Lake Shore Bancorp, Inc. reports improved third quarter 2013

Lake Shore Bancorp, Inc., the holding company for Lake Shore Savings Bank, announced third quarter 2013 net income of $1 million, or $0.17 per diluted share, compared with net income of $863,000, or $0.15 per diluted share, for the prior year third quarter. The company earned $2.7 million, or $0.47 per diluted share, for the nine months ended Sept. 30, compared to net income of $2.8 million, or $0.48 per diluted share for the same period in 2012.

“Our third quarter 2013 results reflect continued effective execution of the bank’s operating strategy as well as our focus on core deposit growth, maintaining an efficient operating profile, and consistently solid asset quality metrics,” said Daniel P. Reininga, president and chief executive officer. “Despite sluggish economic activity across Upstate New York, the continuation of a low interest rate environment, and increased regulatory burdens, we were able to increase our net interest margin by 15 basis points in comparison to the prior year quarter. We accomplished this by reducing our dependence on more costly CDs and borrowings, while continuing to effectively manage our funding base.”

Third quarter 2013 net interest income was $3.7 million, consistent with third quarter 2012, as lower interest income from the securities portfolio was offset by reduced interest expense on deposits and long-term borrowings. Third quarter 2013 interest income was $4.6 million compared to $4.8 million in the prior year quarter. The reduced interest income for the current quarter was due to a $13.5 million decrease in the average balance of the securities portfolio along with lower average yields for both the securities and loan portfolios, down 14 and 17 basis points, respectively. Interest expense for third quarter 2013 was lower by $257,000, or 22.5 percent, compared to the prior year quarter, as a result of a 25 basis point decline in the bank’s average rate on interest bearing liabilities, and a decrease in the average balance of interest bearing liabilities of $6.4 million.

Net interest income was $11.2 million for the nine months ended Sept. 30 compared to $11.3 million for the same period in 2012. Interest income for the first nine months of 2013 was $13.9 million, a decrease of $1.0 million, compared to $14.9 million for the same period in 2012. This decrease was reflective of lower average securities portfolio balances along with a 19 basis point reduction in the average yield on interest-earning assets in the nine months ended Sept. 30 compared to the prior year period. Interest expense for the nine months ended Sept. 30, of $2.7 million, declined by $906,000, or 25.2 percent, compared to the same period in 2012. Interest expense for the period was down as a result of both a $9.3 million reduction in the average balance of interest bearing liabilities and a 29 basis point decrease in the average rate paid on interest bearing liabilities. The lower average balance of interest bearing liabilities reflected a $15.5 million reduction in the average balance of CDs and an $8.5 million decline in the average balance of borrowings, partially offset by increased average balances in other core transaction accounts.

The bank’s net interest margin for the third quarter 2013 was 3.30 percent, a 15 basis points improvement from 3.15 percent for the third quarter of 2012. The improvement resulted from a 25 basis point decline in the rate paid on interest bearing liabilities, reflecting a reduction in average borrowings and CD balances, partially offset by a 5 basis point decline in the average rate earned on interest earning assets, along with a lower average balance of interest earning assets. The bank’s net interest margin for the nine months ended Sept. 30 was 3.31 percent, an increase of 5 basis points compared to 3.26 percent for the prior year period.

Third quarter 2013 non-interest income was $541,000, an increase of $35,000, or 6.9 percent, from the quarter ended Sept. 30, 2012. Non-interest income for the nine months ended Sept. 30 was $1.6 million, an increase of 5.9 percent, from the same period in 2012. In both the third quarter and nine months ended Sept. 30, non-interest income included a $206,000 gain on sales of $2.3 million of municipal bonds and a single mortgage-backed security for $500,000, partially offset by a non-cash, pre-tax other-than-temporary impairment write-down of a single asset-backed security for $180,000.

Non-interest expense was $3.0 million for third quarter 2013, an increase of $139,000, or 4.8 percent, compared with the prior year quarter. This increase was primarily due to higher occupancy and equipment costs resulting from the April 2013 opening of the bank’s new office in Snyder, as well as increased other expenses for foreclosed real estate, telecommunications and donations during the current quarter. For the nine months ended Sept. 30, non-interest expense of $9.4 million increased by $390,000, or 4.3 percent from the same period in 2012. The increase in the first nine months of 2013 was primarily due to $182,000 in additional occupancy and equipment costs primarily due to increases in software maintenance costs, property taxes, maintenance and repairs of buildings and equipment and the opening of the Snyder branch office, along with a $73,000 increase in professional service costs, and a $63,000 increase in salary and benefit.

The third quarter 2013 provision for loan losses of $60,000, was down from $220,000 for the prior year quarter, reflecting a continuation of the bank’s stable asset quality metrics. The provision for loan losses for the nine month period ended Sept. 30 was $105,000, a decrease of $165,000, from the same period in 2012. The bank’s asset quality metrics remained strong in relation to peer and industry norms. Nonperforming loans as a percentage of total loans at Sept. 30 were 1.05 percent compared to 0.89 percent at Dec. 31, 2012 and 1.09 percent at June 30.

Total assets at Sept. 30 were $485.4 million, an increase of $3.0 million from Dec. 31, 2012. Total deposits at Sept. 30 were $391.2 million, up $12.6 million from Dec. 31, 2012. Average interest-bearing core (non-time) deposits were $157.5 million during the third quarter 2013, an increase of $14.8 million or 10.4 percent compared to third quarter 2012. Stockholders’ equity was $65.4 million at the end of the third quarter of 2013, compared to $67.0 million at the end of 2012, reflecting a $3.9 million decrease in unrealized gains on available for sale securities partially offset by $2.7 million of net income for the nine months ended Sept. 30.