EDGAR 10-K Filing

Company CIK: 1823365
Filing Year: 2022
Filename: 1823365_10-K_2022_0001558370-22-004294.json

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ITEM 1. BUSINESS
ITEM 1. Business
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;
● 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.
The COVID-19 pandemic has caused significant economic dislocation that has affected, and may continue to affect, the business, financial condition, and results of operations of the Company and its customers. The pandemic caused changes in the behavior of customers, businesses, and their employees, including illness, quarantines, cancellation of events and travel, business and school shutdowns, reduction in commercial activity and financial transactions, supply chain interruptions, increased unemployment, and overall economic and financial market instability. Given the ongoing and dynamic nature of the pandemic, it is difficult to predict the full impact of the pandemic on the Company’s business. The extent of such impact will depend on future developments, which are highly uncertain, including the extent to which the outbreak can be controlled and abated and when and how the economy may be fully reopened. The pandemic may adversely impact several industries within our geographic footprint and impair the ability of the Company’s customers to fulfill their contractual obligations to the Company. This could cause the Company to experience a material adverse effect on our business operations, asset valuations, financial condition, and results of operations.
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 $13.2 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, 2021, Generations Bancorp had total consolidated assets of $378.9 million, loans net of allowance of $278.1 million, deposits of $312.0 million, and stockholders’ equity of $43.5 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 branch located in Seneca Falls, New York, in addition to eight full-service offices and one drive-through facility located in Auburn, Farmington, Geneva, Medina, Phelps, 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, Ontario, and Orleans counties, which are our primary deposit and lending markets. Our address at our headquarters is 20 East Bayard Street, Seneca Falls, New York 13148 and the telephone number at our headquarters 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 multi-family loans, commercial business loans, and residential and commercial construction loans. Most of our one- to four-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 our market area, including automobile loans, recreational vehicle loans, and manufactured home loans which are originated throughout the United States. We also invest in securities, which currently consist primarily of corporate bonds and 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, 2021, Generations Commercial Bank held $6.3 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. Our Annual Report on Form 10-K is available on our website under the “About Us” and “Investor Relations” tabs. Information on this website is not and should not be considered a part of this Annual Report on Form 10-K.
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, 2021 (the latest date for which information is available), Generations Bank’s deposit market share was 21.3% of total Federal Deposit Insurance Corporation-insured deposits in Seneca County, representing the third 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 branch located in Seneca Falls, New York, in addition to eight full-service offices and one drive-through facility located in Auburn, Farmington, Geneva, Medina, Phelps, 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, Ontario, and Orleans counties, which are our primary deposit and lending markets. We primarily 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. 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. According to the United States Census Bureau, the total populations in December 2020 for Cayuga, Seneca, Ontario and Orleans counties, New York were approximately 76,000, 34,000, 112,000 and 40,000, respectively. Additionally, each of these counties, other than Ontario County (which increased by 4.2%) experienced a population decrease from 2010 through December 2020.
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. 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 multi-family 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 outside of our market area, including automobile loans, recreational vehicle loans and manufactured home loans that have been originated throughout the United States. Subject to market conditions and our asset-liability analysis, in addition to originating and purchasing one- to four-family residential real estate loans, we intend to continue our 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.
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,
(In thousands)
Amount
Percent
Amount
Percent
Residential:
One- to four-family
$
113,061
42.7%
$
127,356
46.1%
Construction
-
0.0%
-
0.0%
Commercial:
Real estate - nonresidential
21,478
8.1%
24,754
9.0%
Multi-family
0.2%
5,125
1.9%
Construction
-
0.0%
-
0.0%
Commercial business
12,528
4.7%
20,505
7.4%
Consumer:
Home equity and junior liens
9,701
3.7%
11,387
4.1%
Manufactured homes
47,717
18.0%
44,347
16.1%
Automobile
22,666
8.6%
21,469
7.8%
Student
2,096
0.8%
2,259
0.8%
Recreational vehicle
29,463
11.1%
14,557
5.3%
Other consumer
5,492
2.1%
4,271
1.5%
Total loans receivable
264,658
100.0%
276,030
100.0%
Less:
Net deferred loan costs
15,590
11,787
FV credit and yield adjustment
(287)
(356)
Allowance for losses
(1,841)
(1,821)
Total loans receivable, net
$
278,120
$
285,640
Loan Portfolio Maturities. The following table summarizes the scheduled repayments of our loan portfolio at December 31, 2021. Demand loans, loans having no stated repayment schedule or maturity, and overdraft loans are reported as being due in the year ending December 31, 2022. 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
Real Estate
Commercial
Commercial
(In thousands)
Family
Construction
Nonresidential
Multi-family
Construction
Business
$
$
-
$
-
$
-
$
-
$
2,283
2023 to 2026
1,789
-
1,701
-
3,707
2027 to 2036
21,629
-
10,119
-
3,676
2037 and beyond
89,573
-
9,658
-
-
2,862
Total
$
113,061
$
-
$
21,478
$
$
-
$
12,528
Home equity
Manufactured
Recreational
Other
and junior liens
homes
Automobile
Student
vehicle
consumer
Total
$
$
$
$
$
$
$
3,108
2023 to 2026
2,405
15,211
26,340
2027 to 2036
6,865
14,092
7,253
2,057
13,521
3,071
82,684
2037 and beyond
32,864
-
-
15,722
1,825
152,526
Total
$
9,701
$
47,717
$
22,666
$
2,096
$
29,463
$
5,492
$
264,658
Fixed- and Adjustable-Rate Loan Schedule. The following table sets forth the scheduled repayments of fixed- and adjustable-rate loans at December 31, 2021 that are contractually due after December 31, 2022.
Due After December 31, 2022
(In thousands)
Fixed
Adjustable
Total
Residential:
One- to four-family
$
109,304
$
3,687
$
112,991
Commercial:
Real estate - nonresidential
15,810
5,668
21,478
Multi-family
-
Commercial business
7,500
2,745
10,245
Consumer
Home equity and junior liens
9,213
9,292
Manufactured homes
47,618
-
47,618
Automobile
22,464
-
22,464
Student
2,092
-
2,092
Recreational vehicle
29,462
-
29,462
Other consumer
5,437
5,452
Total loans receivable
$
248,900
$
12,650
$
261,550
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, 2021, based on the 15% limitation, Generations Bank’s loans-to-one-borrower limit was $6.5 million. At December 31, 2021, Generations Bank had no borrowers with outstanding balances in excess of this amount. At December 31, 2021, our largest loan outstanding with one borrower was $3.0 million, secured by a motel with furniture and fixtures, and was performing in accordance with its original repayment 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. One- to four-family residential real estate loans are generally underwritten according to Fannie Mae guidelines, and we refer to loans that conform to such guidelines as “conforming loans.”
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 real estate loans over $600,000 to $750,000 require the approval of Generations Bank’s Chief Executive Officer. Multi-family, commercial real estate, and commercial business loans up to $750,000 require the approval of Generations Bank’s Chief Executive Officer. 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 Chief of Consumer and Residential Lending. Generally, all loans in excess of $1.0 million need approval of the Lending Committee, which is comprised of the Chief Executive Officer, Chief Financial Officer, and two Board members, and any loan in excess of our in-house limit 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, 2021, we had $113.1 million of loans secured by one- to four-family residential real estate, representing 42.7% of our total loan portfolio. We originate both fixed-rate and adjustable-rate residential mortgage loans. At December 31, 2021, the one- to four-family residential mortgage loans held in our portfolio due after December 31, 2022 were comprised of 96.7% fixed-rate loans and 3.3% adjustable-rate loans. At that date, the average outstanding one- to four-family residential real estate loan balance was $86,000 and the largest outstanding residential loan had a principal balance of $471,000. 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.
We generally originate both fixed-rate and adjustable-rate mortgage loans in amounts up to the maximum 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 have fixed rates for initial terms of five years, and adjust thereafter at that interval at a margin. In recent years, this margin has generally been 2.75% 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 our adjustable-rate loans do not adjust for 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. At December 31, 2021, $3.7 million, or 3.3% 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 an 80% 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 Multi-family 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 multi-family loans are secured primarily by five or more-unit residential buildings. At December 31, 2021, we had $21.5 million in commercial real estate loans and $456,000 in multi-family real estate loans, representing 8.1% and 0.2% of our total loan portfolio, respectively
Our commercial real estate and multi-family 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 multi-family 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 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 multi-family 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, 2021, our largest commercial real estate relationship had five loans outstanding with an aggregate balance of $3.0 million. These loans were originated in 2016 and are secured by a motel and furniture and equipment. At December 31, 2021, our largest multi-family loan had a balance of $401,000 and is secured by two residential properties and a mixed-use commercial building. At December 31, 2021, these loans were performing in accordance with their repayment terms.
Commercial real estate and multi-family 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 multi-family 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, 2021 we had two commercial real estate and multi-family loans with an aggregate principal balance of $416,000 which were 90 days or more delinquent.
The following tables set forth information regarding our nonresidential real estate loans at December 31, 2021.
Collateral Type
Number of Loans
Balance
(In thousands)
Agricultural
$
Auto Dealership
1,558
Church
1,496
Hospitality
3,333
Manufacturing
Professional Services Building
4,612
Recreational
1,621
Retail
2,753
Retail Rental
5,990
Total
$
21,478
We consider a number of factors in originating commercial real estate and multi-family 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 multi-family loans are appraised by outside independent appraisers approved by the Board of Directors. Personal guarantees are generally obtained from the principals of nonresidential and multi-family 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 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, 2021, $12.5 million, or 4.7% of our total loan portfolio, was comprised of commercial business loans, of which $367,000 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 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, 2021, 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 meets 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 $367,000 at December 31, 2021.
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 which are originated throughout the United States. 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.
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, 2021, $47.7 million, or 18.0% of our total loan portfolio, were manufactured home loans, and the loss escrow was $3.6 million. At December 31, 2021, we had no manufactured home loans that were 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 our 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 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, in addition to dealer reserves. See “− Purchased Automobile, Recreational Vehicle Loans, and Other Consumer Loans” for discussion. At December 31, 2021, we had $22.7 million, or 8.6% of total loans, of automobile loans outstanding. At this date, three automobile loans with an aggregate principal balance of $44,000 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 relationships, 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 95% of the property value less any other third-party mortgages. 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 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, 2021, we had $9.7 million, or 3.7% of total loans, of home equity loans and outstanding advances under home equity lines and an additional $9.4 million of funds committed, but not advanced, under home equity lines of credit. At December 31, 2021, there were six home equity loans totaling $66,000 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.
Student Loans. We offered student loans to both in-school (full or part-time) students and out of school students. This program was closed to new student loan originations beginning in December 2021, however, we will still continue to maintain our existing portfolio. 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, 2021, $2.1 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, 2021.
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. See “− Purchased Automobile, Recreational Vehicle Loans, and Other Consumer Loans.” At December 31, 2021, we had $29.5 million, or 11.1% of total loans, of recreational vehicle loans outstanding. There were no recreational vehicle loans that 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 $5.5 million, representing 2.1% of the total loan portfolio, at December 31, 2021.
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, 2021, there were no consumer loans that 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, 2021, we had no construction loans outstanding.
Loans to individuals for the construction of their residences are typically originated as construction/permanent loans, with a construction phase for up to nine 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, 2021, the principal balances of our manufactured home loans ranged from $1,000 to $221,000, and at this date the median principal balance of our manufactured home loans was $65,000.
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 estimated 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, 2021 and 2020, we purchased $11.3 million and $25.2 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. The 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.
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, 2021, $21.7 million, or 8.2% of our total loan portfolio, were purchased automobile loans, $29.6 million, or 11.2% of our total loan portfolio, were purchased recreational vehicle loans and $3.0 million, or 1.2% of our total loan portfolio, were purchased other consumer loans. Of the automobile loans, $17.6 million were purchased from one vendor with no loss escrow reserves held at December 31, 2021. The remaining $4.1 million of purchased automobile loans, the $29.6 million of recreational vehicle loans, and $3.0 million of other consumer loans were purchased from another vendor, and at December 31, 2021, we had a loss escrow of $2.1 million for these $36.7 million of loans. During the years ended December 31, 2021 and 2020, we purchased $11.6 million and $2.0 million of automobile loans, respectively, $18.1 million and $14.9 million of recreational vehicle loans, respectively, and $1.8 million and $2.8 million of 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 2022, 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 for homes located in central and western New York. There is no minimum monthly purchase requirement and the contractual agreement is cancellable upon agreed upon notice. The purchase price is the loan’s principal balance plus a margin of the loan’s principal balance. The loans are non-recourse to the seller (except for certain contractual representations) and the contractual agreement prohibits re-solicitation by the seller for a defined period of time. After purchase, Generations Bank provides all servicing and collections activities. The note, collateral, and loan documentation are taken by assignment.
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,
(In thousands)
Total loans, including loans held for sale, at beginning of period
$
276,030
$
256,809
Loans originated:
Residential:
One- to four-family
12,255
14,413
Construction
-
Commercial:
Real estate - nonresidential
1,351
Multi-family
-
Commercial business
4,862
10,911
Consumer
Home equity and junior liens
Automobile
Recreational vehicle
Other consumer
Total loans originated
19,863
28,631
Loans purchased:
Residential:
One- to four-family
-
Consumer
Manufactured homes
11,327
25,236
Automobile
11,573
2,033
Recreational vehicle
18,053
14,930
Student
Other consumer
1,849
2,834
Total loans purchased
43,280
45,480
Other:
Principal repayments and charge offs
(74,515)
(54,890)
Net loan activity
(11,372)
19,221
Total loans, including loans held for sale, at end of period
$
264,658
$
276,030
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 Senior 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 is 10 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 in accordance with the purchase agreement.
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, 2021
30-89 Days
90 Days and Over
Total
(In thousands)
Past Due
Past Due
Past Due
Total Loans
Residential mortgage loans:
One- to four-family
$
4,280
$
2,577
$
6,857
4,280
2,577
6,857
Commercial loans:
Real estate - nonresidential
Commercial business
1,001
Consumer loans:
Home equity and junior liens
Manufactured homes
1,537
-
1,537
Automobile
Student
-
Recreational vehicle
-
Other consumer
-
2,795
2,905
Total loans
$
7,499
$
3,264
$
10,763
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:
One- to four-family
$
3,307
$
3,245
$
6,552
3,307
3,245
6,552
Commercial loans:
Real estate - nonresidential
1,103
1,235
Multi-family
-
Commercial business
1,833
2,119
Consumer loans:
Home equity and junior liens
Manufactured homes
1,384
1,459
Automobile
Student
-
-
-
Recreational vehicle
-
Other consumer
2,026
2,267
Total loans
$
5,619
$
5,319
$
10,938
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 asset classification policy, we regularly review the problem loans in our portfolio to determine whether any loans require classification in accordance with applicable regulations.
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,
(In thousands)
Classification of assets:
Special mention assets
$
5,485
$
6,003
Substandard assets
5,910
8,637
Doubtful assets
-
-
Loss assets
-
-
Total classified assets
$
11,395
$
14,640
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, 2021 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.
At December 31,
(In thousands)
Non-accrual loans:
Residential:
One- to four-family
$
2,577
$
3,245
Commercial:
Real estate - nonresidential
1,103
Multi-family
-
Commercial business
Consumer
Home equity and junior liens
Manufactured homes
-
Automobile
Other consumer
-
Total non-accrual loans
$
3,264
$
5,319
Real estate owned:
Residential:
One- to four-family
$
$
Total real estate owned
$
$
Total non-performing assets
$
3,291
$
5,364
Ratios:
Total non-performing loans to total loans
1.23%
1.93%
Total non-performing loans to total assets
0.86%
1.42%
Total non-performing assets to total assets
0.87%
1.43%
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.
At December 31, 2021, we had 15 loans totaling $3.0 million that were classified as troubled debt restructurings which were all performing according to their restructured loan agreements with the exception of one automobile loan with an outstanding principal balance of $9,000. TDR loans increased $452,000 in 2021 due to the restructure of a $294,000 nonresidential real estate loan in addition to the restructure of a loan relationship for $289,000 which included four one- to four-family residential mortgage loans and two nonresidential real estate loans.
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 collateral values, in determining the appropriateness of the allowance for loan losses for our secured loans. We use evidence obtained from our own loan portfolio as well as published data on our local markets from third party sources we believe to be reliable as a basis for assumptions about the impact of collateral 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.
Beginning January 1, 2023, we will adopt the CECL standard for determining the amount of our allowance for credit losses, which may increase our allowance for loan and lease losses upon adoption and cause our historic allowance for loan and lease losses not to be indicative of how we will maintain our allowance for credit losses beginning January 1, 2023.
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.
Allowance for Loan Losses. The following table sets forth activity in our allowance for loan losses for the periods indicated.
At December 31,
(In thousands)
Allowance at beginning of period
$
1,821
$
1,660
Provision for loan losses
Charge offs:
Residential:
One- to four-family
(117)
(89)
Commercial:
Real estate - nonresidential
(386)
(398)
Commercial business
(84)
(15)
Consumer
Home equity and junior liens
(2)
(9)
Automobile
(12)
(54)
Recreational vehicle
(1)
(14)
Other consumer
(45)
(4)
Total charge-offs
(647)
(583)
Recoveries:
Residential:
One- to four-family
Commercial:
Real estate - nonresidential
-
Multi-family
Commercial business
Consumer
Home equity and junior liens
-
Automobile
Student
Recreational vehicle
Other consumer
Total recoveries
Net (charge-offs) recoveries
(520)
(319)
Allowance at end of period
$
1,841
$
1,821
Allowance to non-performing loans
56.40%
34.24%
Allowance to total loans outstanding at the end of the period
0.70%
0.66%
Net charge-offs to average loans outstanding during the period
(0.18)%
(0.11)%
Residential mortgage net charge-offs to average loans outstanding
(0.03)%
(0.03)%
Commercial loan net charge-offs to average loans outstanding
(0.15)%
(0.09)%
Consumer loan net charge-offs to average loans outstanding
0.00%
0.01%
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,
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
(In thousands)
Losses
Allowance
Total Loans
Losses
Allowance
Total Loans
Residential:
One- to four-family
$
37.4%
42.7%
$
25.1%
46.1%
Commercial:
Real estate - nonresidential
34.2%
8.1%
17.5%
9.0%
Multi-family
0.1%
0.2%
1.4%
1.9%
Construction
-
0.0%
0.0%
-
0.0%
0.0%
Commercial business
8.7%
4.7%
33.9%
7.4%
Consumer
Home equity and junior liens
2.1%
3.7%
2.5%
4.1%
Manufactured homes
5.5%
18.0%
4.2%
16.1%
Automobile
5.8%
8.6%
7.0%
7.8%
Student
3.5%
0.8%
3.8%
0.8%
Recreational vehicle
-
0.0%
11.1%
-
0.0%
5.3%
Other consumer
2.6%
2.1%
4.6%
1.5%
Total allocated allowance
$
1,841
100.0%
100.0%
$
1,821
100.0%
100.0%
At December 31, 2021, our allowance for loan losses represented 0.70% of total loans and 56.4% of nonperforming loans. Nonperforming loans decreased $2.1 million, or 38.6%, to $3.3 million at December 31, 2021 from $5.3 million at December 31, 2020. The decrease resulted primarily from decreases in nonresidential real estate, one- to four-family residential mortgage, and commercial business loans. Nonresidential real estate decreased $687,000 primarily due to two loan payoffs for $356,000, a loan charge-off of $188,000, and two loan upgrades to accrual status totaling $84,000. One- to four-family residential mortgage loans decreased $668,000 primarily as a result of 10 loan payoffs totaling $1.1 million, seven loan upgrades to accrual status totaling $386,000, and two loan charge-offs for $98,000, partially offset by 17 loans downgraded to nonaccrual status totaling $945,000. Commercial business loans decreased $527,000 primarily due to five loan payoffs totaling $468,000 and two loan upgrades to accrual status totaling $53,000, partially offset by one loan downgraded to nonaccrual status for $33,000.
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 may increase the balance of our investment securities portfolio when we have excess liquidity.
Our investment policy was adopted and 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 states and municipalities, commercial paper, certificates of deposits in other financial institutions, and bank-owned life insurance.
At December 31, 2021, our investment portfolio consisted of securities and obligations issued by State and local municipalities, corporate bonds, equity securities consisting of mutual funds, and to a lesser extent mortgage-backed securities. At December 31, 2021, we owned $1.5 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.
Corporate Bonds. Generations Bank invests in corporate debt instruments with fixed and variable rates. On December 31, 2021, this portfolio consisted of $6.2 million of variable rate instruments and $11.9 million in fixed rate instruments, of which $10.0 million will become variable rate in the future. The bonds with variable rates reprice based either on the spread between intermediate Treasury bond yields and long-term Treasury bond yields or a fixed spread over either Prime or LIBOR, or a substantially similar index. All the bonds are callable except for one $39,000 bond. $12.2 million of the corporate bond portfolio are perpetual bonds with no terminal maturity dates; however, we anticipate these bonds will be called based the on the relative coupons and rate structures and upon anticipated changes in regulations pertaining to the securities. We maintain this portfolio for regular cash flow and providing protection over higher rates.
Management believes the credit risk on its corporate debt instruments portfolio is low. The securities are issued by entities with significant markets and strong balance sheets. Management receives quarterly updates on the issuing entities and evaluates their performance based on rating services and peers with the assistance of a third-party investment management service.
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 yields 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, 2021, we had mortgage-backed securities with a carrying value of $1.2 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 multi-family mortgages, although we invest primarily in 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, 2021 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. Weighted average yield is calculated by multiplying the amortized cost of the individual securities in a security type by their respective interest rates and then dividing the total interest income calculated for the security type by the total amortized cost of the security type. 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
(In thousands)
Cost
Yield
Cost
Yield
Cost
Yield
Cost
Yield
Cost
Value
Yield
Securities available for sale:
Residential mortgage-backed- US agency and GSEs
$
-
0.00%
$
4.81%
$
5.50%
$
2.13%
$
$
3.12%
Corporate bonds
0.00%
-
0.00%
1,100
7.00%
17,489
4.91%
18,589
18,043
5.03%
State and political subdivisions
2.10%
1,738
1.56%
4,812
2.26%
10,580
2.75%
$
18,081
$
18,899
2.47%
Total available for sale
$
$
1,740
$
5,920
$
28,092
$
36,703
$
36,975
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%
$
2.96%
$
4.52%
$
1,108
2.08%
$
1,128
$
1,150
2.12%
Total
$
-
$
$
$
1,108
$
1,128
$
1,150
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.
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, 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, 2021, we participated out approximately $19.0 million of our certificates of deposit, representing 6.1% of our total deposits, through these reciprocal deposit services. At December 31, 2021, these certificates of deposit had an average term to maturity of 14.2 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, 2021, the Commercial Bank deposits were $6.3 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.
At December 31,
(In thousands)
Average Balance
Percent
Weighted Average Rate
Average Balance
Percent
Weighted Average Rate
Deposit type:
Non-interest-bearing checking
$
42,608
13.6%
0.00
%
$
33,673
11.4%
0.00
%
Interest-bearing checking
49,071
15.8%
0.19
%
41,633
14.2%
0.17
%
Money market
29,488
9.5%
0.35
%
25,100
8.6%
0.35
%
Savings
109,317
35.2%
0.05
%
97,636
33.3%
0.05
%
Time deposits
80,453
25.9%
0.68
%
95,324
32.5%
1.06
%
Total deposits
$
310,937
100.0%
$
293,366
100.0%
As of December 31, 2021 and 2020, the aggregate amount of uninsured deposits (deposits in amounts greater than or equal to $250,000 which is the maximum amount for federal deposit insurance) was $89.6 million and $80.5 million, respectively. In addition, as of December 31 2021 and 2020, the aggregate amount of all our uninsured certificates of deposit was $24.2 million and $22.3 million, respectively. The following table sets forth the maturity of those certificates.
At December 31,
(In thousands)
Maturity Period:
Three months or less
$
8,722
$
5,863
Over three months through six months
$
1,924
$
1,064
Over six months through twelve months
$
12,720
$
12,487
Over twelve months
$
$
2,885
Total
$
24,164
$
22,299
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. At December 31, 2021, we had $17.8 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.
Generations Bank also has a $10.0 million line of credit with a correspondent bank. At December 31, 2021, there were no outstanding advances on this line. Generations Bank has an additional $5.5 million fed funds line of credit with other financial institutions. This line is unsecured. At December 31, 2021, there were no outstanding advances on this line.
Employees
At December 31, 2021, we had 83 full-time employees and five part-time employees. Management believes that we have a good working relationship with our employees.

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ITEM 1A. RISK FACTORS
Item 1A. RISK FACTORS
The presentation of Risk Factors is not required for smaller reporting companies like Generations Bancorp NY, Inc.

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ITEM 1B. UNRESOLVED STAFF COMMENTS
Item 1B. Unresolved Staff Comments
None.

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ITEM 2. PROPERTIES
Item 2. Properties
As of December 31, 2021, the net book value of our real properties, including land, was $14.1 million. The following table sets forth information regarding our offices at December 31, 2021.
Leased or
Year Acquired
Location
Owned
or Leased
Main Office:
Corporate Headquarters, 20 E Bayard St, Seneca Falls NY 13148
Owned
Branch Offices:
19 Cayuga Street, Seneca Falls NY 13148
Owned
342 Hamilton Street, Geneva NY 14456
Owned
10 Osbourne Street, Auburn NY 13021
Owned
152 Cayuga Street, Union Springs, NY 13160
Owned
89 Main Street, Phelps NY 14532
Owned
1865 North Road, Waterloo NY 13165
Owned
621 N. Seward Avenue, Auburn NY 13021
Owned
6120 State Route #96, Farmington NY 14425
Owned
11182 Maple Ridge Road, Medina NY 14103
Owned

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ITEM 3. LEGAL PROCEEDINGS
Item 3. Legal Proceedings
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, 2021, we were not involved in any legal proceedings, the outcome of which would be material to our financial condition or results of operations.

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ITEM 4. MINE SAFETY DISCLOSURE
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
PART II

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ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity
(a)
Market, Holder, and Dividend Information
The Company’s common stock is listed on the NASDAQ Capital Market under the symbol “GBNY.” The approximate number of holders of record of the Company’s common stock as of March 14, 2022 was 280. Certain shares of the Company’s common stock are held in “nominee” or “street” name and accordingly, the number of beneficial owners of such shares is not known or included in the foregoing number.
We do not currently pay cash dividends on our common stock and may not pay dividends in the future. Any dividends we pay would be dependent, in part, on dividends we receive from Generations Bank, because the Company has no source of income other than dividends from Generations Bank, earnings from the investment of proceeds from the sale of shares of common stock retained by the Company
and interest payments with respect to our loan to the Employee Stock Ownership Plan. See “Item 1. Business − Supervision and Regulation − Federal Banking Regulation − Capital Distributions.”
The Federal Reserve Board has issued supervisory policies to bank holding companies and savings and loan holding companies providing that dividends should be paid only out of current earnings and only if our prospective rate of earnings retention is consistent with our capital needs, asset quality and overall financial condition. Federal Reserve Board guidance also provides for prior regulatory consultation with respect to capital distributions in certain circumstances such as where the holding company’s net income for the past four quarters, net of dividends previously paid over that period, is insufficient to fully fund the dividend or the holding company’s overall rate or earnings retention is inconsistent with its capital needs and overall financial condition. In addition, Generations Bank’s ability to pay dividends will be limited if it does not have the capital conservation buffer required by the new capital rules, which may limit our ability to pay dividends to stockholders. No assurances can be given that any dividends will be paid or that, if paid, will not be reduced or eliminated in the future. Special cash dividends, stock dividends or returns of capital, to the extent permitted by regulations and policies of the Federal Reserve Board and the Office of the Comptroller of the Currency, may be paid in addition to, or in lieu of, regular cash dividends.
(b) Report of Offering of Securities and Use of Proceeds Therefrom
Not applicable.

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ITEM 6. SELECTED FINANCIAL DATA
ITEM 6 [Reserved]

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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS
ITEM 7. Management’s Discussion and Analysis of Financial Condition and Results of Operation
This discussion and analysis reflects our financial statements and other relevant statistical data, and is intended to enhance your understanding of our financial condition and results of operations. The information in this section has been derived from the audited financial statements, which appear beginning on page of this Annual Report on Form 10-K.
Overview
Generations Bancorp is the successor to Seneca-Cayuga Bancorp as the holding company for Generations Bank. Like Seneca-Cayuga Bancorp, Generations Bancorp conducts its operations primarily through Generations Bank and Generations Commercial Bank.
Our results of operations depend primarily on our net interest income. Net interest income is the difference between the interest income we earn on our interest-earning assets and the interest we pay on our interest-bearing liabilities. Our results of operations also are affected by our provisions for loan losses, noninterest income and noninterest expense. Noninterest income currently consists primarily of banking fees and service charges, insurance commissions, unrealized gains on equity securities and gains on sales of available-for-sale securities, and income from bank owned life insurance. Noninterest expense currently consists primarily of expenses related to compensation and employee benefits, occupancy and equipment, service charges, franchise taxes, federal deposit insurance premiums, and other operating expenses.
Our results of operations also may be affected significantly by general and local economic and competitive conditions, changes in market interest rates, governmental policies and actions of regulatory authorities.
Business Strategy
Our current business strategy is to operate as a well-capitalized and profitable community bank dedicated to serving the needs of our consumer and business customers, and offering personalized and efficient customer service. Our goals are to increase interest income through loan portfolio growth, with a primary focus in 2022 on growth in our originations and purchases of one-to four-family residential real estate loans, and to a lesser extent purchases of automobile, recreational vehicle and manufactured home loans, as well as continuing to decrease interest expense by increasing core deposits, and achieve economies of scale through managed balance sheet growth. Highlights of our current business strategy include:
● Emphasizing one- to four-family residential real estate lending. In 2022, purchased one- to four-family residential real estate loans are expected to be the primary source for growth. We have also added employees focused on one-to four-family residential real estate loans to increase our in-house production. At December 31, 2021, $113.1 million, or 42.7%, of our total loans consisted of one- to four-family residential real estate loans.
● Continuing our purchases and originations of automobile, recreational vehicle, and manufactured home loans. In recent years we have increased our emphasis on the purchase and origination of automobile, recreational vehicle, and manufactured home loans. At December 31, 2021, these loans totaled $99.8 million, or 37.7% of our total loan portfolio. For the years ended December 31, 2021 and 2020, we purchased $41.0 million and $42.2 million of automobile, recreational vehicle, and manufactured home loans.
● Automobile, recreational vehicle and manufactured home lending can increase loan yields with shorter repricing terms than one- to four-family residential real estate loans. At December 31, 2021, the weighted average rate on our automobile, recreational vehicle, and manufactured home loans was 6.96%.
● We believe that we have the experience and policies and procedures in place to continue loan purchases without undue risk. We began purchasing manufactured home loans in 2006. In part based on this experience, in 2016 we began purchasing automobile loans from one vendor and began purchasing automobile and recreational vehicle loans from a second vendor in February 2020. Additionally, we began purchasing manufactured home loans from a second vendor in 2019. To date, our credit experience on these loans has been satisfactory. See “Business of Generations Bank - Lending Activities - Manufactured Home Lending and “- Automobile Lending” and “- Other Consumer Lending.”
● Increasing our “core” deposit base. We seek to increase our core deposit base, particularly checking accounts. Core deposits include all deposit account types except certificates of deposit. Core deposits are our least costly source of funds, which improves our interest rate spread, and represent our best opportunity to develop customer relationships that enable us to cross-sell our full complement of products and services. Core deposits also contribute non-interest income from account-related fees and services and are generally less sensitive to withdrawal when interest rates fluctuate. We have continued our marketing efforts for checking accounts through digital, print, and outdoor advertising channels. Core deposits at December 31, 2021 increased $10.3 million, or 4.5%, from December 31, 2020 as customers have increased their balances in these accounts, we believe, due to the economic uncertainty caused by the Covid-19 pandemic. In recent years, we have significantly expanded and improved the products and services we offer our retail and business deposit customers who maintain core deposit accounts and have improved our infrastructure for electronic banking services, including online banking, mobile banking, bill pay, and e-statements. The deposit infrastructure we have established can accommodate significant increases in retail and business deposit accounts without additional capital expenditure.
● Implementing a managed growth strategy without undue risk. We intend to pursue a growth strategy for the foreseeable future, with the goal of improving the profitability of our business through increased net interest income and retail deposit growth. Subject to market conditions, we intend to grow our one- to four-family residential fixed-rate, automobile, recreational vehicle, and manufactured home loan portfolios. To a lesser extent we intend to grow our commercial real estate and multi-family home loan portfolios.
● Remaining a community-oriented institution and relying on high quality service to maintain and build a loyal local customer base. We were established in 1870 and have been operating 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. Through the goodwill we have developed over years of providing timely, efficient banking services, we believe that we have been able to attract a solid base of local retail customers on which we hope to continue to build our banking business.
Summary of Critical Accounting Policies
The discussion and analysis of the financial condition and results of operations are based on our consolidated financial statements, which are prepared in conformity with U.S. generally accepted accounting principles. The preparation of these financial statements requires management to make estimates and assumptions affecting the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities, and the reported amounts of income and expenses. We consider the accounting policies discussed below to be critical accounting policies. The estimates and assumptions that we use are based on historical experience and various other factors and are believed to be reasonable under the circumstances. Actual results may differ from these estimates under different assumptions or conditions, resulting in a change that could have a material impact on the carrying value of our assets and liabilities and our results of operations.
As an “emerging growth company” we may delay adoption of new or revised accounting pronouncements applicable to public companies until such pronouncements are made applicable to private companies. We have elected to take advantage of the benefits of this extended transition period. Accordingly, our financial statements may not be comparable to companies that comply with such new or revised accounting standards.
The following represent our critical accounting policies:
Allowance for Loan Losses. The allowance for loan losses represents management’s estimate of losses inherent in the loan portfolio as of the statement of financial condition date and is recorded as a reduction of loans. The allowance for loan losses is increased by the provision for loan losses, and decreased by charge-offs, net of recoveries. Loans deemed to be uncollectible are charged against the allowance for loan losses, and subsequent recoveries, if any, are credited to the allowance. All, or part, of the principal balance of loans receivable is charged off to the allowance as soon as it is determined that the repayment of all, or part, of the principal balance is highly unlikely. Consumer loans not secured by residential real estate are generally charged off no later than 90 days past due on a contractual
basis, earlier in the event of bankruptcy, or if there is an amount deemed uncollectible. Because all identified losses are immediately charged off, no portion of the allowance for loan losses is restricted to any individual loan or groups of loans, and the entire allowance is available to absorb any and all loan losses.
The allowance for loan losses is maintained at a level considered adequate to provide for losses that can be reasonably anticipated. Management performs a quarterly evaluation of the adequacy of the allowance. The allowance is based on our past loan loss experience, known and inherent risks in the portfolio, adverse situations that may affect the borrower’s ability to repay, the estimated value of any underlying collateral, composition of the loan portfolio, current economic conditions and other relevant factors. This evaluation is inherently subjective as it requires material estimates that may be susceptible to significant revision as more information becomes available.
The allowance consists of specific and general components. The specific component relates to loans that are classified as impaired. For loans that are classified as impaired, an allowance is established when the discounted cash flows (or collateral value or observable market price) of the impaired loan is lower than the carrying amount of that loan. The general component covers pools of loans by loan class including commercial loans not considered impaired, automobile loans identified in pools by product and underwriting standards, as well as smaller balance homogeneous consumer loans. These pools of loans are evaluated for loss exposure based upon historical loss rates for each of these categories of loans, adjusted for qualitative risk factors. These qualitative risk factors include:
● Asset quality trends
● The trend in loan growth and portfolio mix
● Regional and local economic conditions
● Historical loan loss experience
● Underlying credit quality
Each factor is assigned a value to reflect improving, stable or declining conditions based on management’s best judgment using relevant information available at the time of the evaluation.
The risk characteristics within the loan portfolio vary depending on the loan segment. Consumer loans generally are repaid from personal sources of income. Risks associated with consumer loans primarily include general economic risks such as declines in the local economy creating higher rates of unemployment. Those conditions may also lead to a decline in collateral values should we be required to repossess the collateral securing consumer loans. These economic risks also impact the commercial loan segment, however commercial loans are considered to have greater risk than consumer loans as the primary source of repayment is from the cash flow of the business customer. Loans secured by real estate provide the best collateral protection and thus significantly reduce the inherent risk in the portfolio.
A loan is considered impaired when, based on current information and events, it is probable that we will be unable to collect the scheduled payments of principal or interest when due according to the contractual terms of the loan agreement. Factors considered by management in determining impairment include payment status, collateral value and the probability of collecting scheduled principal and interest payments when due. Loans that experience insignificant payment delays and payment shortfalls generally are not classified as impaired. Management determines the significance of payment delays and payment shortfalls on a case-by-case basis, taking into consideration all of the circumstances surrounding the loan and the borrower, including the length of the delay, the reasons for the delay, the borrower’s prior payment record and the amount of the shortfall in relation to the principal and interest owed. Impairment is measured on a loan-by-loan basis for commercial loans, by either the present value of expected future cash flows discounted at the loan’s effective interest rate or the fair value of the collateral if the loan is collateral dependent.
An allowance for loan losses is established for an impaired loan if its carrying amount exceeds its estimated fair value. The estimated fair values of substantially all of our impaired loans are measured based on the estimated fair value of the loan’s collateral.
For commercial loans secured by real estate, including those in construction, estimated fair values are determined primarily through third-party appraisals. When a real estate secured loan becomes impaired, a decision is made as to whether an updated certified appraisal of the real estate is necessary. This decision is based on various considerations, including the age of the most recent appraisal, the loan-to-value ratio based on the original appraisal, and the condition of the property. Appraised values are discounted to arrive at the estimated selling price of the collateral, which is considered to be the estimated fair value. The discounts also include estimated costs to sell the property.
For commercial business loans secured by non-real estate collateral, such as accounts receivable, inventory, and equipment, estimated fair values are determined based on the borrower’s financial statements, inventory reports, accounts receivable agings or equipment appraisals, or invoices. Indications of value from these sources are generally discounted based on the age of the financial information or the quality of the assets.
Large groups of smaller balance homogeneous loans are collectively evaluated for impairment. Accordingly, we do not separately identify individual consumer loans for impairment disclosures, unless such loans are the subject of a troubled debt restructuring agreement.
Loans whose terms are modified are classified as troubled debt restructurings if we grant such borrowers concessions and it is deemed that those borrowers are experiencing financial difficulty. Concessions granted under a troubled debt restructuring generally involve a temporary reduction in interest rate or an extension of a loan’s stated maturity date. Loans classified as troubled restructurings are designated as impaired.
The allowance calculation methodology includes further segregation of loan classes into risk rating categories. The borrower’s overall financial condition, repayment sources, guarantors and value of collateral, if appropriate, are evaluated annually for commercial loans or when credit deficiencies arise, such as delinquent loan payments, for all loans.
Credit quality risk ratings include regulatory classifications of special mention, substandard, doubtful, and loss. Loans classified as special mention have potential weaknesses that deserve management’s close attention. If uncorrected, the potential weaknesses may result in deterioration of the repayment prospects. Loans classified as substandard have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. They include loans that are inadequately protected by the current sound net worth and paying capacity of the obligor or of the collateral pledged, if any. Loans classified as doubtful have all the weaknesses inherent in loans classified as substandard with the added characteristic that collection or liquidation in full, on the basis of current conditions and facts, is highly improbable. Loans classified as loss are considered uncollectible and are charged to the allowance for loans losses. Loans not classified are rated as pass.
In addition, federal regulatory agencies, as an integral part of their examination process, periodically review our allowance for loan losses and may have judgments different than management’s, and we may determine to increase our allowance as a result of these regulatory reviews. Based on management’s comprehensive analysis of the loan portfolio, management believes the current level of the allowance for loan losses is adequate.
Beginning January 1, 2023, we will adopt the CECL standard for determining the amount of our allowance for credit losses, which may increase our allowance for loan and lease losses upon adoption and cause our historic allowance for loan and lease losses not to be indicative of how we will maintain our allowance for credit losses beginning January 1, 2023.
Income Taxes. Deferred income tax assets and liabilities are determined using the liability method. Under this method, the net deferred tax asset or liability is recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases as well as net operating losses, capital losses, and contribution carry forwards. Deferred tax assets and liabilities are measured using enacted tax rates applied to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income tax expense in the period that includes the enactment date. To the extent that current available evidence about the future raises doubt about the likelihood of a deferred tax asset being realized, a valuation allowance is established. The judgment about the level of future taxable income, including that which is considered capital, is inherently subjective and is reviewed on a continual basis as regulatory and business factors change. Interest and penalties are included as a component of noninterest expense if incurred.
Uncertain tax positions are recognized if it is more likely than not, based on the technical merits, that the tax position will be realized or sustained upon examination. The term more likely than not means a likelihood of more than 50%. The terms examined and upon examination also include resolution of the related appeals or litigation processes, if any. A tax position that meets the more-likely-than-not recognition threshold is initially and subsequently measured as the largest amount of tax benefit that has a greater than 50% likelihood of being realized upon settlement with a taxing authority that has full knowledge of all relevant information. The determination of whether or not a tax position has met the more-likely-than-not recognition threshold considers the facts, circumstances, and information available at the reporting date and is subject to management’s judgment.
Average Balance and Yields. The following table sets forth average balance sheets, average yields and costs, and certain other information at the dates and for the periods indicated. No tax-equivalent yield adjustments have been made. Any adjustments necessary to present yields on a tax-equivalent basis are insignificant. All average balances are daily average balances. Non-accrual loans were included in the computation of average balances, but have been reflected in the table as loans carrying a zero yield. The yields set forth below include the effect of deferred fees, discounts, and premiums that are amortized or accreted to interest income or interest expense. Deferred loan fees totaled $15.6 million and $11.8 million for the years ended December 31, 2021 and 2020, respectively.
Year Ended December 31,
Average
Average
Balance
Balance
(In thousands)
Outstanding
Interest
Yield/ Rate
Outstanding
Interest
Yield/ Rate
Assets
Interest-earning assets:
Loans
$
284,841
$
12,576
4.42
%
$
278,329
$
12,390
4.45
%
Securities
35,258
2.62
%
29,777
2.96
%
Interest earning deposits
14,330
0.16
%
8,284
0.17
%
Other
1,693
4.78
%
2,216
5.91
%
Total interest-earning assets
336,122
13,603
4.05
%
318,606
13,416
4.21
%
Non-interest-earning assets
41,788
41,380
Total assets
$
377,910
$
359,986
Liabilities and equity
Interest-bearing liabilities:
Demand deposits
$
49,071
0.12
%
$
41,633
0.11
%
Money market accounts
29,488
0.36
%
25,100
0.40
%
Savings accounts
109,317
0.41
%
97,636
0.51
%
Certificates of deposit
80,453
0.81
%
95,324
1,620
1.70
%
Total interest-bearing deposits
268,329
1,260
0.47
%
259,693
2,260
0.87
%
Borrowings
22,214
1.91
%
31,446
2.11
%
Total interest-bearing liabilities
290,543
1,684
0.58
%
291,139
2,925
1.00
%
Other non-interest bearing liabilities
46,051
39,728
Total liabilities
336,594
330,867
Equity
41,316
29,119
Total liabilities and equity
$
377,910
$
359,986
Net interest income
$
11,919
$
10,491
Interest rate spread
3.47
%
3.21
%
Net interest-earning assets
$
45,579
$
27,467
Net interest margin
3.55
%
3.29
%
Average interest-earning assets to average
to interest-bearing liabilities
115.69
%
109.43
%
Rate Volume Analysis. The following table presents the effects of changing rates and volumes on our net interest income for the period indicated. The rate column shows the effects attributable to changes in rate (changes in rate multiplied by prior volume). The volume column shows the effects attributable to changes in volume (changes in volume multiplied by prior rate). The total column represents the sum of the prior columns. For purposes of this table, changes attributable to both rate and volume, which cannot be segregated, have been allocated proportionately based on the changes due to rate and the changes due to volume. There are no out-of-period items or adjustments included in the table below.
Year Ended December 31,
2021 vs. 2020
Increase (Decrease) Due to
Total
Increase
Volume
Rate
(Decrease)
(In thousands)
Interest-earning assets:
Loans
$
$
(104)
$
Securities
(120)
Interest-earning deposits
(1)
Other
(31)
(19)
(50)
Total interest-earning assets
(244)
Interest-bearing liabilities:
Demand deposits
Savings deposits
(14)
Money market deposits
(106)
(46)
Certificates of deposit
(253)
(719)
(972)
Total interest-bearing deposits
(167)
(833)
(1,000)
Borrowings
(195)
(46)
(241)
Total interest-bearing liabilities
(362)
(879)
(1,241)
Change in net interest income
$
$
$
1,428
Comparison of Financial Condition at December 31, 2021 and December 31, 2020
Total Assets. Total assets increased $5.1 million, or 1.4%, to $378.9 million at December 31, 2021 from $373.0 million at December 31, 2020. The increase resulted primarily from increases in investment securities available-for-sale of $19.0 million and pension plan assets of $2.4 million, offset in part by decreases in net loans of $7.5 million, cash and cash equivalents of $5.8 million, premises and equipment of $1.4 million, and other assets of $1.1 million.
Investment Securities. Securities available-for-sale increased $19.0 million, or 106.3%, to $37.0 million at December 31, 2021 from $17.9 million at December 31, 2020. The increase in securities available-for-sale resulted from bond purchases of $27.1 million, partially offset by proceeds of bond sales of $4.1 million, bond maturities and principal repayments of $3.0 million, and a $644,000 decrease in unrealized gains.
Pension Plan Assets. Pension plan assets increased $2.4 million, or 27.4%, to $11.1 million at December 31, 2021 from $8.7 million at December 31, 2020. The increase resulted from estimated returns on pension assets of $3.0 million and employer contributions of $382,000, offset by estimated benefits paid of $489,000 and interest costs of $549,000.
Net Loans. Net loans decreased $7.5 million, or 2.6%, to $278.1 million at December 31, 2021 from $285.6 million at December 31, 2020. The decrease resulted primarily from decreases in one- to four-family residential real estate loans of $14.3 million, or 11.2%, commercial business loans of $8.0 million, which includes the payoff of $4.5 million in PPP loans, or 38.9%, multi-family loans of $4.7 million, or 91.1%, nonresidential loans of $3.3 million, or 13.2%, and home equity loans and lines of credit of $1.7 million, or 14.8%, partially offset by increases in recreational vehicle loans of $14.9 million, or 102.4%, manufactured home loans of $3.4 million, or 7.6%, other consumer loans of $1.2 million, or 28.6%, and automobile loans of $1.2 million, or 5.6%. Net deferred fees increased $3.8 million, or 32.3%, during the year ended December 31, 2021, representing primarily fees paid for purchased loans which are amortized over the
estimated loan lives. At December 31, 2021, we had outstanding commitments to originate loans of $3.5 million and unfunded lines of credit of $15.6 million. We anticipate that we will have sufficient funds available to meet our current lending commitments.
Consistent with our business strategy, we intend to increase the originations and purchases of one-to four-family residential real estate loans, and to continue to purchase to a lesser extent, automobile, recreational vehicle, and manufactured home loans. During the year ended December 31, 2021, we purchased $11.6 million of automobile loans, $18.1 million of recreational vehicle loans, and $11.3 million of manufactured home loans.
Cash and Cash Equivalents. Cash and cash equivalents decreased $5.8 million, or 21.7%, to $21.0 million at December 31, 2021 from $26.8 million at December 31, 2020 primarily due to purchases of investment securities available-for-sale.
Premises and Equipment. Premises and equipment decreased $1.4 million, or 8.3%, to $15.3 million at December 31, 2021 from $16.7 million at December 31, 2020. The decrease resulted primarily from recognition of depreciation expense of $1.0 million and the sale of a non-banking retail building.
Deposits. Deposits increased $2.5 million, or 0.8%, to $312.0 million at December 31, 2021 from $309.5 million at December 31, 2020. Noninterest-bearing deposits decreased $8.1 million, or 12.4%, to $57.5 million at December 31, 2021 from $65.7 million at December 31, 2020. Interest-bearing accounts increased $10.6 million, or 4.4%, to $254.5 million at December 31, 2021 from $243.9 million at December 31, 2020. The largest increase in interest-bearing deposits was in savings accounts which increased $8.0 million, or 7.8%, to $110.3 million at December 31, 2021 from $102.3 million at December 31, 2020. Interest-bearing checking accounts increased $5.4 million, or 17.1%, to $37.2 million at December 31, 2021 from $31.7 million at December 31, 2020. Money market accounts increased $5.0 million, or 19.0%, to $31.3 million at December 31, 2021 from $26.3 million at December 31, 2020. Conversely, certificates of deposit decreased $7.8 million, or 9.3%, to $75.7 million at December 31, 2021 from $83.5 million at December 31, 2020. Time deposits that are scheduled to mature in one year or less from December 31, 2021 totaled $56.4 million. We may utilize Federal Home Loan Bank advances in place of the maturing time deposits.
Municipal deposits held at Generations Commercial Bank decreased $753,000, or 10.7%, to $6.3 million at December 31, 2021 from $7.1 million at December 31, 2020.
Federal Home Loan Bank Advances. Federal Home Loan Bank advances decreased $9.9 million, or 35.7%, to $17.8 million at December 31, 2021 from $27.6 million at December 31, 2020. The average cost of outstanding advances from the Federal Home Loan Bank was 1.91% at December 31, 2021, compared to our weighted average rate on deposits of 0.47% at that date.
Subordinated Debt and Other Borrowings. Subordinated debt and other borrowings, which totaled $1.2 million at December 31, 2020 were repaid in full during January 2021 and were $0 at December 31, 2021.
Total Equity. Total equity increased $13.6 million, or 45.5%, to $43.5 million at December 31, 2021 from $29.9 million at December 31, 2020. The increase was primarily due to net proceeds of $13.2 million from the stock offering completed in January 2021, net income of $1.4 million during the period, and a $449,000 decrease in other accumulated comprehensive loss, offset in part, by a $1.1 million increase in unearned ESOP shares, at cost and recording the $364,000 fair value of our shares of common stock held in supplemental executive and director retirement plans.
Comparison of Operating Results for the Years Ended December 31, 2021 and December 31, 2020
General. Net income for the year ended December 31, 2021 was $1.4 million, as compared to $1.7 million for the year ended December 31, 2020, a decrease of $335,000, or 19.2%. The decrease was primarily attributable to a $387,000 increase in income tax expense, a $82,000 increase in noninterest expense, a $60,000 increase in provision for loan losses, and a $1.2 million decrease in noninterest income, partially offset by a $1.4 million increase in net interest income.
Interest and Dividend Income. Interest and dividend income increased $187,000, or 1.4%, to $13.6 million for the year ended December 31, 2021 from $13.4 million for the year ended December 31, 2020. The increase was primarily attributable to an increase of $186,000 in interest on loans receivable. The average balance of loans increased $6.5 million, or 2.3%, to $284.8 million for the year ended December 31, 2021 from $278.3 million for the year ended December 31, 2020, primarily due to purchases of loans secured by recreational vehicles, manufactured homes, and automobiles, partially offset by a decrease in one- to four-family residential mortgages.
The average yield on loans decreased three basis points to 4.42% for the year ended December 31, 2021 from 4.45% for the year ended December 31, 2020.
Interest Expense. Interest expense decreased $1.2 million, or 42.4%, to $1.7 million for the year ended December 31, 2021 from $2.9 million for the year ended December 31, 2020. Interest expense on deposits decreased $1.0 million, or 44.2%, to $1.3 million for the year ended December 31, 2021 from $2.3 million for the year ended December 31, 2020, primarily due to a decrease in interest expense on certificates of deposit of $972,000. The average cost of certificates of deposit decreased as a result of higher cost time deposits that did not renew during the comparable periods. Borrowing expense decreased $241,000, or 36.2%, as higher cost amortizing debt was repaid during the comparable periods.
Net Interest Income. Net interest income increased $1.4 million, or 13.6%, to $11.9 million for the year ended December 31, 2021 from $10.5 million for the year ended December 31, 2020. Our net interest rate spread increased 26 basis points to 3.47% for the year ended December 31, 2021 from 3.21% for the year ended December 31, 2020. Our net interest margin increased 26 basis points to 3.55% for the year ended December 31, 2021 from 3.29% for the year ended December 31, 2020. Net interest rate spread and net interest margin were affected primarily by the decrease in cost of funds when comparing 2021 and 2020.
Provision for Loan Losses. Based on management’s analysis of the allowance for loan losses described in Note 2(g) of our consolidated financial statements “Summary of Significant Accounting Policies - Allowance for Loan Losses,” we recorded a provision for loan losses of $540,000 for the year ended December 31, 2021 and a provision for loan losses of $480,000 for the year ended December 31, 2020. The increased provision for loan losses in 2021 was primarily due to increases in reserves allocated to one- to four-family and nonresidential real estate loans as a result of the foreclosure moratorium. Beginning January 1, 2023, we will adopt the CECL standard for determining the amount of our allowance for credit losses, which may increase our allowance for loan and lease losses upon adoption and cause our historic allowance for loan and lease losses not to be indicative of how we will maintain our allowance for credit losses beginning January 1, 2023.
Noninterest Income. Noninterest income decreased $1.2 million, or 31.1%, to $2.7 million for the year ended December 31, 2021 from $4.0 million for the year ended December 31, 2020. The decrease was primarily due to decreases in net gains on sale of securities and other charges, commissions, and fees, partially offset by an increase in banking fees and service charges. Net gains on sale of securities decreased $1.1 million, or 99.1%, to $10,000 for the year ended December 31, 2021 from $1.1 million for the year ended December 31, 2020 due to the sale of securities in 2020 as they were no longer needed to collateralize deposits held at the commercial bank. Other charges, commissions, and fees decreased $251,000, or 53.5%, to $218,000 for the year ended December 31, 2021 from $469,000 for the year ended December 31, 2020 as a result of a $330,000 gain recorded on the sale of the investment services book of business in 2020. Banking fees and service charges increased $100,000, or 6.8%, to $1.6 million for the year ended December 31, 2021 from $1.5 million for the year ended December 31, 2020 due to a $116,000 increase in ATM interchange income due to increased activity during 2021.
Noninterest Expense. Noninterest expense increased $82,000, or 0.7%, to $12.4 million for the year ended December 31, 2021 from $12.3 million for the year ended December 31, 2020. Impairment of long-lived assets increased $300,000 due to the write-down of a property. The impairment loss recognized was estimated based upon an accepted purchase offer price less the costs to sell. Service charges increased $78,000, or 4.0%, to $2.0 million for the year ended December 31, 2021 due to increases in technology costs. Compensation and benefits decreased $322,000, or 5.7%, to $5.3 million for the year ended December 31, 2021 from $5.6 million for the year ended December 31, 2020 due to decreases in health insurance premium expense as a result of a reduction in the number of employees in addition to an increase in pension expense benefit.
Federal Income Taxes. Income tax expense increased $387,000, or 372.1%, to $283,000 for the year ended December 31, 2021 from an income tax benefit of $104,000 for the year ended December 31, 2020. The benefit recorded in 2020 resulted from our ability to carryback a net operating loss pursuant to the CARES Act.
Management of Market Risk
General. Our most significant form of market risk is interest rate risk because, as a financial institution, the majority of our assets and liabilities are monetary in nature and sensitive to changes in interest rates. Therefore, a principal part of our operations is to manage interest rate risk and limit the exposure of our financial condition and results of operations to changes in market interest rates. Our Asset/Liability Committee is responsible for evaluating the interest rate risk inherent in our assets and liabilities, for determining the
level of risk that is appropriate, given our business strategy, operating environment, capital, liquidity and performance objectives, and for managing this risk consistent with the policy and guidelines approved by our Board of Directors.
Our asset/liability management strategy attempts to manage the impact of changes in interest rates on net interest income, our primary source of earnings. Among the techniques we use to manage interest rate risk are:
● purchasing and originating consumer loans, including automobile, recreational vehicle and manufactured home loans, and commercial real estate and multi-family loans, all of which tend to have shorter terms and higher interest rates than one- to four-family residential real estate loans, and which, if originated, may generate customer relationships that can result in larger non-interest-bearing checking accounts;
● utilizing long-term Federal Home Loan Bank advances which are a closer match in duration to partially fund loan originations and purchases; and
● reducing our dependence on certificates of deposit to support lending and investment activities and increasing our reliance on core deposits, including checking accounts and savings accounts, which are less interest rate sensitive than certificates of deposit.
Our Board of Directors is responsible for the review and oversight of our Asset/Liability Committee, which is comprised of our executive management team and other essential operational staff. This committee is charged with developing and implementing an asset/liability management plan, and meets at least quarterly to review pricing and liquidity needs and assess our interest rate risk. We currently utilize a third-party modeling program, prepared on a quarterly basis, to evaluate our sensitivity to changing interest rates, given our business strategy, operating environment, capital, liquidity and performance objectives, and for managing this risk consistent with the guidelines approved by the Board of Directors.
Liquidity and Capital Resources
Liquidity describes our ability to meet the financial obligations that arise in the ordinary course of business. Liquidity is primarily needed to meet the borrowing and deposit withdrawal requirements of our customers and to fund current and planned expenditures. Our primary sources of funds are deposits, principal and interest payments on loans and securities and proceeds from maturities of securities. We also have the ability to borrow from the Federal Home Loan Bank. At December 31, 2021, we had $17.8 million outstanding in advances from the Federal Home Loan Bank, and had the ability to borrow approximately $51.1 million based on our collateral capacity. At December 31, 2021, we had an additional $15.5 million in lines of credit available with other financial institutions.
While maturities and scheduled amortization of loans and securities are predictable sources of funds, deposit flows and loan prepayments are greatly influenced by general interest rates, economic conditions, and competition. Our most liquid assets are cash and short-term investments including interest-bearing demand deposits. The levels of these assets are dependent on our operating, financing, lending, and investing activities during any given period.
Our cash flows are comprised of three primary classifications: cash flows from operating activities, investing activities, and financing activities. Net cash provided by operating activities was $3.4 million for the year ended December 31, 2021. Net cash provided by operating activities was $998,000 for the year ended December 31, 2020. Net cash used in investing activities, which consists primarily of purchases of available-for-sale investment securities and disbursements for loan purchases and originations, offset by sale of equity securities, proceeds from maturities, principal reductions, and sales of available-for-sale investment securities and purchases of premises and equipment, was $12.7 million for the year ended December 31, 2021 and $10.4 million for the year ended December 31, 2020. Net cash provided by financing activities, consisting primarily of the activity in deposit accounts and Federal Home Loan Bank advances, was $3.4 million for year ended December 31, 2021 and was $22.8 million for the year ended December 31, 2020.
We are committed to maintaining a strong liquidity position. We monitor our liquidity position on a daily basis. We anticipate that we will have sufficient funds to meet our current funding commitments.
Generations Bancorp is a separate corporate entity from Generations Bank and it must provide for its own liquidity to pay any dividends to its stockholders, to repurchase any shares of its common stock, and for other corporate purposes. Generations Bancorp’s primary source of liquidity is any dividend payments it may receive from Generations Bank. Generations Bank paid no dividends to its parent during the years ended December 31, 2021 and 2020. See “Supervision and Regulation - Federal Banking Regulation - Capital Distributions” for a discussion of the regulations applicable to the ability of Generations Bank to pay dividends. At December 31, 2021, Generations Bancorp (on an unconsolidated, stand-alone basis) had liquid assets totaling $2.1 million.
At December 31, 2021, Generations Bank exceeded all its regulatory capital requirements and was categorized as well capitalized. See Note 15 to the Consolidated Financial Statements. Management is unaware of any conditions or events since the most recent notification that would change our category.
Recent Accounting Pronouncements
See Note 2 to the Consolidated Financial Statements for a description of recent accounting pronouncements that may affect our financial condition and results of operations.
Impact of Inflation and Changing Price
The consolidated financial statements and related data presented elsewhere in this annual report have been prepared in accordance with generally accepted accounting principles in the United States of America which require the measurement of financial position and operating results in terms of historical dollars without considering changes in the relative purchasing power of money over time due to inflation. The primary impact of inflation on our operations is reflected in increased operating costs. Unlike most industrial companies, virtually all of the assets and liabilities of a financial institution are monetary in nature. As a result, interest rates, generally, have a more significant impact on a financial institution’s performance than does inflation. Interest rates do not necessarily move in the same direction or to the same extent as the prices of goods and services.

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ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Not required for smaller reporting companies.

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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
ITEM 8 Financial Statements and Supplementary Data
The Company’s Consolidated Financial Statements are presented in this Annual report on Form 10-K beginning at page.

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ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ITEM 9. Changes in and Disagreements with Accountants on Accounting Financial Disclosure
None.

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ITEM 9A. CONTROLS AND PROCEDURES
ITEM 9A. Controls and Procedures
(a)An evaluation was performed under the supervision and with the participation of the Company’s management, including the President and Chief Executive Officer and the Principal Financial Officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures (as defined in Rule 13a-15(e) promulgated under the Securities and Exchange Act of 1934, as amended) as of December 31, 2021. Based on that evaluation, the Company’s management, including the President and Chief Executive Officer and the Principal Financial Officer, concluded that the Company’s disclosure controls and procedures were effective.
(b)Management’s Annual Report on Internal Control Over Financial Reporting
The Company’s management is responsible for establishing and maintaining adequate internal control over financial reporting. The Company’s system of internal control over financial reporting is designed under the supervision of management, including our Chief Executive Officer and Chief Financial Officer, to provide reasonable assurance regarding the reliability of our financial reporting and the preparation of the Company’s consolidated financial statements for external reporting purposes in accordance with U.S. generally accepted accounting principles (“GAAP”) and necessarily include some amounts based on management’s best estimates and judgments.
Our internal control over financial reporting includes policies and procedures that pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect transactions and dispositions of assets; provide reasonable assurances that transactions are recorded as necessary to permit preparation of consolidated financial statements in accordance with GAAP, and that receipts and expenditures are made only in accordance with the authorization of management and the Board of Directors; and provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the Company’s assets that could have a material effect on our consolidated financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Projections on any evaluation of effectiveness to future periods are subject to the risk that the controls may become inadequate because of changes in conditions or that the degree of compliance with policies and procedures may deteriorate.
As of December 31, 2021, management assessed the effectiveness of the Company’s internal control over financial reporting based upon the framework set forth by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) in Internal Control-Integrated Framework of 2013. Based upon its assessment, management believes that the Company’s internal control over financial reporting as of December 31, 2021 is effective using these criteria.
This annual report does not include an attestation report of the Company’s registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by the Company’s registered public accounting firm pursuant to rules of the Securities and Exchange Commission that permit the Company (as a smaller reporting company or an emerging growth company) to provide only management’s report in this annual report.
(c)Attestation Report of the Registered Public Accounting Firm
This annual report does not include an attestation report of the Company’s registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by the Company’s registered public accounting firm pursuant to rules of the Securities and Exchange Commission that permit the Company (as a smaller reporting company or an emerging growth company) to provide only management’s report in this annual report.
(d)Changes in Internal Controls
During the year ended December 31, 2021, there were no changes in the Company’s internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

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ITEM 9B. OTHER INFORMATION
ITEM 9B. OTHER INFORMATION
None.
PART III

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ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
ITEM 10. Directors, Executive Officers, and Corporate Governance
Generations Bancorp NY, Inc. has adopted a Code of Ethics that applies to its principal executive officer, principal financial officer and principal accounting officer or controller or persons performing similar functions. A copy of the Code is available on the Company’s website at www.mygenbank.com under “About Us - Investor Relations - Governance.”
The information contained under the sections captioned “Proposal I - Election of Directors” in the Company’s definitive Proxy Statement for the 2022 Annual Meeting of Stockholders (the “Proxy Statement”) is incorporated herein by reference.

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ITEM 11. EXECUTIVE COMPENSATION
ITEM 11. Executive Compensation
The information contained under the section captioned “Proposal I - Election of Directors - Executive Compensation” in the definitive Proxy Statement is incorporated herein by reference.

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ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
ITEM 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
(a)Security Ownership of Certain Beneficial Owners
The information required by this item is incorporated herein by reference to the section captioned “Voting Securities and Principal Holders” in the Proxy Statement.
(b)Security Ownership of Management
The information required by this item is incorporated herein by reference to the section captioned “Voting Securities and Principal Holders” in the Proxy Statement.
(c)Changes in Control
Management of Generations Bancorp NY, Inc. knows of no arrangements, including any pledge by any person of securities of Generations Bancorp NY, Inc., the operation of which may at a subsequent date result in a change in control of the registrant.

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ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
ITEM 13. Certain Relationships and Related Transactions, and Director Independence
The “Transactions with Related Persons” and “Proposal 1 - Election of Directors - Board Independence” sections of the Company’s 2022 Proxy Statement are incorporated herein by reference.

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ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
ITEM 14. Principal Accountant Fees and Services
The “Proposal 2 - Ratification of Appointment of Independent Registered Public Accounting Firm” section of the Company’s 2022 Proxy Statement is incorporated herein by reference.
PART IV

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ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
ITEM 15. Exhibits and Financial Statement Schedules
(a)(1)Financial Statements
The documents filed as a part of this Form 10-K are:
(A)
Report of Independent Registered Public Accounting Firm
(B)
Consolidated Statements of Financial Condition for the years ended December 31, 2021 and 2020
(C)
Consolidated Statements of Income for the years ended December 31, 2021 and 2020
(D)
Consolidated Statements of Comprehensive Income for the years ended December 31, 2021 and 2020
(E)
Consolidated Statements of Changes in Shareholders Equity for the years ended December 31, 2021 and 2020
(F)
Consolidated Statements of Cash Flows for the years ended December 31, 2021 and 2020
(G)
Notes to Consolidated Financial Statements.
(a)(2)Financial Statement Schedules
All financial statement schedules have been omitted as the required information is inapplicable or has been included in the Notes to Consolidated Financial Statements.
(a)(3)Exhibits
3.1
Articles of Incorporation of Generations Bancorp NY, Inc.(1)
3.2
Bylaws of Generations Bancorp NY, Inc. (2)
4.1
Form of Common Stock Certificate of Generations Bancorp NY, Inc. (1)
4.2
Description of Generations Bancorp NY, Inc.’s Securities (3)
10.1
Amended and Restated Employment Agreement by and between Generations Bank and Menzo D. Case (1)
10.2
Generations Bank Amended and Restated Directors Retirement Plan (1)
10.3
Amended and Restated Supplemental Executive Retirement Plan for Menzo Case (1)
Subsidiaries (3)
31.1
Certification required pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2
Certification required pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1
Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2
Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101.INS
Inline XBRL Instance Document
101.SCH
Inline XBRL Taxonomy Extension Schema Document
101.CAL
Inline XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF
Inline XBRL Taxonomy Extension Definition Linkbase Document
101.LAB
Inline XBRL Taxonomy Extension Label Linkbase Document
101.PRE
Inline XBRL Taxonomy Extension Presentation Linkbase Document
Cover Page Interactive Data File - the cover page XBRL tags are embedded within the Inline XBRL document (included in Exhibit 101)
(1) Incorporated by reference to pre-effective amendment No. 1 to the Registration Statement on Form S-1 (file no. 333-248742), filed on September 11, 2020.
(2) Incorporated by reference to the Company’s Current Report on Form 8-K filed on December 16, 2020.
(3) Incorporated by reference to the Company’s Annual Report on Form 10-K filed on March 29, 2021.