Lake Shore Bancorp reports third quarter 2018

Lake Shore Bancorp, Inc., the holding company for Lake Shore Savings Bank, announced unaudited results for the third quarter of 2018 and the nine months ended Sept. 30.

2018 Third Quarter and Year to Date Highlights:

Diluted earnings per share increased $0.03, or 6.5%, for the nine months ended Sept. 30 when compared to the nine months ended Sept. 30;

Net interest income increased $270,000, or 6.3%, for the third quarter 2018 when compared to the third quarter 2017 primarily due to a $21.5 million, or 12.3%, increase in average commercial loans during the three months ended Sept. 30, as compared to the three months ended Sept. 30, 2017;

Net interest income increased $684,000, or 5.4%, for the nine months ended Sept. 30, when compared to the nine months ended September 30, 2017 primarily due to a $29.0 million, or 18.0%, increase in average commercial loans during the nine months ended Sept. 30, as compared to the nine months ended Sept. 30, 2017;

The effective tax rate was 13.2% for the nine months ended Sept. 30, which was a 34.1% decrease in comparison to the nine months ended Sept. 30, 2017, primarily due to the Tax Cuts and Jobs Act which lowered the federal corporate tax rate from 34% to 21% as of January 1, 2018;

Total assets at Sept. 30, increased $27.2 million, or 5.2%, to $546.2 million when compared to Dec. 31, 2017;

Loans receivable, net increased $23.4 million, or 6.4%, to $388.4 million at Sept. 30, from $365.1 million at Dec.. 31, 2017 primarily due to organic commercial loan growth of $16.1 million, or 8.9%, during the first nine months of 2018; and

Total deposits grew by $30.7 million, or 7.6%, to $435.9 million at September 30, 2018 when compared to Dec. 31, 2017, primarily due to net core (non-time) deposit growth.

Net income for third quarter 2018 was $1.1 million, or $0.17 per diluted share, as compared to third quarter 2017 net income of $940,000, or $0.15 per diluted share. Third quarter 2018 net income reflected a $270,000 increase in net interest income, a $110,000 decrease in income tax expense and a $12,000 increase in non-interest income which was partially offset by a $224,000 increase in non-interest expense and a $50,000 increase in provision for loan losses when compared to the third quarter of 2017.

Net income for the nine months ended Sept. 30 was $3.0 million, or $0.49 per diluted share, compared to net income of $2.8 million, or $0.46 per diluted share, for the nine months ended Sept. 30, 2017. Net income for the nine months ended Sept. 30, reflected a $684,000 increase in net interest income, a $246,000 decrease in income tax expense and a $135,000 decrease in provision for loan losses which was partially offset by a $685,000 increase in non-interest expense and a $178,000 decrease in non-interest income when compared to the nine months ended Sept. 30.

“Our committed focus on the implementation of our strategic plan through organic loan and deposit growth, as well as deepening our customer relationships while maintaining strong credit quality, continues to fuel our robust year-to-date financial performance,” stated Daniel P. Reininga, President and Chief Executive Officer. “The successes we have achieved in growing our commercial loan portfolio have significantly increased our net interest income. This increase provides Lake Shore Savings Bank with financial strength to fund future strategic growth, and provides the resources necessary to assist local businesses and families in achieving their financial goals.”

Net Interest Income

Third quarter 2018 net interest income increased $270,000, or 6.3%, to $4.5 million compared to third quarter 2017. Net interest income for the nine months ended September 30, 2018 increased $684,000, or 5.4%, to $13.3 million when compared to the nine months ended Sept. 30, 2017.

Interest income for the third quarter of 2018 was $5.5 million, an increase of $543,000, or 11.0%, compared to third quarter 2017. The increase was attributable to a $32.2 million, or 6.9%, increase in the average balance of interest-earning assets and a 16 basis points increase in the average yield in comparison to the third quarter of 2017. The increase in the average balance and yield of interest-earning assets was primarily due to growth in commercial loans.

Interest income for the nine months ended Sept. 30, was $15.9 million, an increase of $1.4 million, or 9.6%, compared to the nine months ended Sept. 30, 2017. The increase was attributable to a $34.2 million, or 7.4%, increase in the average balance of interest-earning assets in comparison to the nine months ended Sept. 30, 2017, primarily due to growth in commercial loans. The average yield on interest-earning assets increased by 9 basis points in comparison to the nine month period ended Sept. 30, 2017, primarily due to growth in higher rate commercial loans.

Interest expense for the 2018 third quarter was $955,000, an increase of $273,000, or 40.0%, from $682,000 for the 2017 third quarter. Approximately $217,000 of the increase was due to a 47 and 23 basis points increase, respectively, in the average interest rate being paid on money market and time deposit accounts as a result of the increase in short term interest rates during the three month period ended Sept. 30. The increase in interest paid on deposit accounts was also due to a $31.6 million increase in average core deposits during the 2018 third quarter as compared to the 2017 third quarter.

Interest expense for the nine months ended Sept. 30, was $2.6 million, an increase of $701,000, or 37.2%, from $1.9 million for the nine months ended Sept. 30. Approximately $504,000 of this increase was due to a 39 and 18 basis points increase, respectively, in the average interest rate being paid on money market and time deposit accounts as a result of the increase in short term interest rates during the nine month period ended September 30, 2018. The increase in interest paid on deposit accounts was also due to a $28.0 million increase in average core deposits during the nine months ended Sept. 30, as compared to the nine months ended Sept. 30, 2017. In addition, there was an $85,000 increase in interest paid on borrowed funds during the first nine months of 2018 primarily due to a $4.2 million increase in the average balance of borrowings. The average rate paid on borrowings increased to 2.12% for the nine months ended September 30, 2018 as compared to 2.01% for the nine months ended Sept. 30, 2017.

COMMENTS