amortization. At the end of the initial 10 years, the line is to be paid in full. At December 31, 2020, we had $11.4 million, or 4.1% of total loans, of home equity loans and outstanding advances under home equity lines and an additional $8.1 million of funds committed, but not advanced, under home equity lines of credit. At December 31, 2020, there were six home equity loans totaling $102,000 that were 90 days or more delinquent. Home equity lending is subject to many of the same risks as one- to four-family residential loans except that home equity loans tend to have higher loan-to-value ratios and higher household debt and thus may be more vulnerable to adverse economic conditions.
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Student Loans. We offer student loans to both in-school (full or part-time) students and out of school students. For out of school students and their caregivers who borrowed for their education, our loan program allows the borrower to consolidate both federal and private student loans. There are no prepayment penalties. At December 31, 2020, $2.3 million, or 0.8% of our total loan portfolio, was student loans. There were no student loans delinquent 90 days or more at December 31, 2020.
Recreational Vehicle Loans. We originate recreational vehicle loans through our office network. Beginning in 2020, we have materially grown our recreational vehicle loan portfolio through the purchase of such loans through one loan broker with loans made throughout New York State, excluding New York City and Long Island. Under the agreement, loan applications are obtained by the loan broker and forwarded to Generations Bank for consideration. Generations Bank funds the loan if the proposed loan meets our underwriting standards. When considering whether to approve the loan, we review the collateral, the applicant’s credit history and the applicant’s income as compared to all debt payments, including the proposed loan.
Our recreational vehicle loans have fixed rates with contractual maturities of up to 240 months, depending upon the age of the collateral. The maximum loan is limited to 135% of the Manufacturer’s Suggested Retail Price for new units or NADA’s clean retail value for used units. A fee is paid to the loan broker, which is deferred and amortized over the estimated life of the loan, for each loan that is funded. In addition, a loss escrow is established for each loan purchased. At December 31, 2020, we had $14.6 million, or 5.3% of total loans, of recreational vehicle loans outstanding, and loss reserves were $1.1 million. There were no recreational vehicle loans were 90 days or more delinquent.
Recreational vehicle loans are subject to many of the same risks discussed with respect to other consumer loans, including that the value of the collateral, which tends to depreciate quickly, may become less than the loan amount. Also, such loans are more vulnerable to changes in the overall economy.
Additionally, there are risks associated with the reliance on third parties to originate these loans as discussed above in “Automobile Loans.”
Other Consumer Lending. Although most of our consumer loans are secured by collateral, including boats and savings deposits, we also make a limited amount of unsecured personal loans. We currently originate substantially all of our other consumer loans within New York State (outside of New York City and Long Island). We also purchase loans secured by boats and other collateral from a third party. Other consumer loans were $4.3 million, representing 1.5% of the gross loan portfolio, at December 31, 2020.
The terms of other types of other consumer loans vary according to the type of collateral, length of contract, and creditworthiness of the borrower. The underwriting standards employed for consumer loans include a determination of the applicant’s payment history on other debts and an assessment of the borrower’s ability to meet payments on the proposed loan along with his existing obligations. In addition to the creditworthiness of the applicant, the underwriting process also includes a comparison of the value of the security, if any, in relation to the proposed loan amount. Unsecured personal loans are available to creditworthy borrowers for a variety of personal needs and have been extended on a limited basis.
Other consumer loans may entail greater risk than residential mortgage loans, as they are typically unsecured or secured by rapidly depreciable assets. In such cases, any repossessed collateral for defaulted consumer loans may not provide adequate sources of repayment for the outstanding loan balances as a result of the greater likelihood of damage, loss or depreciation. In addition, consumer loan collections are dependent on the borrower’s continuing financial stability, and thus are more likely to be affected by adverse personal circumstances. Also, such loans are more vulnerable to changes in the overall economy than are residential loans. Furthermore, the application of various federal and state laws, including federal and state bankruptcy and insolvency laws, may limit the amount that can be recovered on such loans. At December 31, 2020, three other consumer loans totaling $31,000 were 90 days or more delinquent.
Construction Loans. To a limited extent, we make construction loans to individuals for the construction of their primary residences and loans to builders and commercial borrowers. On an extremely limited basis, we have made land loans primarily to complement our construction lending activities, as such loans are generally secured by lots that will be used for residential development. Land loans also include loans secured by land purchased for other uses such as hunting and fishing. At December 31, 2020, we had no construction loans outstanding.
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Loans to individuals for the construction of their residences are typically originated as construction/permanent loans, with a construction phase for up to six months. Upon completion of the construction phase, the loan automatically becomes a permanent loan. These construction loans have rates and terms comparable to one- to four-family residential loans offered by us. During the construction phase, the borrower pays interest only. The maximum loan-to-value ratio of owner-occupied, one- to four- -family construction loans is generally 85%. Residential construction loans are generally underwritten pursuant to the same guidelines used for originating permanent residential loans. Land loans are generally offered for terms of up to 10 years. The maximum loan-to-value ratio of land loans is 65% for undeveloped land/lots and 75% for land/lots developed with utilities and roads.
Purchases and Sales Lending activities are conducted primarily by our loan personnel operating at our main and branch office locations and by our loan officers. All loans originated by us are underwritten pursuant to our policies and procedures. We originate both fixed- and adjustable-rate loans. Our ability to originate fixed- or adjustable-rate loans is dependent upon relative customer demand for such loans, which is affected by current and expected future levels of market interest rates. We originate real estate and other loans through our loan officers, marketing efforts, our customer base, walk-in customers and referrals from real estate brokers, builders and attorneys. We generally originate conforming one- to four-family residential real estate loans that can be sold in the secondary market (with or without servicing retained). However, since 2008, we have not sold loans that we originate and we do not intend to sell loans in the future.
Manufactured Home Loan Purchases. We purchase manufactured home loans originated by two established national third-party lenders. Loans are originated in 43 states and are generally located in the Southeast, southern Midwest and southern Western states. The loans are secured by a first lien position on the manufactured homes which are placed on third-party leased pad sites within a community of manufactured homes. These manufactured home loans are not secured by the underlying real estate. At December 31, 2020, the principal balances of our manufactured home loans ranged from $2,000 to $226,000, and at this date the median principal balance of our manufactured home loans was $53,000.
Underwriting and approval is completed by the third party according to our lending policy and all applicable federal and state governing rules. The underwriting takes into consideration the applicant’s credit history, home value and an assessment of the applicant’s ability to make the proposed payments. If home transportation, set-up and insurance costs or origination fees are financed, the loan-to-value may exceed 100%. The note, collateral and loan documentation are taken by assignment. All submitted purchase requests are reviewed by a Generations Bank underwriter to ensure all established criteria of Generations Bank have been met prior to purchase. If they are not, we may choose to refuse the purchase. The seller provides all servicing and collection activity. There are no dollar volume purchase requirements and the program can be terminated by Generations Bank with contractual notification.
For each purchased manufactured home loan, the third party seller is paid a lump sum referral fee and a monthly servicing fee. A portion of the fee paid, which is deferred and amortized over the life of the loan, is placed into an escrow account to be used to reimburse Generations Bank for any credit losses incurred under the program and for the refund of any unearned fees which result from loan prepayments.
Our manufactured home loans are typically originated at somewhat higher fixed rates than one- to four-family residential real estate loans and are fully amortizing with contractual maturities generally of up to 25 years. During the years ended December 31, 2020 and 2019, we purchased $25.4 million and $9.0 million manufactured home loans.
Purchased Automobile, Recreational Vehicle Loans and Other Consumer Loans. We purchase automobile loans from two third-party originators. From one of those originators we also purchase loans secured by recreational vehicles and, to a lesser extent, other loans secured by boats and personal property. These loans are primarily originated within New York, Pennsylvania and the New England states. The loans are underwritten and approved by the third party according to Generation Bank’s credit policy and all applicable federal and state regulations. The underwriting takes into consideration the applicant’s credit history, collateral value and an assessment of the applicant’s ability to make the proposed payments. If extended warranties, other add-ons and sales tax are financed, the loan-to-value may exceed 100%. Prior to purchase, a Generations Bank underwriter reviews all purchase submittals to ensure all of Generations Bank’s criteria have been met. If they are not, we may choose to refuse the purchase. For one third-party seller there is a minimum monthly aggregate dollar purchase of $500,000. There is no monthly minimum purchase amount for the second third-party seller. Both contractual agreements can be terminated by either party with required notification. The note, collateral and loan documentation are taken by assignment.
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Our purchased automobile and recreational vehicle loans have fixed rates of interest with contractual maturities of up to 84 months for automobiles and 240 months for recreational vehicles, depending upon the age of the collateral. The maximum loan is limited to 135% of the manufacturer’s suggested retail price for new vehicles or NADA’s clean retail value for used vehicles. For loans purchased from one seller, Generations Bank provides all servicing and collection activities while the second seller, after loan purchase, provides all servicing and collections activities for Generations Bank. If we purchase a loan, we pay a lump sum referral fee and a monthly servicing fee (as applicable) for each loan. A portion of the fee paid, which is deferred and amortized over the life of the loan, is placed into an escrow account to be used to reimburse Generations Bank for any credit losses incurred under the program and for the refund of any unearned fees which result from loan prepayments.as defined in the contractual agreements. Where the seller provides servicing of the loans purchased, a separate monthly servicing fee is paid on the applicable outstanding loan balances.
At December 31, 2020, $20.0 million, or 7.2% of our total loan portfolio, were purchased automobile loans, $14.4 million, or 5.2% of our total loan portfolio, were purchased recreational vehicle loans and $1.6 million, or 0.6% of our total loan portfolio, were purchased other consumer loans. Of the automobile loans, $18.6 million were purchased from one vendor with no loss escrow reserves held at December 31, 2020. The remaining $1.4 million of purchased automobile loans, the $14.4 million of recreational vehicle loans and $1.6 million of other consumer loans were purchased from another vendor, and at December 31, 2020, we had a loss escrow of $1.1 million for these $17.4 million of loans. During years ended December 31, 2020 and 2019, we purchased $8.0 million and $13.9 million of automobile loans, respectively, $14.9 million and no recreational vehicle loans, respectively, and $1.8 million and no other consumer loans, respectively. Consistent with our business plan, we expect to continue to purchase automobile loans, recreational vehicle loans and other consumer loans.
Purchased One- to Four-Family, Owner-Occupied Residential Real Estate Loans. Beginning in 2021, we expect to begin purchasing one- to four-family, owner-occupied residential real estate loans from a third-party originator. These loans will adhere to all of Generations Bank’s credit, underwriting and loan policy criteria and will be comprised of conventional “conforming loans” and/or Generations Bank’s product offerings to low- and moderate-income borrowers and/or to first time home buyers and are expected to be made to for homes located in central and western New York. There would be no minimum monthly purchase requirement and the contractual agreement would be cancellable upon agreed upon notice. The purchase price would be the loan’s principal balance plus a margin of the loan’s principal balance. The loans would be non-recourse to the seller (except for certain contractual representations) and the contractual agreement would prohibit re-solicitation by the seller for a defined period of time. After purchase, Generations Bank would provide all servicing and collections activities. The note, collateral and loan documentation would be taken by assignment.
17
The following table sets forth our loan origination, purchase, and principal repayment activity during the periods indicated. There were no loans sales during the comparative periods.
| | | | | | | | | | |
| | At December 31, | ||||||||
|
| 2020 |
| 2019 | | 2018 | | 2017 | | 2016 |
| | Amount | | Amount | | Amount | | Amount | | Amount |
| | (In thousands) | ||||||||
Total loans, including loans held for sale, | | | | | | | | | | |
at beginning of period | | 256,809 | | 243,099 | | 218,652 | | 204,051 | | 199,797 |
| | | | | | | | | | |
Loans originated: | | | | | | | | | | |
Residential: | | | | | | | | | | |
One- to four-family | | 14,413 | | 10,225 | | 11,819 | | 18,023 | | 17,645 |
Construction | | 127 | | 788 | | 1,325 | | 1,709 | | 732 |
Commercial: | | | | | | | | | | |
Real estate - nonresidential | | 1,351 | | 3,848 | | 6,007 | | 3,876 | | 4,692 |
Real estate - Multi-family | | - | | - | | 429 | | 2,042 | | 1 |
Construction | | - | | - | | 634 | | 1,002 | | 2,014 |
Other commercial and industrial | | 10,911 | | 5,998 | | 29,588 | | 21,451 | | 10,016 |
Consumer | | | | | | | | | | |
Home equity loans and lines of credit | | 937 | | 900 | | 3,033 | | 3,241 | | 2,681 |
Manufactured homes | | | | - | | 187 | | 468 | | - |
Automobile | | 463 | | 993 | | 904 | | - | | - |
Student | | 447 | | 810 | | 2,190 | | 523 | | 12 |
Recreational vehicle | | 50 | | - | | - | | - | | - |
Other consumer | | 379 | | 153 | | 1,038 | | 1,062 | | 1,327 |
Total loans originated | | 29,078 | | 23,715 | | 57,154 | | 53,397 | | 39,120 |
| | | | | | | | | | |
Loans purchased: | | | | | | | | | | |
Residential: | | | | | | | | | | |
One- to four-family | | - | | - | | 21,808 | | - | | - |
Construction | | - | | - | | 962 | | - | | - |
Commercial: | | | | | | | | | | |
Real estate - nonresidential | | - | | - | | 2,272 | | - | | - |
Real estate - Multi-family | | - | | - | | - | | - | | - |
Construction | | - | | - | | - | | - | | - |
Other commercial and industrial | | - | | - | | 558 | | - | | - |
Consumer | | | | | | | | | | |
Home equity loans and lines of credit | | - | | - | | 1,352 | | - | | - |
Manufactured homes | | 25,236 | | 8,962 | | 2,497 | | 2,964 | | 1,841 |
Automobile | | 2,033 | | 13,492 | | 6,934 | | 5,391 | | - |
Recreational vehicle | | 14,930 | | | | | | | | |
Student | | - | | - | | - | | - | | - |
Other consumer | | 2,834 | | 449 | | 673 | | - | | - |
Total loans purchased | | 45,033 | | 22,903 | | 37,056 | | 8,355 | | 1,841 |
| | | | | | | | | | |
Loans sold: | | | | | | | | | | |
Residential: | | | | | | | | | | |
One- to four-family | | - | | - | | (120) | | - | | - |
Construction | | - | | - | | - | | - | | - |
Commercial: | | | | | | | | | | |
Real estate - nonresidential | | - | | - | | - | | - | | - |
Real estate - Multi-family | | - | | - | | - | | - | | - |
Construction | | - | | - | | - | | - | | - |
Other commercial and industrial | | - | | - | | - | | - | | - |
Consumer | | | | | | | | | | |
Home equity loans and lines of credit | | - | | - | | - | | - | | - |
Manufactured homes | | - | | - | | - | | - | | - |
Automobile | | - | | - | | - | | - | | - |
Student | | - | | - | | - | | - | | - |
Other consumer | | - | | - | | - | | - | | - |
Total loans sold | | - | | - | | (120) | | - | | - |
| | | | | | | | | | |
Other: | | | | | | | | | | |
Principal repayments and charge offs | | (54,890) | | (32,908) | | (69,643) | | (47,131) | | (39,842) |
| | | | | | | | | | |
Net loan activity | | 19,221 | | 13,710 | | 24,447 | | 14,601 | | 4,254 |
| | | | | | | | | | |
Total loans, including loans held for sale, | | | | | | | | | | |
at end of period | | 276,030 | | 256,809 | | 243,099 | | 218,652 | | 204,081 |
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Delinquencies and Non-Performing Assets
Delinquency Procedures. When a borrower fails to make a required payment on a loan, we attempt to cause the delinquency to be cured by contacting the borrower. A late notice is generated and is sent to all mortgage loans 15 days delinquent and to all consumer loans 10 days delinquent. The borrower is contacted by the collections officer 20 days after the due date of all loans. Another late notice along with any required demand letters as set forth in the loan contract are sent 30 days after the due date. Additional written and verbal contacts may be made with the borrower between 30 and 60 days after the due date.
If the delinquency is not cured by the 60th day, the customer is normally provided 30 days written notice that the account will be referred to counsel for collection and foreclosure, if necessary. If it becomes necessary to foreclose, the property is sold at public sale and we may bid on the property to protect our interest. The decision to foreclose is made by the collection officer in our organization.
All loan charge offs are recommended by the collections officer and approved by either the President or the Executive Vice President. Our procedure for repossession and sale of collateral are subject to various requirements under New York State consumer protection laws.
When we acquire real estate as a result of foreclosure or by deed in lieu of foreclosure it is classified as foreclosed real estate until it is sold. The real estate is recorded at estimated fair value less estimated selling costs at the date of acquisition, and any resulting write-down is charged to the allowance for loan losses. Subsequent decreases in the value of the property are charged to operations through the creation of a valuation allowance. After acquisition, all costs incurred in maintaining the property are expensed. Costs relating to the development and improvement of the property, however, are capitalized to the extent the estimated fair value, less estimated costs to sell, exceed its carrying amount.
For manufactured home loans, when a borrower falls ten days delinquent, a late notice is generated and sent. In addition, a copy of the delinquency notice is sent to the third party that originates manufactured home loans. The third party performs all other collection related activities to bring the loan current. The third party determines whether to repossess the collateral. Any losses incurred by Generations Bank are reimbursed to us from the loan escrow account held at Generations Bank.
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Delinquent Loans. The following table sets forth our loan delinquencies by type, by amount and by percentage of type at the dates indicated.
| | | | | |
At December 31, 2020 | | ||||
| | | | | |
| 30-89 Days |
| 90 Days and Over |
| Total |
(In thousands) | Past Due | | Past Due | | Past Due |
Total Loans | | | | | |
Residential mortgage loans: | | | | | |
1-4 family first-lien | $ 3,307 | | $ 3,245 | | $ 6,552 |
Construction | - | | - | | - |
| 3,307 | | 3,245 | | 6,552 |
Commercial loans: | | | | | |
Real estate - nonresidential | 132 | | 1,103 | | 1,235 |
Real estate - multi-family | - | | 42 | | 42 |
Construction | - | | - | | - |
Other commercial and industrial | 154 | | 688 | | 842 |
| 286 | | 1,833 | | 2,119 |
Consumer loans: | | | | | |
Home equity and junior liens | 167 | | 102 | | 269 |
Manufactured homes | 1,384 | | 75 | | 1,459 |
Automobile | 209 | | 33 | | 242 |
Student | - | | - | | - |
Recreational Vehicle | 259 | | - | | 259 |
Other consumer | 7 | | 31 | | 38 |
| 2,026 | | 241 | | 2,267 |
Total loans | $ 5,619 | | $ 5,319 | | $ 10,938 |
| | | | | |
At December 31, 2019 | | | | | |
| 30-89 Days |
| 90 Days and Over |
| Total |
(In thousands) | Past Due | | Past Due | | Past Due |
Total Loans | | | | | |
Residential mortgage loans: | | | | | |
1-4 family first-lien | $ 5,369 | | $ 2,259 | | $ 7,628 |
Construction | - | | - | | - |
| 5,369 | | 2,259 | | 7,628 |
Commercial loans: | | | | | |
Real estate - nonresidential | 1,738 | | 912 | | 2,650 |
Real estate - multi-family | - | | - | | - |
Construction | - | | - | | - |
Other commercial and industrial | 564 | | 73 | | 637 |
| 2,302 | | 985 | | 3,287 |
Consumer loans: | | | | | |
Home equity and junior liens | 225 | | 154 | | 379 |
Manufactured homes | 262 | | - | | 262 |
Automobile | 261 | | 54 | | 315 |
Student | 35 | | - | | 35 |
Recreational Vehicle | - | | - | | - |
Other consumer | 78 | | - | | 78 |
| 861 | | 208 | | 1,069 |
Total loans | $ 8,532 | | $ 3,452 | | $ 11,984 |
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| | | | | |
At December 31, 2018 | | | | | |
| 30-89 Days |
| 90 Days and Over |
| Total |
(In thousands) | Past Due | | Past Due | | Past Due |
Total Loans | | | | | |
Residential mortgage loans: | | | | | |
1-4 family first-lien | $ 6,141 | | $ 1,677 | | $ 7,818 |
Construction | - | | - | | - |
| 6,141 | | 1,677 | | 7,818 |
Commercial loans: | | | | | |
Real estate - nonresidential | 2,614 | | 859 | | 3,473 |
Real estate - multi-family | - | | - | | - |
Construction | - | | - | | - |
Other commercial and industrial | 1,637 | | 196 | | 1,833 |
| 4,251 | | 1,055 | | 5,306 |
Consumer loans: | | | | | |
Home equity and junior liens | 143 | | 124 | | 267 |
Manufactured homes | 423 | | - | | 423 |
Automobile | 398 | | 64 | | 462 |
Student | 27 | | 8 | | 35 |
Recreational Vehicle | - | | - | | - |
Other consumer | 115 | | 24 | | 139 |
| 1,106 | | 220 | | 1,326 |
Total loans | $ 11,498 | | $ 2,952 | | $ 14,450 |
| | | | | |
At December 31, 2017 | | | | | |
| 30-89 Days |
| 90 Days and Over |
| Total |
(In thousands) | Past Due | | Past Due | | Past Due |
Total Loans | | | | | |
Residential mortgage loans: | | | | | |
1-4 family first-lien | $ 3,472 | | $ 1,274 | | $ 4,746 |
Construction | - | | - | | - |
| 3,472 | | 1,274 | | 4,746 |
Commercial loans: | | | | | |
Real estate - nonresidential | 2,544 | | 617 | | 3,161 |
Real estate - multi-family | - | | - | | - |
Construction | - | | - | | - |
Other commercial and industrial | 131 | | 1,952 | | 2,083 |
| 2,675 | | 2,569 | | 5,244 |
Consumer loans: | | | | | |
Home equity and junior liens | 154 | | 46 | | 200 |
Manufactured homes | 647 | | - | | 647 |
Automobile | 1,058 | | 281 | | 1,339 |
Student | - | | - | | - |
Recreational Vehicle | - | | - | | - |
Other consumer | 6 | | 1 | | 7 |
| 1,865 | | 328 | | 2,193 |
Total loans | $ 8,012 | | $ 4,171 | | $ 12,183 |
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| | | | | |
At December 31, 2016 | | | | | |
| 30-89 Days |
| 90 Days and Over |
| Total |
(In thousands) | Past Due | | Past Due | | Past Due |
Total Loans | | | | | |
Residential mortgage loans: | | | | | |
1-4 family first-lien | $ 3,789 | | $ 1,122 | | $ 4,911 |
Construction | - | | - | | - |
| 3,789 | | 1,122 | | 4,911 |
Commercial loans: | | | | | |
Real estate - nonresidential | 1,661 | | 666 | | 2,327 |
Real estate - multi-family | 169 | | - | | 169 |
Construction | - | | - | | - |
Other commercial and industrial | 122 | | 1,642 | | 1,764 |
| 1,952 | | 2,308 | | 4,260 |
Consumer loans: | | | | | |
Home equity and junior liens | 108 | | 92 | | 200 |
Manufactured homes | 339 | | - | | 339 |
Automobile | 1,442 | | 651 | | 2,093 |
Student | - | | - | | - |
Recreational Vehicle | - | | - | | - |
Other consumer | 16 | | - | | 16 |
| 1,905 | | 743 | | 2,648 |
Total loans | $ 7,646 | | $ 4,173 | | $ 11,819 |
Classified Assets. Federal regulations provide for the classification of loans and other assets, such as debt and equity securities considered by the Office of the Comptroller of the Currency (“OCC”) to be of lesser quality, as “substandard,” “doubtful” or “loss.” An asset is considered “substandard” if it is inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any. “Substandard” assets include those characterized by the “distinct possibility” that the insured institution will sustain “some loss” if the deficiencies are not corrected. Assets classified as “doubtful” have all of the weaknesses inherent in those classified “substandard,” with the added characteristic that the weaknesses present make “collection or liquidation in full,” on the basis of currently existing facts, conditions, and values, “highly questionable and improbable.” Assets classified as “loss” are those considered “uncollectible” and of such little value that their continuance as assets without the establishment of a specific loss allowance is not warranted. Assets which do not currently expose the insured institution to sufficient risk to warrant classification in one of the aforementioned categories but possess weaknesses are designated as “special mention” by our management.
When an insured institution classifies problem assets as either substandard or doubtful, it may establish general allowances in an amount deemed prudent by management to cover probable accrued losses. General allowances represent loss allowances which have been established to cover probable accrued losses associated with lending activities, but which, unlike specific allowances, have not been allocated to particular problem assets. When an insured institution classifies problem assets as “loss,” it is required either to establish a specific allowance for losses equal to 100% of that portion of the asset so classified or to charge-off such amount. An institution’s determination as to the classification of its assets and the amount of its valuation allowances is subject to review by the regulatory authorities, which may require the establishment of additional general or specific loss allowances.
In connection with the filing of our periodic reports with the OCC and in accordance with our classification of assets policy, we regularly review the problem loans in our portfolio to determine whether any loans require classification in accordance with applicable regulations.
22
On the basis of this review of our assets, our classified or special mention assets (presented gross of allowance) at the dates indicated were as follows:
| | | | | | |
| | At December 31, | ||||
|
| 2020 |
| 2019 |
| 2018 |
| | (In thousands) | ||||
Classification of Assets: | | | | | | |
Special Mention assets | | $ 6,003 | | $ 6,476 | | $ 5,523 |
Substandard assets | | 8,637 | | 7,053 | | 8,284 |
Doubtful assets | | - | | - | | - |
Loss assets | | - | | - | | - |
Total Classified Assets | | $ 14,640 | | $ 13,529 | | $ 13,807 |
Non-Performing Assets. We generally cease accruing interest on our loans when contractual payments of principal or interest have become 90 days delinquent unless the loan is well-secured and in the process of collection. Loans are placed on non-accrual or charged off at an earlier date if collection of principal or interest is considered doubtful. All interest accrued but not received for loans placed on non-accrual is reversed against interest income. Interest received on such loans is accounted for on the cash-basis or cost-recovery method, until the loans qualifies for return to accrual. Generally, loans are restored to accrual status when all the principal and interest amounts contractually due are brought current, and future payments are reasonably assured. Loans are moved to non-accrual status in accordance with our policy, which is typically after 90 days of non-payment.
The following table sets forth information regarding our non-performing assets and troubled debt restructurings at the dates indicated. Troubled debt restructurings include loans for which either a portion of interest or principal has been forgiven, and loans modified at interest rates materially less than prevailing market rates.
Except as disclosed in the foregoing tables, there were no other loans at December 31, 2020 that are not already disclosed where there is information about possible credit problems of borrowers that caused us serious doubts about the ability of the borrowers to comply with present loan repayment terms and that may result in disclosure of such loans in the future.
23
| | | | | | | | | |
| December 31, | ||||||||
| 2020 |
| 2019 | | 2018 | | 2017 | | 2016 |
| (In thousands) | ||||||||
Non-accrual loans: | | | | | | | | | |
Residential: | | | | | | | | | |
One- to four-family | $ 3,245 | | $ 2,259 | | $ 1,677 | | $ 963 | | $ 1,122 |
Construction | - | | - | | - | | - | | - |
Commercial: | | | | | | | | | |
Real estate - nonresidential | 1,103 | | 2,509 | | 859 | | 468 | | 666 |
Real estate - Multi-family | 42 | | - | | - | | - | | - |
Construction | - | | - | | - | | - | | - |
Other commercial and industrial | 688 | | 1,195 | | 196 | | 1,952 | | 1,642 |
Consumer | | | | | | | | | |
Home equity loans and lines of credit | 102 | | 154 | | 124 | | 46 | | 92 |
Manufactured homes | 75 | | - | | - | | - | | - |
Automobile | 33 | | 54 | | 64 | | 276 | | 635 |
Student | - | | - | | 8 | | - | | - |
Recreational Vehicle | - | | - | | | | | | |
Other consumer | 31 | | - | | 33 | | 1 | | - |
Total non-accrual loans | $ 5,319 | | $ 6,171 | | $ 2,961 | | $ 3,706 | | $ 4,157 |
| | | | | | | | | |
Accruing loans past due 90 days or more | | | | | | | | | |
Residential: | | | | | | | | | |
One- to four-family | $ - | | $ - | | $ - | | $ 316 | | $ - |
Construction | - | | - | | - | | - | | - |
Commercial: | | | | | | | | | |
Real estate - nonresidential | - | | - | | - | | 149 | | - |
Real estate - Multi-family | - | | - | | - | | - | | - |
Construction | - | | - | | - | | - | | - |
Other commercial and industrial | - | | - | | - | | - | | - |
Consumer | | | | | | | | | |
Home equity loans and lines of credit | - | | - | | - | | - | | - |
Manufactured homes | - | | - | | - | | - | | - |
Automobile | - | | - | | - | | | | - |
Student | - | | - | | - | | - | | - |
Recreational Vehicle | - | | - | | | | | | |
Other consumer | - | | - | | - | | - | | - |
Total accruing loans past due 90 days or more | $ - | | $ - | | $ - | | $ 465 | | $ - |
| | | | | | | | | |
Real estate owned: | | | | | | | | | |
Residential: | | | | | | | | | |
One- to four-family | $ 45 | | $ 60 | | $ 50 | | $ 138 | | $ 174 |
Construction | - | | - | | - | | - | | - |
Commercial: | | | | | | | | | |
Real estate - nonresidential | - | | - | | - | | - | | - |
Real estate - Multi-family | - | | - | | - | | - | | - |
Construction | - | | - | | - | | - | | - |
Other commercial and industrial | - | | - | | - | | - | | - |
Consumer | | | | | | | | | |
Home equity loans and lines of credit | - | | - | | - | | - | | - |
Manufactured homes | - | | - | | - | | - | | - |
Automobile | - | | 10 | | - | | - | | - |
Student | - | | - | | - | | - | | - |
Other consumer | - | | - | | - | | - | | - |
Total real estate owned | $ 45 | | $ 70 | | $ 50 | | $ 138 | | $ 174 |
| | | | | | | | | |
Total non-performing assets | $ 5,364 | | $ 6,241 | | $ 3,011 | | $ 4,309 | | $ 4,331 |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
Total accruing troubled debt restructured loans | | | | | | | | | |
| | | | | | | | | |
Total non-performing loans to total loans | 1.93% | | 2.40% | | 1.22% | | 1.91% | | 2.04% |
Total non-performing loans to total assets | 1.43% | | 1.78% | | 0.93% | | 1.44% | | 1.52% |
Total non-performing assets to total assets | 1.44% | | 1.80% | | 0.95% | | 1.48% | | 1.59% |
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For the year ended December 31, 2020, gross interest income that would have been recorded had our non-accruing loans been current in accordance with their original terms was $132,000. Interest income recognized on such loans for the year ended December 31, 2020 was $171,000.
Troubled Debt Restructurings. We occasionally modify loans to help a borrower stay current on his or her loan and to avoid foreclosure. We consider modifications only after analyzing the borrower’s current repayment capacity, evaluating the strength of any guarantors based on documented current financial information, and assessing the current value of any collateral pledged. We generally do not forgive principal or interest on loans, but may do so if it is in our best interest and increases the likelihood that we can collect the remaining principal balance. We may modify the terms of loans to lower interest rates (which may be at below market rates), to provide for fixed interest rates on loans where fixed rates are otherwise not available, or to provide for interest-only terms. These modifications are made only when there is a reasonable and attainable workout plan that has been agreed to by the borrower and that is in our best interests.
Under the CARES Act, Covid-19 related modifications to loans that were current as of December 31, 2019 are exempt from troubled debt restructuring classification under U.S. GAAP. In addition, the bank regulatory agencies have issued interagency guidance stating that Covid-19 related short-term modifications (i.e., six months or less) for loans that were current as of the loan modification program implementation date are not troubled debt restructurings. As of June 30, 2020, we had granted short-term deferrals on 234 loans that were otherwise performing, totaling approximately $29.5 million. As of December 31, 2020, all of these loans have returned to normal status. See, “ − Forbearances Programs in Response to Government actions and the Covid-19 Pandemic.”
At December 31, 2020, we had 17 loans totaling $2.6 million that were classified as troubled debt restructurings which were all performing according to their restructured loan agreements.
Allowance for Loan Losses
Analysis and Determination of the Allowance for Loan Losses. Our allowance for loan losses is the amount considered necessary to reflect probable incurred losses in our loan portfolio. We evaluate the need to establish allowances against losses on loans on a quarterly basis. When additional allowances are necessary, a provision for loan losses is charged to earnings.
Our methodology for assessing the appropriateness of the allowance for loan losses consists of two key elements: (1) specific allowances for identified impaired loans; and (2) a general valuation allowance on the remainder of the loan portfolio. Although we determine the amount of each element of the allowance separately, the entire allowance for loan losses is available for the entire portfolio.
We identify loans that may need to be charged off as a loss by reviewing all delinquent loans, classified loans, and other loans about which management may have concerns about collectability. For individually reviewed loans, the borrower’s inability to make payments under the terms of the loan as well as the shortfall in collateral value could result in our charging off the loan or the portion of the loan that was impaired.
Among other factors, we consider current general economic conditions, including current housing price depreciation, in determining the appropriateness of the allowance for loan losses for our residential real estate portfolio. We use evidence obtained from our own loan portfolio as well as published housing data on our local markets from third party sources we believe to be reliable as a basis for assumptions about the impact of housing depreciation.
Substantially all of our loans are secured by collateral. Loans 90 days past due and other classified loans are evaluated for impairment and general or specific allowances are established. Typically for a nonperforming real estate loan in the process of collection, the value of the underlying collateral is estimated using either the original independent appraisal, adjusted for current economic conditions and other factors, or a new independent appraisal, or evaluation and related general or specific allowances for loan losses are adjusted on a quarterly basis. If a nonperforming real estate loan is in the process of foreclosure and/or there are serious doubts about further collectability of principal or interest, and there is uncertainty about the value of the underlying collateral, we will order a new independent appraisal or evaluation if it has not already been obtained. Any shortfall would result in immediately charging off the portion of the loan that was impaired.
25
Specific Allowances for Identified Problem Loans. We establish a specific allowance when loans are determined to be impaired. Loss is measured by determining the present value of expected future cash flows or, for collateral-dependent loans, the fair value of the collateral less estimated selling expenses. Factors in identifying a specific problem loan include: (1) the strength of the customer’s personal or business cash flows; (2) the availability of other sources of repayment; (3) the amount due or past due; (4) the type and value of collateral; (5) the strength of our collateral position; (6) the estimated cost to sell the collateral; and (7) the borrower’s effort to cure the delinquency. In addition, for loans secured by real estate, we consider the extent of any past due and unpaid property taxes applicable to the property serving as collateral on the mortgage.
General Valuation Allowance on the Remainder of the Loan Portfolio. We establish a general allowance for loans that are not classified as impaired to recognize the probable incurred losses associated with lending activities, but which, unlike specific allowances, has not been allocated to particular problem assets. This general valuation allowance is determined by segregating the loans by loan category and assigning allowance percentages based on our historical loss experience, delinquency trends and management’s evaluation of the collectability of the loan portfolio. The allowance may be adjusted for significant factors that, in management’s judgment, affect the collectability of the portfolio as of the evaluation date. These significant factors may include changes in lending policies and procedures, changes in existing general economic and business conditions affecting our primary market area, credit quality trends, collateral value, loan volumes and concentrations, seasoning of the loan portfolio, recent loss experience in particular segments of the portfolio, duration of the current business cycle and bank regulatory examination results. The applied loss factors are re-evaluated quarterly to ensure their relevance in the current real estate environment.
Although we believe that we use the best information available to establish the allowance for loan losses, future adjustments to the allowance for loan losses may be necessary and any material increase in the allowance for loan losses may adversely affect our financial condition and results of operations. Furthermore, while we believe we have established our allowance for loan losses in conformity with accounting principles generally accepted in the United States of America, as an integral part of their examination process, the OCC will periodically review our allowance for loan losses. The OCC may have judgments different than management’s, and we may determine to increase our allowance as a result of these regulatory reviews.
26
Allowance for Loan Losses. The following table sets forth activity in our allowance for loan losses for the periods indicated.
| | | | | | | | | | |
| | For the Years Ended December 31, | ||||||||
|
| 2020 |
| 2019 |
| 2018 |
| 2017 |
| 2016 |
| | (In thousands) | ||||||||
Allowance at beginning of period | | $ 1,660 | | $ 1,548 | | $ 2,483 | | $ 3,150 | | $ 2,214 |
| | | | | | | | | | |
Provision for loan losses | | 479 | | 360 | | 175 | | 420 | | 2,315 |
| | | | | | | | | | |
Charge offs: | | | | | | | | | | |
Residential: | | | | | | | | | | |
One- to four-family | | (88) | | (42) | | (30) | | (49) | | (46) |
Construction | | - | | - | | - | | - | | - |
Commercial: | | | | | | | | | | |
Real estate - nonresidential | | (398) | | (18) | | (4) | | (82) | | - |
Real estate - Multi-family | | - | | - | | - | | - | | - |
Construction | | - | | - | | - | | - | | - |
Other commercial and industrial | | (15) | | (106) | | (531) | | (31) | | (162) |
Consumer | | | | | | | | | | |
Home equity loans and lines of credit | | (9) | | - | | (41) | | - | | - |
Manufactured homes | | - | | - | | - | | - | | - |
Automobile | | (54) | | (137) | | (636) | | (1,008) | | (1,191) |
Student | | - | | (25) | | - | | - | | - |
Recreational vehicle | | (14) | | | | | | | | |
Other consumer | | (4) | | (68) | | (11) | | (8) | | (18) |
Total charge-offs | | (582) | | (396) | | (1,253) | | (1,178) | | (1,417) |
| | | | | | | | | | |
Recoveries: | | | | | | | | | | |
Residential: | | | | | | | | | | |
One- to four-family | | 4 | | 2 | | 13 | | 11 | | 12 |
Construction | | - | | - | | - | | - | | - |
Commercial: | | | | | | | | | | |
Real estate - nonresidential | | - | | - | | - | | - | | - |
Real estate - Multi-family | | 19 | | 9 | | 4 | | - | | 4 |
Construction | | - | | - | | - | | - | | - |
Other commercial and industrial | | 140 | | 79 | | 44 | | - | | - |
Consumer | | | | | | | | | | |
Home equity loans and lines of credit | | 12 | | - | | 1 | | - | | - |
Manufactured homes | | - | | - | | - | | - | | - |
Automobile | | 71 | | 52 | | 77 | | 72 | | 18 |
Student | | 3 | | 1 | | - | | - | | - |
Recreational vehicle | | 6 | | | | | | | | |
Other consumer | | 9 | | 5 | | 4 | | 8 | | 4 |
Total recoveries | | 264 | | 148 | | 143 | | 91 | | 38 |
| | | | | | | | | | |
Net (charge-offs) recoveries | | (318) | | (248) | | (1,110) | | (1,087) | | (1,379) |
| | | | | | | | | | |
Allowance at end of period | | $ 1,821 | | $ 1,660 | | $ 1,548 | | $ 2,483 | | $ 3,150 |
| | | | | | | | | | |
Allowance to non-performing loans | | 34.2% | | 26.9% | | 52.6% | | 59.5% | | 75.8% |
Allowance to total loans outstanding at the end of the period | | 0.66% | | 0.65% | | 0.64% | | 1.14% | | 1.54% |
Net (charge-offs) recoveries to average loans outstanding during the period | | (0.65)% | | (0.10)% | | (0.50)% | | (0.51)% | | (0.69)% |
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Allocation of Allowance for Loan Losses. The following table sets forth the allowance for loan losses allocated by loan category, the total loan balances by category, and the percent of loans in each category to total loans at the dates indicated. The allowance for loan losses allocated to each category is not necessarily indicative of future losses in any particular category and does not restrict the use of the allowance to absorb losses in other categories.
| | | | | | | | | | | |
| At December 31, | ||||||||||
| 2020 | | 2019 | ||||||||
| | | Percent of | | | | | | Percent of | | |
| | | Allowance | | Percent of | | | | Allowance | | Percent of |
| | | in Category | | Loans in | | | | in Category | | Loans in |
| Allowance | | to Total | | Each | | Allowance | | to Total | | Each |
| for Loan |
| Allocated |
| Category to | | for Loan |
| Allocated |
| Category to |
| Losses | | Allowance | | Total Loans | | Losses | | Allowance | | Total Loans |
| (In thousands) | ||||||||||
Residential: | | | | | | | | | | | |
One- to four-family | 457 | | 25.1% | | 46.1% | | 375 | | 22.9% | | 54.0% |
Construction | - | | 0.0% | | 0.0% | | 2 | | 0.1% | | 0.3% |
Commercial: | | | | | | | | | | | |
Real estate - nonresidential | 319 | | 17.5% | | 9.0% | | 421 | | 25.7% | | 13.9% |
Real estate - Multi-family | 26 | | 1.4% | | 1.9% | | 17 | | 1.0% | | 2.2% |
Construction | - | | 0.0% | | 0.0% | | - | | 0.0% | | 0.0% |
Other commercial and industrial | 617 | | 33.9% | | 7.4% | | 527 | | 32.2% | | 5.6% |
Consumer | | | | | | | | | | | |
Home equity loans and lines of credit | 46 | | 2.7% | | 4.1% | | 50 | | 3.1% | | 4.7% |
Manufactured homes | 76 | | 4.2% | | 16.1% | | - | | 0.0% | | 9.3% |
Automobile | 127 | | 7.0% | | 7.8% | | 142 | | 8.7% | | 8.2% |
Student | 69 | | 3.8% | | 0.8% | | 69 | | 4.2% | | 0.9% |
Recreational vehicle | - | | 0.0% | | 5.3% | | - | | 0.0% | | 0.0% |
Other consumer | 84 | | 4.6% | | 1.5% | | 35 | | 2.1% | | 0.9% |
Total allocated allowance | 1,821 | | 100.0% | | 100.0% | | 1,638 | | 100.0% | | 100.0% |
Unallocated | - | | | | | | 22 | | | | |
Total | 1,821 | | | | | | 1,660 | | | | |
| | | | | | | | | | | | | | | | | |
| At December 31, | ||||||||||||||||
| 2018 | | 2017 | | 2016 | ||||||||||||
| | | Percent of | | | | | | Percent of | | | | | | Percent of | | |
| | | Allowance | | Percent of | | | | Allowance | | Percent of | | | | Allowance | | Percent of |
| | | in Category | | Loans in | | | | in Category | | Loans in | | | | in Category | | Loans in |
| Allowance | | to Total | | Each | | Allowance | | to Total | | Each | | Allowance | | to Total | | Each |
| for Loan |
| Allocated |
| Category to |
| for Loan |
| Allocated |
| Category to |
| for Loan |
| Allocated |
| Category to |
| Losses | | Allowance | | Total Loans | | Losses | | Allowance | | Total Loans | | Losses | | Allowance | | Total Loans |
| (In thousands) | ||||||||||||||||
Residential: | | | | | | | | | | | | | | | | | |
One- to four-family | 314 | | 22.2% | | 55.8% | | 282 | | 12.7% | | 52.4% | | 377 | | 12.3% | | 52.2% |
Construction | 1 | | 0.1% | | 0.4% | | 1 | | 0.0% | | 0.3% | | 1 | | 0.0% | | 0.1% |
Commercial: | | | | | | | | | | | | | | | | | |
Real estate - nonresidential | 202 | | 14.3% | | 14.6% | | 335 | | 15.0% | | 16.7% | | 403 | | 13.2% | | 17.8% |
Real estate - Multi-family | 12 | | 0.8% | | 2.4% | | 11 | | 0.5% | | 2.6% | | 2 | | 0.1% | | 0.4% |
Construction | - | | 0.0% | | 0.2% | | - | | 0.0% | | 1.3% | | 47 | | 1.5% | | 2.5% |
Other commercial and industrial | 523 | | 36.9% | | 7.1% | | 591 | | 26.5% | | 7.1% | | 230 | | 7.5% | | 7.0% |
Consumer | | | | | | | | | | | | | | | | | |
Home equity loans and lines of credit | 58 | | 4.1% | | 4.4% | | 21 | | 0.9% | | 3.6% | | 14 | | 0.5% | | 3.3% |
Manufactured homes | - | | 0.0% | | 7.8% | | - | | 0.0% | | 9.0% | | - | | 0.0% | | 9.7% |
Automobile | 228 | | 16.1% | | 5.8% | | 929 | | 41.7% | | 5.8% | | 1,950 | | 63.7% | | 5.8% |
Student | 50 | | 3.5% | | 0.7% | | 12 | | 0.5% | | 0.6% | | 19 | | 0.6% | | 0.4% |
Recreational vehicle | - | | 0.0% | | 0.0% | | - | | 0.0% | | 0.0% | | - | | 0.0% | | 0.0% |
Other consumer | 28 | | 2.0% | | 0.8% | | 49 | | 2.2% | | 0.6% | | 19 | | 0.6% | | 0.8% |
Total allocated allowance | 1,416 | | 100.0% | | 100.0% | | 2,231 | | 100.0% | | 100.0% | | 3,062 | | 100.0% | | 100.0% |
Unallocated | 132 | | | | | | 252 | | | | | | 88 | | | | |
Total | 1,548 | | | | | | 2,483 | | | | | | 3,150 | | | | |
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At December 31, 2020, our allowance for loan losses represented 0.66% of total loans and 34.24% of nonperforming loans. Nonperforming loans decreased $852,000 to $5.3 million at December 31, 2020 from $6.2 million at December 31, 2019. The decrease resulted primarily from a return of a $2.7 million commercial relationship to accrual status, partially offset by a net increase of $986,000 in non-accrual one- to four-family residential mortgages and $829,000 in non-accrual commercial loans. The $2.7 million commercial relationship returned to accrual status as all payments over the previous six months were made timely and cash reserves held to offset potential losses were $150,000. The relationship remains classified as substandard. The increase in non-accrual one- to four-family residential mortgages partially due to a mandated foreclosure delay implemented early during the health emergency. The increase in non-accrual commercial loans is due primarily from seven loans totaling $593,000 becoming more than 90 days delinquent at year end.
Investment Activities
General. The goals of our investment policy are to provide and maintain liquidity to meet day-to-day, cyclical and long-term liquidity needs, to help mitigate interest rate and market risk within the parameters of our interest rate risk policy, and to generate a dependable flow of earnings within the context of our interest rate and credit risk objectives. Subject to loan demand and our interest rate risk analysis, we will increase the balance of our investment securities portfolio when we have excess liquidity. We expect to initially invest a substantial portion of the proceeds of the offering in short-term and other investments, including U.S. government securities.
Our investment policy was adopted by the board of directors. The investment policy is reviewed annually by the board of directors. All investment decisions require the approval of the Chief Executive Officer or Chief Financial Officer. The Chief Financial Officer provides an investment schedule detailing the investment portfolio which is reviewed at least monthly by the Bank’s asset-liability committee and the board of directors.
Our current investment policy permits, with certain limitations, investments in United States Treasury securities; securities issued by the United States Government and its agencies or government sponsored enterprises including mortgage-backed securities and collateralized mortgage obligations (“CMO”) issued by Fannie Mae, Ginnie Mae and Freddie Mac; equity securities, corporate bonds and obligations; debt securities of state and municipalities; commercial paper; certificates of deposits in other financial institutions, and bank-owned life insurance.
At December 31, 2020, our investment portfolio consisted of securities and obligations issued by State and local municipalities, equity securities consisting of mutual funds, and to a lesser extent mortgage-backed securities. At December 31, 2020, we owned $2.0 million of Federal Home Loan Bank stock. As a member of the Federal Home Loan Bank of New York, we are required to purchase stock in the Federal Home Loan Bank of New York, which stock is carried at cost and classified as restricted equity securities.
29
Securities Portfolio Composition. The following table sets forth the amortized cost and fair value of our securities portfolio (excluding Federal Home Loan Bank common stock) at the dates indicated.
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | At December 31, | ||||||||||
| | 2020 | | 2019 | | 2018 | ||||||
| | Amortized | | Estimated | | Amortized | | Estimated | | Amortized | | Estimated |
|
| Cost |
| Fair Value |
| Cost |
| Fair Value |
| Cost |
| Fair Value |
| | (In thousands) | ||||||||||
Securities available for sale: | | | | | | | | | | | | |
Residential mortgage-backed- US agency and GSEs | | $ 39 | | $ 39 | | $ 48 | | $ 50 | | $ 1,440 | | $ 1,404 |
Residential Mortgage-backed - Private label | | - | | - | | - | | - | | 45 | | 306 |
State and political subdivisions | | 16,971 | | 17,887 | | 29,746 | | 30,577 | | 9,910 | | 10,016 |
Total | | $ 17,010 | | $ 17,926 | | $ 29,794 | | $ 30,627 | | $ 11,395 | | $ 11,726 |
| | | | | | | | | | | | |
| | At December 31, | ||||||||||
| | 2020 | | 2019 | | 2018 | ||||||
| | Amortized | | Estimated | | Amortized | | Estimated | | Amortized | | Estimated |
| | Cost | | Fair Value | | Cost | | Fair Value | | Cost | | Fair Value |
Securities held to maturity: | | | | | | | | | | | | |
Residential Mortgage-backed- US agency and GSEs | | $ 1,480 | | $ 1,510 | | $ 2,078 | | $ 2,110 | | $ 2,764 | | $ 2,821 |
State and political subdivision | | - | | - | | - | | - | | - | | - |
Total | | $ 1,480 | | $ 1,510 | | $ 2,078 | | $ 2,110 | | $ 2,764 | | $ 2,821 |
| | | | | | | | | | | | |
| | At December 31, | ||||||||||
| | 2020 | | 2019 | | 2018 | ||||||
Equity Securities: | | | | | | | | | | | | |
Large cap equity mutual fund | | $ 35 | | $ 35 | | $ 31 | | $ 31 | | $ 24 | | $ 24 |
Other mutual funds | | 626 | | 626 | | 2,548 | | 2,548 | | 10,878 | | 10,878 |
| | $ 661 | | $ 661 | | $ 2,579 | | $ 2,579 | | $ 10,902 | | $ 10,902 |
| | | | | | | | | | | | |
State and Political Subdivision Securities. Generations Bank and its subsidiary Generations Commercial Bank purchase state and political subdivision securities in order to: (i) generate positive interest rate spread with minimal administrative expense; (ii) lower credit risk as a result of purchasing general obligations which are subject to the levy of ad valorem taxes within the municipalities’ jurisdiction; (iii) increase liquidity, (iv) provide low cost funding to the local communities within our market area, and (v) serve as collateral for municipal deposits in excess of FDIC limits. State and political subdivision securities purchased within New York State are exempt from taxes for both Federal and State income tax purposes. As a result, the yield on these securities as reported within the financial statements, are lower than would be attained on other investment options. The portfolio consists of either short-term obligations, due within one year, or are serial or statutory installment bonds which require semi-annual or annual payments of principal and interest. We believe that the prepayment risk on these securities is low as most of the bonds are newly issued in a historically low interest rate environment.
Management believes that credit risk on its state and political subdivision securities portfolio is low. Management analyzes each security prior to purchase and closely monitors these securities by obtaining data collected from the New York State Comptroller’s office when published annually. Management also reviews any underlying ratings of the securities in its assessment of credit risk.
Mortgage-Backed Securities. At December 31, 2020, we had mortgage-backed securities with a carrying value of $1.5 million. Mortgage-backed securities are securities issued in the secondary market that are collateralized by pools of mortgages. Certain types of mortgage-backed securities are commonly referred to as “pass-through” certificates because the principal and interest of the underlying loans is “passed through” to investors, net of certain costs, including servicing and guarantee fees. Mortgage-backed securities typically are collateralized by pools of one- to four-family or multifamily mortgages, although we invest primarily in
30
mortgage-backed securities backed by one- to four-family mortgages. The issuers of such securities pool and resell the participation interests in the form of securities to investors such as Generations Bank. The interest rate of the security is lower than the interest rates of the underlying loans to allow for payment of servicing and guaranty fees. All of our mortgage-backed securities are backed by either Freddie Mac, Ginnie Mae or Fannie Mae, which are government-sponsored enterprises.
Residential mortgage-backed securities issued by United States Government agencies and government-sponsored enterprises are more liquid than individual mortgage loans because there is an active trading market for such securities. In addition, residential mortgage-backed securities may be used to collateralize our borrowings. Investments in residential mortgage-backed securities involve a risk that actual payments will be greater or less than the prepayment rate estimated at the time of purchase, which may require adjustments to the amortization of any premium or accretion of any discount relating to such interests, thereby affecting the net yield on our securities. Current prepayment speeds determine whether prepayment estimates require modification that could cause amortization or accretion adjustments.
Portfolio Maturities and Yields. The composition and maturities of our investment securities portfolio at December 31, 2020 are summarized in the following table. Maturities are based on the final contractual payment dates, and do not reflect the impact of prepayments or early redemptions that may occur. No tax-equivalent yield adjustments were made, as the effect thereof was not material
| | | | | | | | | | | | | | | | | | | | | | | |
| | | | More than One Year | | More than Five Years | | | | | | | | | | ||||||||
| | One Year or Less | | through Five Years | | through Ten Years | | More than Ten Years | | Total | | ||||||||||||
| | | | Weighted | | | | Weighted | | | | Weighted | | | | Weighted | | | | | | Weighted | |
| | Amortized |
| Average |
| Amortized |
| Average |
| Amortized |
| Average |
| Amortized |
| Average |
| Amortized |
| Fair |
| Average | |
| | Cost | | Yield | | Cost | | Yield | | Cost | | Yield | | Cost | | Yield | | Cost | | Value | | Yield | |
| | (Dollars in thousands) | | ||||||||||||||||||||
Securities available for sale: | | | | | | | | | | | | | | | | | | | | | | | |
Residential mortgage-backed- US agency and GSEs | | $ - | | 0.00% | | $ 3 | | 5.00% | | $ 11 | | 5.50% | | $ 25 | | 3.63% | | $ 39 | | $ 39 | | 4.30% | |
State and political subdivisions | | 974 | | 2.09% | | 1,400 | | 1.67% | | 5,565 | | 2.20% | | 9,032 | | 2.87% | | $ 16,971 | | $ 17,887 | | 2.51% | |
Total available for sale | | $ 974 | | | | $ 1,403 | | | | $ 5,576 | | | | $ 9,057 | | | | $ 17,010 | | $ 17,926 | | | |
| | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | |
| | | | More than One Year | | More than Five Years | | | | | | | | | | ||||||||
| | One Year or Less | | through Five Years | | through Ten Years | | More than Ten Years | | Total | | ||||||||||||
| | | | Weighted | | | | Weighted | | | | Weighted | | | | Weighted | | | | | | Weighted | |
| | Amortized | | Average | | Amortized | | Average | | Amortized | | Average | | Amortized | | Average | | Amortized | | Fair | | Average | |
| | Cost | | Yield | | Cost | | Yield | | Cost | | Yield | | Cost | | Yield | | Cost | | Value | | Yield | |
| | (Dollars in thousands) | | ||||||||||||||||||||
Securities held to maturity: | | | | | | | | | | | | | | | | | | | | | | | |
Residential Mortgage-backed- US agency and GSEs | | $ - | | 0.00% | | $ 4 | | 3.58% | | $ 20 | | 4.55% | | $ 1,456 | | 3.03% | | $ 1,480 | | $ 1,510 | | 3.05% | |
Total | | $ - | | | | $ 4 | | | | $ 20 | | | | $ 1,456 | | | | $ 1,480 | | $ 1,510 | | | |
| | | | | | | | | | | | | | | | | | | | | | | |
Sources of Funds
General. Deposits have traditionally been the primary source of funds for use in lending and investment activities. We also use borrowings, primarily Federal Home Loan Bank advances, to supplement cash flow needs, lengthen the maturities of liabilities for interest rate risk purposes and to manage the cost of funds. In addition, funds are derived from scheduled loan payments, investment maturities, loan prepayments, retained earnings and income on earning assets. While scheduled loan payments and income on earning assets are relatively stable sources of funds, deposit inflows and outflows can vary widely and are influenced by prevailing interest rates, market conditions and levels of competition.
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Deposits. Our deposits are generated primarily from residents within our primary market area. We offer a selection of deposit accounts, including demand accounts, NOW accounts, money market accounts, savings accounts and certificates of deposit. Deposit account terms vary, with the principal differences being the minimum balance required, the amount of time the funds must remain on deposit and the interest rate. In recent years we have emphasized, subject to market conditions, demand, interest-bearing checking and savings accounts. Also, primarily for municipal deposits received in Generations Commercial Bank, we participate in reciprocal deposit services for our customers through the Certificate Deposit Account Registry Service (CDARS) and Insured Cash Sweep networks, which are currently considered by the bank regulators, to be brokered deposits. At December 31, 2020, we participated out approximately $24.1 million of our certificates of deposit, representing 7.8% of our total deposits, through these reciprocal deposit services. At December 31, 2020, these certificates of deposit had an average term to maturity of 12.8 months. Early withdrawal of these deposits is not permitted, which makes these accounts a more stable source of funds.
Interest rates paid, maturity terms, service fees and withdrawal penalties are established on a periodic basis. Deposit rates and terms are based primarily on current operating strategies and market rates, liquidity requirements, rates paid by competitors and growth goals. We rely upon personalized customer service, long-standing relationships with customers, and the favorable image of Generations Bank in the community to attract and retain deposits.
The flow of deposits is influenced significantly by general economic conditions, changes in interest rates and competition. Our ability to gather deposits is affected by the competitive market in which we operate, which includes numerous financial institutions of varying sizes offering a wide range of products.
Generations Commercial Bank (the “Commercial Bank”), a New York State chartered limited-purpose commercial bank, formed expressly to enable local municipalities to deposit public funds with the Commercial Bank, opened for business on January 2, 2019. At December 31, 2020, the Commercial Bank deposits were $7.1 million, and none were in reciprocal deposit balances.
The following table sets forth the distribution of our average total deposit accounts, by account type, for the periods indicated.
| | | | | | | | | | | | | | | | | | |
| | For the Years Ended December 31, | ||||||||||||||||
| | 2020 | | 2019 | | 2018 | ||||||||||||
| | Average Balance |
| Percent |
| Weighted Average Rate |
| Average Balance |
| Percent |
| Weighted Average Rate |
| Average Balance |
| Percent |
| Weighted Average Rate |
| | | | | | | | | | | | | | | | | | |
| | (Dollar in Thousands) | ||||||||||||||||
Deposit type: | | | | | | | | | | | | | | | | | | |
Non-Interest- bearing checking.. | | $ 65,673 | | 21.2% | | 0% | | $ 38,098 | | 13.4% | | 0% | | $ 38,501 | | 14.8% | | 0% |
Interest-bearing checking | | 31,745 | | 10.3% | | 0.17 | | 27,525 | | 9.7% | | 0.07 | | 26,228 | | 10.1% | | 0.1 |
Money market | | 26,334 | | 8.5% | | 0.35 | | 24,861 | | 8.8% | | 0.6 | | 21,732 | | 8.3% | | 0.56 |
Savings | | 102,307 | | 33.1% | | 0.05 | | 85,300 | | 30.1% | | 0.86 | | 91,911 | | 35.3% | | 0.18 |
Certificates of deposit | | 83,487 | | 27.0% | | 1.06 | | 107,554 | | 38.0% | | 2.01 | | 82,071 | | 31.5% | | 1.5 |
| | | | | | | | | | | | | | | | | | |
Total deposits | | $ 309,546 | | 100% | | | | $ 283,338 | | 100% | | | | $ 260,443 | | 100% | | |
32
As of December 31, 2020, the aggregate amount of our outstanding certificates of deposit in amounts greater than or equal to $100,000 was approximately $114.8 million. The following table sets forth the maturity of those certificates as of December 31, 2020.
| |
| |
| At |
| December 31, 2020 |
| (In thousands) |
Maturity Period: | |
Three months or less | $ 45,224 |
Over three months through six months | $ 17,283 |
Over six months through twelve months | $ 30,938 |
Over twelve months | $ 21,381 |
Total | $ 114,826 |
| |
Borrowings. We may obtain advances from the Federal Home Loan Bank by pledging as security our capital stock in the Federal Home Loan Bank and certain of our mortgage loans and mortgage-backed securities. Such advances may be made pursuant to several different credit programs, each of which has its own interest rate and range of maturities. To the extent such borrowings have different terms to repricing than our deposits, they can change our interest rate risk profile. Recently, we have lengthened the maturities of some of our Federal Home Loan Bank advance borrowings to reduce interest rate risk. At December 31, 2020, we had $27.6 million of Federal Home Loan Bank advances (net of deferred prepayment penalties). In addition to funding portfolio loans, we sometimes use Federal Home Loan Bank advances for short-term funding needs arising from our mortgage-banking activities.
Generations Bank also has an $8.0 million line of credit with a correspondent bank. At December 31, 2020, there were no outstanding advances on this line. Generations Bank also has an additional $5.5 million fed funds line of credit with other financial institutions. This line is unsecured. At December 31, 2020, there were no outstanding advances on this line.
In June 2011, the Company issued $735,000 in fixed-rate subordinated debt. The notes, including principal and interest paid at 8% per annum, were subordinate and junior in right of payment to all obligations of the Company. All notes have a maturity date of June 30, 2021; however, we redeemed all the subordinated debt on February 15, 2021 with accrued interest of $7,350.
In July 2020, the Company obtained a $500,000 fixed-rate borrowing. The note, including principal and interest, had an interest rate of 6.0% and was due February 15, 2021. The note and accrued interest were paid in full on January 15, 2021.
The following table sets forth information concerning balances and interest rates on our borrowings at and for the periods shown:
| | | | | | |
| | | | | | |
| | At or For the Year | ||||
| | Ended December 31, | ||||
|
| 2020 |
| 2019 |
| 2018 |
| | |||||
Balance outstanding at end of period | | $ 28,863 | | $ 32,183 | | $ 26,304 |
Maximum amount of borrowing outstanding at any month end during the period | | $ 35,833 | | $ 42,912 | | $ 43,582 |
Weighted average interest rate at the end of period | | 1.98% | | 1.97% | | 2.58% |
Average interest rate during the period | | 2.11% | | 2.18% | | 2.07% |
Employees
At December 31, 2020, we had 92 full-time employees and four part-time employees. Management believes that we have a good working relationship with our employees.
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The presentation of Risk Factors is not required for smaller reporting companies like Generations Bancorp NY, Inc.
Item 1B. Unresolved Staff Comments
None
At December 31, 2020, the net book value of our office properties was $13.4 million, and the net book value of our furniture, fixtures and equipment was $1.2 million. The following table sets forth information regarding our offices at December 31, 2020.
| | | | | | |
| | Leased or | | Year Acquired | | Net Book Value of |
Location |
| Owned |
| or Leased |
| Real Property |
| | | | | | (In thousands) |
Main Office: | | | | | | |
Corporate Headquarters, 20 E Bayard St, Seneca Falls NY 13148 | | Owned | | 2013 | | $ 4,910 |
| | | | | | |
Branch Offices: | | | | | | |
19 Cayuga Street, Seneca Falls NY 13148 | | Owned | | 1977 | | 2,017 |
342 Hamilton Street, Geneva NY 14456 | | Owned | | 2004 | | 1,050 |
10 Osbourne Street, Auburn NY 13021 | | Owned | | 2008 | | 1,158 |
152 Cayuga Street, Union Springs, NY 13160 | | Owned | | 2009 | | 678 |
89 Main Street, Phelps NY 14532 | | Owned | | 2009 | | 193 |
1865 North Road, Waterloo NY 13165 | | Owned | | 2010 | | 1,322 |
621 N. Seward Avenue, Auburn NY 13021 | | Owned | | 2011 | | 1,425 |
6120 State Route #96, Farmington NY 14425 | | Owned | | 2014 | | 1,808 |
13858 NY Route #31, Albion NY 14411 | | Leased | | 2018 | | - |
11182 Maple Ridge Road, Medina NY 14103 | | Owned | | 2018 | | 663 |
We are not involved in any pending legal proceedings as a plaintiff or defendant other than routine legal proceedings occurring in the ordinary course of business, and at December 31, 2020, we were not involved in any legal proceedings, the outcome of which would be material to our financial condition or results of operations.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable
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ITEM 15. |
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Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
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| GENERATIONS BANCORP NY, INC. |
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Date: April 9, 2021 |
| By: | /s/ Menzo D. Case |
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| Menzo D. Case |
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| Chief Executive Officer, Principal Financial Officer and Director |
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| (Duly Authorized Representative) |
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