Lake Shore Bancorp Inc. reports first quarter 2017 earnings and declares dividend
Lake Shore Bancorp Inc., the holding company for Lake Shore Savings Bank, announced unaudited results for the first quarter 2017.
Net income for first quarter 2017 was $716,000, or $0.12 per diluted share, compared to net income of $2.0 million, or $0.33 per diluted share, for first quarter 2016. 2017 first quarter net income reflected a $1.6 million decrease in gains on the sale of securities, a $220,000 increase in provision for loan losses and a $175,000 increase in non-interest expense which was partially offset by a $391,000 increase in net interest income and a $346,000 decrease in income tax expense when compared to the first quarter of 2016.
2017 First Quarter Highlights
Loans receivable, net increased 5.7 percent to $345 million at March 31, 2017 from $326.4 million at December 31, 2016 primarily due to organic commercial loan growth of 14.1 percent;
Total deposits grew by $4.9 million, or 1.3 percent, to $390.8 million at March 31, 2017 which included net core (non-time) deposit growth of $2.4 million;
Net interest margin of 3.69 percent for first quarter 2017, up 26 basis points from first quarter 2016 and 24 basis points from fourth quarter 2016;
Provision for loan losses increased $220,000, to appropriately reflect risk associated with commercial portfolio growth of $19.6 million during the first quarter and partially due to the downgrade of two performing commercial loan relationships from a special mention to substandard reserve pool; and
Non-performing loans as a percent of total loans decreased from 1.80 percent as of December 31, 2016 to 1.29 percent as of March 31, 2017 due to the payoff of a $1.2 million non-performing commercial real estate loan during first quarter 2017.
“Record organic growth in commercial loan originations, together with steady increases in both core deposits and net interest margin, contributed to our quarterly results,” stated Daniel P. Reininga, President and Chief Executive Officer. “We continue to invest in the people and the digital resources necessary to meet the evolving demands of today’s “connected consumers” and business owners, as we deepen customer relationships without sacrificing the individualized service indicative of a true community bank.”
Net Interest Income
First quarter 2017 net interest income increased $391,000, or 10.4 percent, to $4.2 million for the first quarter 2017 as compared to the 2016 first quarter. Interest income for first quarter of 2017 was $4.8 million, an increase of $394,000, or 9.0 percent, compared to first quarter 2016. The increase was attributable to a $33.8 million increase in the average balance of loans, partially offset by a $25.4 million decline in the average balance of the Bank’s securities portfolio since March 31, 2016. The increase in the average loan balance was primarily due to growth in the commercial real estate and commercial business loan portfolios since March 31, 2016. The decrease in the average balance of the securities portfolio was primarily due to the Company’s strategy to reinvest paydowns and sales proceeds received on the securities portfolio into adjustable rate loan originations in order to be in a better position to take advantage of future increases in market interest rates. The increase in interest income was partially due to the receipt of $202,000 in interest related to the pay-off of one non-performing commercial real estate loan.
Interest expense for the 2017 first quarter was $590,000, an increase of 0.5 percent, from $587,000 for the 2016 first quarter. Average deposits increased by $7.7 million since March 31, 2016 with the growth being primarily in low-cost core (non-time) deposits.
Non-interest income decreased by $1.6 million, or 71.5 percent, to $630,000 in the first quarter of 2017 as compared to $2.2 million for the first quarter 2016. The decrease was primarily due to a $1.6 million pre-tax realized gain on the sale of securities during the 2016 first quarter as compared to a $25,000 pre-tax realized gain on the sale of securities during the 2017 first quarter. The decrease was partially offset by an increase in earnings on bank owned life insurance and service charges and fees. Earnings on bank owned life insurance increased by $20,000, or 29.9 percent, during the first quarter of 2017 due to the purchase of an additional $2.5 million in insurance during the fourth quarter of 2016. 2017 first quarter service charges and fees increased by $13,000, or 3.0 percent, when compared to first quarter 2016, due to increased growth in core deposits and new product offerings.
Non-interest expense was $3.6 million for the first quarter of 2017, an increase of $175,000, or 5.1 percent, compared to the same quarter in the prior year. Salary and benefits expense increased by $100,000, or 5.6 percent, due to annual salary increases and grants of stock awards. Advertising expenses increased $54,000, or 47.8 percent, primarily due to the development of new marketing campaigns associated with current deposit and loan promotions. Data processing expenses increased $42,000, or 15.9 percent, due to implementation of new technology and growth in deposit and loan accounts. Decreases in professional service fees and FDIC insurance expense in the first quarter 2017 were partially offset by increases in occupancy expenses and other expenses when compared to the first quarter in the prior year.
The first quarter 2017 provision for loan losses was $350,000, a $220,000 increase as compared to the same quarter in the prior year. The increase in the provision was primarily for general reserves being set aside on the $19.6 million in new commercial loans originated during the first quarter of 2017 and due to downgrade in the loan classification for two commercial loan relationships from a special mention to substandard reserve pool during the first quarter of 2017. These two loans are currently performing, and both are primarily collateralized by commercial real estate, as well as fixtures and equipment.
Non-performing loans as a percent of total loans at March 31, 2017 were 1.29 percent, a 51 basis points decrease from 1.80 percent at December 31, 2016, primarily due to a payoff received on one non-performing commercial real estate loan during first quarter 2017. The Company’s allowance for loan losses as a percent of total loans was 0.93 percent at March 31, 2017 and 0.88 percent at Dec. 31, 2016.