On October 23, 2024, Lake Shore Bancorp Inc (LSBK, Financial) released its 8-K filing detailing the financial performance for the third quarter of 2024. The company, a savings and loan holding entity, focuses on attracting retail deposits and investing in various loan types and securities. Lake Shore Bancorp Inc reported a net income of $1.3 million, or $0.24 per diluted share, marking an increase from the previous quarter's $1.1 million, or $0.19 per diluted share, but a decrease from $1.6 million, or $0.27 per diluted share, in the third quarter of 2023.
Performance and Challenges
The third quarter of 2024 saw Lake Shore Bancorp Inc benefiting from an increase in net interest income and a reduction in non-interest expenses. The net interest margin improved to 3.28%, up from 3.14% in the previous quarter, indicating better profitability from its lending activities. However, the company faces challenges with a year-over-year decrease in net interest income, which fell by 14.5% compared to the third quarter of 2023. This decline is significant as it reflects the ongoing pressure from interest rate fluctuations and competitive deposit markets.
Financial Achievements
Lake Shore Bancorp Inc's strategic financial management is evident in its decision to repay $25.0 million in Federal Home Loan Bank of New York borrowings and not renew $16.0 million in brokered certificates of deposit, while achieving a 2.2% growth in organic deposits. These actions have strengthened the company's balance sheet and reduced reliance on external funding, which is crucial for maintaining financial stability in the banking sector.
Key Financial Metrics
Net interest income for the third quarter increased by $177,000, or 3.4%, to $5.4 million compared to the previous quarter. However, it decreased by $912,000 from the same period last year. The efficiency ratio improved to 77.96%, down from 82.39% in the second quarter, reflecting better cost management. The company's capital position remains robust, with a Tier 1 Leverage ratio of 13.37% and a Total Risk-Based capital ratio of 18.85% as of September 30, 2024.
I am pleased to report a solid quarter of financial results, marked by quarterly earnings growth and an uptick in the net interest margin for the first time in well over a year," stated Kim C. Liddell, President, CEO, and Director.
Income and Expense Analysis
Interest income for the third quarter was $8.9 million, a slight increase from both the previous quarter and the same quarter last year. Interest expense decreased by 2.3% from the previous quarter but increased by 43.0% from the third quarter of 2023, primarily due to higher market interest rates. Non-interest income rose by 7.2% from the previous quarter, driven by increased earnings on bank-owned life insurance. Non-interest expenses decreased by 1.7% from the previous quarter, with significant reductions in FDIC insurance and professional services expenses.
Balance Sheet and Asset Quality
Total assets decreased by 3.8% to $697.6 million as of September 30, 2024, primarily due to the repayment of borrowings and nonrenewal of brokered CDs. Loans receivable, net, stood at $539.0 million, down from $555.8 million at the end of 2023. The allowance for credit losses on loans was $5.5 million, reflecting a cautious approach to credit risk management. Non-performing assets increased to 0.57% of total assets, up from 0.47% at the end of 2023, indicating a slight deterioration in asset quality.
| Financial Metric | Q3 2024 | Q2 2024 | Q3 2023 |
|---|---|---|---|
| Net Income | $1.3 million | $1.1 million | $1.6 million |
| Net Interest Margin | 3.28% | 3.14% | 3.74% |
| Efficiency Ratio | 77.96% | 82.39% | 75.30% |
Analysis and Outlook
Lake Shore Bancorp Inc's third-quarter performance highlights its ability to navigate challenging market conditions through strategic financial management and cost control. The improvement in net interest margin and efficiency ratio are positive indicators of operational efficiency. However, the decline in net interest income year-over-year and the increase in non-performing assets warrant careful monitoring. As the company continues to focus on organic growth and balance sheet optimization, its financial health remains a key area of interest for investors.
Explore the complete 8-K earnings release (here) from Lake Shore Bancorp Inc for further details.
