The Federal Reserve has terminated an enforcement action against the parent savings and loan holding companies of Lake Shore Savings Bank, the central bank announced Thursday.
Lake Shore MHC and Lake Shore Bancorp received a notification from the Federal Reserve Bank of Philadelphia last week that the companies’ regulator has dropped the June 2023 written agreement between the companies and the Fed, according to a Securities and Exchange filing Thursday.
The Fed’s termination comes about three months after the Office of the Comptroller of the Currency terminated its consent order against the lender and dropped the bank’s “troubled condition” designation.
The Dunkirk, New York-based lender was on regulators’ radar following a data security incident in November 2021, in which certain data in the bank’s internal systems, possibly including customers’ personal information, had been accessed without authorization.
Lake Shore disclosed the cyber security incident to the OCC, the bank’s primary regulator, in March 2022. Four months later, the regulator found “unsafe or unsound” practices, including weakness in information technology security and risk governance.
The OCC ordered the bank to create a compliance committee to monitor progress and report regularly. However, in February 2023, the regulator overrode its July agreement with the bank, saying that Lake Shore was in “substantial noncompliance” with the written agreement.
The agency also found the bank engaged in unsafe and unsound practices, including not adhering to the rules of the Bank Secrecy Act. Lake Shore neither admitted nor denied the OCC’s findings.
Lake Shore addressed the deficiencies highlighted in the OCC consent order related to information technology, security, automated clearing house, audit, management, and Bank Secrecy Act/anti-money laundering, the bank said in December.
Under the terms of the Fed’s 2023 enforcement action, the companies needed to take appropriate steps to fully utilize their financial and managerial resources to serve as a source of strength to the bank, and ensure that the lender complies with the consent order entered with the OCC in February 2023 and any other supervisory action taken by the bank’s federal regulator.
Lake Shore could not be reached for comments within press time.
Soon after the OCC issued its consent order, Lake Shore Bancorp then-CEO Daniel Reininga resigned in March 2023 – two months before his planned retirement. The bank appointed Kim Liddell as CEO and shuffled its C-suite by tapping Taylor Gilden as chief financial officer in August 2023.
“2024 was a momentous year for Lake Shore as we achieved our goal to exit early the OCC’s Consent Order, reinstituted quarterly dividend payments to shareholders and grew earnings per share,” Liddell said in a statement when the bank reported year-end financial results. “We anticipate a challenging earnings environment in 2025 and will continue efforts to steadily increase value for our shareholders."
In January, Lake Shore Bancorp announced that its parent mutual holding company, Lake Shore MHC, has approved a “second step” conversion plan to transition from a mutual holding company structure to a stock holding company structure. As part of this conversion, Lake Shore Savings Bank plans to apply for regulatory approval to convert from its current charter to become a New York-chartered commercial bank.
