Two South Towns banks reported decidedly different earnings, as profits at Evans Bancorp rose 3.2 percent in the fourth quarter, while net income at Lake Shore Bancorp fell 21.3 percent.
Both banks struggled against interest-rate pressure on profit margins and intense competition, but Evans pulled out stronger revenues from its lending and fee businesses.
"I think we've been successful in trying to drive that organic growth," said Evans president David J. Nasca. "I won't tell you it's easy. It's a difficult market."
Lake Shore also was hammered by higher expenses from its conversion to a public company, and a higher tax payment for the fourth quarter, as it caught up from underpayments earlier.
"We had to make adjustments to properly record our tax at year end," said Lake Shore Chief Financial Officer Rachel Foley.
Angola-based Evans reported profits of $1.162 million, or 43 cents per share, up from $1.126 million, or 41 cents per share, in the fourth quarter of 2005.
Executives credited the bank's performance to growth in low-cost transactional accounts and commercial leasing, as well as cost-cutting measures. Credit quality remained strong, as bad loans and charge-offs fell.
Net interest income from taking deposits and making loans rose 6.6 percent to $3.8 million, as growth in higher-yielding loans and leases beat the higher interest paid out on deposits. Unlike at many banks, Evans' profit margin actually rose because of growth in low-cost deposits.
Total loans rose 11.1 percent to $285.4 million, led by mortgages and equipment leasing.
Deposits rose 5.6 percent to $355.7 million, as Evans won the bidding on big municipal accounts and redesigned products to grow low-cost funds.
Fee income rose 4.2 percent to $2.5 million, driven by fees from leasing and loans. Insurance revenues rose 2 percent, although a "soft" market for renewals hampered growth. Bank deposit fees fell 9.2 percent. Total fees represented 26.3 percent of total revenues.
Operating expenses rose slightly to $4.4 million, driven by the opening of a Tonawanda branch in December. But salaries fell by $100,000 because of a drop in profit-sharing.
"It's a lot of challenge, both on the insurance side and on the bank side," said CEO James Tilley. "We expect another challenging year in 2007."
Nasca and Tilley said the bank will try to grow core deposits and small and middle-market lending and leasing, especially since many three-year equipment leases are likely to run out this year. The bank will also boost insurance sales to offset lower premiums, and will emphasize cross-selling.
"We're going to try to stick to our knitting," Nasca said. "We're going to continue to maintain a wary eye on our costs."
At Dunkirk-based Lake Shore, fourth-quarter profits fell sharply to $377,000 from $479,000 a year ago. Per-share earnings of 6 cents can't be compared since the savings bank was depositor-owned before it went public in April.
The biggest immediate factor was a more-than-doubling of the tax payment to $195,000 from $80,000 in the fourth quarter a year ago. Had the tax remained flat or dropped during the quarter, profits would have been up 2 percent.
Net interest income fell 1.5 percent to $2.3 million, as the savings bank's profit margin fell from a year ago. Loans and deposits each fell very slightly, to $205.7 million and $249.6 million, respectively, as demand for home equity lines of credit fell, while depositors sought out higher rates from competitors.
"The market's just very competitive," Foley said. "Some of the rates are just so high that we're not matching them unless it's reasonable and we already have the relationship."
Fees rose 9.4 percent to $488,000, led by a $30,000 gain from buying $3.8 million in bank-owned life insurance.
Expenses fell 4.9 percent to $2.1 million, in large part because of a $188,000 check-kiting loss in the fourth quarter of 2005 that didn't recur. Officials also cut $27,000 in communications and training costs, while foreclosure expenses fell $42,000.
However, salaries rose 2.3 percent to $1.1 million because of stock options. Data processing costs rose 5.9 percent to $107,000 as customers used debit cards instead of cash or checks. And professional fees nearly doubled to $259,000 from being a public company.
"I think we're managing the interest rates very well and we'll continue to focus on our loan portfolio to drive our interest income up," Foley said.