Lake Shore Bancorp, Inc. (the “Company”) (NASDAQ: LSBK), the
holding company for Lake Shore Savings Bank (the “Bank”), reported
unaudited net income of $1.0 million, or $0.17 per diluted share,
for the second quarter of 2021 compared to net income of $1.4
million, or $0.23 per diluted share, for the second quarter of
2020. For the first six months of 2021, the Company reported
unaudited net income of $2.7 million, or $0.45 per diluted share,
as compared to $2.1 million, or $0.35 per diluted share, for the
first six months of 2020.
2021 Second Quarter and Year to Date
Financial Highlights:
- Net income of $1.0 million in the
second quarter of 2021 decreased by $360,000, or 26.6%, when
compared to the second quarter of 2020. Second quarter 2021 net
income was impacted by increased non-interest expense as a result
of one-time cost of $245,000 associated with our core processing
system upgrade and an increase in provision for loan losses,
partially offset by increases in net interest income and
non-interest income;
- Net income of $2.7 million for the
six months ended June 30, 2021 increased by $597,000, or 28.6%,
when compared to the six months ended June 30, 2020. Net income
during the first six months of 2021 was positively impacted by
increased net interest income and non-interest income and a
decrease in provision for loan losses, partially offset by
increases in non-interest expense and income tax expense;
- Loans, net totaled $546.4 million
at June 30, 2021, compared to $524.1 million at December 31, 2020,
an increase of $22.3 million, or 4.2%, primarily due to the
origination of commercial real estate, commercial construction and
residential, one- to four-family loans during the first six months
of 2021;
- Non-performing loans as a percent
of total net loans decreased to 0.47% at June 30, 2021 from 0.59%
at December 31, 2020, primarily due to a decrease in non-accrual
residential, one- to four- family real estate loans;
- Total assets at June 30, 2021
increased $24.7 million, or 3.6%, to $710.9 million when compared
to December 31, 2020, primarily due to an increase in loans, net
and an increase in cash and cash equivalents which was driven by
deposit growth. This increase was partially offset by a decrease in
securities available for sale; and
- Total deposits grew by $26.2
million, or 4.7%, to $586.5 million at June 30, 2021 when compared
to December 31, 2020, primarily due to growth in core
deposits.
“We produced strong financial results during the
first six months of 2021 primarily due to solid loan originations
that have been funded by core deposit growth. The second quarter
results were impacted, in part, by non-recurring costs associated
with our upcoming core conversion which is expected to take place
in the 3rd quarter of 2021. The update to a new and innovative
processing platform will allow us to deliver a better banking
experience to our customers while achieving operational
efficiencies,” stated Daniel P. Reininga, President and Chief
Executive Officer.
COVID 19 Pandemic Update
During the first six months of 2021, the Bank
originated thirty-two (32) Small Business Administration (“SBA”)
Paycheck Protection Program loans (“PPP loans”) for $11.4 million
to lessen the continued economic impact of the COVID-19 pandemic on
small businesses in our market areas. These loans were in addition
to the 252 PPP loans for $26.9 million which were originated by the
Bank during 2020. The PPP ended on May 31, 2021. As of June 30,
2021, $18.0 million of the PPP loans originated during 2020 and
2021 were still outstanding on the Bank’s balance sheet.
During 2020, the Bank implemented a loan
deferral program, in line with regulatory guidance, to further
assist customers that have been impacted by the pandemic. At its
maximum, we had approved loan payment deferral requests of up to 90
days on 219 loans, representing $103.1 million, or 21.1%, of the
Bank’s loan portfolio. The number of loan payment deferral requests
has decreased significantly and as of June 30, 2021, three
borrowers representing five loans and $15.5 million, or 2.8%, of
the loan portfolio remained in the loan deferral program.
Net Interest Income
Second quarter 2021 net interest income
increased $393,000, or 7.8%, to $5.4 million as compared to $5.0
million for the second quarter 2020. Net interest income for the
first six months of 2021 increased $767,000, or 7.7%, to $10.7
million as compared to $9.9 million for the first six months of
2020.
Interest income for the second quarter of 2021
and 2020 was $6.2 million and $6.1 million, respectively. Total
average interest-earning assets increased by $53.8 million, or
11.0%, during the second quarter 2021 as compared to the second
quarter 2020. The increase in the average balance of
interest-earning assets was primarily due to growth in the average
balance of commercial and residential real estate and commercial
construction loans. The positive impact of loan portfolio growth on
interest income was primarily offset by a 26 basis points decrease
in the average yield earned on assets due to the decrease in market
interest rates and to a lesser extent the origination of PPP loans
earning 1.0% since June 30, 2020.
Interest income for the first six months of 2021
was $12.2 million, a decrease of $209,000, or 1.7%, compared to
$12.4 million for the first six months of 2020. The decrease was
attributable to a 43 basis points decrease in the average yield
earned on assets due to the decrease in market interest rates and
to a lesser extent the origination of PPP loans earning 1.0% since
June 30, 2020. The decrease was partially offset by a $57.2
million, or 9.6%, increase in the average balance of
interest-earning assets and the recognition of PPP loan fees during
the six month period ended June 30, 2021 as compared to the same
period in 2020. The increase in the average balance of
interest-earning assets was primarily due to growth in the average
balance of commercial real estate, commercial construction and PPP
loans.
Second quarter 2021 interest expense was
$738,000, a decrease of $368,000, or 33.3%, from $1.1 million for
second quarter 2020 primarily due to a decrease in interest paid on
deposit accounts. During the second quarter of 2021, there was a 32
basis points decrease in the average interest rate paid on deposit
accounts as a result of a decrease in market interest rates since
June 30, 2020. The decrease was partially offset by a $22.3
million, or 4.9%, increase in average interest-bearing deposits
during the 2021 second quarter as compared to the 2020 second
quarter. The increase in the average balance of interest-bearing
deposits was due to an increase in core deposit accounts primarily
through organic growth, the deposit of PPP funds and government
stimulus payments into our customers’ deposit accounts and the
impact of COVID-19 on consumer and business spending and savings
levels. During the second quarter of 2021, interest expense on
long-term debt decreased by $34,000, or 20.0%, compared to the
second quarter of 2020, primarily due to a $6.3 million decrease in
the average balance of long-term borrowings.
Interest expense for the six months ended June
30, 2021 was $1.5 million, a decrease of $976,000, or 39.0%, from
$2.5 million for the six months ended June 30, 2020 primarily due
to a decrease in interest paid on deposit accounts. During the
first six months of 2021, there was a 45 basis points decrease in
the average interest rate paid on deposit accounts as a result of a
decrease in market interest rates since June 30, 2020. The decrease
was partially offset by a $29.9 million, or 6.8%, increase in
average interest-bearing deposits during the first six months of
2021 as compared to the same period in 2020. The increase in the
average balance of interest-bearing deposits was due to an increase
in core deposit accounts primarily through organic growth, the
deposit of PPP funds and government stimulus payments into our
customers’ deposit accounts and the impact of COVID-19 on consumer
and business spending and savings levels. During the six months
ended June 30, 2021, interest expense on long-term debt decreased
by $67,000, or 19.2%, compared to the six month period ended June
30, 2020, primarily due to a $6.0 million decrease in the average
balance on long-term borrowings.
Non-Interest Income
Non-interest income was $683,000 for the second
quarter of 2021, an increase of $75,000, or 12.3%, as compared to
the same quarter in the prior year. The increase was primarily due
to a $108,000 increase in service charges and fees and a $43,000
increase in debit card interchange income, partially offset by a
$60,000 decrease in gains on the sale of residential loans and a
$20,000 decrease in earnings on bank owned life insurance.
Non-interest income was $1.5 million for the six
months ended June 30, 2021, an increase of $440,000, or 41.4%, as
compared to the six months ended June 30, 2020. The increase was
primarily due to a $273,000 increase in unrealized gains on
interest rate swaps and equity securities, a $76,000 increase in
debit card income, a $60,000 increase in gains on the sale of
residential loans and a $57,000 increase in service charges and
fees, partially offset by a $37,000 decrease in earnings on bank
owned life insurance.
Non-Interest Expense
Non-interest expense was $4.4 million for the
second quarter of 2021, an increase of $660,000, or 17.7%, as
compared to $3.7 million for the second quarter of 2020. Salary and
employee benefits expense increased $320,000, or 16.6%, primarily
due to a $129,000 decrease in deferred salaries associated with a
decrease in loan originations during the second quarter of 2021 as
compared to the second quarter of 2020 when a majority of PPP loans
were originated. The increase was also due to annual salary
increases and the addition of a Retail, Sales and Marketing Officer
hired in August 2020. Professional services increased $199,000, or
70.8%, primarily due to one-time costs of $245,000 associated with
the Company’s undertaking of a core processing system upgrade with
completion scheduled for the third quarter of 2021. The current
year second quarter also had higher other expenses, data processing
costs, occupancy and equipment costs. These increases were
partially offset by lower advertising costs.
Non-interest expense was $8.3 million for the
six months ended June 30, 2021, an increase of $616,000, or 8.0%,
as compared to $7.7 million for the first six months of 2020.
Professional services increased $253,000, or 51.0%, primarily due
to one-time costs of $288,000 associated with the Company’s
undertaking of a core processing system upgrade with completion
scheduled for the third quarter of 2021. Salary and employee
benefits expense increased $205,000, or 5.0%, primarily due to an
increase in annual salaries and the addition of a Retail, Sales and
Marketing Officer hired in August 2020, partially offset by higher
deferred salaries related to loan originations during the first six
months of 2021 when compared to the same period in 2020. The first
six months of 2021, also had higher data processing costs,
occupancy and equipment costs, FDIC insurance and other expenses.
These increases were partially offset by lower advertising
costs.
Asset Quality
The provision for loan losses was $500,000 for
second quarter 2021 as compared to $325,000 for second quarter
2020. The second quarter 2021 provision expense was primarily due
to a specific reserve related to the downgrade and impairment of
one commercial real estate loan during the period. The second
quarter 2020 provision expense was primarily due to an adjustment
of certain qualitative factors to take into account the uncertain
impact of COVID-19 on economic conditions and borrowers’ ability to
repay loans.
The provision for loan losses was $650,000 for
the six months ended June 30, 2021 as compared to $825,000 for the
six months ended June 30, 2020. The provision expense for the first
six months of 2021 was primarily due to a specific reserve
associated with the downgrade and impairment of one commercial real
estate loan and general reserves for loan originations during the
period. The provision expense for the first six months of 2020 was
primarily due to an adjustment of certain qualitative factors to
take into account the uncertain impact of COVID-19 on economic
conditions and borrowers’ ability to repay loans.
Non-performing loans as a percent of total net
loans decreased to 0.48% at June 30, 2021 as compared to 0.59% at
December 31, 2020. The Company’s allowance for loan losses as a
percent of total net loans was 1.19% and 1.12%, at June 30, 2021
and December 31, 2020, respectively.
Balance Sheet Summary
Total assets at June 30, 2021 were $710.9
million, a $24.7 million, or 3.6%, increase as compared to $686.2
million at December 31, 2020. Loans receivable, net at June 30,
2021 was $546.4 million, a $22.3 million, or 4.2%, increase as
compared to $524.1 million at December 31, 2020. The increase in
total loans was primarily due to increased commercial real estate,
commercial construction and residential, one- to four-family loan
originations. Cash and cash equivalents increased by $2.8 million,
or 6.6%, from $43.0 million at December 31, 2020 to $45.8 million
at June 30, 2021. The increase was primarily due to an increase in
deposits, partially offset by the use of funds for loan
originations. Securities available for sale decreased $804,000, or
1.0%, to $78.5 million at June 30, 2021 from $79.3 million at
December 31, 2020. Total deposits at June 30, 2021 were $586.5
million, an increase of $26.2 million, or 4.7%, compared to $560.3
million at December 31, 2020. The increase in deposits was due to
an increase in core deposit accounts, which was partially driven by
stimulus funds and PPP loan proceeds. Stockholders’
equity at June 30, 2021 was $86.4 million as compared to $85.9
million at December 31, 2020. The increase in stockholders’ equity
was primarily attributed to net income which was nearly offset by a
decrease in accumulated other comprehensive income, dividend
payments and stock repurchases during the first six months of 2021.
During the first six months of 2021, the Company repurchased 79,928
shares of common stock at an average cost of $15.00 per share as
compared to 67,500 shares of common stock repurchased at an average
cost of $13.16 per share during the first six months of 2020.
Dividends Declared
On July 20, 2021, the Company’s Board of
Directors approved a quarterly cash dividend of $0.14 per share of
common stock. The dividend is payable on August 20, 2021, to
shareholders of record as of August 6, 2021. Lake Shore, MHC (the
“MHC”), which holds 3,636,875 shares, or 63.1%, of the Company’s
total outstanding stock as of July 21, 2021, has elected to waive
receipt of the dividend on its shares. The closing stock price of
Lake Shore Bancorp, Inc. shares was $14.91 on July 20, 2021, which
implied a dividend yield for the Company’s common stock of
3.8%.
About Lake Shore
Lake Shore Bancorp, Inc. (NASDAQ Global Market: LSBK) is the
mid-tier holding company of Lake Shore Savings Bank, a federally
chartered, community-oriented financial institution headquartered
in Dunkirk, New York. The Bank has eleven full-service branch
locations in Western New York, including five in Chautauqua County
and six in Erie County. The Bank offers a broad range of retail and
commercial lending and deposit services. The Company’s common stock
is traded on the NASDAQ Global Market as “LSBK”. Additional
information about the Company is available at
www.lakeshoresavings.com.
Safe-Harbor
This release contains certain forward-looking
statements within the meaning of the Private Securities Litigation
Reform Act of 1995, that are based on current expectations,
estimates and projections about the Company’s and the Bank’s
industry, and management’s beliefs and assumptions. Words such as
anticipates, expects, intends, plans, believes, estimates and
variations of such words and expressions are intended to identify
forward-looking statements. Such statements are not guarantees of
future performance and are subject to certain risks, uncertainties
and assumptions that are difficult to forecast. Therefore, actual
results may differ materially from those expressed or forecast in
such forward-looking statements. The Company and Bank undertake no
obligation to update publicly any forward-looking statements,
whether as a result of new information or otherwise.
As the result of the COVID-19 pandemic and the
related adverse local and national economic consequences, the
Company could be subject to any of the following additional risks,
any of which could have a material, adverse effect on its business,
financial condition, liquidity, and results of operations:
- demand for our products and
services may decline, making it difficult to grow assets and
income;
- if the economy is unable to
substantially reopen, and high levels of unemployment continue for
an extended period of time, loan delinquencies, problem assets, and
foreclosures may increase, resulting in increased charges and
reduced income;
- collateral for
loans, especially real estate, may decline in value, which
could cause loan losses to increase;
- our allowance for loan losses may
have to be increased if borrowers experience financial difficulties
beyond forbearance periods, which will adversely affect our net
income;
- the net worth and liquidity of loan
guarantors may decline, impairing their ability to honor
commitments to us;
- as the result of the decline in the
Federal Reserve Board’s target federal funds rate to near 0%, the
yield on our assets may decline to a greater extent than the
decline in our cost of interest-bearing liabilities, reducing our
net interest margin and spread and reducing net income;
- a material decrease in net income
over several quarters could result in a decrease in the rate of our
quarterly cash dividend;
- our cyber security risks are
increased as the result of an increase in the number of employees
working remotely;
- we rely on third party vendors for
certain services and the unavailability of a critical service due
to the COVID-19 outbreak could have an adverse effect on us;
and
- FDIC premiums may increase if the
agency experiences additional resolution costs.
Source: Lake Shore Bancorp, Inc.Category: Financial
Investor Relations/Media ContactRachel A.
FoleyChief Financial Officer and TreasurerLake Shore Bancorp,
Inc.31 East Fourth StreetDunkirk, New York 14048(716) 366-4070 ext.
1020
|
|
Lake Shore Bancorp, Inc.Selected Financial
Information |
|
Selected Financial Condition Data |
|
|
|
|
|
|
June 30, |
|
December 31, |
|
2021 |
|
2020 |
|
|
(Unaudited) |
|
|
(Dollars in thousands) |
|
|
|
|
|
|
Total assets |
$ |
710,881 |
|
$ |
686,200 |
Cash and cash equivalents |
|
45,801 |
|
|
42,975 |
Securities available for
sale |
|
78,481 |
|
|
79,285 |
Loans receivable, net |
|
546,409 |
|
|
524,143 |
Deposits |
|
586,483 |
|
|
560,259 |
Long-term debt |
|
26,950 |
|
|
29,750 |
Stockholders’ equity |
|
86,444 |
|
|
85,924 |
|
|
|
|
|
|
Statements of Income |
|
Three Months Ended |
|
Six Months Ended |
|
June 30, |
|
June 30, |
|
2021 |
|
2020 |
|
2021 |
|
2020 |
|
|
|
|
|
|
|
|
|
|
|
|
|
(Unaudited) |
|
(Dollars in thousands, except per share
amounts) |
|
|
|
|
|
|
|
|
|
|
|
|
Interest income |
$ |
6,169 |
|
$ |
6,144 |
|
$ |
12,226 |
|
$ |
12,435 |
Interest expense |
|
738 |
|
|
1,106 |
|
|
1,525 |
|
|
2,501 |
Net interest income |
|
5,431 |
|
|
5,038 |
|
|
10,701 |
|
|
9,934 |
Provision for loan losses |
|
500 |
|
|
325 |
|
|
650 |
|
|
825 |
Net interest income after
provision for loan losses |
|
4,931 |
|
|
4,713 |
|
|
10,051 |
|
|
9,109 |
Total non-interest income |
|
683 |
|
|
608 |
|
|
1,503 |
|
|
1,063 |
Total non-interest
expense |
|
4,395 |
|
|
3,735 |
|
|
8,348 |
|
|
7,733 |
Income before income
taxes |
|
1,219 |
|
|
1,586 |
|
|
3,206 |
|
|
2,439 |
Income tax expense |
|
226 |
|
|
233 |
|
|
525 |
|
|
355 |
Net income |
$ |
993 |
|
$ |
1,353 |
|
$ |
2,681 |
|
$ |
2,084 |
Basic and diluted earnings per
share |
$ |
0.17 |
|
$ |
0.23 |
|
$ |
0.45 |
|
$ |
0.35 |
Dividends declared per
share |
$ |
0.13 |
|
$ |
0.12 |
|
$ |
0.26 |
|
$ |
0.24 |
|
|
|
|
|
|
|
|
|
|
|
|
Lake Shore Bancorp, Inc.Selected Financial
Information |
|
Selected Financial
Ratios |
|
|
|
|
|
|
Three Months Ended |
|
Six Months Ended |
|
June 30, |
|
June 30, |
|
2021 |
2020 |
|
2021 |
2020 |
|
|
|
|
|
|
|
|
|
|
|
(Unaudited) |
|
|
|
|
Return on average assets |
0.56 |
% |
0.82 |
% |
|
0.77 |
% |
0.65 |
% |
Return
on average equity |
4.56 |
% |
6.41 |
% |
|
6.17 |
% |
4.95 |
% |
Average
interest-earning assets to average interest-bearing
liabilities |
131.66 |
% |
126.66 |
% |
|
130.44 |
% |
124.95 |
% |
Interest
rate spread |
3.13 |
% |
3.07 |
% |
|
3.14 |
% |
3.13 |
% |
Net
interest margin |
3.28 |
% |
3.27 |
% |
|
3.28 |
% |
3.34 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, |
December 31, |
|
2021 |
2020 |
|
(Unaudited) |
|
|
|
Asset Quality
Ratios: |
|
|
Non-performing loans as a percent of total net loans |
0.48 |
% |
0.59 |
% |
Non-performing assets as a percent of total assets |
0.38 |
% |
0.46 |
% |
Allowance for loan losses as a percent of total net loans |
1.19 |
% |
1.12 |
% |
Allowance for loan losses as a percent of non-performing loans |
249.85 |
% |
118.75 |
% |
|
|
|
|
|
|
|
June 30, |
|
December 31, |
|
2021 |
|
2020 |
|
|
(Unaudited) |
|
|
|
|
|
|
Share
Information: |
|
|
|
|
|
Common
stock, number of shares outstanding |
|
5,763,424 |
|
|
5,823,786 |
Treasury
stock, number of shares held |
|
1,073,090 |
|
|
1,012,728 |
Book
value per share |
$ |
15.00 |
|
$ |
14.75 |
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