Lake Shore Bancorp Reports Decline in Profits, Revenues: FIRST QUARTER
By Jonathan D. Epstein, The Buffalo News, N.Y.
May 15–Lake Shore Bancorp said first-quarter profits fell 5.7 percent, as lower revenues from lending and higher expenses from being a publicly traded company offset a surge in fee income.
The Dunkirk-based savings bank reported net income of $298,000, or 5 cents per share, for the first quarter of 2007, down from $316,000 a year ago. Lake Shore converted from a mutual, depositor-owned institution to a publicly traded company last April, so it didn’t have shareholders in the first quarter a year ago.
Like many banking companies, Lake Shore is suffering from pressure on its net interest margin, which is its profit margin from the core business of taking deposits and making loans. That’s caused by an industry- wide problem of shortterm interest rates on deposits rising faster than long-term rates used for loans, and has cut into profits.
In addition, as a traditional savings bank or thrift, Lake Shore still relies heavily on mortgage lending, a business where activity has been down lately because of higher interest rates, a slowdown in home price appreciation, and the collapse of “subprime” lending to borrowers with bad credit.
Even though Lake Shore doesn’t make subprime loans and doesn’t have major credit problems, the entire industry has been affected. Officials expect those two factors will continue to plague the industry.
“We believe that the high cost of short-term interest rates, especially for certificate of deposit accounts, along with the continued slow-down in mortgage activity, will keep 2007 earnings under pressure,” said David C. Mancuso, Lake Shore’s president and CEO, in a press release. “We will continue to look for ways to reduce expenses and increase fee income in 2007.”
Net interest income from taking deposits and making loans fell 3.1 percent to $2.28 million, as the net interest margin fell from a year ago because the company had to pay higher rates on deposits. That 15.7 percent rise in interest expenses was partially offset by 5.4 percent higher yields from loans and investments. Total loans inched up a notch from Dec. 31 to $206 million, while deposits fell slightly to $248.8 million.
Lake Shore set aside $45,000 to cover loan losses, up from nothing a year ago, because of growth in its commercial loan portfolio, where the bank sees better opportunities for revenue growth because loan yields are higher than on mortgages.
Commercial real estate and construction loans grew $1.5 million from year-end 2006, offset by an $839,000 drop in mortgages and home equity loans and a $311,000 drop in other commercial and consumer loans.
Fees rose 20.2 percent from a year ago to $470,000, led by a $57,000 increase from earnings on bank-owned life insurance. Lake Shore bought $3.8 million more of the product in the fourth quarter to fund its supplemental employee retirement plans. Another $22,000 of added fees came from a one-time increase in merchant “interchange” revenues on ATM and debit card transactions because of a change in its ATM processor’s payment methods.
Expenses rose 30 percent to $2.34 million, driven primarily by a 4.9 percent gain in salaries and benefits because of $101,000 in costs for stock compensation plans implemented after going public. That was partially offset by a $46,000 drop in salaries because of staff cuts in last year’s second quarter. Professional services also rose 40.8 percent because of legal and other services tied to the conversion.
But advertising expenses fell 38.2 percent, and postage and office supplies costs fell 22.7 percent because costs from a year ago for marketing a new Hamburg branch and purchasing supplies didn’t need to be repeated. Occupancy expenses dropped 6.7 percent because computers and equipment were disposed of or fully depreciated.
Lake Shore operates eight branches in Western New York as Lake Shore Savings Bank, with total assets of $352 million, down $2.2 million from the end of last year. The company is majority owned by Lake Shore MHC, a mutual holding company that is still owned by the savings bank’s depositors.
jepstein@buffnews.com
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Copyright (c) 2007, The Buffalo News, N.Y.
Distributed by McClatchy-Tribune Information Services.
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