Interview With The President And CEO: Lake Shore Bancorp, Inc. (LSBK) - Daniel P. Reininga
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Daniel P. Reininga became President and Chief Executive Officer of Lake Shore Bancorp, Inc., and Lake Shore Savings in January 2011. He previously was appointed the Executive Vice President and Chief Operations Officer of the company in January 2010. He is nominated to serve as a Director for a term expiring at the 2014 annual meeting. He served as Vice Chairman of the board from 2003 to June 2010. Mr. Reininga has a B.S. in economics from Allegheny College and holds an MBA from the University of South Florida. He has completed the American Bankers Association course in advanced asset and liability management and is a graduate of the ABA Stonier National Graduate School of Banking. He has served as Chairman of a family-owned real estate investment company for more than 15 years. In connection with the family-owned business, he has been responsible for the financial and general management of seven small companies.
TWST: Please begin with a brief introduction to Lake Shore Savings Bank, including some highlights from its history and an overview of its current operations?
Mr. Reininga: Lake Shore Savings Bank was founded in 1891. Originally chartered as a savings and loan association, Lake Shore has been serving our community for 120 years. In April of 2006, we completed a first-step initial public offering with approximately 45% of our stock being sold to the public, and the remaining 55% of Lake Shore Bancorp (LSBK) shares being retained by the mutual holding company. The capital raised though our initial public offering was used to expand our business operations in Erie County, New York. We have five branches in Chautauqua County and now five branches in Erie County, with our last branch in Erie County being opened in April of 2010.
TWST: For the bank, how has loan growth held up during the recession? And which categories of loans have been more resilient than others?
Mr. Reininga: Year over year, our loan growth basically has been stable. Our net loans increased 4.6% from year-end 2010 to year-end 2011, with the mix of the loan portfolio weighted a bit more toward commercial real estate loans. Yields, obviously, are a bit better in the commercial real estate lending marketplace. We are not chasing yields by originating commercial real estate loans, but we look at that product type as an opportunity to take advantage of conservative higher-yielding loan originations. My background as a real estate developer is one of the strengths that I bring to Lake Shore by fully understanding the risks and rewards associated with conservative commercial real estate lending opportunities. Our commercial real estate portfolio grew from $33.8 million year-end 2010 to $44.8 million year-end 2011, which is a 32.5% increase year over year in that portfolio. So that has been a good growth opportunity for us. Conservative commercial real estate lending has helped to keep our yields on our loan portfolio higher, and we've enjoyed that.
TWST: Which outstanding or recently enacted regulatory issues are most impactful for Lake Shore and how are you managing that impact?
Mr. Reininga: Lake Shore Savings Bank, prior to July 21, 2011, was governed by the Office of Thrift Supervision, OTS. Our mid-tier savings and loan holding company and our mutual holding company were governed by the OTS as well. So we had an examination approach geared to one-stop shopping prior to July 21, 2011. Now, Lake Shore Saving Bank is regulated by the OCC, and the two holding companies are regulated by the Federal Reserve Bank, specifically the Federal Reserve Bank of Philadelphia. The regulatory shift has created a little bit of uncertainty for us.
Additionally, the regulatory environment in regards to the Dodd-Frank Act has created tremendous uncertainty for many banks, including ours. The regulatory statutes of the Dodd-Frank Act will eventually impose new capital levels that we will have to maintain. The regulatory guidance has yet to establish what the new capital levels will be, and the regulators have a wink-wink approach to what the new capital levels may be, but there is nothing formally published about the new levels.
We do have a very aggressive approach to making sure that we are meeting the needs of our new regulators, whether with respect to enterprise risk management or incorporating changes to our policies to accommodate the different approach to achieve expectations mandated from the regulatory component of our business. We've been very aggressive at making sure that we implement policies to comply with known regulatory changes. Our last exam from the OTS was in April of 2011. So we expect an OCC exam probably by the fourth quarter of 2012. We are looking forward to our first OCC exam with great anticipation. The exam will be our report card on how well we've managed to address the initial transition from the OTS to the OCC.
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