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Lake Shore Bank eyes commercial lending growth

DUNKIRK – Lake Shore Savings Bank has its eye on making more commercial loans. And Erie County is its target for growth.

It’s part of a strategy to position the Dunkirk-based bank for higher interest rates, whenever that day actually comes.

Lake Shore doesn’t want to end up with a balance sheet loaded with fixed-rate 30-year residential loans when interest rates start climbing. So the bank still originates those 30-year loans, but sells them to Freddie Mac while continuing to service them. “We’re not out of the market, we’re just originating and selling at a very efficient rate, which is good for our customers,” said Daniel P. Reininga, president and chief executive officer of Lake Shore Bancorp, the bank’s parent company, after Lake Shore’s annual meeting on Wednesday.

Lake Shore wants to originate more shorter-term commercial loans, which Reininga called “the right kind of interest.” “It reprices usually in a five-year time frame, so it can keep pace in an increasing interest rate environment,” he said. Another upside, he said, is those loans support commercial development in Chautauqua and Erie counties, where the bank has 11 branches.

Last summer, the bank hired Jeffrey Werdein as executive vice president of its commercial division, to bolster Lake Shore’s commercial lending portfolio.

Werdein said he sees opportunities to lend to projects such as multifamily housing, medical office space, warehousing and adaptive reuse. Of course, Lake Shore has plenty of competition for those commercial loans, including much-larger institutions.

“We’ve looked at loans that are larger than some that we’ve looked at in the past, but with our partner community banks, we’ve been able to book larger-size loans,” he said.

The changing loan mix is taking shape. In 2010, one- to four-family home loans accounted for about 70 percent of the Lake Shore’s loan portfolio, compared to 59.1 percent in 2014. Meanwhile, commercial loans represented about 17 percent of its loan mix in 2010, compared to nearly 29 percent last year.

Lake Shore has deposit market share of 14.9 percent in Chautauqua County, ranking fourth, according to Federal Deposit Insurance Corp. data, but only 0.54 percent in Erie County, a more-crowded market where it ranked 10th. Reininga says Lake Shore can make more inroads in Erie County, without neglecting its home base. “Chautauqua County is our home,” he said. “We’re always going to be in Chautauqua County. Our corporate headquarters is in Chautauqua County.”

Lake Shore’s net income in 2014 was $3.2 million, the lowest total recorded since 2010. Rachel A. Foley, the bank’s chief financial officer and treasurer, said changing the balance sheet mix is designed to reverse that slide.

Werdein noted Lake Shore’s commercial lending isn’t limited to real estate – it includes commercial and industrial loans and small-business lending, as well. “My experience is, small businesses like to deal with community banks, because there’s no 800-numbers, they know how to get ahold of their lender, they typically know their lender and their family. It becomes a true relationship,” he said.

Reininga said over the past four years, Lake Shore has developed its branch managers’ knowledge of small business lending, so that they can originate business loans in the branches.

“They provide a good conduit to bring commercial customers to the bank, and then bring in a commercial lender when it’s necessary,” Werdein said.

Like so many other banks, Lake Shore plans no increase in its number of branches. Reininga said Lake Shore is satisfied with the size of its network – the newest of which is a branch it opened in Snyder two years ago – as well as the upgrades to its digital services.

Three Lake Shore board members were re-elected at Wednesday’s meeting to three-year terms: David C. Mancuso, Nancy L. Yocum and Gary W. Winger, who is also the chairman.