Lake Shore Bancorp said fourth-quarter profits soared 47 percent, a figure fueled largely by the lack of a big charge incurred last year and growth in core deposits and commercial mortgages.
The Dunkirk-based parent of Lake Shore Savings Bank reported net income of $861,000, or 15 cents per share, up from $587,000, or 10 cents per share, for the fourth quarter of 2011.
Core deposits, not including high-cost certificates of deposit, rose 12.6 percent, while the bank added $12.9 million in commercial real estate loans in the last 12 months. Bad debts also fell compared to total loans.
But the surge in profits was somewhat artificial. Results included a $500,000 charge a year ago to write down the value of an investment in a subsidiary. Without that and a one-time gain in the recent quarter, total lending and fee revenues fell 4.2 percent to $4.23 million, while expenses increased and the bank set aside more for loan losses.
For the full year, profits fell 2.7 percent to $3.6 million, or 64 cents per share, from $3.7 million, or 65 cents per share in 2011.
“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,” said Lake Shore President and CEO Daniel P. Reininga.
Net interest income from taking deposits and making loans fell 5 percent to $3.7 million, as interest income from loans and investments fell 9 percent on lower average loan balances and reduced yields, while interest expense fell 25 percent because of lower average rates on deposits and less long-term debt. The profit margin also narrowed.
The bank set aside $386,000 for loan losses, more than triple the $120,000 it had reserved a year ago, but officials said that reflected the growth in commercial real estate loans, as well as an increase in bad debt, which still fell as a percentage of total loans.
Fee and other income rocketed to $546,000 from just $13,000 a year ago, but that included an $18,600 gain on the sale of investments in the recent quarter and the $500,000 charge a year ago. Otherwise, fees would have risen 2.8 percent.
Operating expenses rose 4.9 percent to $2.8 million, primarily from higher advertising costs. The bank also announced in December 2012 that it had purchased the former First Niagara Bank branch at 4950 Main St. in Snyder, including only the building and contents but no deposits or loans. Lake Shore will open its 11th location there in the second quarter.
“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 Williamsville markets,” Reininga said. “We look forward to introducing our personal service banking model to the residents of these communities.”