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Lake Shore sees potential to grow in online banking

Lake Shore Bancorp executives say they see more chances to add customers through online banking and commercial lending than through new branches, but the traditional thrift institution is still watching for offices that may be divested by other area banks.

Chief Executive Officer Daniel P. Reininga told shareholders this week there's more opportunity to pursue growth through "clicks" than through "bricks," indicating that capturing "state-of-the-art" growth online could be more cost-effective than building new offices.

Lake Shore is already trying to "energize the electronic experience" for its customers, he said.

That includes introducing some new products and services such as mobile banking and the ability to bank from smartphones and tablets in addition to desktop computers. It also introduced QuickBooks as a service. And it plans to offer online account openings as well, while pushing into person-to-person payments and social media.

As a result, Reininga said, the bank's online penetration is growing. At the same time, though, the bank wants to be efficient, and not try to be too much of an innovator, especially since not all customers want the newest features. "It can be very expensive if you try to be a leader in the industry," he said.

The bank also plans to evaluate potential branch opportunities that may arise in the next few months, as First Niagara Financial Group, KeyCorp, Community Bank System and Financial Institutions trade offices and close locations.

That could present a rare opportunity to snag some good new locations on the cheap, since the branches are already set up for banking and don't have to be built from scratch.

"That's a moving target still," said Reininga, also president of Dunkirk-based Lake Shore, parent of Lake Shore Savings Bank. "There are going to be several branches available. That could be opportunities for us."

Lake Shore currently has 10 branches, equally split between Chautauqua and Erie counties, but most of its focus in recent years has been on growing its position and market share in the Buffalo suburbs. The bank has been targeting one new branch every 12 to 18 months, and "we're in that golden area now," Reininga said at the bank's annual meeting.

First Niagara last week completed its purchase of 195 HSBC Bank USA branches across the state and in southwestern Connecticut, and converted more than 100 of them over the weekend. It plans to sell 64 offices to Key, Community Bank and Five Star, and close 35 overlapping locations. The other three banks are also expected to close some branches they don't need.

The unprecedented turmoil in this market has a lot of other area financial institutions licking their chops, not only at the prospect of getting real estate, but also snagging disgruntled customers and employees. Lake Shore also has launched a new advertising campaign to get attention.

The bank also is targeting more growth for its commercial division, including loans and services for commercial customers. Lake Shore is still predominantly a traditional savings bank, with mortgages comprising 66 percent of its $270.4 million in loans at March 31, plus another 12 percent in consumer and home equity loans.

By contrast, only 22.6 percent of loans are commercial, up significantly from previous years, but still representing a big growth avenue. Indeed, the bank is aiming for $20 million in commercial loan growth this year, up from $17.5 million in 2011.

Reininga also noted that business and commercial loans carry "the right kind of interest," meaning that they are for shorter terms and higher rates than mortgages. They often reprice within five years instead of 20 or 30 years, or they can be "priced right" for the long-term.