Lake Shore Bancorp, Inc., the holding company for Lake Shore Savings Bank, announced fourth quarter 2012 net income of $861,000, or $0.15 per diluted share, compared to net income of $587,000, or $0.10 per diluted share, for fourth quarter 2011. The Company's 2012 net income was $3.6 million, or $0.64 per diluted share, compared to $3.7 million, or $0.65 per diluted share, for 2011.
Core deposits grew 12.6 percent from December 31, 2011
Stockholders' equity in-creased by 4.8 percent to $67 million at December 31, 2012
Non-performing loans as a percent of total loans declined 13 basis points to 0.89 percent at December 31, 2012
Commercial real estate loans increased by $12.9 million in 2012
The bank purchased a former First Niagara branch location in Snyder, New York
"Our solid fourth quarter and full year results reflect our focus on effective execution within a challenging business environment which is characterized by narrowing margins for a large majority of financial institutions," Daniel P. Reininga, Lake Shore president and chief executive officer, said. "We realized strong fourth quarter growth in our commercial real estate portfolio indicative of our focus on managing interest rate risk by increasing shorter-term and adjustable-rate credits. Our asset quality remains strong, reflecting our effective and consistent underwriting process. The increase in our fourth quarter provision for loan losses is, in part, a direct result of the significant growth realized in our commercial real estate portfolio."
Fourth quarter 2012 net interest income was $3.7 million compared to $3.9 million for the fourth quarter 2011, as a result of a 9 percent reduction in interest income that was partially offset by a 25 percent reduction in interest expense. Fourth quarter 2012 interest income was $4.7 million compared to $5.2 million in the prior year quarter, because of reduced average loan balances, as well as reduced yields on loans and the investment securities portfolio. Interest expense for fourth quarter 2012 of $1.0 million declined $334,000 compared to fourth quarter 2011, reflecting lower average rates on deposits and a $13.9 million decrease in the average balance of long-term debt.
Net interest income for 2012 was $15.0 million compared to $15.1 million for 2011. 2012 interest income was $19.7 million compared to $20.8 million for 2011, primarily as a result of a 61 basis-point decline in the average yield on the securities portfolio.
Interest expense was $4.6 million for 2012, down $1.0 million, or 18.3 percent compared to 2011. The lower interest expense for 2012 was primarily a result of an 18 basis-point drop in average interest rates on deposits, as well as a $12.3 million reduction in the average balance of long-term debt accompanied by a 45 basis-point drop in the average interest rate for long-term debt.
Net interest margin for the fourth quarter 2012 was 3.28 percent, down 11 basis points from 3.39 percent for the fourth quarter of 2011. The fourth quarter 2012 margin reflected a 41 basis-point decline in the average yield on interest earning assets that was partially offset by a 33 basis-point decline in the average cost of interest bearing liabilities. Average interest-earning assets to average interest-bearing liabilities for fourth quarter 2012 increased 224 basis points to 120.69 percent, compared to fourth quarter 2011. Average interest earning assets were up slightly in the fourth quarter 2012 compared to the prior year period, and average interest bearing liabilities were down $7.1 million in the fourth quarter of 2012 as compared to the prior year period because of a reduction in the bank's long-term debt.
Net interest margin for 2012 was 3.26 percent, down eight basis points from 3.34 percent in 2011, reflecting a 33 basis point decline in the yield on average interest earning assets, partially offset by a 26 basis-point decline in the average cost of interest bearing liabilities. For 2012, average interest-earning assets to average interest-bearing liabilities increased 311 basis points, or 119.69 percent, compared to 2011, with average interest earning assets growing $8.4 million and average interest bearing liabilities down $3.1 million.
The bank's fourth quarter 2012 total non-interest income was $546,000 compared with $13,000 for fourth quarter 2011. The primary source of non-interest income is bank service charges and fees, income on bank owned life insurance, and net gains/(losses) on sale of loans or investments, which may be offset by investment impairments or write-downs. Fourth quarter 2012 included an $18,600 net gain on the sale/impairment of investments, while fourth quarter 2011 included a $500,000 write down of the bank's investment in an unconsolidated subsidiary.
Non-interest income for 2012 was $2.0 million, an increase of 21.9 percent over 2011. The increased non-interest income was primarily the result of a reduced level of write downs associated with impairments to bank investments. In 2012 the bank recognized an other than temporary impairment of $102,000 on a private-label asset backed security, while during 2011 it recognized a $500,000 write down on an investment in an unconsolidated subsidiary.
Fourth quarter 2012 non-interest expense was $2.8 million, an increase of $132,000, or 4.9 percent, compared to the prior year period, primarily as a result of higher advertising expense.
The company's 2012 non-interest expense was $11.8 million, an increase of $504,000, or 4.5 percent, from the prior year, primarily related to increased salary and benefit expenditures, as well as increased legal and accounting costs.
The bank's fourth quarter 2012 provision for loan losses was $386,000, an increase of $266,000 compared with the prior year quarter, and reflective of the growth in the bank's commercial real estate portfolio during the current quarter, along with an increase in classified loans. The full year 2012 provision for loan losses was $656,000, an increase of $241,000 compared with 2011.
The bank's year-end asset quality metrics remained superior to broad industry and peer averages. Non-performing loans as a percent of total loans were 0.89 percent at Dec. 31, down 13 basis points from 1.02 percent at Dec. 31, 2011. The bank's allowance for loan losses as a percent of non-performing loans was 74.63 percent at Dec. 31, up from 48.82 percent at Dec. 31, 2011.
The bank announced in December 2012 that it had purchased the former First Niagara Bank branch office located at 4950 Main St. in Snyder. The transaction involved the building and its contents and did not include any loans or deposits. A new Lake Shore branch the bank's eleventh retail location will open during the second quarter of 2013.
"We are excited by the opportunity to provide another point of service for our customers in Erie County, and in particular in the Snyder and Williams-ville markets," said Rein-inga. "We look forward to introducing our personal service banking model to the residents of these communities. We believe that area families and businesses will benefit from Lake Shore's superior level of personal service which differentiates us from the larger banks in our market."