Lake Shore Bancorp(LSBK) - 2024 Q1 - Quarterly Results

Executive Summary & Financial Highlights This section provides an overview of Q1 2024 performance, key financial metrics, and strategic highlights Q1 2024 Performance Overview Lake Shore Bancorp, Inc. reported a significant decrease in Q1 2024 net income, primarily due to lower net interest income and changes in credit loss provision Q1 2024 Net Income and EPS | Metric | Q1 2024 | Q1 2023 | Change ($) | Change (%) | | :----- | :------ | :------ | :--------- | :--------- | | Net Income | $1.0 million | $1.7 million | -$0.7 million | -39.8% | | Diluted EPS | $0.17 | $0.29 | -$0.12 | -41.4% | - Net income was negatively impacted by a decrease in net interest income and the period-over-period change in the provision for credit losses, partially offset by reduced non-interest expense and increased non-interest income[2] Key Financial Highlights The company increased deposits, reduced wholesale funding, improved book value per share, and maintained a "well capitalized" status - Total deposits increased by $3.8 million, or 0.6%, since December 31, 2023, with uninsured deposits at 12.6% as of March 31, 2024[3] - Reliance on wholesale funding was reduced by repaying $11.0 million of brokered CDs and $10.0 million of Federal Home Loan Bank of New York (FHLBNY) borrowings[3] - Members approved a dividend waiver for up to $0.72 per share for dividends potentially declared through April 2, 2025[3] Capital and Shareholder Metrics | Metric | March 31, 2024 | December 31, 2023 | Change (%) | | :----- | :------------- | :---------------- | :--------- | | Book Value per Share | $15.22 | $15.17 | 0.3% | | Tier 1 Leverage Ratio | 13.05% | N/A | N/A | | Total Risk-Based Capital Ratio | 18.13% | N/A | N/A | Detailed Financial Performance Analysis This section provides an in-depth analysis of net interest income, non-interest income, and non-interest expense for the quarter Net Interest Income Net interest income decreased significantly in Q1 2024, accompanied by compression in net interest margin and interest rate spread Net Interest Income and Margin Trends | Metric | Q1 2024 | Q1 2023 | Change ($) | Change (%) | | :----- | :------ | :------ | :--------- | :--------- | | Net Interest Income | $5.1 million | $6.3 million | -$1.2 million | -18.4% | | Net Interest Margin | 3.10% | 3.76% | -0.66% | -17.6% | | Interest Rate Spread | 2.55% | 3.48% | -0.93% | -26.7% | Interest Income Interest income increased due to a higher average yield on interest-earning assets, despite a slight decrease in average asset balance Interest Income Drivers | Metric | Q1 2024 | Q1 2023 | Change ($) | Change (%) | | :----- | :------ | :------ | :--------- | :--------- | | Interest Income | $8.6 million | $8.0 million | $0.658 million | 8.3% | | Avg Yield on Interest-Earning Assets | +45 bps | N/A | N/A | N/A | | Avg Balance of Interest-Earning Assets | -1.1% | N/A | N/A | N/A | Interest Expense Interest expense surged due to a substantial increase in the average interest rate paid on interest-bearing liabilities, particularly time deposits Interest Expense Components | Metric | Q1 2024 | Q1 2023 | Change ($) | Change (%) | | :----- | :------ | :------ | :--------- | :--------- | | Interest Expense | $3.5 million | $1.7 million | $1.8 million | 109.4% | | Avg Interest Rate on Interest-Bearing Liabilities | +138 bps | N/A | N/A | N/A | | Interest Expense on Time Deposits | +$1.3 million | N/A | N/A | N/A | | Avg Interest Rate on Time Deposits | +192 bps | N/A | N/A | N/A | | Avg Time Deposit Balances | +21.6% | N/A | N/A | N/A | | Interest Expense on Borrowed Funds | -$115,000 | N/A | N/A | -33.1% | Non-Interest Income Non-interest income increased, driven by higher earnings from BOLI restructuring and a favorable variance from interest rate swaps Non-Interest Income Performance | Metric | Q1 2024 | Q1 2023 | Change ($) | Change (%) | | :----- | :------ | :------ | :--------- | :--------- | | Non-Interest Income | $707,000 | $554,000 | $153,000 | 27.6% | - Increase primarily due to a $110,000 increase in earnings on bank-owned life insurance (BOLI) in connection with restructuring during Q4 2023[7] - Favorable variance of $49,000 related to interest rate swaps during Q1 2024 as a result of unwinding the swaps during 2023[7] Non-Interest Expense Non-interest expense decreased due to significant reductions in professional services and advertising, partially offset by higher FDIC insurance and data processing costs Non-Interest Expense Breakdown | Metric | Q1 2024 | Q1 2023 | Change ($) | Change (%) | | :----- | :------ | :------ | :--------- | :--------- | | Non-Interest Expense | $5.0 million | $5.5 million | -$0.522 million | -9.5% | - Professional services expense decreased by $523,000, or 61.5%[8] - Advertising costs decreased by $127,000, or 71.3%[8] - FDIC insurance expense increased by $184,000, or 193.7%, due to increased premium assessments related to regulatory matters[8] Asset Quality and Balance Sheet This section reviews credit quality metrics and provides a summary of the company's balance sheet changes Credit Quality The allowance for credit losses decreased, while non-performing assets as a percentage of total assets increased Credit Loss and Non-Performing Asset Trends | Metric | March 31, 2024 | December 31, 2023 | Change | | :----- | :------------- | :---------------- | :----- | | Allowance for Credit Losses on Loans | $6.2 million | $6.5 million | -$0.3 million | | Allowance for Credit Losses on Unfunded Commitments | $356,000 | $485,000 | -$129,000 | | Non-performing Assets as % of Total Assets | 0.55% | 0.47% | +0.08% | | Allowance for Credit Losses as % of Net Loans | 1.12% | 1.16% | -0.04% | - The decline in the allowance for credit losses to net loans was primarily due to a decrease in quantitative loss factors derived from historical loss rates[10] Balance Sheet Summary Total assets decreased slightly, while stockholders' equity saw a modest increase, influenced by net income and unrealized losses Overall Balance Sheet Changes | Metric | March 31, 2024 | December 31, 2023 | Change ($) | Change (%) | | :----- | :------------- | :---------------- | :--------- | :--------- | | Total Assets | $717.6 million | $725.1 million | -$7.5 million | -1.0% | | Stockholders' Equity | $86.5 million | $86.3 million | +$0.2 million | +0.3% | - Increase in stockholders' equity primarily attributed to $1.0 million in net income, partially offset by a $798,000 unrealized mark-to-market loss on available-for-sale securities[12] Assets Cash and cash equivalents increased, while securities available for sale decreased, and net loans remained stable Asset Composition | Metric | March 31, 2024 | December 31, 2023 | Change ($) | Change (%) | | :----- | :------------- | :---------------- | :--------- | :--------- | | Cash and Cash Equivalents | $55.0 million | $53.7 million | +$1.3 million | +2.3% | | Securities Available for Sale | $58.7 million | $60.4 million | -$1.7 million | -2.8% | | Loans Receivable, Net | $555.5 million | $555.8 million | -$0.3 million | -0.1% | Liabilities and Equity Total deposits increased, and total borrowings significantly decreased, reflecting reduced reliance on wholesale funding Liabilities and Equity Structure | Metric | March 31, 2024 | December 31, 2023 | Change ($) | Change (%) | | :----- | :------------- | :---------------- | :--------- | :--------- | | Total Deposits | $594.7 million | $590.9 million | +$3.8 million | +0.6% | | Total Borrowings | $25.3 million | $35.3 million | -$10.0 million | -28.4% | Company Information This section provides an overview of Lake Shore Bancorp, Inc. and its operations, along with a safe harbor statement for forward-looking information About Lake Shore Bancorp, Inc. Lake Shore Bancorp, Inc. is the holding company for Lake Shore Savings Bank, a community-oriented financial institution operating in Western New York - Lake Shore Bancorp, Inc. is the mid-tier holding company of Lake Shore Savings Bank, a federally chartered, community-oriented financial institution[13] - The Bank operates eleven full-service branch locations across Chautauqua and Erie Counties in Western New York[13] - The Bank offers a broad range of retail and commercial lending and deposit services[13] Safe Harbor Statement This statement clarifies that forward-looking statements are subject to significant risks and uncertainties, and actual results may differ materially - This release contains forward-looking statements based on current expectations, estimates, and projections, identified by words such as "anticipates," "expects," "intends," "plans," "believes," "estimates"[14] - Forward-looking statements are not guarantees of future performance and involve significant risks and uncertainties, including compliance with regulatory orders, data security breaches, and economic conditions[14][15] - The Company does not undertake to publicly update or revise forward-looking statements if future changes make it clear that projected results will not be realized[15] Selected Financial Data This section provides key financial tables, including condition data, income statements, financial ratios, asset quality ratios, and share information Selected Financial Condition Data This table presents key balance sheet items, including total assets, cash, securities, loans, deposits, debt, and equity Selected Financial Condition Data (in thousands) | Metric (in thousands) | March 31, 2024 | December 31, 2023 | | :-------------------- | :------------- | :---------------- | | Total assets | $717,582 | $725,118 | | Cash and cash equivalents | $54,953 | $53,730 | | Securities available for sale | $58,682 | $60,442 | | Loans receivable, net | $555,455 | $555,828 | | Deposits | $594,704 | $590,924 | | Long-term debt | $25,250 | $35,250 | | Stockholders' equity | $86,510 | $86,273 | Condensed Statements of Income This table provides a condensed income statement, detailing interest income and expense, net interest income, non-interest items, and net income Condensed Statements of Income (in thousands, except per share) | Metric (in thousands, except per share) | Three Months Ended March 31, 2024 | Three Months Ended March 31, 2023 | | :------------------------------------ | :-------------------------------- | :-------------------------------- | | Interest income | $8,609 | $7,951 | | Interest expense | $3,476 | $1,660 | | Net interest income | $5,133 | $6,291 | | (Credit) provision for credit losses | $(352) | $(625) | | Net interest income after (credit) provision for credit losses | $5,485 | $6,916 | | Total non-interest income | $707 | $554 | | Total non-interest expense | $4,995 | $5,517 | | Income before income taxes | $1,197 | $1,953 | | Income tax expense | $183 | $269 | | Net income | $1,014 | $1,684 | | Basic and diluted earnings per share | $0.17 | $0.29 | Selected Financial Ratios This table presents key financial performance ratios, including return on assets and equity, interest rate spread, and net interest margin Selected Financial Ratios | Selected Financial Ratios | Three Months Ended March 31, 2024 | Three Months Ended March 31, 2023 | | :------------------------ | :-------------------------------- | :-------------------------------- | | Return on average assets | 0.57% | 0.94% | | Return on average equity | 4.69% | 8.16% | | Average interest-earning assets to average interest-bearing liabilities | 126.33% | 127.65% | | Interest rate spread | 2.55% | 3.48% | | Net interest margin | 3.10% | 3.76% | Asset Quality Ratios This table details asset quality ratios, covering non-performing loans and assets, and allowance for credit losses relative to loans Asset Quality Ratios | Asset Quality Ratios | March 31, 2024 | December 31, 2023 | | :------------------- | :------------- | :---------------- | | Non-performing loans as a percentage of net loans | 0.71% | 0.60% | | Non-performing assets as a percentage of total assets | 0.55% | 0.47% | | Allowance for credit losses as a percentage of net loans | 1.12% | 1.16% | | Allowance for credit losses as a percentage of non-performing loans | 159.19% | 193.09% | Share Information This table provides key share-related information, including common stock outstanding, treasury stock held, and book value per share Share Information | Share Information | March 31, 2024 | December 31, 2023 | | :---------------- | :------------- | :---------------- | | Common stock, number of shares outstanding | 5,684,784 | 5,686,288 | | Treasury stock, number of shares held | 1,151,730 | 1,150,226 | | Book value per share | $15.22 | $15.17 |