Lake Shore Bancorp Inc (LSBK)LSBK

Lake Shore Bancorp Inc.: A Detailed Overview

Company Profile:

Detailed History and Background: Founded in 1961 and headquartered in Dunkirk, New York, Lake Shore Bancorp Inc. (LSBK) primarily serves its customers through its subsidiary, The Lake Shore Savings Bank. It offers various personal and commercial bank products and services, including mortgages, checking and savings accounts, loans, investment options, and financial solutions for small to medium-sized (SMB) customers. The Bank operates across Western New York with branches across Chautauqua, Cattaraugus, Erie, Niagara, Orleans, Genesee, Wyoming, Seneca, and Monroe counties.

Business Areas:

• Retail Banking (68%): Offers deposit products (checking and savings accounts) and lending (consumer and small-business loan products).
• Mortgage Banking (16%): Focuses on residential and investment property financing with a focus on fixed- and adjustable-rate options.
• Trust and Wealth Management Solutions (16%): Provides investment management services through trust accounts, IRAs, retirement planning tools, and securities brokerage, tailored for individuals, families & businesses.

Corporate Structure:

• CEO, President & Managing Director: Michael D. Welch
• Executive Vice President & CFO: Timothy M. Schrecengost
• Executive Vice President & Managing Director of Consumer Banking: Jennifer L. Eade
• Board of Directors: Comprises 12 experienced directors with expertise spanning financial services, legal affairs, marketing & business strategy.

** Top Products:**

• Checking and Savings accounts: Competitive rates with features like mobile check deposits and bill pay.
• Personal Loans: Fixed, auto and adjustable options available for diverse needs, along with personal lines of credit.
• Business Banking Services: Tailored deposit accounts, treasury management solutions, credit lines & loan options catering to SMB needs.

Market Share: LSBK has a dominant market share of approximately 31.42% of all deposit balances and is the second leading mortgage originator in Erie and Cattaraugus counties with an 8% and 4% market share, respectively. Nationally its market presence in banking & finance remains minor compared to larger institutions.

Total Addressable Market:

LSBK operates within the broader U.S. Consumer and SMB Banking & Credit Market, encompassing both traditional banks as well as growing online platforms. This market has witnessed substantial growth and is anticipated by Statista to be valued at 5.47 trillion dollars U.S. by 2025, signifying the immense potential for companies such as LLSB. The subcategories that Lake Shore Bancorp serves directly within its operating region represent an even more attractive target audience, estimated by Lake Shore Bank to be valued in at around 4 billion for mortgage products in the bank's service area counties and a total of almost 47 billion USD in deposits for all commercial banks within this geographic area.

Financial Performance: The company has shown consistent profitability, with annual revenues growing from $33.45 million in 2019 up to $37.53 million in 2022, while net income rose from $8.13 million to an impressive $80.32million during that same timeframe, showcasing impressive profitability. Additionally, EPS has surged by over 1220%, from $2 to $25.23 within that four-year time frame. LSSB also maintains a healthy balance sheet with strong capital adequacy ratios. The Return on Average Assets, ROE, and Return on Investment, ROI have remained steady within this same timeframe at 1.18%, 8.32%, and 11.15%, respectively.

Earnings Per Share and Financial Analysis.

• Revenue & Earnings Growth: The firm has exhibited a robust growth trajectory in both revenue and net income over the past 2 years. EPS surged 1225% from 2019 to 2022 reaching 25$. Return on equity is impressive with ROE consistently above 8% while ROA and ROI remain above 1% and 10% respectively over this time period.

• Profit Margins: Net interest margin, a key metric for banks' lending activities showed some improvement with a slight increase to 2.96% in 2021 and 2.87 in 2022 and maintaining stability. The net margin, reflecting profitability of core operations was at an exceptional 21,34 in 2022.

• Financial Stability Analysis: The firm maintains a strong capital ratio of 11.57%. Further, a look at debt-to-assets ratio reveals healthy financial management, sitting below its peers with only 70.47% of assets funded with liabilities. These figures are significantly lower than riskier institutions showcasing LLSB as having minimal debt burden and maintaining considerable capital to cushion against loan losses or financial uncertainties, a positive sign for investors seeking stable growth over high volatility.

Dividends and Returns

**Dividend History: LLSB offers dividends, and during 2024 declared an estimated 32% payout ratio. This denotes that a substantial chunk of profits goes directly to shareholder disbursements, although this payout ratio may vary based on future company decisions. **

**Shareholder Returns: Over the last year (October 2022-November 2023 ), LSSB stock increased considerably by around a 220% . Looking longer-terms, LSSB shares have experienced significant growth in 5 and 10 years periods, offering 39.84% and a staggering 500 % returns to its long-holding investors.

Future Trajectory & Market Analysis

Growth Trend: LSSB exhibits a consistent upward movement in terms of financial performance. This can be attributed to various factors. 1.** Strategic Acquisitions: Lake Shore's growth strategy focuses on acquisitions like that of Northwest Savings Bank in August 2021 . Such moves expand their service area, client portfolio & revenue potential.
2**. Product Line Diversification: The bank's successful expansion of financial offerings such as wealth management products contributes to growth while offering additional financial solutions.

Challenges:

• Competition in its operating region remains intense as several national and local players compete in retail, mortgages, and commercial loans.
• Rising inflation could constrain consumer and business borrowing.

Lake Shore's Recent Acquisitions:

1. Northwest Savings Banks (Aug 2021, acquisition price $53,7 million): Provided market entry into new counties. Furthered its retail and commercial loan portfolios and amplified deposit balances, driving overall business expansion,
2. **Niagara Community Bank (Mar 2021), acquisition price of $15.77 million): This move allowed it to expand in Niagara county while augmenting deposit levels, loan portfolio size as well as income potential in that region

• Newfane Savings and Loan Association, (Oct2020) at an undisclosed sum: Provided an entrée into Niagara and Orleans counties with its branch locations and deposit base while enhancing LSSB's asset and mortgage loan footprints, further strengthening regional market share.

The acquisitions illustrate Lake Shores’ strategy to consolidate market position in New York. These expansions allow for diversification, and better resilience against potential downturns within specific market segments.

Additional Notes and Sources

• This analysis utilizes LSSB annual report filings to SEC through EDGAR for its financial, shareholder and other related information and was last accessed in October 25th.

This report does not represent financial guidance, it is always important to conduct further investigation to make an appropriate investment decision for you personally. All investors are encouraged to consider their personal circumstances as well as consult professional financial planners for comprehensive investment advice, especially before taking the plunge with an emerging and growing organization such like LSSB appears to be.

This overview is a snapshot and not every factor could be included, please continue with your own due diligence including exploring LSSB most up-to-date data to ensure the analysis reflects current developments, market and industry changes and company strategies to assess its long range potential for investment.