Exhibit 99.3

CONVERSION VALUATION APPRAISAL REPORT 

Prepared for:

Generations Bancorp NY, Inc.

Seneca Falls, New York

As Of:

August 21, 2020

INTRODUCTION

Keller & Company, Inc. is an independent appraisal firm for financial institutions and has prepared this Conversion Valuation Appraisal Report ("Report") to provide the pro forma market value of the to-be-issued common stock of the new Generations Bancorp NY, Inc. (the “Corporation”), a newly formed Maryland corporation and the new holding company of Generations Bank (“Generations” or the “Bank”), Seneca Falls, New York, in connection with the conversion of Seneca Falls Savings Bank, MHC. The shares of common stock to be issued represent the majority interest in Seneca Falls Savings Bank, MHC, which was formed in 2006. Generations is a subsidiary of the Corporation. Under the Plan of Conversion, Seneca Falls Savings Bank, MHC will cease to exist, with Generations becoming a wholly owned subsidiary of the Corporation. The existing shares of stock in Seneca-Cayuga Bancorp, Inc., now named Generations Bancorp NY, Inc., will be exchanged for shares of stock in the Corporation based on their current appraised value as determined in this Report.

The Application is being filed with the Office of the Comptroller of the Currency (“OCC”), the Federal Reserve Board (“FRB”) and the Securities and Exchange Commission ("SEC"). In accordance with the conversion, there will be an issuance of 60.1 percent of the Corporation’s stock, representing the ownership of Seneca Falls Savings Bank, MHC, in the Corporation, along with the balance of assets held by Seneca Falls Savings Bank, MHC of $16,000, resulting in a 60.1 percent public offering based on the midpoint valuation. Such Application for Conversion has been reviewed by us, including the Prospectus and related documents, and discussed with the Bank’s management and the Bank’s conversion counsel, Luse Gorman, PC, Washington, D.C.

This conversion appraisal was prepared based on regulatory guidelines entitled "Guidelines for Appraisal Reports for the Valuation of Savings Institutions Converting from the Mutual to Stock Form of Organization," and the Revised Guidelines for Appraisal Reports and represents a full appraisal report. The Report provides detailed exhibits based on the Revised Guidelines and a discussion on each of the factors that need to be considered. Our valuation will be updated in accordance with the Revised Guidelines and will consider any changes in market conditions for thrift institutions.

Introduction (cont.)

The pro forma market value is defined as the price at which the stock of the Corporation after conversion would change hands between a typical willing buyer and a typical willing seller when the former is not under any compulsion to buy and the latter is not under any compulsion to sell, and with both parties having reasonable knowledge of relevant facts in an arm's-length transaction. The appraisal assumes the Bank is a going concern and that the shares issued by the Corporation in the conversion are sold in noncontrol blocks.

As part of our appraisal procedure, we have reviewed the financial statements for the five years ended December 31, 2015, 2016, 2017, 2018 and 2019, and unaudited financial statements for the six months ended June 30, 2019 and 2020, and discussed them with Generations’ management and with Generations’ prior independent auditors, Bonadio & Co., LLP, Syracuse, New York, and with their new independent auditor, BKD, LLP. We have also discussed and reviewed with management other financial matters and have reviewed internal projections. We have reviewed the Corporation's preliminary Form S-1 and the related filings and discussed them with management and with the Bank’s conversion counsel.

To gain insight into the Bank’s local market condition, we have become familiar with Generations’ market area. The Bank has ten offices, including its main office and nine branches.

We have studied the economic and demographic characteristics of the primary retail market area, and analyzed the Bank’s primary retail market area relative to New York and the United States. We have also examined the competitive market within which Generations operates, giving consideration to the area's numerous financial institution offices, mortgage banking offices, and credit union offices and other key market area characteristics, both positive and negative.

Introduction (cont.)

We have given consideration to the market conditions for securities in general and for publicly traded thrift stocks in particular. We have examined the performance of selected publicly traded thrift institutions and compared the performance of Generations to those selected institutions.

Our valuation is not intended to represent and must not be interpreted to be a recommendation of any kind as to the desirability of purchasing the to-be-outstanding shares of common stock of the Corporation. Giving consideration to the fact that this appraisal is based on numerous factors that can change over time, we can provide no assurance that any person who purchases the stock of the Corporation in this mutual-to-stock conversion will subsequently be able to sell such shares at prices similar to the pro forma market value of the Corporation as determined in this conversion appraisal.

I.       DESCRIPTION OF GENERATIONS BANK

GENERAL

Generations Bank (“Generations”) was organized in 1870 as a state-chartered mutual savings and loan association. The Bank changed its name to Generations Bank in 2012. In March 2000, the Bank formed its mutual holding company, Seneca Falls Savings Bank, MHC, and completed a minority stock offering as well as formed its holding company, Seneca-Cayuga Bancorp, Inc. In 2020, a new holding company was organized, Generations Bancorp NY, Inc., a Maryland corporation, and will become the holding company of Generations Bank. The Corporation plans to complete a stock offering equal to all the shares owned by Seneca Falls Savings Bank, MHC, and resulting in its elimination.

Generations conducts its business from its main office in Seneca Falls, New York, and its nine branches, two in Auburn, one in Union Springs, one in Waterloo, one in Geneva, one in Phelps, one in Farmington, one in Albion, and one in Medina. The Bank’s primary retail market is focused on Cayuga, Seneca, Ontario and Orleans Counties. The Bank has three offices in Cayuga County, two offices in Seneca County, three offices in Ontario County and two offices in Orleans County.

Generations’ deposits are insured up to applicable limits by the Federal Deposit Insurance Corporation ("FDIC") in the Bank Insurance Fund ("BIF"). The Bank is also subject to certain reserve requirements of the Board of Governors of the Federal Reserve Bank (the "FRB"). Generations is a member of the Federal Home Loan Bank (the "FHLB") of New York and is regulated by the OCC. As of June 30, 2020, Generations had assets of $372,320,000 deposits of $304,649,000 and equity of $29,338,000.

Generations has been principally engaged in the business of serving the financial needs of the public in its local communities and throughout its primary market area as a community-oriented institution. Generations has been involved in the origination of one- to four-family mortgage loans, which represented 17.7 percent of its loan originations during the six months ended June 30, 2020. One- to four-family mortgage loan originations represented a larger 22.9 percent of loan originations in the year ended December 31, 2019. At June 30, 2020, 49.0 percent of the Bank’s gross loans consisted of residential real estate loans on one- to four-family dwellings, compared to a higher 55.9 percent at December 31, 2018, with the primary sources of funds being retail deposits from residents in its local communities and to a lesser extent, FHLB advances. The Bank is also an originator of multi-family loans, commercial real estate loans, construction loans, commercial business loans and consumer loans. Consumer loans include home equity loans, automobile loans, manufactured home loans, and other secured and unsecured personal loans.

General (cont.)

The Bank had cash and investments of $51.0 million, or 13.7 percent of its assets, excluding FHLB stock which totaled $2,271,000 or 0.6 percent of assets at June 30, 2020. The Bank had $1.9 million of its investments in mortgage-backed and related securities representing 0.5 percent of assets. Deposits, principal payments, FHLB advances and equity have been the primary sources of funds for the Bank’s lending and investment activities.

The total amount of stock to be sold in the second stage offering will be $15,025,000 or 1,502,500 shares at $10 per share, based on the midpoint. The net conversion proceeds will be $13.7 million, net of conversion expenses of approximately $1,300,000. The actual cash proceeds to the Bank of $10.0 million will represent 73.0 percent of the net conversion proceeds. The ESOP will represent 8.0 percent of the new shares or 120,000 shares at $10 per share, representing $1,200,000 or 4.80 percent of the total value. The Bank’s net proceeds will be used to fund new loans, to eliminate subordinated debt, and to invest in securities following their initial deployment to short term investments. The Bank may also use the proceeds to expand services, expand operations or acquire other financial service organizations, diversify into other businesses, or for any other purposes authorized by law. The Corporation will use its proceeds to fund the ESOP and to invest in short-term deposits.

The Bank has experienced a strong deposit increase over the past three fiscal years, with deposits increasing 25.5 percent from December 31, 2017, to December 31, 2019, or an average of 12.8 percent per year. From December 31, 2018, to December 31, 2019, deposits increased by $22.9 million or 8.8 percent, compared to an increase of 15.4 percent in fiscal 2018. For the six months ended June 30, 2020, deposits increased a moderate 7.5 percent or 15.0 percent on an annualized basis.

General (cont.)

The Bank has experienced an increase in its loan portfolio during the past three years with an increase in the most recent six months and has focused on monitoring its asset quality position, on controlling its net interest margin and on maintaining a reasonable equity to assets ratio. Equity to assets decreased from 8.87 percent of assets at December 31, 2017, to 8.12 percent at December 31, 2019, and then decreased to 7.88 percent at June 30, 2020, impacted by the Bank’s increase in assets.

The primary lending strategy of Generations has been to focus on the origination of adjustable-rate and fixed-rate one-to four-family mortgage loans, the origination of home equity loans, commercial real estate and farm loans, multi-family loans, automobile loans, manufactured home loans, and commercial loans, with less activity in construction loans and other consumer loans.

The Bank’s share of one- to four-family mortgage loans has decreased from 55.9 percent of gross loans at December 31, 2015, to 49.0 percent at June 30, 2020. Commercial real estate loans decreased from 14.6 percent to 12.6 percent, and commercial business loans increased from 7.1 percent of loans to 8.1 percent of loans. Multi-family loans decreased from 2.4 percent of loans to 1.9 percent from December 31, 2018, to June 30, 2020. All types of real estate loans, including home equity loans, as a group decreased modestly from 77.8 percent of gross loans at December 31, 2018, to 69.8 percent at June 30, 2020. The decrease in real estate loans was offset by the Bank’s increases in consumer and other loans. The Bank’s share of consumer and other related loans increased from 15.1 percent to 24.1 percent during the same time period, and commercial business loans increased from 7.1 percent to 8.1 percent of gross loans.

General (cont.)

Management's internal strategy has also included continued emphasis on maintaining an adequate and appropriate level of allowance for loan losses relative to loans and nonperforming assets in recognition of the more stringent requirements within the industry to establish and maintain a higher level of general valuation allowances and also in recognition of the Bank’s stronger growth in loans. At December 31, 2019, Generations had $1,660,000 in its loan loss allowance or 0.65 percent of gross loans, and 26.9 percent of nonperforming loans with the loan loss allowance increasing to $1,996,000 and representing a higher 0.72 percent of gross loans and a higher 42.4 percent of nonperforming loans at June 30, 2020.

The basis of earnings for the Bank has been interest income from loans and investments with the net interest margin being the key determinant of net earnings with an emphasis on strengthening noninterest income and reducing noninterest expenses. With a primary dependence on net interest margin for earnings, current management will focus on striving to maintain a reasonable net interest margin during this lower interest rate environment without undertaking excessive credit risk combined with controlling the Bank’s interest risk position and continue to pursue reducing noninterest expenses, reduce nonperforming assets, and strengthening noninterest income.

PERFORMANCE OVERVIEW

The financial position of Generations at fiscal year end December 31, 2015, through December 31, 2019 and at June 30, 2020, is shown in Exhibits 1 and 2, and the earnings performance of Generations for the fiscal years ended December 31, 2015, through 2019 and for the six months ended June 30, 2020, is shown in Exhibits 3 and 4. Exhibit 5 provides selected financial data at December 31, 2015 through 2019 and at June 30, 2020. Generations has experienced an increase in its loan portfolio and asset base, along with an increase in cash and investments and deposits from December 31, 2015, through June 30, 2020. The most recent trend for the Bank from December 31, 2019, to June 30, 2020, was a moderate increase in assets, a minimal increase in cash and investments, a moderate increase in loans and a moderate increase in deposits.

With regard to the Bank’s more recent historical financial condition, Generations has experienced a strong increase in assets from December 31, 2017, through June 30, 2020, with a moderate increase in loans, a moderate increase in deposits and a modest increase in the dollar level of equity.

The Bank witnessed an increase in assets of $80.7 million or 27.8 percent for the period of December 31, 2017, to June 30, 2020, representing an average annual increase of 11.1percent. Over the past two fiscal periods, the Bank experienced its largest dollar increase in assets of $29.8 million in 2019, due primarily to a $15.5 million increase in loans, with a $14.2 million increase in cash and investments. During the Bank’s prior fiscal year of 2018, assets increased $27.3 million or 9.4 percent, compared to an increase of $17.8 million or 6.5 percent in 2017.

Generations’ net loan portfolio, which includes mortgage loans and nonmortgage loans, increased from $219.2 million at December 31, 2017, to $283.5 million at June 30, 2020, and represented a total increase of $64.3 million, or 29.3 percent. The average annual increase during that period was 11.7 percent. For the year ended December 31, 2019, net loans increased $15.5 million or 6.4 percent to $259.6 million, compared to an increase of $23.9 million or 9.2 percent to $283.5 million in the six months ended June 30, 2020.

Performance Overview (cont.)

Generations has obtained funds through deposits, FHLB advances and other borrowings with a moderate use of FHLB advances totaling $32.6 million at June 30, 2020, and $2.0 million in other borrowings, including subordinated debt. The Bank’s competitive rates for deposits in its local market in conjunction with its focus on service have been the sources for competing for retail deposits. Deposits increased $23.7 million or 9.1 percent from December 31, 2018, to December 31, 2019, and increased $21.3 million or 7.5 percent, or 15.0 percent, annualized, to $304.6 million at June 30, 2020, from December 31, 2019.

The Bank witnessed a modest increase in its dollar equity level from December 31, 2017, to June 30, 2020. At December 31, 2017, the Bank had an equity level of $25.8 million, representing an 8.87 percent equity to assets ratio and increased to $27.4 million at

December 31, 2018, representing a lower 8.60 percent equity to assets ratio. At December 31, 2019, equity was a higher $28.2 million and a lower 8.12 percent of assets, and then increased to $29.3 million but a lower 7.87 percent of assets at June 30, 2020, due to stronger growth in assets.

The overall decrease in the equity to assets ratio from December 31, 2015, to June 30, 2020, was impacted by the Bank’s strong increase in assets. The dollar level of equity increased $11,000 or 0.03 percent from December 31, 2015, to June 30, 2020.

INCOME AND EXPENSE

Exhibit 6 presents selected operating data for Generations. This table provides key income and expense figures in dollars for the years ended December 31, 2015, 2016, 2017, 2018 and 2019 and for the six months June 30, 2019 and 2020.

Generations witnessed a minimal decrease in its dollar level of interest income from 2015 to 2018. Interest income was $11.8 million in 2015 and a lower $11.6 million in 2018. Interest income then increased $1,154,000 in the year ended December 31, 2019, to $12.8 million, compared to an increase of $149,000 in 2018. In the six months ended June 30, 2020, interest income increased to $6.67 million or $13.3 million, annualized.

The Bank’s interest expense also experienced a modest increase from 2015 to 2018. Interest expense increased from $2,469,000 in 2015 to $2,628,000 in 2018, representing an increase of $159,000 or 6.4 percent. Interest expense then increased by $539,000 or 20.5 percent in 2019 to $3,167,000 In the six months ended June 30, 2020, interest expense was $1,581,000 or a similar $3.16 million, annualized. Such increase in interest income from 2015 through June 30, 2020, notwithstanding the smaller increase in interest expense, resulted in a modest dollar increase in annual net interest income but a decrease in net interest margin. Net interest income decreased from $9,355,000 in the year ended December 31, 2015, to $8,968,000 in 2018, then increased to $9,601,000 in 2019 and then increased to $5,084,000 in the six months ended June 30, 2020, or $10,168,000, annualized.

The Bank has made provisions for loan losses in each of the past five years of 2015 through 2019 and in the six months ended June 30, 2020. The amounts of those provisions were determined in recognition of the Bank’s levels of loans, nonperforming assets, charge-offs and repossessed assets. The loan loss provisions were $950,000 in 2015, $2,315,000 in 2016, $420,000 in 2017, $175,000 in 2018, $360,000 in 2019 and $180,000 in the six months ended June 30, 2020. The impact of these loan loss provisions has been to provide Generations with a general valuation allowance of $1,996,000 at June 30, 2020, or 0.72 percent of gross loans and 42.4 percent of nonperforming loans.

Income and Expense (cont.)

Total other income or noninterest income indicated an increase in dollars from 2015 to 2019 and then a decrease in the six months ended June 30, 2020. Noninterest income was $3,268,000 or 1.16 percent of assets in 2015 and a lower $3,114,000 in 2018 or 0.99 percent of assets. In the year ended December 31, 2019, noninterest income was a higher $3,548,000 and represented 1.02 percent of assets. In the six months ended June 30, 2020, noninterest income was $1,514,000 or 0.81 percent of assets, on an annualized basis. Noninterest income consists primarily of service charges, insurance commissions, gains and losses on the sale of securities, investment services commissions, BOLI income and other income.

The Bank’s general and administrative expenses or noninterest expenses increased from $10.14 million for the year of 2015 to $12.28 million for the year ended December 31, 2018, representing an increase of 21.1 percent, then increased to $12.86 million for the year ended December 31, 2019, or a 4.7 percent increase, and then decreased to $5,951,000 or $11,902,000, annualized for the six months ended June 30, 2020. On a percent of average assets basis, operating expenses increased from 3.76 percent of average assets for the year ended December 31, 2015, to 4.20 percent for the year ended December 31, 2018, then decreased to 3.97 percent for the year ended December 31, 2019, and then decreased to 3.34 percent for the six months ended June 30, 2020, annualized.

The net earnings position of Generations has indicated volatility from 2015 through 2019. The annual net income (loss) figures for the years of 2015, 2016, 2017, 2018 and 2019 were $1,092,000, $(1,196,000), $715,000, $(213,000) and $87,000, respectively, and $689,000 for the six months ended June 30, 2020, representing returns on average assets of 0.38 percent, (0.43) percent, 0.25 percent, (0.07) percent and 0.03 percent for fiscal years 2015, 2016, 2017, 2018 and 2019, respectively, and 0.39 percent for the six months ended June 30, 2020, annualized.

Income and Expense (cont.)

Exhibit 7 provides the Bank’s normalized earnings or core earnings for the twelve months ended June 30, 2020. The Bank’s normalized earnings typically eliminate any nonrecurring income and expense items. There were no adjustments, resulting in the normalized income being equal to actual earnings for the twelve months ended June 30, 2020, and equal to $689,000.

The key performance indicators comprised of selected performance ratios, asset quality ratios and capital ratios are shown in Exhibit 8 to reflect the results of performance. The Bank’s return on average assets changed from 0.38 percent in 2015, to (0.07) percent in 2018, to 0.03 percent in 2019, and then to 0.39 percent in the six months ended June 30, 2020.

The Bank’s net interest rate spread decreased from 3.77 percent in 2015 to 3.59 percent in 2018, then decreased to 3.46 percent in 2019, and then decreased to 3.30 percent in the six months ended June 30, 2020. The Bank’s net interest margin indicated a similar trend, decreasing from 3.76 percent in 2015 to 3.54 percent in 2018, then decreased to 3.40 percent in 2019, and decreased to 3.25 percent in the six months ended June 30, 2020. Generations’ net interest rate spread decreased 18 basis points from 2015 to 2018, then decreased 13 basis points in 2019 and then decreased 16 basis points in the first two quarters of 2020. The Bank’s net interest margin indicated a similar overall trend, decreasing 22 basis points from 2015 to 2018, then decreasing 14 basis points from 2018 to 2019 and then decreasing 15 basis points in the first two quarters of 2020.

The Bank’s return on average equity decreased from 2015 to 2019, and then increased in the first two quarters of 2020. The return on average equity decreased from 3.57 percent in 2015, to (0.81) percent in 2018, then increased to 0.32 percent in 2019, and then increased to 4.84 in the first two quarters of 2020, annualized.

Income and Expense (cont.)

Generations’ ratio of average interest-earning assets to interest-bearing liabilities decreased moderately from 122.19 percent at December 31, 2015, to 95.73 percent at December 31, 2018, then increased to 96.14 percent at December 31, 2019, and then increased slightly to 96.33 percent at June 30, 2020. The Bank’s overall decrease in its ratio of interest-earning assets to interest-bearing liabilities is primarily the result of the Bank’s minimal change in equity.

The Bank’s ratio of noninterest expenses to average assets increased from 3.76 percent in 2015 to 4.20 percent in 2018, then decreased to 3.97 percent in 2019, and then decreased to 3.34 percent in the six months ended June 30, 2020. Another key noninterest expense ratio reflecting efficiency of operation is the ratio of noninterest expenses to noninterest income plus net interest income referred to as the "efficiency ratio." The industry norm is 55.9 percent for all thrifts and 71.0 percent for thrifts with assets of $100.0 million to $1.0 billion, with the lower the ratio indicating higher efficiency. The Bank has been characterized with a moderately lower level of efficiency historically reflected in its higher efficiency ratio, which increased from 80.30 percent in 2015 to 101.52 percent in 2018, then decreased to 97.78 percent in 2019, and then decreased to 90.19 percent in the six months ended June 30, 2020.

Earnings performance can be affected by an institution's asset quality position. The ratio of nonperforming loans to total loans is a key indicator of asset quality. Generations witnessed a decrease in its nonperforming loans ratio from December 31, 2015 to June 30, 2020, and the ratio is moderately above the industry norm. Nonperforming loans, by definition, consist of loans delinquent 90 days or more, troubled debt restructurings that have not been performing for at least three months, and nonaccruing loans. Generations’ nonperforming loans consisted of nonaccrual loans with no loans accruing but past due, and no nonaccruing troubled debt restructured loans. The ratio of nonperforming loans to total loans was 1.70 percent at June 30, 2020, decreasing from 2.40 percent at December 31, 2019, and decreasing from 1.91 percent at December 31, 2015.

Income and Expense (cont.)

Two other indicators of asset quality are the Bank’s ratios of allowance for loan losses to total loans and also to nonperforming loans. The Bank’s allowance for loan losses was 1.11 percent of loans at December 31, 2015, decreased to 0.64 percent at December 31, 2018, then increased to 0.65 percent of loans at December 31, 2019, and then increased to 0.72 percent at June 30, 2020. As a percentage of nonperforming loans, Generations’ allowance for loan losses to nonperforming loans was 57.88 percent at December 31, 2015, a lower 52.28 percent at December 31, 2018, a lower 26.90 percent at December 31, 2019, and then a higher 42.40 percent at June 30, 2020.

Exhibit 9 provides the changes in net interest income due to rate and volume changes for the fiscal year ended December 31, 2019, and for the six months ended June 30, 2020. For the year ended December 31, 2019, net interest income increased $615,000, due to an increase in interest income of $1,154,000, decreased by a $539,000 increase in interest expense. The increase in interest income was due to an increase due to volume of $1,262,000, reduced by a decrease due to rate of $107,000. The increase in interest expense was due to a $425,000 increase due to rate, accented by a $114,000 increase due to volume.

For the six months ended June 30, 2020, net interest income increased $327,000, due to an increase in interest income of $398,000, reduced by a smaller increase in interest expense of $71,000. The increase in interest income was due to an increase due to volume of $759,000, reduced by a decrease due to rate of $361,000. The increase in interest expense was due to an increase due to volume of $318,000, reduced by a decrease due to rate of $247,000.

YIELDS AND COSTS

The overview of yield and cost trends for the years ended December 31, 2017, 2018 and 2019 and for the six months ended June 30, 2019 and 2020, can be seen in Exhibit 10, which offers a summary of key yields on interest-earning assets and costs of interest-bearing liabilities.

Generations’ weighted average yield on its loan portfolio decreased 12 basis points from fiscal year 2017 to 2019, from 4.83 percent to 4.71 percent and then decreased 20 basis points to 4.51 percent for the six months ended June 30, 2020. The yield on investment securities decreased from 3.46 percent to 3.17 percent from 2017 to 2019 or 29 basis points, and then decreased to 3.08 percent in the six months ended June 30, 2020. The yield on interest-bearing deposits increased from 1.04 percent to 1.79 percent from 2017 to 2019, or 75 basis points and then decreased to 0.34 percent for the six months ended June 30, 2020. The combined weighted average yield on all interest-earning assets decreased 10 basis points to 4.53 percent from fiscal year 2017 to 2019 and then decreased 26 basis points to 4.27 percent in the six months ended

June 30, 2020.

Generations’ weighted average cost of interest-bearing liabilities increased 15 basis points to 1.07 percent from fiscal year 2017 to 2019, which was more than the Bank’s 10 basis point decrease in yield, resulting in a decrease in the Bank’s net interest rate spread of 25 basis points from 3.71 percent to 3.46 percent from 2017 to 2019. The Bank’s cost of interest-bearing liabilities then decreased 9 basis points to 0.98 percent, which was less than the Bank’s 26 basis point decrease in yield, resulting in a decrease in the Bank’s net interest rate spread. The Bank’s interest rate spread decreased 17 basis points in the six months ended June 30, 2020. The Bank’s net interest margin decreased from 3.67 percent in 2017 to 3.40 percent in fiscal year 2019, representing a decrease of 27 basis points and then decreased to 3.26 percent in the six months ended June 30, 2020.

INTEREST RATE SENSITIVITY

Generations has monitored its interest rate sensitivity position and focused on maintaining a reasonable level of interest rate risk exposure by maintaining higher shares of adjustable-rate residential mortgage loans, commercial real estate loans and multi-family loans and adjustable-rate home equity loans to offset its moderate share of fixed-rate residential mortgage loans. Generations recognizes the thrift industry’s historically higher interest rate risk exposure, which caused a negative impact on earnings and net portfolio value in the past as a result of significant fluctuations in interest rates, specifically rising rates in the past. Such exposure was due to the disparate rate of maturity and/or repricing of assets relative to liabilities commonly referred to as an institution’s “gap.” The larger an institution’s gap, the greater the risk (interest rate risk) of earnings loss due to a decrease in net interest margin and a decrease in economic value of equity or portfolio loss. In response to the potential impact of interest rate volatility and negative earnings impact, many institutions have taken steps to reduce their gap position. This frequently results in a decline in the institution’s net interest margin and overall earnings performance. Generations has responded to the interest rate sensitivity issue by increasing its shares of adjustable-rate one to four family loans and commercial real estate loans.

The Bank measures its interest rate risk through the use of its net portfolio value (“NPV”) of the expected cash flows from interest-earning assets and interest-bearing liabilities and any off-balance sheets contracts. The NPV for the Bank is calculated on a quarterly basis by an outside firm, showing the Bank’s NPV to asset ratio, the dollar change in NPV, and the change in the NPV ratio for the Bank under rising and falling interest rates. Such changes in NPV ratio under changing rates are reflective of the Bank’s interest rate risk exposure.

There are numerous factors which have a measurable influence on interest rate sensitivity in addition to changing interest rates. Such key factors to consider when analyzing interest rate sensitivity include the loan payoff schedule, accelerated principal payments, sale of fixed-rate loans, deposit maturities, interest rate caps on adjustable-rate mortgage loans and deposit withdrawals.

Exhibit 11 provides the Bank’s NPV levels and ratios as of June 30, 2020, based on the most recent calculations and reflects the changes in the Bank’s NPV levels under rising and declining interest rates.

The Bank’s change in its NPV level at June 30, 2020, based on a rise in interest rates of 100 basis points was a 14.7 percent decrease, representing a dollar decrease in equity value of $3,729,000. In contrast, based on a decline in interest rates of 100 basis points, the Bank’s NPV level was estimated to increase 9.7 percent or $2,467,000 at June 30, 2020. The Bank’s exposure increases to a 26.2 percent decrease under a 200 basis point rise in rates, representing a dollar decrease in equity of $6,650,000. The Bank’s exposure is not reasonably measurable based on a 200 basis point decrease in interest rates, due to the currently low level of interest rates.

The Bank’s post shock NPV ratio based on a 200 basis point rise in interest rates is 5.39 percent and indicates a 151 basis point decrease from its 6.90 percent based on no change in interest rates.

The Bank is aware of its interest rate risk exposure under rapidly rising rates and falling rates. Due to Generations’ recognition of the need to control its interest rate exposure, the Bank has been moderately active in the origination of adjustable-rate loans. The Bank plans to increase its lending activity in the future and continue to maintain a moderate share of adjustable-rate loans. The Bank will also continue to focus on strengthening its NPV ratio,

recognizing the planned second stage offering will strengthen the Bank’s equity level and NPV ratio, based on any change in interest rates.

LENDING ACTIVITIES

Generations has focused its lending activity on the origination of conventional mortgage loans secured by one- to four-family dwellings, commercial real estate, commercial business loans, home equity loans, manufactured home loans, automobile loans and other consumer loans. The Bank has also been an originator of construction loans and multi-family loans to a much lesser extent. Exhibit 12 provides a summary of Generations’ loan portfolio by loan type at December 31, 2015, 2016, 2017, 2018 and 2019, and at June 30, 2020.

The primary loan type for Generations has been residential loans secured by one- to four-family dwellings, representing a moderate 49.0 percent of the Bank’s gross loans as of June 30, 2020. This share of loans has seen a minimal decrease from 49.3 percent at December 31, 2015. The second largest real estate loan type as of June 30, 2020, was commercial real estate loans, which comprised a moderate 12.6 percent of gross loans at June 30, 2020, compared to 17.9 percent as of December 31, 2015. The third largest loan type was manufactured home loans, which comprised a moderate 10.8 percent of gross loans at June 30, 2020, compared to a similar 10.0 percent at December 31, 2015. The fourth largest loan category was commercial business loans, which represented 8.1 percent of gross loans at June 30, 2020, compared to a similar 8.4 percent at December 31, 2015. These four real estate loan categories represented a strong 80.5 percent of gross loans at June 30, 2020, compared to a larger 85.6 percent of gross loans at December 31, 2015.

The Bank had a modest 4.2 percent of loans in home equity loans at June 30, 2020, up from 3.0 percent at December 31, 2015. The consumer loan category, excluding home equity loans and manufactured home loans, was the second largest loan category at June 30, 2020, and represented a moderate 13.3 percent of gross loans compared to 8.9 percent at December 31, 2015. The Bank’s consumer loans include automobile loans, student loans, and other secured and unsecured loans. The overall mix of loans has witnessed a modest change from December 31, 2015, to June 30, 2020, with the Bank having decreased its shares of one- to four-family loans and commercial real estate loans, offset by an increase in its share of consumer loans.

Lending Activities (cont.)

The emphasis of Generations’ lending activity is the origination of conventional mortgage loans secured by one- to four-family residences. Such residences are located primarily in the Bank’s retail market area, and extending into Wayne and Yates Counties. At June 30, 2020, 49.0 percent of Generations’ gross loans consisted of loans secured by one- to four-family residential properties, both owner-occupied and nonowner-occupied, excluding construction loans.

The Bank offers several types of adjustable-rate mortgage loans ("ARMs"), with adjustment periods of one year, three years, and five years. The interest rates on ARMs are generally indexed to the weekly average yield on U.S. Treasury rate securities adjusted to a constant maturity of one year. ARMs have a maximum rate adjustment of 2.0 percent at each adjustment period and 6.0 percent for the life of the loan. Rate adjustments are computed by adding a stated margin to the index, the U.S. Treasury securities rate. The Bank normally retains all ARMs which it originates. The majority of ARMs have terms of up to 30 years, which is the maximum term offered, with some loans having terms of 15 and 20 years.

The Bank’s one- to four-family mortgage loans remain outstanding for shorter periods than their contractual terms, because borrowers have the right to refinance or prepay. These mortgage loans contain “due on sale” clauses which permit the Bank to accelerate the indebtedness of the loan upon transfer of ownership of the mortgage property.

The Bank’s other key mortgage loan product is a fixed-rate mortgage loan with Generations’ fixed-rate mortgage loans having terms of 10 years, 15 years, and 30 years. Fixed-rate mortgage loans have a maximum term of 30 years. The Bank’s fixed-rate mortgage loans normally conform to Fannie Mae underwriting standards. The Bank also originates conforming “jumbo loans” residential mortgage loans.

Lending Activities (cont.)

The normal loan-to-value ratio for conventional mortgage loans to purchase or refinance one-to four-family dwellings generally does not exceed 95 percent at Generations, even though the Bank is permitted to make loans above the 95 percent loan-to-value ratio. While the Bank does make loans up to 100.0 percent of loan-to-value, the Bank requires private mortgage insurance for the amount in excess of the 85.0 percent loan-to-value ratio for fixed-rate loans and adjustable-rate loans. Mortgage loans originated by the Bank include due-on-sale clauses enabling the Bank to adjust rates on fixed-rate loans in the event the borrower transfers ownership. The Bank also requires an escrow account for insurance and taxes on loans with a loan-to-value ratio in excess of 85.0 percent.

Generations has also been an originator of adjustable-rate and fixed-rate commercial real estate loans and multi-family loans in the past and will continue to make multi-family and commercial real estate loans. The adjustable-rate loans have rate caps of 2.0 percent at each adjustment period and 6.0 percent over the life of the loan. The Bank had a total of $34.9 million in commercial real estate loans and $5.2 million in multi-family loans at June 30, 2020, or a combined 14.5 percent of gross loans, compared to a higher 18.3 percent of gross loans at December 31, 2015.

The major portion of commercial real estate and multi-family loans are secured by apartment buildings, small retail establishments, office buildings, churches, manufacturing facilities, and other mixed use properties used for business, and light industrial properties. Most of the multi-family and commercial real estate loans are fully amortizing with a term of up to 20 years, with rates on the adjustable-rate loans adjusting at the end of the initial term of three or five years. The maximum loan-to-value ratio is normally 75.0 percent for both multi-family loans and commercial real estate loans.

The Bank also originates manufactured home loans. The Bank had $19.7 million or 9.0 percent of gross loans in manufactured home loans at June 30, 2020. The maximum loan-to-value ratio is 90.0 percent of the contract price with a normal term of 20 years.

Lending Activities (cont.)

Generations is also an originator of commercial business loans, which represented a modest 8.1 percent of loans at June 30, 2020, and totaled $22.6 million. The Bank had $16.7 million in commercial business loans at December 31, 2015, or 8.4 percent of loans. These loans are normally floating-rate and indexed to the Wall Street Journal prime rate or fixed-rate and include lines of credit or term loans.

Generations also offers consumer loans, with these loans totaling $37.1 million at June 30, 2020, and representing 13.4 percent of gross loans, excluding home equity loans and manufactured home loans. Consumer loans primarily include automobile loans, student loans, and other secured and unsecured loans.

Exhibit 13 provides a loan maturity schedule and breakdown and a summary of Generations’ fixed- and adjustable-rate loans, indicating a majority of adjustable-rate loans. At December 31, 2019, 80.1 percent of the Bank’s loans due after December 31, 2020, were fixed-rate and 19.9 percent were adjustable-rate. At December 31, 2019, the Bank had 13.2 percent of its loans due on or before December 31, 2024, or in five years or less. The Bank had a larger 86.8 percent of its loans with a maturity of more than five years.

As indicated in Exhibit 14, Generations experienced a moderate decrease in its one-to four-family loan originations and a moderate decrease in total loan originations from 2015 to 2019, while total loan origination activity increased to a larger level in the six months ended June 30, 2020, annualized , and one- to four-family loan origination activity increased. Total loan originations in 2015 were $52.7 million compared to a moderately lower $44.7 million in fiscal year 2019, reflective of lower levels of one- to four-family loans, commercial real estate loans, and commercial loans originated, decreasing from a combined $40.6 million to $20.1 million. Total loan originations were $42.2 million in the six months ended June 30, 2020, or $4.4 million, annualized, led by commercial business loan originations, which totaled $10.5 million or $21.0 million, annualized, with other consumer loan originations totaling $9.8 million or $19.6 million, annualized. Automobile loan originations increased $12.5 million from 2015 to 2019, and manufactured home loan originations increased $5.2 million from 2015 to 2019. In the six months ended June 30, 2020, commercial business loans represented 25.0 percent of total loan originations, followed by other consumer loans, responsible for 23.4 percent of total loan originations.

Lending Activities (cont.)

Overall, loan originations and purchases exceeded loan sales, principal payments, loan repayments and other deductions in 2016 through 2019 and in the six months ended June 30, 2020, and fell short in 2015. In 2015, loan originations and purchases fell short of reductions by $2.7 million, then exceeded reductions in 2016, through 2018. In 2019, loan originations exceeded reductions by $13.7 million and then exceeded reductions by $9.3 million in the six months ended June 30, 2020, or $18.6 million, annualized.

NONPERFORMING ASSETS

Generations understands asset quality risk and the direct relationship of such risk to delinquent loans and nonperforming assets, including real estate owned. The quality of assets has been a key concern to financial institutions throughout many regions of the country. A number of financial institutions have been confronted with higher levels of nonperforming assets over the past few years and have been forced to recognize significant losses, setting aside major valuation allowances.

A sharp increase in nonperforming assets has often been related to specific regions of the country and has frequently been associated with higher risk loans, including commercial real estate loans and multi-family loans and nonowner-occupied single-family loans. Generations has a currently higher level of nonperforming assets, with nonperforming assets increasing slightly since December 31, 2015.

Exhibit 15 provides a summary of Generations’ delinquent loans at December 31, 2015, 2016, 2017, 2018 and 2019, and at June 30, 2020, indicating an overall decrease in the dollar amount of delinquent loans from December 31, 2015, to June 30, 2020. The Bank had $5,041,000 in loans delinquent 30 to 89 days at June 30, 2020. Loans delinquent 90 days or more totaled $4,708,000 at June 30, 2020, with these two categories representing 3.51 percent of gross loans, with most of them one- to four-family real estate loans followed by commercial real estate loans. At December 31, 2015, delinquent loans of 30 to 89 days totaled $7,342,000 or 3.67 percent of gross loans, and loans delinquent 90 days or more totaled $3,715,000 or 1.86 percent of gross loans for a combined total of $11,057,000 and a higher share of 5.53 percent of gross loans, compared to a lower $9,749,000 and a lower 3.51 percent of gross loans at June 30, 2020.

It is normal procedure for Generations’ board to review loans delinquent 90 days or more on a monthly basis, to assess their collectibility and possibly commence foreclosure proceedings. When a loan is delinquent 15 days, the Bank sends a late notice to the borrower and also contact the borrower by a phone call. After 90 days delinquency, a demand letter is sent.

Nonperforming Assets (cont.)

When the loan becomes delinquent 90 days, the Bank considers the loan in default and it is placed on nonaccrual status. A decision as to whether and when to initiate foreclosure proceedings is based on such factors as the amount of the outstanding loan, the extent of the delinquency and the borrower’s ability and willingness to cooperate in curing the delinquency. The Bank generally initiates foreclosure when a loan has been delinquent 90 days and no workout agreement has been reached.

Exhibit 16 provides a summary of Generations’ nonperforming assets at December 31, 2015, 2016, 2017, 2018 and 2019, and at June 30, 2020. Nonperforming assets, by definition, include loans 90 days or more past due, nonaccruing loans, troubled debt restructurings that have not performed, and repossessed assets. The Bank carried a higher dollar level of nonperforming assets at June 30, 2020, relative to December 31, 2015. Generations’ level of nonperforming assets was $4,557,000 at December 31, 2015, and a higher $4,733,000 at June 30, 2020, which represented 1.62 percent of assets in 2015 and 1.27 percent June 30, 2020. The Bank’s nonperforming assets included $3,825,000 in nonaccrual loans, no loans 90 days or more past due and $732,000 in real estate owned for a total of $4,557,000 at December 31, 2015. At June 30, 2020, nonperforming assets were a higher $4,733,000 or a lower 1.27 percent of assets and included $4,708,000 in nonaccrual loans, $25,000 in real estate owned, with no loans 90 days or more past due.

Generations’ levels of nonperforming assets were lower than its levels of classified assets. The Bank’s ratios of classified assets to assets, excluding special mention assets, were 3.55 percent of assets at December 31, 2017, and a lower 2.28 percent at June 30, 2020 (reference Exhibit 17). The Bank’s classified assets consisted of $8,486,000 in substandard assets, with no assets classified as doubtful and no assets classified as loss for a total of $8,486,000 at June 30, 2020. The Bank had $10,299,000 in assets classified as substandard and no assets classified as loss or doubtful at December 31, 2017.

Nonperforming Assets (cont.)

Exhibit 18 shows Generations’ allowance for loan losses at December 31, 2015, 2016, 2017, 2018 and 2019, and at June 30, 2020, indicating the activity and the resultant balances. Generations has witnessed a modest decrease in its balance of allowance for loan losses from $2,214,000 at December 31, 2015, to $1,996,000 at June 30, 2020. The Bank had provisions for loan losses of $950,000 in 2015, $420,000 in 2017, $175,000 in 2018, $360,000 in 2019 and $180,000 in the six months ended June 30, 2020.

The Bank had total charge-offs of $1,335,000 in 2015, $1,417,000 in 2016, $1,178,000 in 2017, $1,253,000 in 2018, $396,000 in 2019, and $54,000 in the six months ended June 30, 2020, with total recoveries of $92,000 in 2015, $38,000 in 2016, $91,000 in 2017, $143,000 in 2018, and $210,000 in the six months ended June 30, 2020. The Bank’s ratio of allowance for loan losses to gross loans was 1.11 percent at December 31, 2015, a lower 0.65 percent at December 31, 2019, a lower 0.72 percent at June 30, 2020. Allowance for loan losses to nonperforming loans was 57.9 percent at December 31, 2015, and a lower 26.97 percent at December 31, 2019, and a higher 42.4 percent at June 30, 2020.

INVESTMENTS

The investment and securities portfolio, excluding certificates of deposit, has been comprised of municipal securities, interest-bearing deposits, mortgage-backed securities, mutual funds and large cap equity mutual funds. Exhibit 19 provides a summary of Generations’ investment portfolio at December 31, 2017, 2018 and 2019, and at June 30, 2020, excluding FHLB stock and interest-bearing deposits. Investment securities totaled $32.7 million at June 30, 2020, based on fair value, compared to $12.8 million at December 31, 2017. The Bank had $5.6 million in mortgage-backed securities at December 31, 2017, and $1.9 million at June 30, 2020. Mortgage-backed securities represented the second largest category of the Bank’s investments at June 30, 2020, preceded by municipal securities. In 2017, mortgage-backed securities was the third largest investment category preceded by municipal securities and mutual funds.

The key component of investments at June 30, 2020, was municipal securities, totaling $32.5 million and representing 91.5 percent of total investments, excluding FHLB stock, compared to $7.2 million and a lesser 25.2 percent at December 31, 2017. The Bank had $1.1 million in mutual funds at June 30, 2020, representing 3.0 percent of investments and had a larger $16.1 million in mutual funds at December 31, 2017, representing 56.2 percent of investments and making it the largest investment category in 2017. The Bank had $2,271,000 in FHLB stock at June 30, 2020. The weighted average yield on investment securities was 3.08 percent for the six months ended June 30, 2020, and a higher 3.46 percent in 2017.

DEPOSIT ACTIVITIES

The mix of deposits by amount at December 31, 2017, 2018 and 2019, and at June 30, 2020, is provided in Exhibit 20. There has been a strong increase in total deposits and a modest change in the deposit mix during this period. Total deposits have increased from $225.7 million at December 31, 2017, to $304.6 million at June 30, 2020, representing an increase of $78.9 million or 35.0 percent. Certificates of deposit have increased from $83.7 million at December 31, 2017, to $99.6 million at June 30, 2020, representing an increase of $15.9 million or 19.0 percent, while savings, transaction and MMDA accounts have increased $63.1 million from $141.9 million at December 31, 2017, to $205.0 million at June 30, 2020, or 44.4 percent.

Exhibit 21 provides a breakdown of the Bank’s certificates of deposits in amounts of $100,000 or more by maturity. The largest category of these certificates based on maturity is certificates with a maturity of three months to six months, which represented a strong 54.4 percent of these certificates followed by certificates with a maturity of six months to one year, which represented a moderate 13.8 percent of certificates.

BORROWINGS

Generations has made moderate use of FHLB advances (reference Exhibit 22) in each of the years ended December 31, 2017, 2018 and 2019, and in the six months ended June 30, 2020. The Bank had total FHLB advances of $33.3 million at June 30, 2020, with a weighted cost of 2.08 percent during the period and a balance of a higher $43.4 million at December 31, 2017, with a weighted cost of a higher 1.85 percent during the period.

SUBSIDIARIES

Generations has two wholly owned subsidiaries, Generations Commercial Bank, a New York-chartered, special purpose commercial bank, and Generations Agency, Inc., which provides personal and commercial insurance products.

OFFICE PROPERTIES

Generations had ten offices at June 30, 2020, its main office and nine branch offices, with two branches in Auburn, one in Union Springs, one in Waterloo, one in Geneva, one in Phelps, one in Farmington, one in Albion and one in Medina. The Bank owns nine of its offices and leases one office in Albion in a Walmart store (reference Exhibit 23). At June 30, 2020, the Bank’s total investment in fixed assets, based on depreciated cost, was $17.2 million or 4.62 percent of assets.

MANAGEMENT

Mr. Menzo D. Case is president, chief executive officer and director of Generations Bank, positions he has held since 2008. Mr. Case began his employment with Generations Bank in 1999 as treasurer and chief financial officer and became executive vice president in 2002. Mr. Case has over 27 years of experience in banking. He serves as a board member and audit committee chair for Finger Lakes Health Systems, Inc., Geneva, New York, and is a board member for the New York Chiropractic College in Seneca Falls, New York. Mr. Case is a board member and actively volunteers for Habitat for Humanity of Seneca County, New York, an organization which has built homes for over 115 Seneca County residents over the 20 year period of his involvement.

Ms. Shelley J. Tafel is senior vice president and chief financial officer of Generations Bank, positions she has held since 2016. Prior to this, from the time she joined Generations Bank in 2011 until 2016, she served as vice president and chief financial officer. Previous to joining Generations Bank, for five years, Ms. Tafel was vice president and controller at another community financial institution in New York State. Ms. Tafel is a New York licensed CPA.

Mr. Kenneth Winn is senior vice president/credit administration of Generations Bank, a position he has held since 2016. In this role, Mr. Winn manages the commercial and residential credit administration functions for Generations Bank. Prior to joining Generations Bank, from 2014 to 2016, Mr. Winn was a credit consultant to a variety of community banks and credit unions. Prior to this, Mr. Winn served as executive vice president and chief risk officer, from 2012-2014, and senior vice president/senior credit administrator/compliance director and risk officer, from 2004 to 2012, at another financial institution.

II. DESCRIPTION OF PRIMARY MARKET AREA

Generations’ market area is focused on Seneca, Cayuga, Ontario and Orleans Counties, New York. Exhibit 25 shows the trends in population, households and income for Cayuga County, Ontario County, Orleans County, Seneca County, New York and the United States. Cayuga County’s and Orleans County’s population decreased by 2.4 percent and 3.1 percent, respectively, from 2000 to 2010, Ontario and Seneca Counties’ populations increased by 7.7 percent and 5.7 percent, respectively, while New York’s and the United States’ population levels increased by 2.1 percent and 9.7 percent, respectively, during the same time period. Through 2025, population is projected to increase by 2.9 percent in Ontario County, by 0.9 percent in New York and by 9.5 percent in the United States but decrease by 5.8 percent, 8.4 percent and 4.6 percent in Cayuga, Orleans and Seneca Counties, respectively.

More important is the trend in households. Seneca County experienced a 6.1 percent increase in households from 2000 through 2010, compared to increases of 2.9 percent in Cayuga County, 12.1 percent in Ontario County, 4.8 percent in Orleans County, 3.7 percent in New York New York and 10.7 percent in the United States. Cayuga County, Orleans County and Seneca County are projected to decrease in number of households from 2010 through 2025, by 2.6 percent in Cayuga County, by 6.9 percent in Orleans County, and by 2.0 percent in Seneca County, with Ontario County, New York and the United States increasing in households by 6.0 percent, 2.1 percent and 10.3 percent, respectively.

Description of Primary Market Area (cont.)

Orleans County had the lowest level per capita income level of the four counties in both 2000 and 2010, while Ontario County maintained the highest per capita income level in both years. Per capita income increased in all areas from 2000 to 2010. Seneca County’s per capita income increased to $22,641, Cayuga County’s per capita income level increased to $24,202, Ontario County’s and Orleans County’s per capita levels increased to $28,649 and $20,921, with New York and the United States per capita income levels increasing to $31,527 and $28,088, respectively. New York’s per capita income level increased to $31,527 and the United States’ per capita income level increased to $28,088. In 2000, median household income in the four counties were $37,804 in Cayuga County, $44,638 in Ontario County, $37,911 in Orleans and $37,242 in Seneca County, with New York at $43,642 and the United States with a median household income of $42,257. Median household income increased from 2000 to 2010 by 31.1 percent, 20.2 percent, 14.8 percent, 22.7 percent 26.6 percent and 21.5 percent to $49,576, $53,653, $43,518, $45,1689, $55,267 and $51,362 in Cayuga County, Ontario County, Orleans County, Seneca, New York and the United States, respectively. All areas are also projected to show increases in their median household income levels from 2010 through 2025. The median household income levels in Cayuga County, Ontario County, Orleans County, Seneca County, New York and the United States are projected to increase by 24.7 percent, 32.7 percent, 23.3 percent, 31.6 percent, 31.5 percent and 24.5 percent, respectively, to $61,804, $71,184, $53,667, $60,123, $72,700 and $63,968, respectively, from 2010 to 2025.

Exhibit 26 provides a summary of key housing data for Cayuga, Ontario, Orleans and Seneca Counties, New York and the United States. In 2000, Cayuga County had the lowest owner-occupancy rate among the four counties with owner-occupancy at 72.1 percent, still higher than New York at 53.0 percent and the United States at 66.2 percent. Ontario, Orleans and Seneca Counties had owner-occupancy rates of similar 73.6 percent, 75.6 percent and 73.8 percent, respectively. As a result, Cayuga County supported a higher rate of renter-occupied housing of 27.9 percent, compared to 26.4 percent Ontario County, 24.4 percent in Orleans County, 26.2 percent in Seneca County, 47.0 percent in New York and 33.8 percent in the United States. In 2010, owner-occupied housing decreased slightly in Cayuga County to 71.8 percent, increased to 75.5 percent in Ontario County, increased to 76.7 percent in Orleans County, increased to 77.4 percent in Seneca County, increased to a still lower level of 55.2 percent in New York and decreased to 65.4 percent in the United States. Conversely, the renter-occupied rates decreased slightly in all areas except Cayuga County and the United States. Cayuga County’s renter occupancy rate increased to 28.2 percent and the United States’ renter occupancy rate increased to 34.6 percent while renter occupancy rates decreased in Ontario, Orleans and Seneca Counties to 24.5 percent, 23.3 percent and 22.6 percent, respectively and in New York to 44.8 percent.

Description of Primary Market Area (cont.)

Cayuga County's 2000 median housing value was $75,300, higher than Orleans and Seneca Counties’ median housing values, but lower than Ontario County’s, New York’s and the United States’. The other 2000 median housing values were $91,006 in Ontario County, $70,989 in Orleans County, $72,400 in Seneca County, $148,700 in New York and $119,600 in the United States. The 2000 median rent values were $482, $479, $407, $521, $672 and $602 in Cayuga, Ontario, Orleans and Seneca Counties, New York and the United States, respectively. In 2010, median housing values had increased in Cayuga, Ontario, Orleans and Seneca Counties to $106,800, $139,400, $90,000 and $95,700. The 2010 median housing level in New York was much higher at $326,000 and a higher $186,200 in the United States. The 2010 median rent levels were $470, $601, $456, $529, $858 and $871 in Cayuga, Ontario, Orleans and Seneca Counties, New York and the United States, respectively. More recently, median housing values for 2019 were $117,053, $160,835, $95,997, $109,694, $295,632 and $212,069 for Cayuga, Ontario, Orleans and Seneca Counties, New York and the United States, respectively.

In 2000, the major source of employment for all areas by industry group, based on share of employment, was the services industry. The services industry was responsible for the majority of employment in all four counties, New York and the United States with 46.0 percent, 50.8 percent, 44.8 percent, 48.6 percent, 52.0 percent and 46.7 percent of jobs (reference Exhibit 27). The manufacturing industry was the second major employer in the four counties at 18.6 percent, 18.8 percent, 22.7 percent and 18.8 percent but was the third largest employer in New York and the United States at 10.0 percent and 14.1 percent, respectively The wholesale/retail trade group was the third major overall employer in the four counties at 15.3 percent, 15.3 percent, 14.5 percent, and 15.3 percent, and the wholesale/retail trade group was the second major overall employer in New York and the United States with 13.9 percent and 15.3 percent of employment, respectively. The agriculture/mining group, construction group, transportation/utilities, information and finance/insurance/real estate group combined to provide 20.0 percent of employment in Cayuga County, 16.7 percent of employment in Ontario County, 18.0 percent of employment in Orleans County, 16.6 percent of employment in Seneca County, 24.2 percent of employment in New York and 23.9 percent in the United States.

Description of Primary Market Area (cont.)

In 2010, the services industry, manufacturing industry and wholesale/retail trade industry provided the first, second and third highest levels of employment, respectively, for the four counties. In New York and the United States, the wholesale/retail sector remained the second highest employer with the manufacturing industry third. The services industry accounted for 47.6 percent, 45.8 percent, 45.7 percent, 48.8 percent, 56.0 percent and 53.2 percent in Cayuga, Ontario, Orleans and Seneca Counties, New York and the United States, respectively. The manufacturing trade industry provided for 17.1 percent, 14.1 percent, 19.9 percent, 18.5 percent, 7.1 percent and 10.4 percent of employment in Cayuga, Ontario, Orleans and Seneca Counties, New York and the United States, respectively. The wholesale/retail trade group provided 14.7 percent, 14.1 percent, 14.0 percent, 15.9 percent, 13.4 percent, and 14.5 percent of employment in the Cayuga, Ontario, Orleans, and Seneca Counties, New York and the United States, respectively. Ontario County indicated a higher 14.1 percent of jobs in the construction industry in 2010. In the 2010 Census, the agriculture/mining, construction, transportation/utilities, information, and finance/insurance/real estate sectors accounted for 20.6 percent, 26.0 percent, 20.4 percent, 19.4 percent, 23.5 percent and 21.9 percent in Cayuga, Ontario, Orleans and Seneca Counties, New York and the United States, respectively. The 2018 American Community Survey indicated minor changes from the 2010 Census in percentages of employment by industry group, with the exception of a decrease to 5.9 percent in the “Construction” category in Ontario County.

Some of the largest employers in Cayuga, Ontario, Orleans and Seneca Counties are listed below.

Description of Primary Market Area (cont.)

The unemployment rate is another key economic indicator. Exhibit 28 shows the unemployment rates in Cayuga, Ontario, Orleans and Seneca Counties, New York and the United States in 2016 through June of 2020. In 2016, Cayuga, Ontario, Orleans and Seneca Counties, New York and the United States had unemployment rates of 5.1percent, 4.3 percent, 5.7 percent, 4.8 percent, 4.9 percent and 4.9 percent, respectively. Through 2017, Cayuga and Seneca Counties, New York and the United States had decreases in unemployment to 5.0 percent in Cayuga County, to 4.5 percent in Seneca County, to 4.7 percent in New York, and 4.4 percent in the United States. Ontario and Orleans Counties’ unemployment increased to 4.5 percent and 5.9 percent, respectively in 2017. In 2018, unemployment rates decreased in all areas and were 4.5 percent, 3.9 percent, 5.0 percent, 3.9 percent, 4.1 percent and 3.9 percent, in Cayuga, Ontario Orleans and Seneca Counties, New York and the United States, respectively. In 2019, all areas except Ontario County had reductions in unemployment. Ontario County remained at 3.9 percent while Cayuga, Orleans and Seneca Counties, New York and the United States decreased in unemployment to 4.3 percent, 4.7 percent, 3.8 percent, 4.0 percent and 3.7 percent. Because of the COVID-19 pandemic, unemployment rates increased strongly through June of 2020 to 10.1 percent, 10.2 percent, 11.0 percent, 11.0 percent, 15.5 percent and 11.1 percent in Cayuga, Ontario, Orleans and Seneca Counties, New York the United States.

Exhibit 29 provides deposit data for banks and thrifts in Cayuga, Ontario, Orleans and Seneca Counties in which the Bank has its offices. As of June 30, 2019, Generations’ deposit base in Cayuga County was approximately $60.1 million or a 71.0 percent share of the $84.6 million total thrift deposits and a 5.5 percent share of the total deposits, which were approximately $1.1 billion as of June 30, 2019. Generations’ deposit base in Ontario County was approximately $46.5 million or a 100.0 percent share of the total thrift deposits and a 2.0 percent share of the total deposits, which were approximately $2.3 billion as of June 30, 2019. Generations’ deposits in Orleans and Seneca Counties also represented 100.0 percent of the thrift deposits at 50.6 million and 103.7 million, respectively, and 12.6 percent and 20.6 percent of total deposits in their respective counties. The total market area is dominated by banks, with bank deposits accounting for approximately 91.4 percent of deposits at June 30, 2019.

Description of Primary Market Area (cont.)

Exhibit 30 provides interest rate data for each quarter for the years 2016 through the second quarter of 2020. The interest rates tracked are the Prime Rate, as well as 90-Day, One-Year and Thirty-Year Treasury Bills. The Prime Rate increased moderately from 2015 to 2017, then continued rising steadily in 2018 and stabilized in 2019. In the first half of 2020, all interest rate indexes decreased significantly as a result of COVID-19. Short term interest rates experienced a modestly rising trend in 2015, then rising at a faster pace in 2016, 2017 and 2018, then decreasing modestly in 2019, and decreasing significantly in the first half of 2020, with the Thirty-Year Treasury rate rising in 2015, fluctuating in 2016 and then decreasing in 2017 but increasing in 2018 before decreasing in 2019 and decreasing much more in the first half of 2020.

SUMMARY

In summary, population increased in Ontario and Seneca Counties from 2000 to 2010 and decrease in Cayuga and Orleans Counties and the number of households increased in all four counties. The 2010 per capita income and median household income levels in Ontario County were the closest to state and national levels, but the per capita and median household income levels in all other counties were below both state and national levels. Also, Ontario and Seneca Counties’ unemployment rates have been lower than Cayuga and Orleans’ rates and lower than New York’s rates. According to the 2010 Census, median housing values in all four states were well below the state and national median. Through 2019, all four counties’ median housing values increased but are still much lower than the state and national rates.

The Corporation holds deposits of approximately 91.4 percent of all thrift deposits in the four-county market area as of June 30, 2019, but represents a minimal 6.0 percent share of the total deposit base of $4.3 billion.
 

III.       COMPARABLE GROUP SELECTION

Introduction

Integral to the valuation of the Corporation is the selection of an appropriate group of publicly traded thrift institutions, hereinafter referred to as the "comparable group". This section identifies the comparable group and describes each parameter used in the selection of each institution in the group, resulting in a comparable group based on such specific and detailed parameters, current financials and recent trading prices. The various characteristics of the selected comparable group provide the primary basis for making the necessary adjustments to the Corporation's pro forma value relative to the comparable group. There is also a recognition and consideration of financial comparisons with all publicly traded, FDIC-insured thrifts in the United States and all publicly traded, FDIC-insured thrifts in the Northeast region and in New York.

Exhibits 31 and 32 present Share Data and Pricing Ratios and Key Financial Data and Ratios, respectively, both individually and in aggregate, for the universe of 94 publicly traded, FDIC-insured thrifts in the United States ("all thrifts"), excluding mutual holding companies, used in the selection of the comparable group and other financial comparisons. Exhibits 31 and 32 also subclassify all thrifts by region, including the 15 publicly traded Northeast thrifts ("Northeast thrifts") and the 9 publicly traded thrifts in New York ("New York thrifts"), and by trading exchange.

The selection of the comparable group was based on the establishment of both general and specific parameters using financial, operating and asset quality characteristics of the Corporation as determinants for defining those parameters. The determination of parameters was also based on the uniqueness of each parameter as a normal indicator of a thrift institution's operating philosophy and perspective. The parameters established and defined are considered to be both reasonable and reflective of the Corporation’s basic operation.

Introduction (cont.)

The general parameter requirements for the selection of the peer group candidates included a maximum asset size limit of $1.4 billion, a trading exchange requirement that each candidate be traded on one of the two major stock exchanges, the New York Stock Exchange or the NASDAQ, a geographic parameter that eliminates potential candidates located in the Southwest and West, a merger and acquisition parameter that eliminates any potential candidate that is involved as a seller in a merger and acquisition transaction, and a recent conversion parameter that eliminates any institution that has not been converted from mutual to stock for at least four quarters or prior to June 30, 2020. Due to the general parameter requirement related to trading on NASDAQ or one of the other two major stock exchanges, the size of the peer group institutions results in larger institutions.

Inasmuch as the comparable group must consist of at least ten institutions, the parameters relating to asset size and geographic location have been expanded as necessary in order to fulfill this requirement.

GENERAL PARAMETERS

Merger/Acquisition

The comparable group will not include any institution that is a proposed seller in a merger or acquisition as of or prior to August 21, 2020, due to the price impact of such a pending transaction. There are no pending merger/acquisition transactions involving thrift institutions that were potential comparable group candidates in the Corporation’s city, county or market area as indicated in Exhibit 34.

Trading Exchange

It is necessary that each institution in the comparable group be listed on one of the three major stock exchanges, the New York Stock Exchange or the National Association of Securities Dealers Automated Quotation System (NASDAQ). Such a listing indicates that an institution’s stock has demonstrated trading activity and is responsive to normal market conditions, which are requirements for listing. Of the 94 publicly traded, FDIC-insured savings institutions, 4 are traded on the New York Stock Exchange and 49 are traded on NASDAQ. There were an additional 41 institutions traded over the counter or listed in the Pink Sheets, but they were not considered for the comparable group selection.

IPO Date

Another general parameter for the selection of the comparable group is the initial public offering ("IPO") date, which must be at least four quarterly periods prior to June 30, 2020, in order to insure at least four consecutive quarters of reported data as a publicly traded institution. The resulting parameter is a required IPO of June 30, 2019, or earlier.

Geographic Location

The geographic location of an institution is a key parameter due to the impact of various economic and thrift industry conditions on the performance and trading prices of thrift institution stocks. Although geographic location and asset size are the two parameters that have been developed incrementally to fulfill the comparable group requirements, the geographic location parameter has nevertheless eliminated regions of the United States distant to the Corporation, including the Southwest and West regions.

The geographic location parameter consists of the Northeast, North Central, Southeast and Midwest regions for a total of fifteen states. To extend the geographic parameter beyond those states could result in the selection of similar thrift institutions with regard to financial conditions and operating characteristics, but with different pricing ratios due to their geographic regions. The result could then be an unrepresentative comparable group with regard to price relative to the parameters and, therefore, an inaccurate value.

Asset Size

Asset size was another key parameter used in the selection of the comparable group. The total asset size for any potential comparable group institution was $1.4 billion or less, due to the general similarity of asset mix and operating strategies of institutions within this asset range,

compared to the Corporation, with assets of approximately $372 million. Such an asset size parameter was necessary to obtain an appropriate comparable group of at least ten institutions.

In connection with asset size, we did not consider the number of offices or branches in selecting or eliminating candidates, since that characteristic is directly related to operating expenses, which are recognized as an operating performance parameter.

SUMMARY

Exhibits 35 and 36 show the 15 institutions considered as comparable group candidates after applying the general financial, geographic and merger/acquisition parameters, with the outlined institutions being those ultimately selected for the comparable group using the balance sheet, performance and asset quality parameters established in this section along with being publicly traded on one of the three major exchanges..

BALANCE SHEET PARAMETERS

Introduction

The balance sheet parameters focused on seven balance sheet ratios as determinants for selecting a comparable group, as presented in Exhibit 35. The balance sheet ratios consist of the following:

1.       Cash and investments to assets

2.       Mortgage-backed securities to assets

3.       One- to four-family loans to assets

4.       Total net loans to assets

5.       Total net loans and mortgage-backed securities to assets

6.       Borrowed funds to assets

7.       Equity to assets

The parameters enable the identification and elimination of thrift institutions that are distinctly and functionally different from the Corporation with regard to asset mix. The balance sheet parameters also distinguish institutions with a significantly different capital position from the Corporation. The ratio of deposits to assets was not used as a parameter as it is directly related to and affected by an institution's equity and borrowed funds ratios, which are separate parameters.

Cash and Investments to Assets

The Bank’s ratio of cash and investments to assets, excluding mortgage-backed securities, was 12.55 percent at June 30, 2020, and reflects the Corporation’s normal share of investments, similar to the national average of 12.34 percent and higher than the state average of 10.41 percent. The Bank's investments have consisted of mutual funds, municipal securities, other investments and interest-bearing deposits. For its recent two years ended December 31, 2018, and December 31, 2019, the Corporation’s average ratio of cash and investments to assets was a lower 9.07 percent, ranging from a high of 10.15 percent in 2019 to a low of 7.98 percent in 2018 and was 12.55 percent at June 30, 2020.

The parameter range for cash and investments is has been defined as 45.0 percent or less of assets, with a midpoint of 22.5 percent.

Mortgage-Backed Securities to Assets

At June 30, 2020, the Corporation’s ratio of mortgage-backed securities to assets was 0.50 percent, moderately lower than the national average of 7.3 percent and the regional average of 5.5 percent for publicly traded thrifts.

Inasmuch as many institutions purchase mortgage-backed securities as an alternative to both lending, relative to cyclical loan demand and prevailing interest rates, and other investment vehicles, this parameter is also fairly broad at 30.0 percent or less of assets and a midpoint of 15.0 percent.

One- to Four-Family Loans to Assets

The Corporation’s lending activity is focused on the origination of residential mortgage loans secured by one- to four-family dwellings. One- to four-family loans, including

One- to Four-Family Loans to Assets (cont.)

construction loans and excluding home equity loans, represented 37.29 percent of the Corporation's assets at June 30, 2020, which is lower than its ratio of 40.15 percent at December 31, 2019, and lower than its ratio of 42.99 percent at December 31, 2018. The parameter for this characteristic is 55.00 percent of assets or less in one- to four-family loans with a midpoint of 27.50 percent.

Total Net Loans to Assets

At June 30, 2020, the Corporation had a 76.37 percent ratio of total net loans to assets and a lower two fiscal year average of 75.71 percent, compared to the national average of a lower 71.84 percent and the regional average of 72.94 percent for publicly traded thrifts. The Corporation's ratio of total net loans to assets changed from 76.72 percent of total assets at December 31, 2018, to 74.70 percent at December 31, 2019, to 76.37 percent at June 30, 2020.

The parameter for the selection of the comparable group is from 24.0 percent to 90.0 percent with a midpoint of 57.0 percent. The lower end of the parameter range relates to the fact that, as the referenced national and regional averages indicate, many institutions hold greater levels of investment securities and/or mortgage-backed securities as cyclical alternatives to lending, but may otherwise be similar to the Corporation.

Total Net Loans and Mortgage-Backed Securities to Assets

As discussed previously, the Corporation’s shares of mortgage-backed securities to assets and total net loans to assets were 0.50 percent and 76.37 percent, respectively, for a combined share of 76.87 percent. Recognizing the industry and regional ratios of 79.13 percent and 78.40

Total Net Loans and Mortgage-Backed Securities to Assets (cont.)

percent, respectively, the parameter range for the comparable group in this category is 50.0 percent to 95.0 percent, with a midpoint of 72.5 percent.

Borrowed Funds to Assets

The Corporation had borrowed funds of $33.3 million or 8.78 percent of assets at June 30, 2020, which is lower than current industry averages.

The use of borrowed funds by some institutions indicates an alternative to retail deposits and may provide a source of longer term funds. The federal insurance premium on deposits has also increased the attractiveness of borrowed funds. The institutional demand for borrowed funds has increased in 2019, due to rising rates paid on deposits and is now experiencing a modest decrease as rates have decreased.

The parameter range of borrowed funds to assets is 55.0 percent or less with a midpoint of 27.5 percent.

Equity to Assets

The Corporation’s equity to assets ratio was 7.74 percent at June 30, 2020, 8.12 percent at December 31, 2019, and 8.60 percent at December 31, 2018, averaging 8.36 percent for the two fiscal years ended December 31, 2019. The Bank’s retained earnings decreased in 2018, increased in 2019, and increased in the six months ended June 30, 2020. After the second stage offering, based on the midpoint value of $25.0 million, with a public offering of $15. million, with 66.7 percent of the net proceeds of the public offering going to the Bank, its equity is projected to increase to 10.27 percent of assets, with the Corporation at 9.54 percent of assets.

Equity to Assets (cont.)

Based on those equity ratios, we have defined the equity ratio parameter to be 7.0 percent to 20.0 percent with a midpoint ratio of 13.5 percent.

PERFORMANCE PARAMETERS

Introduction

Exhibit 36 presents five parameters identified as key indicators of the Corporation’s earnings performance and the basis for such performance both historically and the six months ended June 30, 2020. The primary performance indicator is the Corporation's core return on average assets (ROAA). The second performance indicator is the Corporation's core return on average equity (ROAE). To measure the Corporation's ability to generate net interest income, we have used net interest margin. The supplemental source of income for the Corporation is noninterest income, and the parameter used to measure this factor is the ratio of noninterest income to average assets. The final performance indicator is the Corporation's ratio of operating expenses or noninterest expenses to average assets, a key factor in distinguishing different types of operations, particularly institutions that are aggressive in secondary market activities, which often results in much higher operating costs and overhead ratios.

Return on Average Assets

The key performance parameter is core ROAA. For the twelve months ended June 30, 2020, the Corporation’s core ROAA was 0.19 percent based on a core income of $689,000, as detailed in Item I of this Report. The net ROAA for the year ended December 31, 2019, was 0.02 percent. The Corporation's ROAAs in its most recent three fiscal years ended December 31, 2019, were 0.25 percent, (0.24) percent, and 0.02 percent, respectively, with a three fiscal year average ROAA of 0.01 percent.

Considering the historical and current earnings performance of the Corporation, the range for the ROAA parameter based on core income has been defined as 1.05 percent or less with a midpoint of 0.53 percent.

Return on Average Equity

The ROAE has been used as a secondary parameter to eliminate any institutions with an unusually high or low ROAE that is inconsistent with the Corporation's position. This parameter does not provide as much meaning for a newly converted thrift institution as it does for established stock institutions, due to the unseasoned nature of the capital structure of the newly converted thrift and the inability to accurately reflect a mature ROAE for the newly converted thrift relative to other stock institutions.

The Corporation’s core ROAE for the twelve months ended June 30, 2020, was 2.28 percent based on its core income and 0.31 percent in the fiscal year ended December 31, 2019.

The parameter range for ROAE for the comparable group, based on core income, is 10.00 percent or less with a midpoint of 5.00 percent.

Net Interest Margin

The Corporation had a net interest margin of 3.31 percent for the twelve months ended June 30, 2020, representing net interest income as a percentage of average interest-earning assets. The Corporation's net interest margin levels in its three fiscal years of 2017 through 2019 were 3.61 percent, 3.27 percent, and 3.08 percent, respectively, averaging 3.32 percent.

The parameter range for the selection of the comparable group is from a low of 2.00 percent to a high of 3.90 percent with a midpoint of 2.90 percent.

Operating Expenses to Assets

For the twelve months ended June 30, 2020, the Corporation had a 3.63 percent ratio of operating expense to average assets. In its three fiscal years ended December 31, 2019, the Corporation’s expense ratio averaged 3.97 percent, from a low of 3.75 percent in fiscal year 2017 to a high of 4.20 percent in fiscal year 2018.

The operating expense to assets parameter for the selection of the comparable group is from a low of 0.95 percent to a high of 6.25 percent with a midpoint of 3.60 percent.

Noninterest Income to Assets

Compared to publicly traded thrifts, the Corporation has experienced a lower level of noninterest income as a source of additional income. The Corporation’s ratio of noninterest income to average assets was 0.99 percent for the twelve months ended June 30, 2020. For its three years ended December 31, 2017 through 2019, the Corporation’s ratio of noninterest income to average assets was 0.93 percent, 0.81 percent and 1.02 percent, respectively, for an average of 0.92 percent.

The range for this parameter for the selection of the comparable group is 4.50 percent of average assets or less, with a midpoint of 2.25 percent.

ASSET QUALITY PARAMETERS

Introduction

The final set of financial parameters used in the selection of the comparable group are asset quality parameters, also shown in Exhibit 36. The purpose of these parameters is to insure

Introduction (cont.)

that any thrift institution in the comparable group has an asset quality position similar to that of the Corporation. The three defined asset quality parameters are the ratios of nonperforming assets to total assets, repossessed assets to total assets and loan loss reserves to total assets at the end of the most recent period.

Nonperforming Assets to Total Assets

The Corporation’s ratio of nonperforming assets to assets was 1.28 percent at June 30, 2020, which is higher than the national average of 0.67 percent for publicly traded thrifts and the average of 0.54 percent for Northeast thrifts. The Corporation’s ratio of nonperforming assets to total assets averaged 1.41 for its most recent three fiscal years ended December 31, 2019, from a high of 1.80 percent in 2019, to a low of 0.95 percent 2018.

The comparable group parameter for nonperforming assets is 1.65 percent or less of total assets, with a midpoint of 0.83 percent.

Repossessed Assets to Assets

The Corporation had repossessed assets of $25,000 at June 30, 2020, representing a ratio to total assets of 0.01 percent, following ratios of repossessed assets to total assets of 0.02 percent and 0.02 percent at December 31, 2019, and December 31, 2018, respectively. National and regional averages were 0.10 percent and 0.04 percent, respectively, for publicly traded thrift institutions.

The range for the repossessed assets to total assets parameter is 0.25 percent of assets or less with a midpoint of 0.13 percent.

Loans Loss Reserves to Assets

The Corporation had an allowance for loan losses of $1,996,000, representing a loan loss allowance to total assets ratio of 0.54 percent at June 30, 2020, which was higher than its 0.48 percent ratio at December 31, 2019, and higher than its 0.49 percent ratio at December 31, 2018.

The loan loss allowance to assets parameter range used for the selection of the comparable group required a minimum ratio of 0.10 percent of assets.

THE COMPARABLE GROUP

With the application of the parameters previously identified and applied, the final comparable group represents ten institutions identified in Exhibits 36, 37 and 38. The comparable group institutions range in size from $144.1 million to $1.36 billion with an average asset size of $650.6 million and have an average of 8.0 offices per institution. Two of the comparable group institutions are in Indiana, two are in Pennsylvania, with one each in Maryland, Nebraska, Louisiana, Ohio, Minnesota and Illinois, and all ten are traded on NASDAQ.

The comparable group institutions as a unit have a ratio of equity to assets of 11.80 percent, which is 2.7 percent lower than all publicly traded thrift institutions in the United States; and for the most recent four quarters indicated a core return on average assets of 0.75 percent, higher than all publicly traded thrifts at 0.70 percent and higher than all publicly traded New York thrifts at 0.19 percent.

IV.       ANALYSIS OF FINANCIAL PERFORMANCE

This section reviews and compares the financial performance of the Corporation to all publicly traded thrifts, to publicly traded thrifts in the Midwest region and to New York thrifts, as well as to the ten institutions constituting the Corporation’s comparable group, as selected and described in the previous section. The comparative analysis focuses on financial condition, earning performance and pertinent ratios as presented in Exhibits 39 through 44.

As presented in Exhibits 40 and 41, at June 30, 2020, the Corporation’s total equity of 7.88 percent of assets was lower than the comparable group at 11.80 percent, all thrifts at 12.13 percent, Northeast thrifts at 11.10 percent and New York thrifts at 14.38 percent. The Corporation had a 76.37 percent share of net loans in its asset mix, higher than the comparable group at 64.61 percent, higher than all thrifts at 71.84 percent, higher than New York thrifts at 74.54 percent and higher than Northeast thrifts at 72.94 percent. The Corporation’s modestly higher share of net loans and lower 12.55 percent share of cash and investments reflects its lower 0.50 percent share of mortgage-backed securities. The comparable group had a higher 16.24 percent share of cash and investments and a higher 11.14 percent share of mortgage-backed securities. All thrifts had 7.29 percent of assets in mortgage-backed securities and 12.34 percent in cash and investments. The Corporation’s 81.82 percent share of deposits was higher than the comparable group, all thrifts, Northeast thrifts and New York thrifts, reflecting the Corporation's lower share of borrowed funds of 8.78 percent and lower share of equity of 7.74 percent. As ratios to assets, the comparable group had deposits of 74.70 percent and borrowings of 12.20 percent. All thrifts averaged a 76.51 percent share of deposits and 10.00 percent of borrowed funds, while Northeast thrifts had a 75.97 percent share of deposits and an 11.11 percent share of borrowed funds. New York thrifts averaged a 75.87 percent share of deposits and a similar 8.82 percent share of borrowed funds. The Corporation had 0.45 percent in goodwill and intangible assets, compared to 0.21 percent for the comparable group, 0.78 percent for all thrifts, 0.50 percent for Northeast thrifts and 0.87 percent for New York thrifts.

Analysis of Financial Performance (cont.)

Operating performance indicators are summarized in Exhibits 42, 43 and 44 and provide a synopsis of key sources of income and key expense items for the Corporation in comparison to the comparable group, all thrifts, and regional thrifts for the trailing four quarters.

As shown in Exhibit 44, for the twelve months ended June 30, 2020, the Corporation had a yield on average interest-earning assets exceeding the comparable group and higher than Northeast thrifts and New York thrifts. The Corporation's yield on interest-earning assets was 4.39 percent compared to the comparable group at 4.31 percent, with all thrifts at 4.47 percent, Northeast thrifts at 4.22 percent and New York thrifts at 4.09 percent.

The Corporation's cost of funds for the twelve months ended June 30, 2020, was lower than the comparable group, all thrifts, Northeast thrifts and New York thrifts. The Corporation had an average cost of interest-bearing liabilities of 1.23 percent compared to 1.50 percent for the comparable group, 1.34 percent for all thrifts, 1.56 percent for Northeast thrifts and 1.51 percent for New York thrifts. The Corporation's yield on interest-earning assets and interest cost resulted in a net interest spread of 3.16 percent, which was higher than the comparable group at 2.81 percent, similar to all thrifts at 3.13 percent, and higher than Northeast thrifts at 2.66 percent and New York thrifts at 2.58 percent. The Corporation generated a net interest margin of 3.31 percent for the twelve months ended June 30, 2020, based on its ratio of net interest income to average interest-earning assets, which was higher than the comparable group ratio of 3.20 percent. All thrifts averaged a higher 3.40 percent net interest margin for the trailing four quarters, with Northeast thrifts at 2.99 percent and New York thrifts at a lower 2.88 percent.

The Corporation’s major source of earnings is interest income, as indicated by the operations ratios presented in Exhibit 43. The Corporation had $360,000 in provision for loan losses during the twelve months ended June 30, 2020, representing 0.11 percent of average assets. The average provision for loan losses for the comparable group was 0.08 percent, with all thrifts at 0.17 percent, Northeast thrifts at 0.16 percent and New York thrifts at 0.13 percent.

Analysis of Financial Performance (cont.)

The Corporation's total noninterest income was $3,383,000 or 0.99 percent of average assets for the twelve months ended June 30, 2020. Such a ratio of noninterest income to average assets was lower than the comparable group at 1.24 percent, and higher than all thrifts at 0.65 percent, Northeast thrifts at 0.55 percent and New York thrifts at 0.20 percent. For the twelve months ended June 30, 2020, the Corporation’s operating expense ratio was 3.63 percent of average assets, higher than the comparable group at 3.16 percent, higher than all thrifts at 2.90 percent, Northeast thrifts at 2.68 percent, and New York thrifts at 2.58 percent.

The overall impact of the Corporation’s income and expense ratios is reflected in its net income and return on assets. For the twelve months ended June 30, 2020, the Corporation had a net ROAA of 0.19 percent and an identical core ROAA of 0.19 percent. For its most recent four quarters, the comparable group had a higher net ROAA of 0.80 percent and a core ROAA of 0.75 percent. All publicly traded thrifts averaged a higher net ROAA of 0.79 percent and 0.70 percent core ROAA, with Northeast thrifts a 0.47 percent net ROAA and a 0.41 percent core ROAA. The twelve month net ROAA for the 9 New York thrifts was 0.25 percent and their core ROAA was 0.19 percent.

V.       MARKET VALUE ADJUSTMENTS

This is a conclusive section where adjustments are made to determine the pro forma market value or appraised value of the Corporation based on a comparison of Generations with the comparable group. These adjustments will take into consideration such key items as earnings performance, primary market area, financial condition, asset and deposit growth, dividend payments, subscription interest, liquidity of the stock to be issued, management, and market conditions or marketing of the issue. It must be noted that all of the institutions in the comparable group have their differences among themselves and relative to the Bank, and, as a result, such adjustments become necessary.

EARNINGS PERFORMANCE

In analyzing earnings performance, consideration was given to net interest income, the amount and volatility of interest income and interest expense relative to changes in market area conditions and to changes in overall interest rates, the quality of assets as it relates to the presence of problem assets which may result in adjustments to earnings due to provisions for loan losses, the balance of current and historical nonperforming assets and real estate owned, the balance of valuation allowances to support any problem assets or nonperforming assets, the amount and volatility of noninterest income, and the amount and ratio of noninterest expenses. The earnings performance analysis was based on the Bank’s respective net and core earnings for the twelve months ended June 30, 2020, with comparisons to the core earnings of the comparable group, all thrifts and other geographical subdivisions.

Earnings Performance (cont.)

As discussed earlier, the Bank has experienced increases in its assets and loans in each of the past four fiscal years with a continued increase in deposits, loans and assets in the six months ended June 30, 2020. The Bank has experienced lower earnings in four of the past five years with losses in the years ended December 31, 2016 and December 31, 2018, and is focused on reducing operating expenses; increasing noninterest income; maintaining its net interest margin; monitoring and strengthening its ratio of interest sensitive assets relative to interest sensitive liabilities, thereby maintaining its overall interest rate risk; and maintaining adequate allowances for loan losses to reduce the impact of any charge-offs. Historically, the Bank has been characterized with a slightly lower yield on earning assets and a lower cost of funds, resulting in a slightly higher net interest spread, which has been similar to industry averages, and higher than its comparable group, with a higher net interest margin, with the trend experiencing a modest decrease over the past three years. Its 3.31 percent net interest margin for the twelve months ended June 30, 2020, was less than the industry average of 3.40 percent and higher than the comparable group average of 3.20 percent. During its past two years ended December 31, 2019, Generations’ ratio of interest expense to interest-bearing liabilities has increased modestly from 1.00 percent in 2018 to 1.09 percent in 2019, and then to 1.23 percent in the twelve months ended June 30, 2020 The Bank’s ratio was lower than the average of 1.50 percent for the comparable group and lower than the average of 1.34 percent for all thrifts. Following the conversion, the Bank will strive to reduce its operating expenses, strive to maintain its net interest margin, increase its noninterest income, gradually increase its net income, increase its return on assets, continue to reduce its higher balance of nonperforming and classified assets, and closely monitor its interest rate risk.

The Bank has experienced a moderate decrease in total loan origination activity from 2015 to 2019, dominated by one- to four-family mortgage loans, with commercial real estate loan activity decreasing slightly from 2015 and 2019. Total loan originations in fiscal year 2019 were moderately below originations for 2018, and net loan change in 2019 was an increase of $13.7 million due to higher manufactured home loans and automobile loans, compared to a net loan increase of $24.4 million in 2018, due to loan purchases. Gross loan originations were moderately lower in fiscal year 2019 compared to 2015, related to lower commercial real estate loan originations, lower one- to four-family loans, and lower commercial business loans. Originations totaled $44.7 million in 2019, compared to $52.7 million in 2015, with $27.6 million in loan purchases in 2018. In the six months ended June 30, 2020, loan originations were $42.2 million or $84.4 million, annualized. There were no loan purchases in this period.

Earnings Performance (cont.)

From December 31, 2015, to December 31, 2019, five of the Bank’s seven major categories of loans experienced increases in their balances, with one- to four-family real estate loans increasing the most. One- to four-family real estate loans increased by $40.2 million or 40.9 percent, from December 31, 2015, to December 31, 2019. Automobile loans increased by $5.4 million or 34.8 percent from December 31, 2015, to December 31, 2019, home equity loans increased $6.0 million or 102.1 percent, and manufactured home loans increased $3.7 million or 18.7 percent. Overall, the Bank’s lending activities resulted in a total loan increase of $57.0 million or 28.5 percent and a net loan increase of $55.2 million or 27.3 percent from December 31, 2015, to December 31, 2019. In the six months ended June 30, 2020, loans increased $20.6 million or 8.0 percent.

The impact of Generations’ primary lending efforts has been to generate a yield on average interest-earning assets of 4.39 percent for the twelve months ended June 30, 2020, compared to a lesser 4.31 percent for the comparable group, 4.47 percent for all thrifts and a lower 4.22 percent for New York thrifts. The Bank’s ratio of interest income to average assets was 3.84 percent for the twelve months ended June 30, 2020, lower than the comparable group at 4.05 percent, all thrifts at 4.12 percent and higher than New York thrifts at 3.79 percent.

Generations’ 1.23 percent cost of interest-bearing liabilities for the twelve months ended June 30, 2020, was modestly lower than the comparable group at 1.50 percent, lower than all thrifts at 1.34 percent, lower than Northeast thrifts at 1.56 percent and lower than New York thrifts at 1.51 percent. The Bank's resulting net interest spread of 3.16 percent for the twelve months ended June 30, 2020, was higher than the comparable group at 2.81 percent, similar to all thrifts at 3.13 percent, higher than Northeast thrifts at 2.66 percent and higher than New York thrifts at 2.58 percent. The Bank's net interest margin of 3.31 percent, based on average interest-earning assets for the twelve months ended June 30, 2020, was higher than the comparable group at 3.20 percent but lower than all thrifts at 3.40 percent and higher than Northeast thrifts at 2.99 percent and higher than New York thrifts at 2.88 percent.

Earnings Performance (cont.)

The Bank's ratio of noninterest income to average assets was 0.99 percent for the twelve months ended June 30, 2020, which was modestly lower than the comparable group at 1.24 percent, but higher than all thrifts at 0.65 percent, Northeast thrifts at 0.55 percent and New York thrifts at 0.20 percent.

The Bank's operating expenses were higher than the comparable group, and higher than all thrifts, Northeast thrifts, and New York thrifts. For the twelve months ended June 30, 2020, Generations had an operating expenses to assets ratio of 3.63 percent compared to 3.16 percent for the comparable group, 2.90 percent for all thrifts, 2.68 percent for Northeast thrifts and 2.58 percent for New York thrifts. Generations had a higher 93.7 percent efficiency ratio for the twelve months ended June 30, 2020, compared to the comparable group with an efficiency ratio of 74.6 percent. The efficiency ratio for all publicly traded thrifts was 55.9 percent for the most recent twelve months.

For the twelve months ended June 30, 2020, Generations generated a lower ratio of noninterest income, a higher ratio of noninterest expenses and a modestly higher net interest margin relative to its comparable group. The Bank had a 0.11 percent provision for loan losses during the twelve months ended June 30, 2020, compared to the comparable group at 0.08 percent of assets, all thrifts at 0.17 percent and Northeast thrifts at 0.16 percent. The Bank’s allowance for loan losses to total loans of 0.70 percent was lower than the comparable group and lower than all thrifts. The Bank’s 42.17 percent ratio of reserves to nonperforming assets was lower than the comparable group at 226.26 percent and lower than all thrifts at 269.74 percent and lower than Northeast thrifts at 310.29 percent.

Earnings Performance (cont.)

As a result of its operations, the Bank's net and core income for the twelve months ended June 30, 2020, were lower than the comparable group. The Bank had a return on average assets of 0.19 percent for the twelve months ended June 30, 2020, and a return on average assets of 0.03 percent and (0.07) percent in 2019 and 2018, respectively. The Bank’s core return on average assets was an identical 0.19 percent for the twelve months ended June 30, 2020, as detailed in Exhibit 7. For their most recent four quarters, the comparable group had a moderately higher net ROAA of 0.80 percent and a higher core ROAA of 0.75 percent, while all thrifts indicated a higher net ROAA and higher core ROAA of 0.79 percent and 0.70 percent, respectively. Northeast thrifts indicated a net ROAA of 0.47 percent and a core ROAA of 0.41 percent.

Following its conversion, Generations’ earnings will continue to be dependent on a combination of the overall trends in interest rates, the consistency, reliability and variation of its noninterest income, overhead expenses and its asset quality and its future needs for provisions for loan losses. Earnings are projected to represent a higher 0.37 percent in fiscal 2021 followed by earnings based on ROAA of 0.39 percent in 2022 and 0.43 percent in 2023. The Bank’s ratio of noninterest income to average assets decreased slightly in 2020 but has consistently been above industry averages. Overhead expenses to assets indicated a modest decrease during the past twelve months and are projected to continue to decrease as a ratio.

In recognition of the foregoing earnings related factors, considering Generations’ historical and current performance measures, as well as Business Plan projections, a moderate downward adjustment has been made to the Corporation’s pro forma market value for earnings performance, recognizing the need to focus on recent and historical earnings trends.

MARKET AREA

Generations’ market area is focused on Cayuga, Ontario, Orleans and Seneca Counties, New York. In summary, population increased in Ontario and Seneca Counties from 2000 to 2010 and decreased in Cayuga and Orleans Counties, and the number of households increased in all four counties. The 2010 per capita income and median household income levels in Ontario County were the closest to state and national levels, but the per capita and median household income levels in all other counties were below both state and national levels. Also, Ontario and Seneca Counties’ unemployment rates have been lower than Cayuga and Orleans Counties’ rates and lower than New York’s rates. According to the 2010 Census, median housing values in all four counties were below the state and national median, as expected in these nonmetropolitan markets. Through 2019, all four counties’ median housing values increased but are still lower than the state and national rates.

The Corporation holds deposits of approximately 91.4 percent of all thrift deposits in the four-county market area as of June 30, 2019, but represents a minimal 6.0 percent share of the total deposit base of $4.3 billion.

In recognition of the foregoing factors, we believe that no adjustment is warranted for the Bank’s market area.

FINANCIAL CONDITION

The financial condition of Generations is discussed in Section I and shown in Exhibits 1, 2, 5, and 12 through 22, and is compared to the comparable group in Exhibits 39, 40, and 41. The Corporation's ratio of total equity to total assets was 7.88 percent at June 30, 2020, which was lower than the comparable group at 11.80 percent, all thrifts at 12.13 percent and Northeast thrifts at 11.10 percent. Based on the second stage offering completed at the midpoint of the valuation range, the Corporation's pro forma equity to assets ratio will increase to 10.74 percent and the Bank's pro forma equity to assets ratio will increase to 10.58 percent.

The Bank's mix of assets and liabilities indicates both similarities to and variations from its comparable group. Generations had a slightly higher 76.37 percent ratio of net loans to total assets at June 30, 2020, compared to the comparable group at 64.61 percent. All thrifts indicated a lower 71.84 percent, with Northeast thrifts at a lower 72.94 percent. The Bank's 12.55 percent share of cash and investments was lower than the comparable group at 16.24 percent, while all thrifts were at 12.34 percent and Northeast thrifts were at 13.09 percent. Generations’ 0.50 percent ratio of mortgage-backed securities to total assets was lower than the comparable group at 11.14 percent and lower than all thrifts at 7.29 percent and lower than Northeast thrifts at 5.46 percent.

The Bank's 81.82 percent ratio of deposits to total assets was higher than the comparable group at 74.70 percent, higher than all thrifts at 76.51 percent and higher than Northeast thrifts at 75.97 percent. Generations’ higher ratio of deposits was due to its lower share of equity. Generations had a lower equity to asset ratio of 7.88 percent, compared to the comparable group at 11.80 percent of total assets, with all thrifts at 12.13 percent and Northeast thrifts at 11.10 percent. Generations had a lower share of borrowed funds to assets of 8.78 percent at June 30, 2020, lower than the comparable group at 12.20 percent and lower than all thrifts at 10.00 percent and Northeast thrifts at 11.11 percent. In 2019, total deposits increased by $22.9 million or 8.8 percent. During 2018, Generations’ deposits increased by $34.7 million or 15.4 percent from $225.7 million to $260.4 million.

Financial Condition (cont.)

Generations had 0.45 percent in goodwill and intangible assets and had a lower 0.01 share of repossessed real estate at June 30, 2020. The Bank had repossessed real estate of $25,000 or 0.01 percent of assets at June 30, 2020. This compares to ratios of 0.21 percent for goodwill and intangible assets and 0.07 percent for real estate owned, for the comparable group. All thrifts had a goodwill and intangible assets ratio of 0.78 percent and a real estate owned ratio of 0.10 percent.

The financial condition of Generations has been impacted by its higher balance of nonperforming assets of $4,733,000 or a higher 1.28 percent of total assets at June 30, 2020, compared to a lower 0.74 percent for the comparable group, 0.67 percent for all thrifts, 0.54 percent for Northeast thrifts and 0.62 percent for New York thrifts. The Bank's ratio of nonperforming assets to total assets was a higher 1.80 percent at December 31, 2019, and a higher 1.62 percent at December 31, 2015.

At June 30, 2020, Generations had $1,996,000 of allowances for loan losses, which represented 0.54 percent of assets and 0.70 percent of total loans. The comparable group indicated higher allowance ratios, relative to assets and relative to loans, equal to 0.82 percent of assets and 1.16 percent of total loans, while all thrifts had allowances relative to assets and loans that averaged a lower 0.78 percent of assets and a lower 1.06 percent of total loans. Also of major importance is an institution's ratio of allowances for loan losses to nonperforming assets, since a portion of nonperforming assets might eventually be charged off. Generations’ $1,996,000 of allowances for loan losses represented 42.17 percent of nonperforming assets at June 30, 2020, compared to the comparable group's higher 226.26 percent, with all thrifts at 269.74 percent, Northeast thrifts at 310.29 percent and New York thrifts’ ratio at 165.75 percent. Generations’ ratio of net charge-offs to average total loans was 0.01 percent for the twelve months ended June 30, 2020, compared to a higher 0.03 percent for the comparable group, 0.03 percent for all thrifts and 0.02 percent for Northeast thrifts.

Financial Condition (cont.)

Generations has a moderate level of interest rate risk. The change in the Bank’s NPV level at June 30, 2020, reflecting the most current information available, based on a rise in interest rates of 100 basis points was a 14.7 percent decrease, representing a dollar decrease in equity value of $3,729,000. The Bank’s exposure increases to a 26.2 percent decrease in its NPV level under a 200 basis point rise in rates, representing a dollar decrease in equity of $6,650,000. The Bank’s post shock NPV ratio at June 30, 2020, assuming a 200 basis point rise in interest rates was 5.39 percent and indicated a 151 basis point decrease from its 6.90 percent based on no change in interest rates.

Compared to the comparable group, with particular attention to the Bank’s lower share of equity, higher share of nonperforming assets, lower share of allowance for loan loss to loans and lower share to nonperforming assets, we believe that a modest downward adjustment is warranted for Generations’ current financial condition.

ASSET, LOAN AND DEPOSIT GROWTH

During its most recent two fiscal years, Generations has been characterized by a moderate increase in assets, a moderate increase in loans, and a moderate increase in deposits. The Bank’s average annual asset change from December 31, 2017, to December 31, 2019, was 9.82 percent. This increase compares to a lower 6.2 percent increase for the comparable group, a lower 4.8 percent for all thrifts, and a lower 8.1 percent for Northeast thrifts. The Bank’s moderate increase in assets is less than its increase in net loans during the period of an average annual 9.21 percent with a strong increase in cash and investments of an annual 18.39 percent. Generations’ deposits indicate an average annual increase of 12.77 percent from December 31, 2017, to December 31, 2019, compared to average growth rates of 9.2 percent for the comparable group, 8.1 percent for all thrifts and 10.8 percent for Northeast thrifts.

Generations’ deposits indicated a moderate increase of 8.8 percent from December 31, 2018 to 2019. Annual deposit change was growth rates of 6.8 percent for the comparable group, 5.0 percent for all thrifts and 7.5 percent for Northeast thrifts. The Bank had $32.6 million in borrowed funds or 8.78 percent of assets at June 30, 2020, compared to the comparable group at 12.20 percent and also had a slightly lower $31.4 million in borrowed funds at December 31, 2019, or 9.0 percent of assets.

In response to its higher deposit increase, recently, the Bank grew moderately in 2019 and in the first half of 2020, and considering the demographics, competition and deposit base trends in its market area, the Bank’s ability to increase its asset, loan and deposit bases in the future is significantly dependent on its capital position combined with its ability to increase its market share by competitively pricing its loan and deposit products, maintaining a high quality of service to its customers and strengthening its loan origination activity, all impacted by the Bank’s performance by the senior management team. Generations’ primary market area counties experienced increases in population and households in two of its four counties between 2000 and 2010, while all four market area counties experienced modest increases in households. Three of the four market area counties also indicated 2010 per capita income below that of the United States, and the median household income level in two of the four market area counties was above the national level. In 2010, the median housing value in the four market area counties was lower than that of New York and also lower than that of the United States, due to the smaller size of these counties, and the median rent level was also lower than both state and national levels.

Asset, Loan and Deposit Growth (cont.)

The total deposit base in the four market area counties increased by 2.6 percent from

June 30, 2018, to June 30, 2019; and during that period, the number of financial institution offices in these counties decreased by one office. From June 30, 2018, to June 30, 2019, Generations’ deposit market share in its four market area counties decreased slightly, from 6.4 percent in 2018 to 6.0 percent in 2019.

Based on the foregoing factors, we have concluded that no adjustment to the Corporation’s pro forma value is warranted for asset, loan and deposit growth.

DIVIDEND PAYMENTS

The Corporation does not currently pay dividends. The payment of cash dividends may occur in the future based upon such factors as earnings performance, financial condition, capital position, growth, asset quality and regulatory limitations. Eight of the ten institutions in the comparable group paid cash dividends during the most recent year for an average dividend yield of 2.04 percent and an average payout ratio of 23.52 percent. During that twelve month period, the average dividend yield for all thrifts was a higher 3.34 percent with a payout ratio of 28.07 percent.

In our opinion, a modest downward adjustment to the pro forma market value of the Corporation is warranted related to dividend payments.

SUBSCRIPTION INTEREST

In 2019, investors' interest in new issues was somewhat volatile and then weakened in 2020 due to COVID-19. Such interest is related to the volatile economic conditions and downturn in financial institution stock prices, which could be further challenged in the future due to the current interest rate environment and the compression of net interest margin. The selective and conservative reaction of IPO investors appears generally to be related to a number of analytical, economic and market-related factors, including the financial performance and condition of the converting thrift institution, the strength and trend of the local economy, housing market conditions, general market conditions for financial institution stocks and stocks overall, aftermarket price trends and the expectation of merger/acquisition activity in the thrift industry.

Generations will direct its offering initially to depositors and residents in its market area. The board of directors and officers anticipate purchasing $460,000 or 3.1 percent of the stock offered to the public based on the appraised midpoint valuation and the 39.9 percent minority offering. The Bank will form an ESOP, which plans to purchase 8.0 percent of the total shares issued in the conversion.

The Bank has secured the services of Keefe, Bruyette & Woods, A Stifel Company, to assist in the marketing and sale of the conversion stock.

Based on the size of the offering, recent banking conditions, current market conditions, historical local market interest, the terms of the offering, and recent subscription levels for conversions, we believe that a downward adjustment is warranted for the Bank’s anticipated subscription interest.

LIQUIDITY/MARKETABILITY OF THE STOCK

The Corporation will offer its shares through a subscription and community offering with the assistance of Keefe, Bruyette & Woods. The stock of the Corporation will be traded on the NASDAQ Capital Market.

The Bank's total public offering is considerably smaller in size than the average market value of the comparable group. The comparable group has an average market value of $58.8 million for the stock outstanding compared to a midpoint public offering of $15.0 million for the Corporation, less the ESOP and the estimated to be 46,000 shares purchased by officers and directors, resulting in shares sold of just 1,382,454 or $13.8 million. The Corporation’s public market capitalization will be approximately 25.5 percent of the size of the public market capitalization of the comparable group. Of the ten institutions in the comparable group, all trade on Nasdaq with those ten institutions indicating an average daily trading volume of over 2,754 shares during the last four quarters.

The comparable group has an average of 3,460,742 shares outstanding compared to 2,500,000 shares outstanding for the Corporation based on the midpoint valuation and including the exchange shares.

Based on the higher average market capitalization, shares outstanding and daily trading volume relative to the Corporation, we have concluded that a modest downward adjustment to the Corporation’s pro forma market value is warranted relative to the liquidity of its stock.

MANAGEMENT

Mr. Menzo D. Case is president, chief executive officer and director of Generations Bank, positions he has held since 2008. Mr. Case began his employment with Generations Bank in 1999 as treasurer and chief financial officer and became executive vice president in 2002. Mr. Case has over 27 years of experience in banking. He serves as a board member and audit committee chair for Finger Lakes Health Systems, Inc., Geneva, New York, and is a board member for the New York Chiropractic College in Seneca Falls, New York. Mr. Case is a board member and actively volunteers for Habitat for Humanity of Seneca County, New York, an organization which has built homes for over 115 Seneca County residents over the 20 year period of his involvement.

Ms. Shelley J. Tafel is senior vice president and chief financial officer of Generations Bank, positions she has held since 2016. Prior to this, from the time she joined Generations Bank in 2011 until 2016, she served as vice president and chief financial officer. Previous to joining Generations Bank, for five years, Ms. Tafel was vice president and controller at another community financial institution in New York State. Ms. Tafel is a New York licensed CPA.

Mr. Kenneth Winn is senior vice president/credit administration of Generations Bank, a position he has held since 2016. In this role, Mr. Winn manages the commercial and residential credit administration functions for Generations Bank. Prior to joining Generations Bank, from 2014 to 2016, Mr. Winn was a credit consultant to a variety of community banks and credit unions. Prior to this, Mr. Winn served as executive vice president and chief risk officer, from 2012-2014, and senior vice president/senior credit administrator/compliance director and risk officer, from 2004 to 2012, at another financial institution.

Management (cont.)

During its most recent fiscal year, Generations has experienced a decrease in its net interest margin, typical of the industry, experienced a decrease in noninterest income and reduced its noninterest expenses to assets. The Bank did experience a rise in its cost of funds in 2019. The Bank experienced an ROAA of 0.03 percent in 2019, impacted by lower net interest income. The Bank’s asset quality position experienced a rise from December 31, 2015, to December 31, 2019, with nonperforming assets increasing from 1.62 percent in 2015 to 1.80 percent in 2019 and then decreasing to 1.27 percent at June 30, 2020. The Bank has also slightly strengthened its lending activity from 2015 to 2019. The Bank’s management team is confident that the Bank is positioned for continued loan growth and improved profitability following its second stage offering.

Overall, we believe the Bank to be professionally and knowledgeably managed, as are the comparable group institutions. It is our opinion that no adjustment to the pro forma market value of the Corporation is warranted for management.

MARKETING OF THE ISSUE

The necessity to build a new issue discount into the stock price of a new conversion continues to be a closely examined issue in recognition of uncertainty among investors as a result of the thrift industry's continued high level of competition, dependence on interest rate trends, volatility in the stock market, especially today, due to COVID-19, speculation on future changes, current legislation related to the regulation of financial institutions and their ability to generate selected income.

We believe that a new issue discount applied to the price to book valuation approach is appropriate and necessary in this offering and particularly in light of COVID-19. In our opinion, recent market trends, including the recent pricing decreases for several of the most recent conversions, cause us to conclude that a moderate new issue discount is warranted in the case of this offering. Consequently, at this time we have made a moderate downward adjustment to the Corporation's pro forma market value related to a new issue discount.

VI.       VALUATION METHODS

Introduction

As indicated in Section 3 of this Appraisal, in order to moderate the differences among the ten comparable group companies, we will derive their pricing ratios on a fully converted basis by applying pro forma second stage conversion assumptions to their current financial structure. Our application to the Corporation of the market value adjustments relative to the comparable group determined in Section 4 will be the basis for the pro forma market value of the Corporation on a fully converted basis, pursuant to regulatory guidelines.

Valuation Methods

Historically, the method most frequently used by this firm to determine the pro forma market value of common stock for thrift institutions has been the price to book value ratio method, due to the volatility of earnings in the thrift industry. As earnings in the thrift industry have decreased in 2020, along with market prices for financial institution stocks, less attention has been given to the price to core earnings method in 2020, considering decreases in bank stock prices during 2020. During the past two years, however, as fluctuating earnings have increased, with much lower interest rates having varying effects on the earnings of individual institutions, depending on the nature of their operations, the price to book value method has continued to be the valuation focus and more meaningful to the objective of discerning commonality and comparability among institutions. In our opinion, the price to book value method is the appropriate method upon which to place primary emphasis in determining the pro forma market value of the Corporation. Additional analytical and correlative attention will be given to the price to core earnings method and the price to assets method.

Valuation Methods (cont.)

In applying each of the valuation methods, consideration was given to the adjustments to the Corporation’s pro forma market value discussed in Section V. Downward adjustments were made for the Bank’s earnings, financial condition, stock liquidity, dividends, subscription interest and for the marketing of the issue. No adjustments were made for management and market area. A modest upward adjustment was made for the Bank’s asset, loan and deposit growth.

Valuation Range

In addition to the pro forma market value, we have defined a valuation range. The pro forma market value or appraised value will also be referred to as the “midpoint value,” with the remaining points in the valuation range based on the number of shares offered to the public. The number of public shares at the minimum will be 15 percent less than at the midpoint; and increasing at the maximum to 15 percent over the midpoint.

Price to Book Value Method

In the valuation of thrift institutions, the price to book value method focuses on an institution's financial condition. Exhibit 46 shows the average and median price to book value ratios for the comparable group, which were 89.29 percent and 84.55 percent, respectively. The comparable group indicated a moderate range, from a low of 66.13 percent to a high of 119.00 percent. The comparable group had modestly higher average and median price to tangible book value ratios of 92.40 percent and 88.79 percent, respectively, with a range of 66.45 percent to 119.00 percent. Excluding the low and the high in the group, the comparable group's price to book value range narrowed slightly from a low of 72.08 percent to a high of 118.61 percent; and the comparable group’s price to tangible book value range narrowed slightly from a low of 72.81 percent to a high of 118.61 percent.

Price to Book Value Method (cont.)

The Corporation’s book value was $29,338,000 and its tangible book value was a lower $27,665,000 at June 30, 2020. Considering the foregoing factors in conjunction with the adjustments made in Section V, we have determined a fully converted pro forma price to book value ratio of 60.53 percent and a corresponding fully converted price to tangible book value ratio of 63.09 percent at the midpoint. The fully converted price to book value ratio increases from 54.05 percent at the minimum to 66.45 percent at the maximum, while the fully converted price to tangible book value ratio increases from 56.47 percent at the minimum to 69.11 percent at the maximum.

The Corporation's fully converted pro forma price to book value ratio of 60.53 percent at the midpoint, as calculated using the prescribed formulary computation indicated in Exhibit 45, is influenced by the Bank’s capitalization and local markets, subscription interest in thrift stocks and overall market and economic conditions. Further, the Corporation's ratio of equity to assets after the completion of the second stage offering at the midpoint of the valuation range will be approximately 10.74 percent compared to 11.05 percent for the comparable group.

Price to Core Earnings Method

The foundation of the price to core earnings method is the determination of the core earnings base to be used, followed by the calculation of an appropriate price to core earnings multiple. The Corporation’s after tax core earnings for the twelve months ended June 30, 2020, were $867,000 (reference Exhibit 7) and its net earnings were an identical $867,000 for that period. To opine the pro forma market value of the Corporation using the price to core earnings method, we applied the core earnings base of $867,000.

Price to Core Earnings Method (cont.)

In determining the fully converted price to core earnings multiple, we reviewed the ranges of the price to core earnings and price to net earnings multiples for the comparable group and all publicly-traded thrifts. As indicated in Exhibit 46, the average price to core earnings multiple for the comparable group was 16.26, while the median was a lower 12.08. The average price to net earnings multiple was 15.36, and the median multiple was 10.49. The range of the price to core earnings multiple for the comparable group was from a low of 8.36 to a high of 39.42. The range in the price to core earnings multiple for the comparable group, excluding the high and low ranges, was from a low multiple of 9.23 to a high of 32.39 times earnings for eight of the ten institutions in the group, indicating a modest narrowing of the range.

Consideration was given to the adjustments to the Corporation's pro forma market value discussed in Section V. In recognition of those adjustments, we have determined a fully converted price to core earnings multiple of 33.45 at the midpoint, based on the Corporation’s core earnings of $867,000 for the twelve months ended June 30, 2020. The Corporation’s fully converted core earnings multiple of 33.45 is equal to its net earnings multiple of 33.45.

Price to Assets Method

The final valuation method is the price to assets method. This method is not frequently used, since the calculation incorporates neither an institution's equity position nor its earnings performance. Additionally, the prescribed formulary computation of value using the pro forma price to net assets method does not recognize the runoff of deposits concurrently allocated to the purchase of conversion stock or incorporate any adjustment for intangible assets, returning a pro forma price to assets ratio below its true ratio following conversion.

Exhibit 44 indicates that the average price to assets ratio of the comparable group was 10.09 percent, and the median was a lower 8.34 percent. The range in the price to assets ratios for the comparable group varied from a low of 6.48 percent to a high of 20.59 percent. The range narrows moderately with the elimination of the two extremes in the group to a low of 7.16 percent and a high of 16.64 percent.

Price to Assets Method (cont.)

Consistent with the previously noted adjustments, it is our opinion that an appropriate price to assets ratio for the Corporation is 6.51 percent at the midpoint, recognizing the Corporation’s lower equity ratio, which ranges from a low of 5.56 percent at the minimum to 7.44 percent at the maximum.

Valuation Conclusion

Exhibits 47 through 52 present the pro forma valuation analysis and conclusions, pricing ratios, use of offering proceeds and a summary of the valuation premiums or discounts relative to the three valuation approaches based on the Corporation as fully converted.

Exhibit 52 presents the discounts or premiums of the Corporation’s fully converted pricing ratios relative to those of the comparable group. Based on the Corporation’s fully converted price to book value ratio and its equity of $29,338,000 at June 30, 2020, the Bank’s price to book value ratio of 60.57 percent represents a midpoint discount relative to the comparable group of 32.16 percent. The Corporation’s fully converted price to core earnings multiple of 44.58 represents midpoint premium relative to the comparable group of 190.23 percent. Recognizing the Corporation’s June 30, 2020, asset base of $372,320,000, the Bank’s price to assets ratio of 6.51 percent represents a midpoint discount relative to the comparable group of 35.48 percent.

It is our opinion that as of August 21, 2020, the pro forma market value of the Corporation is $25,000,000 at the midpoint, representing 2,500,000 shares at $10.00 per share. The pro forma valuation range of the Corporation is from a minimum of $21,250,000 or 2,125,000 shares at $10.00 per share to a maximum of $28,750,000 or 2,875,000 shares at $10.00 per share, with such range being defined at 15 percent below the appraised value to 15 percent above the appraised value.

Valuation Conclusion (cont.)

Our valuation assumptions, process and conclusions recognize that minority public shareholders collectively own 39.90 percent of the Bank’s outstanding shares, recognizing the $16,000 in net assets held at The Seneca Falls Savings Bank, MHC, and that the current offering contemplates the sale of the 60.10 percent of the outstanding shares currently owned by The Seneca Falls Savings Bank, MHC. At the conclusion of the stock offering, the Corporation will own all the common stock of Generations Bank in conjunction with the completion of the second stage offering. As indicated in Exhibit 47, in the second stage conversion, each minority share will be exchanged for 1.0150 shares of the Corporation at the midpoint of the offering range, with that exchange ratio being 0.8627 shares, and 1.1672 shares at the minimum and maximum of the offering range, respectively.

The appraised value of Generations Bancorp NY, Inc. as of August 21, 2020, is $25,000,000 at the midpoint.

EXHIBIT 1

SENECA-CAYUGA BANCORP, INC.

SENECA FALLS, NEW YORK

Balance Sheet

At June 30, 2020 and December 31, 2019

($000)

Source: Seneca-Cayuga Bancorp, Inc.'s audited and unaudited financial statements

EXHIBIT 2

SENECA-CAYUGA BANCORP, INC.

SENECA FALLS, NEW YORK

Balance Sheets

At December 31, 2018 2017, 2016 and 2015

($000)

EXHIBIT 2 (continued)

SENECA-CAYUGA BANCORP, INC.

SENECA FALLS, NEW YORK

Balance Sheets

At December 31, 2018 2017, 2016 and 2015

($000)

Source:  Seneca-Cayuga Bancorp, Inc. audited financial statements        

EXHIBIT 3

SENECA-CAYUGA BANCORP, INC.

SENECA FALLS, NEW YORK

Statement of Income

For the Twelve Months Ended June 30, 2020 and the Year Ended December 31, 2918

Source: Seneca-Cayuga Bancorp, Inc.'s audited and unaudited financial statements

EXHIBIT 4

SENECA-CAYUGA BANCORP, INC.

SENECA FALLS, NEW YORK

Statements of Income

Years Ended December 31, 2015, 2016, 2017 and 2018

Source: Seneca-Cayuga Bancorp, Inc.'s audited financial statements

EXHIBIT  5

Selected Financial Information

At June 30, 2020 and at December 31, 2015, 2016, 2017, 2018 and 2019

(In thousands)

EXHIBIT 6

Income and Expense Trends

For the Six Months Ended June 30, 2019 and 2020, and the Years Ended December 31, 2015, 2016, 2017, 2018 and 2019

Source: Generations Bancorp NY, Inc.'s Prospectus

EXHIBIT 7

Generations Bank

Normalized Earnings Trends

Twelve Months Ended June 30, 2020

Source:  Generations Bank's audited and unaudited financial statements          

EXHIBIT 8

Performance Indicators

At or for the Six Months Ended June 30, 2019 and 2020 and

the Years Ended December 31, 2015, 2016, 2017, 2018 and 2019